2011 (5) TMI 409 - AT - Income Tax

Tribunal upholds notice validity, CPWD rates, excess investment reduction; dismisses interest levy.

The Tribunal partly allowed the assessee's appeal, validating the notice under section 148, upholding the reference under section 142A, justifying the use ... Reassessment - Reference to the Valuation Officer after issuance of notice u/s 148 - sufficient evidence - held that:- there has been a personal visit by the Inspector to the assessee's premises in the course of a survey. - he had first-hand exposure to the building and made first-hand enquiries, including qua the assessee's accounts. It is the credibility of this information, gathered first-hand, and on which he relies, and the truthfulness in reporting the same - it was not necessary for the Assessing Officer to verify the information conveyed to him before placing reliance thereon - Decided against the assessee. Regarding reference to valuation officer - assessee contended that reference under section 142A is invalid in the absence of any defects being pointed out by the Assessing Officer - held that:- When the law itself considers that the Assessing Officer may not be as proficient or possess the requisite expertise, so that he could refer for valuation of the investment concerned to the VO, where is the question of his sitting in judgment in the matter, i.e., without having the informed opinion of the expert, expressed after considering all the relevant materials, including the assessee's explanations & the books of account - But that is a matter, firstly, of fact and, secondly, a matter subsequent, i.e., only after reference under section 142A is made, and at the time of its implementation by the VO - Decided against the assessee. whether the rejection of accounts is a prerequisite for invocation of section 69 or section 69B - Held that: VO has considered the books of account at para 1.1 of his report under the heading the 'Method Adopted', stating therein as to why the 'accounting method' is not adopted by him - It is the reasonableness of the Assessing Officer's finding as to the non-satisfaction with the assessee's explanation, on which the validity of the addition under section 69, in the final analysis, depends - the assessee's contention is neither valid legally or in the facts of the case; the books having been found relevant, though not bearing the full cost of construction.Taxability of excess investment u/s 68B - relevant assessment year - Section 69B mandates the deeming of unexplained investment made during a particular year as the assessee's income for that year. As such, there is no scope whatsoever to treat the entire unexplained investment as having been made during the current year. The assessee's books of account clearly show the investment as being made since financial year 1997-98. - Decided in favor of assessee. Issues Involved:1. Assumption of jurisdiction by the Assessing Officer for issuing notice under section 148.2. Validity of reference under section 142A in the absence of defects in the books of account.3. Use of Central Public Works Department (CPWD) rates instead of Kerala PWD rates for valuation.4. Consideration of the entire excess investment as for the relevant assessment year.5. Levy of interest under sections 234B and 234C of the Act.Detailed Analysis:1. Assumption of Jurisdiction by the Assessing Officer for Issuing Notice under Section 148:The assessee contended that the reassessment notice was based on a general remark and lacked a valid basis for the formation of a belief regarding the escapement of income. The Tribunal noted that the notice under section 148 was issued on 16-1-2007, while the reference to the Valuation Officer was made on 5-3-2007, thus validating the reference. The Tribunal emphasized that the formation of belief must be based on credible material and information available to the Assessing Officer at the time of issuing the notice. The Tribunal found that the Inspector's report, despite his lack of professional competence in valuation, constituted credible material for the Assessing Officer to form a bona fide belief regarding the non-disclosure of the full cost of construction. The Tribunal concluded that the Assessing Officer acted on reliable material, leading to a bona fide belief of escapement of income, thus validating the notice under section 148.2. Validity of Reference under Section 142A in the Absence of Defects in the Books of Account:The assessee argued that the reference under section 142A was invalid as the Assessing Officer did not point out any defects in the books of account. The Tribunal clarified that sections 69 and 69B empower the Assessing Officer to estimate the investment if it exceeds the amount recorded in the books. The Tribunal stated that the Assessing Officer is not required to reject the books of account before invoking section 142A. The Tribunal highlighted that the books of account are part of the assessee's explanation and must be considered on merits. The Tribunal found that the Valuation Officer had considered the books of account and allowed deductions based on the records produced by the assessee, indicating that the books were considered but found not to reflect the full cost of construction.3. Use of Central Public Works Department (CPWD) Rates Instead of Kerala PWD Rates for Valuation:The assessee objected to the use of CPWD rates instead of Kerala PWD rates for valuation. The Tribunal noted that the DVO had explained the limitations of using Kerala PWD rates, which lacked well-defined specifications and were subject to arbitrary increases. The Tribunal found that the CPWD rates were scientifically worked out with exhaustive specifications and were subject to adjustments based on the specifications of the subject property. The Tribunal concluded that the use of CPWD rates was justified and dismissed the assessee's objection.4. Consideration of the Entire Excess Investment as for the Relevant Assessment Year:The assessee contended that the entire excess investment should not be considered for the relevant assessment year. The Tribunal agreed, stating that section 69B mandates the deeming of unexplained investment made during a particular year as the assessee's income for that year. The Tribunal directed the Assessing Officer to consider the percentage of construction completed up to 31-3-2001 and allow proportionate reduction for the investment made during the relevant year. The Tribunal restored the matter to the Assessing Officer for a factual determination based on the evidence led by the assessee.5. Levy of Interest under Sections 234B and 234C of the Act:The assessee did not press the ground regarding the levy of interest under sections 234B and 234C. The Tribunal noted that the levy of interest is mandatory and consequential, thus dismissing the ground.Conclusion:The Tribunal partly allowed the assessee's appeal, addressing the issues raised comprehensively and providing detailed reasoning for each decision. The Tribunal validated the notice under section 148, upheld the reference under section 142A, justified the use of CPWD rates, directed proportionate reduction for the excess investment, and dismissed the ground regarding the levy of interest.