Gujarat H.C : Account of unexplained investment in property by the assessee

High Court Of Gujarat

CIT vs. Kantilal B. Kansara (HUF)

Block Periods :  1-4-1988 To 8-12-1998

Section : 158BD

Ms. H.N. Devani And Smt. Abhilasha Kumari, JJ.

Tax Appeal No. 782 Of 2009

August 30, 2010

JUDGMENT

Ms. H.N. Devani, J. – In this appeal under section 260A of the Income-tax Act, 1961 (the Act), the appellant-Revenue has proposed the following question in relation to the block assessment period April 1, 1988, to December 8, 1998 :

“Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 27,31,200 made on account of unexplained investment in property by the assessee ?”

2. The assessee is assessed in the status of a Hindu undivided family. A search and seizure operation came to be carried on various premises belonging to the Kansara group on December 8, 1998. During the course of search, certain documents indicating undisclosed income pertaining to the assessee were also seized. It was noticed that the assessee had a house at Visnagar and major expenditure was incurred in the renovation/reconstruction of the above house by the assessee during the block period. It was also noticed that the adjoining land was purchased for extension of the building. The Assessing Officer referred the matter to the District Valuation Officer to have a fair estimate of the amount of investment which had been made by the assessee for the said purpose. According to the valuation report made by the District Valuation Officer, the assessee was said to have incurred expenditure to the extent of Rs. 37.31 lakhs in the renovation and extension, including the purchase of land. Notice came to be issued under section 158BD of the Act on June 11, 2001, calling upon the assessee to file the return of undisclosed income. In response thereto the assessee, vide reply dated June 14, 2001, stating that the return filed for the block period on December 29, 2000, may be considered as having been filed in pursuance of the said notice. Vide notice dated September 16, 2002, the assessee was called upon to reconcile the above investment in the regular books of account. In response to the notice the assessee made submissions from time to time as reproduced in paragraphs (a) to (f) of the assessment order. The Assessing Officer, after considering the submissions advanced on behalf of the assessee and the supporting documents, found that the investment to the extent of Rs. 27,31,200 had not been explained and made addition of the said amount as unexplained investment in the total income of the block period. Being aggrieved, the assessee preferred appeal before the Commissioner (Appeals), who deleted the addition. Against the order of the Commissioner (Appeals), the Revenue preferred an appeal before the Tribunal, which came to be dismissed vide the impugned order.

3. As can be seen from the assessment order, the assessee had placed on record a copy of the property card for survey No. 230 (6/60) indicating that the said land had been held by the family even prior to 1953. A copy of the agreement dated March 1, 1995, for acquiring the property of survey No.204 (6/6) admeasuring 96.15 sq. metres was also attached therewith. It was pointed out that the said property had been acquired for a total consideration of Rs. 20,000, which had been duly accounted for in the books of account of the Hindu undivided family. A copy of the agreement dated May 30, 1991, for acquiring the property of survey No. 205/2 (6/6) admeasuring 55.18 sq. metres was also annexed, which indicated that the property was acquired for a total consideration of Rs. 11,000. According to the assessee, the same had been duly accounted for in the books of account of the Hindu undivided family. It was the case of the assessee that the Hindu undivided family was deriving rental income in respect of four properties. That the Hindu undivided family had carried out construction work on survey Nos. 204 and 205/2 which properties were adjacent to the old ancestral property, that is, survey No. 203. The total cost of construction was Rs. 3,40,572 and necessary evidence in the form of bills of contractors, bills of marble, etc., were attached therewith. It was also submitted that the cost of construction was duly reflected in the books of account which were produced for verification before the Assessing Officer. It was, accordingly, requested that no addition should be made on the basis of the report of the District Valuation Officer.

4. The Assessing Officer, after considering the submissions advanced on behalf of the assessee as well as the evidence placed on record, was of the view that the assessee had not established the source of money utilized in the construction/renovation of the building at Visnagar. Placing reliance upon the report made by the District Valuation Officer, the Assessing Officer made addition of Rs. 27,31,200 as unexplained income to the total income of the block period.

5. As can be seen from the order of the Commissioner (Appeals), the Commissioner (Appeals) has noticed that in the block return it was pointed out by the assessee that no returns were filed because as per the books of account, the income of the assessee in each year was below the amount liable to tax. It was noted that in the reply filed before the Assessing Officer, it was stated on behalf of the assessee that the sources of income and funds invested in construction were out of income from rent and sale of four shops, in respect of which agreements were also found at the time of search. That the cost of construction was recorded in the regular books of account and the books were also produced for verification before the Assessing Officer. The Commissioner (Appeals) found as a matter of fact that no material was found at the time of search which could show that any amount over and above what was recorded in books of account had been spent by the assessee. He was, accordingly, of the view that the assessment order which was based solely upon the valuation report was not sustainable inasmuch as it was beyond the scope of the block assessment. That if necessary, such an action could be taken only in regular assessment of the respective years. The Commissioner (Appeals) also held that the reference under section 131(1)(d) of the Act to the District Valuation Officer to determine the cost of construction was not legal in the light of the decision of the apex court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 (SC), and as such any order solely based upon such a reference cannot be sustained and accordingly deleted the addition of Rs. 27,31,200.

6. Before the Tribunal, the Revenue was not in a position to controvert the fact that no material had been found at the time of search to indicate that any amount over and above what was recorded in the books of account, was spent by the assessee. The Tribunal, in the impugned order, has concurred with the findings of fact recorded by the Commissioner (Appeals) and upheld the deletion.

7. It is a well-settled legal position which is also clear from a bare reading of the relevant provisions that an addition under section 158BD of the Act can be made only in respect of the material disclosed at the time of search or pursuant to any inquiry made in relation to the search. In the facts of the present case, as is apparent from the facts noted hereinabove, the addition made by the Assessing Officer 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. The Commissioner (Appeals) was, therefore, justified in deleting the addition of Rs. 27,31,200 made on account of unexplained investment. In the circumstances, no legal infirmity can be found in the impugned order of the Tribunal so as to warrant interference.

8. In the light of the aforesaid, no question of law, much less, a substantial question of law can be stated to arise out of the impugned order of the Tribunal. The appeal is, accordingly, dismissed.

[Citation : 337 ITR 187]

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