DY. CIT vs. M/S. RAVI BUILDERS

Facts

The Revenue, represented by the Dy. CIT, appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated 31.08.1999. The appeal pertains to the block period 1986-87 to 24.12.1996. The assessee, M/s. Ravi Builders, is a partnership firm engaged in construction. Following search and seizure operations under Section 132 of the Income Tax Act, 1961, the Assessing Officer (AO) made block assessments. The AO was of the opinion that the assessee had undervalued the cost of land and building for a property named ‘Ravi Darshan’. Based on a report from the District Valuation Officer, the AO determined the cost of land at Rs. 11,54,000 (vs. Rs. 10,80,830 declared) and building at Rs. 69,35,627 (vs. Rs. 59,80,252 declared). This resulted in an addition of Rs. 10,23,545 to the assessee's income.

Held

The High Court held that the addition of Rs. 10,23,545 made by the AO solely based on the District Valuation Officer's report, which was obtained during the course of the block assessment proceedings under Section 158BC, was not permissible. The Court noted that it was not the Revenue's case that this undervaluation was discovered based on material collected during the search or inquiry at the time of the search. The Court relied on the Division Bench decision in *CIT vs. Kantilal B. Kansara (HUF)*, which held that additions under Section 158BD (and by extension, Section 158BC in this context) can only be made in respect of material disclosed at the time of the search or pursuant to an inquiry related to the search. The report of the District Valuation Officer, obtained subsequently during assessment proceedings, could not be considered as material found during the search. Therefore, the addition made on its basis was impermissible. The Court found no error in the learned Tribunal's direction to delete the addition. The substantial question of law was answered against the Revenue and in favour of the assessee.

Key Issues

1. Whether the learned Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 9,55,375 and whether the said finding is not perverse in the absence of any reasons? (This question appears to have a typo in the amount, as the dispute revolves around Rs. 10,23,545). Assessee's Contentions: - The cost of land and construction were duly accounted for in the books. - The AO lacked jurisdiction to make the addition based on the District Valuation Officer's report during block assessment proceedings under Section 158BC. - The reasonableness of costs should be considered in regular assessment, not block assessment. - Relied on: *CIT vs. Kantilal B. Kansara (HUF)* (2011) 337 ITR 187 (Guj.) and *CIT v. Dr. M.K.E. Memon* 248 ITR 310 (Bom.). Revenue's Contentions: - The learned Tribunal erred in deleting the addition of Rs. 10,23,545. - The AO was justified in making the addition based on the District Valuation Officer's report, which was not challenged by the assessee. - The learned Tribunal failed to consider the provisions of Section 69C of the Act. - The impugned order deserves to be quashed and set aside.