2007 (5) TMI 608 - HC - Income Tax

Addition on Undisclosed income - Notice u/s 158BC - search and seizure operation u/s 132 - found incriminating documents - Whether order passed by the AO u/s 143(3) r.w.s 158BC - HELD THAT - In the present case during the search only ownership papers of the property were found and seized. No other incriminating document was found which may show that there was understatement of the purchase consideration or the cost of improvement. The papers with regard to the ownership will always be found with the owner and finding of such documents does not lead to any inference that either the purchase consideration or the cost of improvement has been understated. Since no document was found in the course of search leading to any adverse inference about the understatement. Thus no computation of undisclosed income could have been made by resorting to the provisions of Chapter XIV-B of the Act. Hence we hold that there is no basis for making an addition on account of undisclosed income in the present case and we do not see any reason to differ with the finding arrived at by the Tribunal. No fault can be found with the view taken by the Tribunal. Thus the order of the Tribunal does not give rise to a question of law much less a substantial question of law to fall within the limited purview of section 260A of the Act which is confined to entertaining only such appeals against the order which involve a substantial question of law. Accordingly the present appeal filed by the Revenue is hereby dismissed.

Summary

Issues:
Challenge to impugned order by Revenue, Validity of reference to DVO, Addition of undisclosed income, Interpretation of Chapter XIV-B provisions, Scope of undisclosed income for block assessment.

Analysis:
The Revenue challenged the order passed by the Income-tax Appellate Tribunal regarding the block period from 1st April 1989 to 17th Dec 1999. The search operation under section 132 of the IT Act in 1999 led to the discovery of documents related to a property. The Assessing Officer (AO) made additions based on valuation reports, alleging understatement of property value and development expenditure. The Commissioner of Income-tax (Appeals) held that the reference to the Departmental Valuation Officer (DVO) was unjustified, leading to the deletion of the additions.

The Revenue appealed to the Tribunal, which upheld the CIT(A)'s decision. The Revenue contended that the property investment was part of the regular business, justifying the AO's actions. However, the Tribunal found that no incriminating documents were found during the search suggesting understatement, leading to the dismissal of the Revenue's appeal.

The Court analyzed Chapter XIV-B provisions, emphasizing that undisclosed income for block assessment must be detected as a result of search. Referring to case law, the Court clarified that the block assessment is supplementary to regular assessments and must rely on evidence unearthed during search or related activities. In this case, only ownership papers were found during the search, with no incriminating evidence of understatement. Consequently, the Court concluded that no undisclosed income addition was warranted under Chapter XIV-B.

The Court held that without evidence from the search indicating understatement, no undisclosed income computation could be made. As a result, the Tribunal's decision was upheld, and the appeal by the Revenue was dismissed. The Court found no substantial question of law to entertain the appeal under section 260A of the Act, affirming the Tribunal's order.