Commissioner of Income Tax vs Shri Prem Nath Nagpal

V.B. Gupta, J.—By way of present appeal, the Revenue has challenged the impugned order dated 31st August, 2006 passed by the Income

Tax Appellate Tribunal (hereinafter referred to as ''Tribunal''), Delhi Bench ''B'' in ITA No. 413/Del/2003 for the block period 1st April, 1989 to

17th December, 1999.

The facts in brief are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as ''Act'') was carried out

at the residential premises of the assessed on 17th December, 1999 during which, various documents were found and seized. Notice u/s 158BC

was issued on 5th July, 2001 and in pursuance thereof assessed filed his return for the block period declaring undisclosed income of Rs.

1,64,667/-. It was noticed by the Assessing Officer that during the search, certain papers relating to property situated at 3, Club Road, Gadaipur,

Mehrauli were found and as per return filed by the assessed, he had acquired this property for a consideration of Rs. 18.50 lacs during the financial

year 1995-96 and assessed had spent Rs. 29,29,162/- on development of this property during financial years 1996-97 to 1999-2000. Further,

this property had been let out by the assessed to a multinational company for a monthly rent of Rs. 75,000/- along with interest free advance of Rs.

1.25 crores. The Assessing Officer opined that the assessed has received sum of Rs. 1.25 crores as security and thus the value as declared by the

assessed in return of income appeared to be grossly understated and he referred the matter for valuation of the property to DVO. As per valuation

report the value of this property was determined at Rs. 3,04,62,000/- and the assessed was confronted with this valuation report to which he

raised objections stating that the property was given on rent with effect from 1st February, 2001 and Rs. 18 lacs was spent on repairs and

improvement.

Based upon the valuation report, the Assessing Officer made an addition of Rs. 1,87,33,000/- in respect of understatement of the cost of

acquisition and another addition of Rs. 51,44,838/- was made in respect of understatement of expenditure on its development etc.

The assessed filed an appeal before Commissioner of Income Tax (Appeals) challenging the order passed by the Assessing Officer and the

Commissioner of Income Tax(Appeals) held that the Assessing Officer was not justified in making the reference to DVO as the same could be

legally made only during the regular assessment proceedings u/s 143(3) and not u/s 158BC as the property was not an undisclosed asset on the

date of search and no paper was found during search which suggested concealment of any consideration or undisclosed investment in the property

and accordingly the Commissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer.

Aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the Revenue filed appeal before the Tribunal. The Tribunal vide

impugned order, dismissed the appeal filed by the Revenue.

It has been contended by the learned Counsel for the Revenue that the assessed is engaged in the business of real estate including construction

and sale purchase of the properties and, Therefore, the investment in the said property was in the nature of regular business investment. Whatever

incriminating documents relating to the understatement of business income were found during the search would amply cover this property and bring

it within the ambit of provisions of Chapter XIV-B and all the incriminating documents as well as ownership papers gave sufficient authority under

the law to the Assessing Officer to examine the question of investment in the said property and make a reference to the DVO.

Section 158B of the Act is a part of Chapter XIV-B dealing with special procedure for assessment of search cases. The Chapter contains

Section 158B to Section 158BH. ''Block period'' and ''undisclosed income'' have been defined in Clauses (a) and (b) to Section 158B, for the

purpose of the Chapter. We are concerned with the definition of ''undisclosed income''. The provision in its entirety reads as follow:

(b) undisclosed income'' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of

account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other

document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of

the Act.

It is clear from the above definition that the income or the property, which has been disclosed or would have been disclosed for the purpose of

this Act, does not form part of the undisclosed income for purpose of block assessment. Under the provisions of Chapter XIV-B only such of the

aforesaid categories of income, which has been found as a result of search can alone be the subject matter of an assessment under this Chapter.

The definition specifies that where an assessed has claimed any expenses or addition, which is found to be false, the same can only be regarded as

an undisclosed income for the purpose of this Chapter.

In Commissioner of Income Tax, Delhi-II Vs. Ravi Kant Jain, this Court while discussing the provisions of Section 158B of the Act held that:

The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result

of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that

sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block

period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other

materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to Sections 132 and

132A.

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 have been understated. Since no document was found in the course of search leading to any adverse inference about

the aforesaid understatement, under these circumstance, no computation of undisclosed income could have been made by resorting to the

provisions of Chapter XIV-B of the Act.

Under these circumstance, 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.

The above being the position, 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 260-A of the Act, which is confined to

entertaining only such appeals against the order which involves a substantial question of law.

Accordingly, the present appeal filed by the Revenue is, hereby, dismissed.