2006 (9) TMI 127 - HC - Income Tax

Validity Of Additions made in block assessment proceedings - Undisclosed income - search operation u/s 132 - notice u/s 158BC - concealed income u/s 158B - project expenses - HELD THAT - It is evident from clauses (a) and (b) of section 158BB that in assessment proceedings under Chapter XIV-B, assessments completed u/s 143 or 144 or 147 cannot be reopened. Consequently, those elements of income which already stand disclosed in the relevant assessment years falling within the block period must be excluded while computing the undisclosed incomes under the Act. It is for this reason that, assessments under Chapter XIV-B have been declared to be in addition, to the regular assessment proceedings for the previous years included in the block period. We find that both the CIT(A) and the Tribunal have duly considered and appreciated the relevant facts and found that the said additions were liable to be deleted. Their finding is well supported with reasoning and is in accordance with the law as we have discussed hereinabove. We agree with the reason given by the CIT(A) and the Tribunal that since there was no evidence found during the search for the Assessing Officer to make the said additions and the relevant expenses/income had been duly reflected and disclosed in the course of the assessment proceedings by the assessee, the same could not be said to be undisclosed income of the assessee and assessed in proceedings under Chapter XIV-B of the Act. With regard to deletion of Rs. 1 lakh, as being the amount receivable from M/s. D. S. Imports, the deletion was justified since the addition of Rs. 1 lakh had been confirmed in the case of M/s. Standard Brands. Pertinently the CIT(A) also held that the Assessing Officer would be justified in taking appropriate action in the eventuality of the said amount being deleted from the assessment of M/s. Standard Brands. We also agree with the reasoning of the Tribunal with regard to deletion of the addition of Rs. 25 lakhs towards estimated unexplained investment in immovable property in proceedings under Chapter XIV-B of the Act. The respondent has relied on the proviso to section 142A to contend that it was not open to the Assessing Officer to order valuation of the property by the Departmental Valuation Officer since the assessment was made by the Assessing Officer on March 31, 1999 and the CIT(A) decided the appeal on November 16, 2000. He relies on two decisions of this court in CIT v. Sudhish Kumar 2005 (3) TMI 67 - DELHI HIGH COURT and CIT v. Manoj Jain 2005 (11) TMI 58 - DELHI HIGH COURT which we find fully support the respondent's case. Since no valuation could be ordered by the Departmental Valuation Officer, it was much less competent for the Assessing Officer, who is not even an expert, to make an estimation of the value of the property on his own, and that too in proceedings under Chapter XIV-B. Thus, we find that no substantial question of law arises for our consideration in the present appeal and accordingly we dismiss the same.

Issues Involved:
1. Addition of Rs. 4 lakhs as concealed income for AY 1993-94.
2. Addition of Rs. 4 lakhs as concealed income for AY 1994-95.
3. Addition of Rs. 50,000 as concealed income for AY 1995-96.
4. Addition of Rs. 2,92,000 as concealed income for AY 1997-98.
5. Addition of Rs. 1 lakh as concealed income for AY 1997-98.
6. Addition of Rs. 25 lakhs as concealed income for AY 1997-98.

Detailed Analysis:
1. Addition of Rs. 4 Lakhs for AY 1993-94:
The Assessing Officer (AO) added Rs. 4 lakhs as concealed income, disallowing the assessee's claim of the amount paid to Sh. K. L. Sehgal as project expenses. The Commissioner of Income-tax (Appeals) [CIT (A)] found that this expense was already reflected in the regular assessment, and no new evidence was found during the search to prove it as concealed income. The Tribunal upheld this view, stating that mere silence on the part of the assessee during block assessment proceedings does not change the nature of the payment.

2. Addition of Rs. 4 Lakhs for AY 1994-95:
The AO justified the addition on the ground that the amount was used to settle past dues instead of being used for tenant vacation charges as per the sale deed. CIT (A) found that the payments received from buyers were duly reflected in the regular assessment and that no evidence was found during the search to suggest any concealed payment to Sh. Amitabh Bhattacharya. The Tribunal agreed, emphasizing that no addition could be made without evidence proving the payment was made by the assessee.

3. Addition of Rs. 50,000 for AY 1995-96:
The AO made this addition without any justification. CIT (A) deleted the addition, and the Tribunal upheld this decision.

4. Addition of Rs. 2,92,000 for AY 1997-98:
The AO added this amount as concealed income, stating that the brokerage payments were unconfirmed. CIT (A) found that these expenses were already considered genuine during regular assessment proceedings. The Tribunal upheld the deletion, noting that no evidence from the search indicated the payment was not genuine.

5. Addition of Rs. 1 Lakh for AY 1997-98:
The AO added Rs. 1 lakh based on an untraceable entry from D. S. Imports. CIT (A) deleted the addition, noting that the amount was already confirmed in another case (M/s. Standard Brands). The Tribunal upheld this, allowing the AO to take appropriate action if the amount was deleted from M/s. Standard Brands' assessment.

6. Addition of Rs. 25 Lakhs for AY 1997-98:
The AO added this amount based on an estimated valuation of the property, claiming the assessee delayed the valuation process. CIT (A) found no evidence of unexplained investment during the search and deleted the addition, suggesting that any valuation issues could be addressed in regular assessment proceedings. The Tribunal upheld this, stating that the AO, not being an expert, could not make such estimates, especially in Chapter XIV-B proceedings.

Legal Principles:
The judgment emphasized that block assessment under Chapter XIV-B of the Income-tax Act is meant for assessing undisclosed income unearthed during a search and cannot be used to reopen or reassess regular assessments unless new evidence is found. The court cited various high court decisions supporting this principle, including the Gujarat High Court's ruling in N. R. Paper and Board Ltd. and the Rajasthan High Court's decision in CIT v. Rajendra Prasad Gupta.

Conclusion:
The High Court dismissed the Revenue's appeal, agreeing with the CIT (A) and Tribunal that no substantial question of law arose. The additions made by the AO were not justified as they were based on regular assessment records and not on new evidence found during the search. The court affirmed that block assessments are distinct from regular assessments and should only address undisclosed income detected through search operations.

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