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TMI Blog2014 (4) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... income for the purposes of the assessment u/s 158BC of the Act - no evidence was found relating to investment in the plant & machinery and in the factory building at the time of search - It is only after the search when the matter has been referred to the Valuation Cell for the value of plant & machinery and factory building - there was more investment which has not been disclosed and was unexplained. The Valuation report has been obtained after the search – thus, it does not fall within the purview of evidence found as a result of search and cannot be basis for the determination of undisclosed income u/s 158BB of the Act – Relying upon Commissioner of Income Tax v. G.K. Senniappan [2006 (1) TMI 87 - MADRAS High Court] - the undisclosed income of the block period should be the aggregate of the total income of the previous year falling within the block period computed in accordance with the provisions of the Act, on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 995. The Assessing Authority on the basis of the rate difference in the purchases of Khairwood for the financial years 1994-95 and 1995-96 has made an addition of Rs.1,24,300/- for the assessment year 1993-94 as an undisclosed income. The Assessing Officer has observed that sale of Kattha began on 12.3.1994 till 31.3.1995. The assessee sold 2500 kgs Kattha. As per books, the assessee sold Kattha of Rs.9,93,500/- while as per the rates in the seized papers the value of this Kattha is Rs.11,17,800/-. Thus, the difference of under invoicing was determined at Rs.1,24,300/- and the undisclosed income was assessed. The Tribunal has deleted the addition on the ground that during the course of search and seizure operation, no documents relating to any sale for the financial year 1993-94 was found. The assessing authority has further made an addition of Rs.1,01,345/- as undisclosed income on account of unexplained investment in the plant machinery and further a sum of Rs.3,77,980/- was added towards undisclosed income as an unexplained investment in the factory building taking differential amount of investment in the factory building shown in the books of account and the value deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rs.3,77,900/- on account of unexplained investment in plant machinery and factory building are concerned, we do not find any error in the order of the Tribunal. The Tribunal has recorded a categorical finding that no documents relating to the said investment in the plant machinery and factory building were found during the course of search. The valuation report has been obtained after the search which could not be made basis for the determination of undisclosed income for the purposes of the assessment under Section 158BC of the Act. It would be relevant to refer Sections 158B, 158BA, 158BB and 158BC of the Act, which are as under:- Section 158B. Definitions.- In this Chapter, unless the context otherwise requires,- (a) 'block period' means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A and also includes the period up to the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made : Provided that where the search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. Section 158BB. (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,-- (a) ..................... (b) ...................... (c) ............................ (ca)............................ (d)............................... (e)............................... (f)........................... Explanation................ (2).. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03. Section 158BA of the Act contemplates the assessment of undisclosed income. Section 158B(b) defines undisclosed income which says any money, bullion, jewellery or other valuable article or thing which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. Sections 158BB and 158BC are machinery provisions provide for the computation and assessment of undisclosed income of the block period. Section 158BB (1) of the Act provides computation of undisclosed income of the block period in accordance to the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. The word on the basis of evidence found as a result of search or requisition of books of account or document refers to the evidence found in the search or on the requisition of books of account or other documents. The word such other materials or information as are available to the Assessing Officer and relatable to such evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or renovation during the period in dispute. Our view is supported by the Division Bench decision of the Delhi Court in the case of CIT v. Ashok Khetrapal [2007] 294 ITR 143 in which it has been held that in the absence of material being found during the course of search that the assessee had made more investment in the properties than his declared value the addition was not justified. In the case of CIT v. Vinod Danchand Ghodawat [2001] 247 ITR 448, the Division Bench of Bombay High Court held that in the absence of any material being found during the course of search that any amount being spent on the construction of the bungalow no addition could be made on the basis of the report of the Departmental Valuer obtained subsequent to the order of regular assessment. It has been held that Chapter XIV-B of the Act had no application. Section 158BB came up for consideration before the Madras High Court in the case of Commissioner of Income Tax v. G.K. Senniappan, reported in [2006] 284 ITR 0220, wherein the Division Bench of the Madras High Court has held as follows: Section 158BB occurs in Chapter CIV-B, which provides for special procedure for assessment of search cases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n being what was estimated. In the statement, in fact, what is stated is, as already noted, approximately one crore of rupees was spent. The Assessing Officer could not have by way of in proceedings under Chapter XIV-B, determined the cost of construction and therefrom arriving at the undisclosed income by deducting the alleged admitted cost of construction. In the case of Commissioner of Income Tax v. Bimal Auto Agency, reported in [2009] 314 ITR 0191, the Division Bench of the Gauhati High Court has considered Section 158BB before amendment and after amendment. The Division Bench held as follows: A reading of the provisions of section 158BB, as it existed before and after amendment, amply discloses that even prior to the amendment, section 158BB authorised the Assessing Officer to make an assessment of undisclosed income on the basis of evidence found as a result of search....and such other materials or information as may be available with the Assessing Officer. The use of the word such clearly points out that such materials or information must have some connection with the search and do not constitute independent materials, i.e., independent of the search. The afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective, we are inclined to respectfully agree with the view expressed by the Bombay High Court. Quite apart from the above, the Central Board of Direct Taxes Circular (see [2002] 258 ITR (St.) 13) which has been referred to above in paragraph 61.3.2 has laid down as under (page 58): 61.3.2. The Finance Act, 2002, has amended section 158BB to clarify that the block assessment of undisclosed income is to be based on the evidence found in the search and material or information gathered in post-search inquiries made on the basis of evidence found in the search. We have referred to the aforesaid clarification for the simple reason, Mr. Arya submitted that the amendment was effected to section 158BB in the year 2002 with effect from July 1, 1995, and the amendment would be applicable to the present case as block period covers ten years commencing 1986 to 1996. On a perusal of the unamended and amended provisions and the Central Board of Direct Taxes circular, we are of the considered view that there has been no specific effect as far as this fact is concerned. Emphasis has been given on the fact that evidence must have been found during the search and only thereafter the question of ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t discussed the issue and held that Chapter XIV-B inserted w.e.f. July 1st, 1995 introduced a new scheme of assessment of undisclosed income, determined as a result of search, which has assessed separately as the income of designated period consisting of 10 previous years now reduced to 6 previous years by the Finance Act, 2001 w.e.f. June 1st, 2001. This Chapter provides for special procedure for assessment of the block period in respect of the undisclosed income, as a result of search conducted under Section 132 or requisition made under Section 132A of the Act. Section 158BA opening with non-obstante clause mandates A.O. to assess the undisclosed income, where search has been initiated after June 30th, 1995 under Section 132 or books of accounts, or other documents or assets are requisitioned under Section 132A of the Act. The total undisclosed income relating to block period is assessed at fixed rate of 60%, irrespective of the previous year or years to which such income relates. This assessment is an advantage to regular assessment and it shall not include the income assessed in any regular assessment. It will also not be included in the regular assessment of any previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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