2019 (7) TMI 88 - HC - Income Tax

Addition in respect of the cost of construction of the residential building - addition of undisclosed expenditure based of valuation of property u/s 158BC - whether the investment in the house property represents undisclosed income and is liable to be included in the block assessment? - HELD THAT - We are dealing with a case where it is a block assessment pursuant to a search and we are guided by the legal principles set out in the above mentioned decisions which clearly and consistently held that in the absence of any material found during the course of search regarding the undisclosed investment, the assessee cannot be penalized solely based on the valuation report provided by the Department. Valuation report was prepared much earlier to the search conducted in the assessee's premises and therefore, this valuation report obviously is a material which is very much available with the Department and the same could not have been the basis for holding that there has been an undisclosed investment. In the case of Bimla Singh 2008 (10) TMI 62 - PATNA HIGH COURT the Court found that if the difference between the value given by the assessee and that of the DVO was less than 15%, it can be assumed to be a bonafide difference. In the case before us, the difference is less than 4%. The construction of the house commenced in October, 1997 and even on the day of the inspection by the Department valuer i.e., on 12.08.1999, the construction was in progress. Therefore, we would be well justified in holding that this difference of less than 4% has to be held as a bonafide difference. Assessee is entitled to succeed and the substantial question of law is required to be answered in favour of the assessee.

Summary

Issues:
1. Confirmation of addition for cost of construction of residential building.
2. Inclusion of investment in house property as undisclosed income in block assessment.

Analysis:

Issue 1:
The appeal challenged the addition sustained by the Commissioner of Income-tax (Appeals) regarding the cost of construction of a residential building. The assessee contended that there was no incriminating material found during the search related to the valuation of the property. The Tribunal upheld the addition, stating that the cost of construction was correctly determined. However, the High Court noted that the assessee had raised the issue before the CIT(A) and Tribunal that no addition was warranted without incriminating material. The Court rejected the Revenue's objection that the point was raised for the first time. Referring to relevant case laws, the Court concluded that the assessee could not be charged with undisclosed expenditure without incriminating material and ruled in favor of the assessee.

Issue 2:
The second issue revolved around the inclusion of investment in the house property as undisclosed income in the block assessment. The Revenue argued that the cash flow statement should have disclosed the expenditure, justifying the undisclosed expenditure. However, the Court emphasized that in a block assessment post a search, the assessee cannot be penalized solely based on a valuation report without incriminating material. Referring to previous judgments, the Court held that the difference in valuation was minimal (less than 4%) and considered it a bonafide difference. Consequently, the Court ruled in favor of the assessee, setting aside the Tribunal's order and answering the substantial questions of law in favor of the assessee.

This detailed analysis of the judgment showcases the legal arguments, interpretations of relevant laws, and application of precedents in resolving the issues raised in the appeal before the High Court.