2010 (8) TMI 741 - HC - Income Tax

Search - block assessment - addition made on account of unexplained investment in property by the assessee deleted by ITAT - Held that - As the addition made by the AO is solely based upon the report made by the District Valuation Officer which cannot be stated to be material found during the course of search. No other material had been found at the time of search to indicate that the assessee had spent any amount in excess of what had been recorded in the books of account regularly maintained by it. In the circumstances without going into the question of the validity of the reference made under section 131(1)(d) of the Act to the District Valuation Officer as has rightly been held by the Commissioner (Appeals) the issue would not relate to block assessment in the given set of facts and as such the addition in question was beyond the scope of the block assessment - no legal infirmity can be found in the impugned order of the Tribunal so as to warrant interference.

Summary

Issues:
- Addition of unexplained investment in property during block assessment period under Income-tax Act, 1961.

Analysis:
1. The case involved an appeal under section 260A of the Income-tax Act, 1961, regarding the addition of Rs. 27,31,200 made on account of unexplained investment in property by the assessee during the block assessment period from April 1, 1988, to December 8, 1998. The appellant-Revenue challenged the order passed by the Commissioner of Income-tax (Appeals), which deleted the said addition.

2. The assessee, a Hindu undivided family, underwent a search and seizure operation in 1998, revealing undisclosed income related to a house renovation and land purchase. The District Valuation Officer estimated the investment at Rs. 37.31 lakhs. Despite explanations and evidence provided by the assessee, the Assessing Officer added Rs. 27,31,200 as unexplained investment. The Commissioner (Appeals) later deleted this addition, leading to the Revenue's appeal before the Tribunal.

3. The assessee presented property documents and agreements to support the legitimate acquisition and construction activities carried out on the properties in question. The Commissioner (Appeals) noted that no material was found during the search to suggest additional unaccounted expenses. The assessment solely relied on the District Valuation Officer's report, which was deemed beyond the block assessment's scope. The Commissioner (Appeals) referenced a legal precedent and annulled the addition based on the report.

4. The Tribunal upheld the Commissioner (Appeals)'s decision, emphasizing the lack of evidence supporting the Assessing Officer's addition. The judgment highlighted that under section 158BD of the Act, additions should stem from disclosed material during or after the search, which was not the case here. The Tribunal concurred that the addition was unjustified and beyond the block assessment's purview.

5. The High Court affirmed the Tribunal's decision, stating that no substantial legal question arose from the case. The judgment reiterated that the addition lacked a legal basis due to the absence of material discovered during the search to support the unexplained investment claim. Consequently, the appeal was dismissed, upholding the deletion of the Rs. 27,31,200 addition.