2009 (3) TMI 652 - AT - Income Tax

Appeal Allowed: Assessment Based on DVO Report Declared Void; Delay Condoned for Reasonable Cause Under Tribunal Ruling

Rajeev Mewara Versus Income-tax Officer, 5 (1), Indore

Rajeev Mewara Versus Income-tax Officer, 5 (1), Indore - [2010] 35 SOT 1 (INDORE) Issues Involved:1. Condonation of delay in filing the appeal.2. Legality of the assessment based on the Departmental Valuation Officer's (DVO) report.3. Validity of the reference made by the Dy. Director of Income-tax (Investigation) to the DVO.4. Determination of the cost of construction and related deductions.Issue-Wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal was filed late by one year and ninety-two days. The assessee applied for condonation of delay, explaining that the delay was due to the negligence of his driver, Shri Rajesh Bheel, who was instructed to file the appeal but failed to do so. The assessee lodged an FIR after discovering the lapse. The Tribunal considered the FIR and the explanation provided, noting that the assessee frequently visited Khargone for business, which contributed to the oversight. It was highlighted that the Supreme Court in N. Balakrishnan v. M. Krishnamurthy emphasized that the length of delay is not as significant as the acceptability of the explanation. The Tribunal, exercising its discretion liberally, condoned the delay, acknowledging the reasonable cause presented.2. Legality of the Assessment Based on the DVO's Report:The assessee contested the assessment framed by the Assessing Officer, which was based solely on the DVO's report. The DVO valued the house property at Rs. 15,28,496 against the declared Rs. 6,91,568. The Tribunal noted that no proceedings were pending when the reference was made to the DVO, rendering the assessment illegal and without jurisdiction. The Tribunal referenced the case of Sarin Bai v. ITO, which established that a reference to the DVO can only be made during pending assessment proceedings. The Tribunal disagreed with the CIT(A)'s finding that the Dy. Director of Income-tax could act as an Assessing Officer under section 2(7A) and section 131(1A), concluding that the reference and subsequent assessment were void ab initio.3. Validity of the Reference Made by the Dy. Director of Income-tax (Investigation) to the DVO:The Tribunal examined the legality of the Dy. Director's reference to the DVO under section 131(1)(d). It was found that the Dy. Director did not have the jurisdiction to act as an Assessing Officer for the assessee, as per section 120. The Tribunal also noted that the power under section 131(1A) was conferred for different purposes, not for property valuation. The Tribunal cited the Allahabad High Court's decision in Dr. Avinash Kumar Agarwal v. Asstt. DIT, which held that the Assistant Director of Income-tax (Investigation) had no power to refer property valuation to the DVO. Consequently, the Tribunal deemed the reference and subsequent valuation illegal.4. Determination of the Cost of Construction and Related Deductions:The assessee challenged the DVO's valuation, arguing that the CPWD rates applicable in Delhi were used instead of the local MPPWD rates, which are cheaper. The Tribunal found merit in this argument, referencing the ITAT, Indore Bench's decision in Jagmohan Jaiswal v. ITO, which allowed a 40% deduction for differences in CPWD rates, self-supervision, and direct material purchase. The Tribunal agreed with the assessee's contention that further deductions should be allowed due to the use of the firm's infrastructure and the assessee's experience as a contractor. The Tribunal recalculated the cost of construction, allowing a 25% deduction for the infrastructure used and an additional 10% for the assessee's experience. The final difference was negligible, leading to the deletion of the additions sustained by the CIT(A).Conclusion:The appeal was allowed both on legal grounds and on merits. The Tribunal condoned the delay in filing the appeal, declared the assessment based on the DVO's report illegal, invalidated the reference made by the Dy. Director of Income-tax (Investigation), and recalculated the cost of construction, resulting in the deletion of the additions.