Undisclosed Income vis-a-vis asset disclosed in the Regular Returns
CIT vs. Prem Nath Nagpal  214 CTR (Del) 51
The assessee’s residential premises were subject to search and seizure action under section 132 of the Income-tax Act, 1961. During the course of search various documents were found and seized. In pursuance to the notice under section 158BC, the assessee had filed return of income for the block period 1-4-1989 to 17-12-1999 declaring total 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. However, the said property was disclosed in the regular return of income. The Assessing Officer, during block assessment proceedings came to the conclusion that the assessee has received sum of Rs. 1.25. crores as security and thus the value as declared by the assessee in regular return of income appeared to be grossly understated. Hence, 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 assessee was confronted with this valuation report to which he raised objections stating that the property was given on rent with effect from 1st Feb., 2001 and Rs. 18 lakhs was spent on repairs and improvement. Thus, based upon the valuation report, the AO made an addition of Rs. 1,87,53,000 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. On appeal, the Learned CIT(A) deleted the additions made by the Learned Assessing Officer by observing that the AO was not justified in making the reference to DVO as the same could be legally made only during the regular assessment proceedings under s. 143(3) and not under 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.
Being aggrieved by the above order of CIT(A), the revenue preferred and appeal before the Tribunal. Hon’ble Tribunal confirmed the order of Hon’ble CIT(A).
Being aggrieved by the order of Tribunal the revenue filed an appeal before the Hon’ble Delhi High Court under section 260A of the Act. Hon’ble High Court upheld the order of the Appellate Tribunal with the observations that in the absence of recovery of any incriminating document showing any understatement of purchase consideration or the cost of improvement of the property in question, no addition of undisclosed income in respect of said property could be made by resorting to the provisions of Chapter XIV-B.