Hon'ble Shashi Kant,J.
(By Hon'ble Rajes Kumar, J.) This is an appeal under Section 260 A of the Income Tax Act, 1961 (hereinafter referred to as the ("Act") arising from the order of the Tribunal dated 21.7.2004 in which following questions have been raised:-
1-Whether on facts and in the circumstances of the case the Income Tax Appellate Tribunal was correct in law not upholding the order of the assessing officer wherein the addition on account of under invoiced sales of Kattha amounting to Rs.1,24,300/- was made on the basis of material in the shape of loose papers found and seized by the department at the time of search?
2-Whether on facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in deleting the addition made by A.O. on account of unexplained investment in plant & machinery and factory building amounting to Rs.1,01,345/- and Rs.3,77,982/- respectively, observing that no documents in this regard was found during the course of search ignoring the finding and observation of the Assessing Officer that information leading to undisclosed investment was very much in his possession?
3-Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal was correct in deleting the additions made by the A.O. on account of unexplained investment in plant & machinery and factory building amounting to Rs.1,01,345/- and Rs.3,77,982/- respectively relying on the Hon'ble Supreme Court's decision in the case of Smt. Amiya Paul reported in 262 ITR 407, ignoring the amended provisions of Section 142 A in this regard which were applicable with retrospective effect?
The respondent is a Company incorporated under the Indian Companies Act and was carrying on the business of manufacture of Kattha. A search was made at the business premises of the petitioner on 17/18.10.1995 wherein certain documents were seized. The Assessing Authority by the impugned order dated 30.10.1996 passed block assessment for the periods 1.4.1985 to 17.10.1995.
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 determined by the Valuation Officer. The Tribunal deleted both the aforesaid additions on the ground that both the aforesaid additions were not relating to undisclosed income relatable to the evidence found during the course of search. No documents relating to any undisclosed investment in the plant and machinery as well as factory building were found during the course of search. The report of the Valuation Officer is the document, which has been obtained after the search and could not be made basis for the computation of undisclosed income for the purposes of levy of assessment under Section 158BC of the Act. The Tribunal held that Section 158 BC of the Act provides for computation of undisclosed income of the block period. It provides that 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 documents and such other material or information as are available with the Assessing Officer and relatable to such evidence. In the instant case, no document was found during the course of search relating to plant & machinery as well as the factory building, therefore, the alleged investment made in the plant & machinery and the factory building determined on the basis of the valuation report which has been obtained subsequent to the search could not be basis to determine the undisclosed income. The Tribunal further relying upon the decision of the Apex Court in the case of Smt. Amiya Bala Paul vs. CIT, reported in 262 ITR 407 has held that reference to the Valuation Officer under Section 131 of the Act for the purposes of estimating the cost of construction was invalid.
Heard Sri Dhananjay Awasthi, learned Senior Standing Counsel for the appellant and Sri S.D. Singh, learned counsel appearing on behalf of the respondent.
Learned counsel for the appellant is not able to show any document relating to any sale for the financial year 1993-94 which was found during the course of search relatable to alleged addition of Rs.1,24,300/- towards undisclosed income on account of under invoicing. The finding of the Tribunal in this regard is finding of fact and no question of law arises.
So far as the question relating to addition of Rs.1,01,345/- 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 is initiated or the requisition is made before 1.6.2001, the provisions of this clause shall have effect as if for the words, 'six assessment years,' the words 'ten assessment years' had been substituted;
(b) 'unclosed 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, jeweller, 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 this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.
Section 158BA. Assessment of undisclosed income as a result of search.--(1) Notwithstanding anything contained in any other provisions of this Act, where after 30.6.1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.
(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
Explanation.--For the removal of doubts, it is hereby declared that--
(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;
(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;
(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.
(3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any 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)...............................
(3)...............................
Section 158BC. Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,--
[(a) the Assessing Officer shall--
(I) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;
(ii)in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142, setting forth his total income including the undisclosed income for the block period :
Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter:
Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;]
(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143[, section 144 and section 145] shall, so far as may be, apply;
(c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;
(d) the assets seized under section 132 or requisitioned under section 132A shall be dealt with in accordance with the provisions of section 132B.] Chapter XIV-B of the Act is a special provision carved out by the legislature for the purposes of assessments in cases pertaining to Sections 132 and 132A of the Act. The provisions under this Chapter were made inapplicable in case of search initiated under Section 132 or Section 132A after 31.5.2003 by introduction of an amendment to the Chapter by Finance Act, 2003. 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 evidence" means, the other materials or information relatable to such evidence which is found at the time of search. Thus undisclosed income, can be determined or deduced only on the basis of evidence found at the time of search under Section 132 of the Act or as a result of requisition of books of account or other documents under Section 132A of the Act. The evidence/material which is not found at the time of search or as a result of requisition of books of account or other document, cannot be made basis for determination of undisclosed income under Section 158BB of the Act.
In the present case, 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. It is concluded that there was more investment which has not been disclosed and was unexplained. The Valuation report has been obtained after the search. Therefore, 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 under Section 158BB of the Act. In support of the aforesaid view, it would be appropriate to refer some decisions of the various High Courts, which are referred herein below:
In the case of Commissioner of Income Tax, Lucknow v. B.K. Agarwal, reported in [2009] 183 Taxman 434 (Allahabad), the Division Bench of this Court has held as follows:
"So far as second question is concerned, the Tribunal held that no material was found to show that any investment has been made towards construction or renovation during the year under consideration and, therefore, in the absence of any material the addition on the basis of the valuer report is not justified. We are of the opinion that the view taken by the Tribunal is correct and in accordance to the law. The addition cannot be made on mere presumption. There must be some material found during the course of search to suggest any investment towards construction or renovation in the property and only on the basis of such material the matter could be referred to the Departmental Valuer. Mere on the basis of the opinion of the Departmental Valuer in the absence of any specific material it cannot be inferred that any expenditure has been incurred towards cost of construction 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. The computation of undisclosed income of the block period is contemplated under Section 158BB. As per the section, the undisclosed income of the block period should 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 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 income, or as the case may be, as increased by the aggregate of the losses of such previous years.
A mere reading of the above provision clearly indicates that the sentence "such other materials or information as are available with the Assessing Officer" cannot be bisected or taken in isolation for the purpose of computation. Such other materials or information as are available with the Assessing Officer, should as per the section relatable to such evidence. The word "such" used as a prefix to the word "evidence" assumes much significance, in this provision, as it indicates only the evidence found, as a result of search or requisition of books of account or other documents, at the of search. Any other material cannot form basis for computation of undisclosed income of the block period. Hence, we are of the view that the Commissioner as well as the Tribunal have the issue in accordance with the statutory provisions, and requires no interference. The appeal is accordingly dismissed."
In the case of Commissioner of Income Tax v. Smt. C. Sabira, reported in [2011] 338 ITR 0226, the Division Bench held as follows :
"We are of the view that there is no merit in the contention of the appellant. Chapter XIV-B deals with ascertainment of the undisclosed income of the party for the block period. In the case of a search, the undisclosed income must be determined with reference to the evidence unearthed during the search and also the other materials or information available which are relatable to such evidence. Therefore, the focus must be on the evidence which were unearthed during the course of the search or other material or information relating to such evidence. There is no relevant matter as such which can be relied on by the appellant to justify the finding about the cost of construction 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 aforesaid is the view indicated in Central Board of Direct Taxes Circular No. 8 of 2002 ([2002] 258 ITR (St.) 13), details of which have already been noticed. In the said clarification, the Central Board had made it clear that the amendment was necessitated by contrary views expressed by the authorities in certain quarters. From the Central Board of Direct Taxes Circular in question, it is, therefore, clear that the amendment of section 158BB brought about by the Finance Act of 2002 is merely clarificatory. In the present case, admittedly, no evidence or materials was discovered in the course of the search of the premises of the group to which the assessee belongs. The undisclosed income in so far as the building is concerned was solely made on the basis of the report of the Departmental Valuation Officer as obtained by the search party. The report of the Departmental Valuation Officer does not constitute materials or information relatable to the search. Such a view have been recorded in the judgments of the Madhya Pradesh High Court in CIT v. Khushlal Chand Nirmal Kumar reported in [2003] 263 ITR 77 and Delhi High Court in CIT v. Manoj Jain [2006] 287 ITR 285 and CIT v. Ashok Khetrapal [2007] 294 ITR 143. While expressing our respectful agreement with the said views, it has to be held that the determination of undisclosed income of Rs.40,04,369 in respect of the building in question being solely on the basis of the report of the Departmental Valuation Officer was rightly interfered with by the learned Tribunal. The said conclusion of the learned Tribunal, therefore, will not be open to interference."
In the case of Commissioner of Income Tax v. Khushlal Chand Nirmal Kumar, reported in [2003] 263 ITR 0077, the Division Bench of the Madhya Pradesh High Court considering the unamended and amended provisions of Section 158BB and Circular issued by the Central Board of Direct Taxes has held as follows:
"Chapter XIV-B. There would be no finality, if the Department is permitted to add back to the income of the assessee on the basis of the Departmental valuer's report obtained subsequent to the order of the regular assessment. Hence, the Tribunal was right in deleting the said addition. Accordingly, question no. 3 is answered in the affirmative, i.e., in favour of the assessee and against the Department. If the provision of Section 158BB is read in proper perspective, 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 gathering any material information would arise based on the search inquiry. It is not disputed at the Bar, that during the search in the premises of the assessee nothing was found with regard to the investment in the house. However, it is contended by Mr. Arya that the valuation report of the Departmental Valuation Officer was obtained and was confronted to the assessee but he was not able to give any explanation and, therefore, it should be accepted as evidence. We are afraid, the aforesaid submission does not commend acceptance in view of the statutory provisions and the law laid down in the case of Vinod Danchand Ghodawat [2001] 247 ITR 448 (Bom) with which we have respectfully agreed. In view of the aforesaid, we do not find any substantial question of law involved in this appeal. Resultantly, the appeal, being sans merit, stands dismissed."
In the case of Commissioner of Income Tax v. Ravi Kant Jain, reported in [2001] 250 ITR 0141, the Division Bench of the Delhi High Court has held as follows:
"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 case of Commissioner of Income Tax v. Vinod Danchand Ghodawat, reported in [2001] 247 ITR 0448, the Bombay High Court has held that Section 158BB (1) of Chapter XIV-B has no application to make an addition to unexplained investment in the construction of the building on the basis of the report of the Department valuer obtained subsequent to the search.
The Division Bench of this Court in the case of Commissioner of Income Tax, Ghaziabad v. Anil Kumar Goel, reported in [2013] 38 Taxman 22 has observed as follows:
"In Chandra Prakash Agrawal v. Assistant Commissioner of Income Tax & Ors., (2006) 287 ITR 172 (All.) this Court 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 included in the block period. Section 158BB provides for determination of total income on the basis of evidence found as a result of search or requisition and is relatable to such evidence with certain specifications. Section 158BC provides for procedure for block assessment. Section 158BD deals with the assessment of undisclosed income and Section 158BE provides for time limit for completion of such assessment. After discussing the effect of non-abstante clause this Court held relying on Raja Ram Kulwant Rai v. ACIT, 1997 (227) ITR 187 and B. Noorsingh v. Union of India, (2001) 249 ITR 378 held that the special procedure under Chapter XIV-B shall be adopted in such case covered by the provisions, notwithstanding anything contained in any other provisions of the Act. Consequently the income to be included in the block assessment is only such income, which is directly evidenced by the material found during the search and does not include the income, which has been discovered on the basis of post search enquiries made during the block assessment proceedings. This position, however, has changed after the amendment made by the Finance Act of 2002, after which the assessment of undisclosed income can be based on evidence found in search and the material or information gathered in post search enquiries made on the basis of evidence found in the search."
In view of the above, we are of the view that so far as question nos. 1 and 2 are concerned, we do not find any error in the order of the Tribunal which require interference. So far as question no. 3 is concerned, in view of the opinion expressed by us in respect of question no. 2, question no. 3 becomes academic and does not require any decision.
In view of the above discussions, the appeal has no merit and is accordingly dismissed.
Order Date :- 11.4.2014 OP