AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2002 (4) TMI 247
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntial premises during the years under consideration. The Valuation Officer, Nagpur vide letter No. VD/NGP/IT/97-98/318 dated 25-2-1998 furnished his valuation report of the property in question showing the valuation at Rs. 23,88,722 as against the cost of construction shown by the assessee at Rs. 12,44,546 in his books of account for assessment years 1995-96 and 1996-97. On the basis of the D.V.O.'s report, the Assessing Officer formed a belief that there was an escapement of income in the form of undervaluation of the cost of construction. He, therefore, reopened the assessments for both the years i.e. assessment years 1995-96 and 1996-97 by issuing notices under section 148. In response to the said notices, the assessee filed returns of income for both the years under consideration declaring the same income as was declared in the returns filed originally. Thereafter notices under sections 143(2) and 142(1) were issued by the Assessing Officer and the same were duly served on the assessee, During the course of assessment proceedings, the assessee relied on the valuation report of the registered valuer furnished by him ill support of the investment in the said property disclosed by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; Rs. Rs. Rs. 1995-96 2,59,737 4,81,487 2,21,750 1996-97 9,84,809 19,07,255 9,22,426. 3. During the assessment proceedings, the Assessing Officer also examined the books of account and other record maintained by the assessee in respect of construction work and pointed out some defects in the same as mentioned in his order before arr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision of Hon'ble Gujarat High Court in the case of Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT [1999] 236 ITR 832 dealing with the amended provisions of section 147 applicable from 1-4-1989, he upheld the validity of reopening of assessments observing that the Assessing Officer had reason to believe on the basis of D.V.O.'s report that the income chargeable to tax had escaped assessment for the years under consideration. He also upheld the action of the Assessing Officer in rejecting the books of account maintained by the assessee in respect of construction expenses keeping in view the defects pointed out by him. He also referred to the mistakes pointed out by the Assessing Officer in the books of account maintained by the assessee in respect of his professional income which according to him were indicative of the facts that the books of account are not fully reliable. As regards the merits of the case, it was mentioned by the learned CIT (Appeals) in his impugned order that the authorised representative of the assessee having not disputed the valuation report of the Departmental Valuation Officer on merits before him, the cost of construction of the property determined by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or a proceeding is asine qua non for exercise of powers given to the Assessing Officer under section 131(1) which are similar to the powers vested in a Court under C.P.C. while trying a suit. He contended that the powers mentioned in sub-section (1) of section 131 can be exercised only if a proceeding is pending before the concerned officer and in the absence of the same in the present case on the date of making a reference to the D.V.O., the reference made by the Assessing Officer was invalid. Relying on the decision of Hon'ble Rajasthan High Court in the case of Brig. B. Lall v. WTO [1981] 127 ITR 308, he contended that reference made by the Assessing Officer to the D.V.O. in the absence of pendency of an assessment", as invalid, non est and void ab initio and, therefore, the same cannot be made a basis for making additions on account of unexplained investment in the construction of property. He further contended that a reference to D.V.O. could not be made by the Assessing Officer simply for reopening a completed assessment as held by Hon'ble Gauhati High Court in the case of Bhola Nath Majumdar. As regards ground No. 2, he contended that the valuation report obtained from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the relevant portions of the learned CIT (Appeals)' impugned order, he explained that the various decisions cited by the authorised representative of the assessee before him have been duly distinguished by the learned CIT (Appeals). He contended that the learned CIT (Appeals) has upheld the validity of a reference made by the Assessing Officer under section 131(1)(d) as well as that of the reopening of assessment under section 147 relying on the various decisions quoted and discussed by him in his impugned order. In this regard, he specifically drew our attention to the decision of Hon'ble Calcutta High Court in the case of New Central Jute Mills Co. Ltd. wherein it was held that a reference under section 131(1)(d) can be made for the purpose of IT Act which not only includes making of assessment but also includes making investigations to find out whether reassessment should be initiated or not. He also referred to the decision of Hon'ble Gujarat High Court in the case of Praful Chunilal Patel wherein the scope of reopening of assessment after the amendments made in section 147 with effect from 1-4-1989 have been duly discussed before holding that the words "escaped assessment" a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the Assessing Officer is invested so as to be really in disregard of the statutory condition." 8. Referring to the aforesaid observation, the learned Departmental Representative contended that the D.V.O.'s report was a valid material to form a belief about the escapement of income and thus the Assessing Officer had valid jurisdiction to reopen the assessment by issuing notice under section 148. Further, he submitted that the Assessing Officer had pointed out specific defects in the books of account maintained by the assessee in respect of construction expenditure and certain instances in this regard were also given by him in para No. 10 of his order for assessment year 1995-96. He contended that the assessee did not raise any material arguments before the learned CIT (Appeals) to prove that the said defects pointed out by the Assessing Officer were not correct. He contended that the learned CIT (App....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely: - (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath; (c) compelling the production of books of account and other documents; (d) issuing commissions. (1A) If the Director General or Director or Joint Director or Assistant Director or Deputy Director or the authorised officer referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purpose of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. 10. From the perusal of the above provisions, it is evident that sub-section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and the said provisions cannot be made an instrument for reopening a completed assessment. Their Lordships, therefore, held the reference made by the Assessing Officer to D.V.O. after completion of assessment as invalid, non est and void ab initio. The Hon'ble Patna High Court also had an occasion to consider a similar issue in the case of Smt. Rina Sen v. CIT [1999] 235 ITR 219 and after taking into consideration the powers conferred under sections 131(1) and 131(1A), Their Lordships observed that the authorities specified in section 131(1) can exercise the powers only if a proceeding is pending before them. The Hon'ble Patna High Court has also observed that the proceedings within the meaning of section 131(1) must be an independent proceeding pending from before and it is only in connection with that proceeding the commission can be issued. 11. It is observed that the Revenue has mainly relied on the decision of Hon'ble Calcutta High Court in the case of New Central Jute Mills Co. Ltd., wherein it was held that the purpose of the Act is not only to make the assessment but all proceedings incidental thereto including the proceeding for investigation relating to reopening of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Officer to issue a notice under section 143(2) even after the issuance of an intimation under section 143(1)(a) on the basis of the phraseology used in section 143(1)(a) observing that by force of the expression "without prejudice", the jurisdiction of the assessing authority to proceed under sub-section (2) of section 143 is preserved despite intimation under sub-section (1). It is pertinent to note here that in para No. 7 of its judgment, the Hon'ble Delhi High Court has, however, observed that a notice under section 143(2) puts into motion a normal procedure of assessment. It is true that issuance of notice under section 143(1)(a) does not amount to conclusion of the assessment process mainly because the issuance of such intimation does not preclude the operations of the provisions of section 143(2) as the same is expressly provided in section 143(1)(a) itself. At the same time, it is also to be noted that if the intimation issued under section 143(1)(a) is not followed by the issue of notice under section 143(2) as a matter remedy available to the Assessing Officer, within the time limit prescribed in the statute, the assessment process is deemed to have completed on the issua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....own by the assessee in the books of account and for this purpose a reasonable opportunity should be given to the assessee to substantiate the same by producing the relevant evidence in the form of books of account as well as other supporting documents. If the evidence produced by the assessee to support and substantiate the construction cost is found fault with by the Assessing Officer by pointing out specific defects, he can proceed to issue a commission to the D.V.O. seeking his valuation report for the cost of construction incurred by the assessee. Thus only when in the course of assessment proceedings, the Assessing Officer, after applying his judicial mind, is of the opinion that the cost of construction disclosed by the assessee is not reliable, he may issue commission for ascertaining the correct cost of construction of a building under consideration. It is, therefore, clear that no commission can be issued arbitrarily without applying a judicial mind simply because the proceedings are pending before the Assessing Officer. As already observed, the powers given to the Assessing Officer under section 131(1) are akin to the powers given to the Court under Civil Procedure Code u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ual cost of construction so as to determine the quantum of undisclosed investment. This is so also because if the cost of construction disclosed by the assessee in the books of account is not disputed by the Assessing Officer, there is no issue of contest between the assessee and the Department and if there is no issue of contest then there is no question of issue of commission to the D.V.O. to find out the actual cost of construction. It is a settled position of law that the powers under section 131(1) are to be exercised by the concerned authorities for deciding the suit and not for fishing out any enquiry. In the case of Pitamber Industries (P.) Ltd. the Delhi Bench of ITAT has held that when the assessee maintained books of account, it becomes compulsory as per legislative mandate that the ITO should point out the defects in the maintenance of those books of account and it is not open to him to ignore the evidence provided by these entries in the books of account and go only by the valuation report given by the Valuation Officer. In the case of Asstt. CIT v. Radheyshyam Bansal [2000] 112 Taxman 246 the Rajkot Bench of ITAT has held that when the Assessing Officer has not been a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udicial opinion having regard to the relevant material/evidence produced by the assessee in support of the construction cost disclosed in the books of account that the cost of construction disclosed by the assessee is understated. If these conditions are not satisfied, we are of the view that the commission issued by the Assessing Officer without satisfying the said conditions cannot be considered as valid. In the present case, when a reference was made by the Assessing Officer to the Valuation Officer under section 131(1)(a) on 12-9-1997, neither the proceedings were pending before him nor did he derive any satisfaction applying his judicial mind that such a commission was requisite or proper having regard to the books of account and other evidence maintained by the assessee in support of the construction cost. As a matter of fact he had not even given an opportunity to the assessee to support and substantiate the cost of construction shown in the returns filed by him for the years under consideration before making a reference to the D.V.O. Thus the conditions precedent for making such a reference were not satisfied and this being the position, we are of the opinion that the Asses....