TaxTMI 
TaxTMI 
1997 (7) TMI 219
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....ction 69 as income from undisclosed sources towards unexplained investment in the construction of the hotel building on the basis of the DVO's report? (e) Whether the Assessing Officer was justified in charging interest under sections 139(8) and 217 of the Act? At the time of hearing, the assessee's counsel Shri Pawan Kumar, Advocate did not press for adjudication of issues at 'b', 'c' and 'e' above. No arguments were advanced by both sides. Hence, no decision is given. 2. The decision on the issue at "d" is dependent upon the decision which we may arrive at in relation to issue "a" above. But before we decide the abovementioned two issues the facts have to be fathomed. The assessee is a partnership firm and it started construction of a Hotel Building (Hotel Chetna) at Deoghar and the construction work commenced from 1-1-1981 and got completed by 31st March, 1982. The accounting period or the previous year of the assessee is financial year, i.e., 1st April to 31st March of the following year. The assessee did not file return for the assessment year 1981-82, previous year of which ended on 31-3-1981 nor it filed return for the assessment year 1982-83 which is year under app....
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....81-82. This investment has not been considered. The assessee must have invested out of its income which escaped assessment. Hence, issue notice under section 147/148 for the assessment year 1981-82." While issuing notice for the assessment year 1982-83 (year under appeal), no separate reasons have been recorded except making a note on 17-6-1986 in the assessee's file for the assessment year 1982-83 stating as under: "For the reasons recorded in the order sheet for assessment year 1981-82 issue notice under section 147/148." The above reasons came to our knowledge from xerox copy of the order sheets obtained by the assessee from the Assessing Officer and placed in the paper book which are at page 4 for assessment year 1981-82 and page 7 for assessment year 1982-83. After much correspondence the assessee filed returns for both the assessment years declaring nil in. These returns were filed pursuant to notices issued for both the years under section 148 by the Assessing Officer. Even after filing of the return the assessee objected to the assumption of jurisdiction by the Assessing Officer for issuing notices under section 148, read with section 147(a), of the Act. The Assess....
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.... assessment year 1981-82 and rest of Rs. 4,28,160 is to be considered. Rs. 1,07,040 ------------- &....
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.... --------------- As can be seen from the working of the computation of taxable income for these years the Assessing Officer has taken a sum of Rs. 1,07,040 as amount invested by the assessee in the previous year relevant to assessment year 1981-82 and the balance sum of Rs. 4,28,160 is considered as amount invested by the assessee in the construction of the Hotel Building during the previous year ending 31-3-1982 relevant for the assessment year 1982-83 and from this, the sum of Rs. 1,28,000 as found recorded in account books as invested is deducted. Thus, the net unexplained investment in the construction of Hotel Building as per DVO's report was taken by the Assessing Officer in a sum of Rs. 3,06,160. This is considered as income from undisclosed sources and assessed along with the land rent paid. This is how the total taxable income is computed in a sum of Rs. 3,06,160. Not being satisfied, with the framing of the assessment as well as computation of income made therein, the assessee went to the Appellate Commissioner (A/C) as per provisions of section 246(c) of the Income-tax Act, 1961. ....
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.... under construction called Hotel Chetna. It was reported by the DVO that the total cost of construction for the referred period was Rs. 5,37,500 which report as recorded by us earlier is placed in assessee's paper book at pages 8 to 16. According to the Assessing Officer, the proportionate amounts worked out on the basis of the report of the DVO was considered as unexplained investment in the construction of the Hotel Building for two years and he, therefore, issued notices under section 148 read with section 147(a) for non-filing of returns for both the assessment years, viz., 1981-82 and 1982-83 to bring to tax the undisclosed investment in the Hotel Building as per DVO's report. 8. We have, therefore, to decide first whether the Assessing Officer on the basis of the said report of the DVO can form a reasonable belief under section 147(a) that income for assessment year 1982-83 chargeable to tax escaped assessment by non-filing of the return by the assessee under section 139(1) by failing to disclose amounts spent and invested by it in the construction for the purpose of assessment. To put it in simple words: is the assessee obliged under section 139(1) to file a return declar....
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....the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary; (v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59; (va) any sum chargeable to income-tax under clause (iiia) of section 28; (vb) any sum chargeable to income-tax under clause (iiib) of section 28; (vc) any sum chargeable to income-tax under clause (iiic) of section 28; (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28; (vi) any capital gains chargeable under section 45; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; (viii) omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Originally sub-clause (viii) was inserted by the Finance Act, 1964 w.e.f. 1-4-1964; (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or....
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.... therefore, under no obligation to file a return as provided in section 139 declaring or disclosing the loan amount until and unless income results from such borrowing and further such income exceeds the chargeable limit prescribed from year to year as per Finance Act of each year passed by the Legislature. The provisions of section 68 says that if a person fails to explain satisfactorily, at the time of finalisation of the assessment, source of the borrowed amount which is not recorded in his account books then the borrowed sum is deemed as income of the assessee of that previous year and added to the returned income. Unless such an eventuality takes place the borrowed sum is not considered or added as deemed income. Similarly, if any amount is spent or invested by an assessee either from his own funds or from borrowed monies in the construction or purchase of a property or asset it is not income in the hands of the assessee as defined in section 2(24) of the Act. The provisions of section 69 in clear terms lay down that if any investment is not recorded in the account books maintained by an assessee and the assessee fails to explain satisfactorily the source of investment then su....
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....ected with the framing of an assessment by the Assessing Officer. It is also a settled law that it is not the duty of an assessee to instruct or suggest the Assessing Officer what possible inferences he should draw from the disclosed facts. Keeping the above principles, we now turn our attention to the facts of the present case. 13. What first has to be seen is whether the assessee had income which exceeded the chargeable limit and, therefore, was under an obligation to file a return of such income under section 139 of the Act. The assessee's case as narrated above is that it had no chargeable income and, therefore, no return under section 139(1) of the Act was filed. The assessee spent a sum of Rs. 2,47,200 up to 31st March, 1982 in the construction of Hotel Building which is recorded in its account books supported with relevant evidence. This, according to the assessee, is not income and, hence, no return was filed as laid down in section 139(1) of the Act. No duty was, therefore, cast says the assessee on it to act in the manner laid down in section 139(1) of the Act. Can the Assessing Officer on such facts and circumstances assume jurisdiction under section 147(a) and issue ....
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.... word "may" and not "shall". The unsatisfactoriness of the explanation, their Lordships observed, does not automatically result in deeming value of investment to be the income of the assessee, and the matter is still within the discretion of the Assessing Officer. As already indicated earlier the basis on which the Assessing Officer proceeded to assume jurisdiction under section 147(a) and in issuing notice under section 148 was the opinion of the DVO that the cost of construction of the Hotel Building was Rs. 5,37,500 and not Rs. 2,47,200 according to the assessee. We ask; can this report of the DVO expressing his opinion on the cost of construction be taken as sacrosanct document on which a reasonable and honest belief be formed by legally instructed and well informed reasonable person about the escapement of chargeable income? The answer obviously has to be in the negative. Because report given by any valuer or by any expert is merely an opinion and always remains an opinion. It is well-known that valuation opinion differ from person to person and from property to property, its location and several other factors and circumstances which again differ from case to case. The opinion....
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.... guidance from the IAC when the assessee did not file return and adopted non-cooperative attitude. Moreover, the letter to and from the IAC are after the issue and service of notice under section 148. 16. We are firmly of the opinion that when the Assessing Officer recorded the reasons and issued notice under section 148, he had no reliable and definite material before him to come to a conclusion that whatever amount the assessee spent or invested in the construction of hotel building will remain unexplained and as such will ultimately be added as income from undisclosed sources in terms of section 69 of the Act and, therefore, he could not have formed a reasonable belief that income of the assessee chargeable to tax escaped assessment. We reiterate that the reasons recorded have no live-link or nexus with the facts of the case which could satisfactorily persuade, enable or lead the Assessing Officer for formation of a reasonable belief about the escapement to tax of the chargeable income of the assessee in the shape of amount spent or invested in the construction of hotel building on the basis of DVO's report. 17. From the above discussion, we, therefore, have no manner of d....
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....ncome, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." 21. In view of the express statutory provision, that the value of investment in the above circumstances may be deemed to be income of the assessee, there is no doubt left that it would be part of 'income', notwithstanding that it is not included in the inclusive definition in section 2(24) of the Income-tax Act, 1961. 22. Any other interpretation will lead to absurd result. If it is not treated as 'income', then the Assessing Officer will be prevented from including it in the total income in an assessment. The Assessing Officer will also be prevented from initiating penalty proceedings under section 271(1)(c) of the Act for concealment, if the amount is not disclosed in the returned income. It will not be possible to prosecute the assessee under the provisions of section 276C of the Act. I am, therefore, unable to subscribe to the view taken by my learned brother and hold that section 147(a....
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....vant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information." On the same page, i.e., page 477, it was further held: "Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irre....
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.... 55A of the Act. In that case, the report would be binding on the Assessing Officer in the same manner as it is binding under section 16A of the Wealth-tax Act. This view is fortified by decisions of the Madras High Court in C.T. Laxmandas v. Asstt. CIT [1994] 208 ITR 859 and Andhra Pradesh High Court in Daulatram v. ITO [1990] 181 ITR 119, as well as a decision of the Hyderabad Bench of the Tribunal in Laxmi Talkies v. ITO [1995] 53 TTJ (Hyd.) 213. 30. The learned counsel for the assessee had relied before the Bench on a decisions of the Patna High Court in CIT v. Agarwalla Bros. [1991] 189 ITR 786 holding that Inspector's report cannot be taken as an aid, and Chunnilal Surajmal v. CIT [1986] 160 ITR 141/27 Taxman 229, where statement before the Income-tax Appellate Tribunal was not considered adequately. These decisions were given on peculiar facts of those cases and are, therefore, not applicable here. Moreover, the above conclusion is being based on the decisions of Supreme Court which were not available in the course of hearing of the cases relied upon. The cases, therefore, do not help the assessee. 31. For the above reasons, I hold that the Assessing Officer had specif....
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....d the Assessing Officer was justified in issuing notice under section 148 of the Act on the basis of material before us. The assessee's grounds of appeal in this regard are rejected. 35. In the proposed order of my learned brother, the assessee's ground regarding justification of the Assessing Officer in assuming jurisdiction under section 144 of the Act and completing the assessment ex parte has not been disposed of since the learned counsel for the assessee did not press for adjudication. In view of the conclusion arrived at by me, it will be necessary to dispose of this ground also. The assessee cannot be allowed to withdraw this ground. The reason is clear. The appeal was decided earlier by the Tribunal. Thereafter the Tribunal by its order dated 28-10-1991 held that some instructions being not complied with, cannot be said to be non-compliance of notices under sections 142(1) and 143(2) of the Act. The Tribunal, therefore, set aside the orders of the CIT(Appeals) and the Assessing Officer and directed the Assessing Officer to complete the assessment afresh after giving an opportunity of being heard to the assessee. The original assessment order was completed under section 1....
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....n of Hotel by the assessee? (2) If answer to the question No. 1 above is in the affirmative, then whether the report of the Departmental Valuation Officer constitutes information to the Assessing Officer enabling and authorising him to initiate reassessment proceedings under section 147 of the Act? (3) If the answer to the question No. 2 above is in affirmative, then whether the reassessment proceedings have been commenced under section 147(a) or under section 147(b) of the Income-tax Act, 1961? (4) If the answer to the above question No. 3 is that the reassessment proceedings are under section 147(a) of the Act, then whether there is live-link or direct rationale and intelligible nexus as laid down by the Hon'ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. for formation of a reasonable belief on the part of the Assessing Officer that income of the assessee chargeable to tax had escaped assessment? (5) If the answer to question No. 3 above is that the reassessment proceedings were commenced under section 147(b) of the Act, then whether the assessments framed on 31st July, 1989, that is to say, more than one year after the service of notice under section 14....
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....sing Officer was justified in assuming jurisdiction under section 144 of the Act and completing the assessment ex parte?" However, according to the learned Judicial Member, there are 9 points of difference which he seeks to refer to the Third Member for opinion. Those points of difference are the following: "(1) Whether the Accountant Member is justified in holding that the Assessing Officer is authorised and empowered in law to obtain a report from the Departmental Valuation Officer about the cost of construction of Hotel by the assessee? (2) If answer to the question No. 1 above is in the affirmative, then whether the report of the Departmental Valuation Officer constitutes information to the Assessing Officer enabling and authorising him to initiate reassessment proceedings under section 147 of the Act? (3) If the answer to the question No. 2 above is in affirmative, then whether the reassessment proceedings have been commenced under section 147(a) or under section 147(b) of the Income-tax Act, 1961? (4) If the answer to the above question No. 3 is that the reassessment proceedings under section 147(a) of the Act then whether there is live-link or direct, rational....
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....the Division Bench Members, is as follows: "255(4) If the Members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the Members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other Members of the Appellate Tribunal, and such point or points shall, be decided according to the opinion of the majority of the Members of the Appellate Tribunal who have heard the case, including those who first heard it." It would show that the point or points of difference shall be referred by the President to a Third Member. Suppose, if there is no unanimity even in identifying the point or points of difference among the differing Members, just like in this case, then I feel it is the duty of the President to identify the real points of difference and refer them to a Third Member whom he may appoint under the powers given to him under section 255(4). After going through the differing orders and also the different questions involving points of ....
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....g on 26-2-1985 and filed his report on 13-5-1985 estimating the total cost of construction at Rs. 5,35,200. He determined the cost of construction falling in assessment year 1981-82 at Rs. 1,07,040 and he also determined the cost of construction which went on in assessment year 1982-83 at Rs. 4,28,160. Since there was a vast difference between the cost of construction determined by the DVO and the cost of construction entered in the books of account of the assessee, the Assessing Officer felt that unexplained money was invested by the assessee in the construction of the Hotel Building and that unexplained money should have been added as the assessee's deemed income under section 69. Since the unexplained money escaped assessment in the hands of the assessee for assessment year 1982-83, the Assessing Officer felt that the assessments should be reopened for assessment years 1981-82 and 1982-83. The Assessing Officer found that the assessee did not file any return whatsoever originally for assessment years 1981-82 and 1982-83. It began filing returns only from assessment year 1983-84. The Assessing Officer, intending to reopen the assessments for assessment years 1981-82 and 1982-83, ....
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....nvestment ... Rs. 3,00,160 Add: Land rent paid ... Rs. 6,000 ------------- ... Rs. 3,06,160 &n....
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....1981-82 and 1982-83. According to the assessee, there was no chargeable income accrued to it or earned by it during the previous years relevant to assessment years 1981-82 and 1982-83. No notices under section 139(2) were issued. 7. The learned Judicial Member first considered whether the deemed income under sections 68 and 69 is comprehended by the word 'income' under section 2(24) of the Income-tax Act. According to the Judicial Member, the deemed income under section 68 or section 69 is no income at all within the meaning of section 2(24) and, therefore, since it is not income, it need not be returned under section 139(1) either for assessment year 1981-82 or 1982-83. The learned Judicial Member, in para 8 of his order, states as follows: "Upon a plain reading of the above definition, we find that sums deemed as income under the different deeming provisions from section 68 to section 69D are not included therein though several other artificial incomes like voluntary contributions received by charitable or religious trust or institutions; winning from lotteries and crossword puzzles; races including horse races; card games and other games of any sort or from gambling or bet....
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....." In para 10 of his order, the learned Judicial Member writes: "When a person borrows money, it is a receipt in his hands and not income because every receipt is not income .... Borrower is, therefore, under no obligation to file a return as provided in section 139 declaring or disclosing the loan amount until and unless income results from such borrowing and further such income exceeds the chargeable limit prescribed from year to year as per Finance Act of each year passed by the Legislature.... Similarly, if any amount is spent or invested by an assessee either from his own funds or from borrowed monies in the construction or purchase of a property or asset it is not income in the hands of the assessee as defined in section 2(24) of the Act. The provisions of section 69 in clear terms lay down that if any investment is not recorded in the account books maintained by an assessee and the assessee fails to explain satisfactorily the source of investment then such an amount shall be deemed as income of the assessee of the financial year and added to the returned income while framing the assessment." Therefore, the learned Judicial Member was of the opinion that deemed incom....
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....e Court were cited out of context and they do not apply to the facts and circumstances of this case. Again, at para 12, the learned Judicial Member says the following: "12. What first has to be seen is whether the assessee had income which exceeded the chargeable limit and, therefore, was under an obligation to file a return of such income under section 139 of the Act. The assessee's case as narrated above is that it had no chargeable income and, therefore, no return under section 139(1) of the Act was filed. The assessee spent a sum of Rs. 2,47,000 up to 31st March, 1981 in the construction of Hotel Building which is recorded in its account books supported with relevant evidence. This, according to the assessee, is not income and, hence, no return was filed as laid down in section 139(1) of the Act. No duty was, therefore, cast says the assessee on it to act in the manner laid down in section 139(1) of the Act. Can the Assessing Officer on such facts and circumstances assume jurisdiction under section 147(a) and issue notice under section 148 for the reasons mentioned and recorded in the file for assessment year 1981-82 which we have extracted elsewhere above? In our considered....
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....to tax had escaped assessment. We are unable to comprehend how the Assessing Officer before hearing the assessee and knowing the true facts or real sources of the alleged extra investment by the assessee in the Hotel Building on DVO's report could conclude that the extra investment is truly met and incurred by the assessee and, therefore, such extra amount invested is from some undisclosed sources of the assessee and then form a reasonable belief under section 147(a) that income of assessee chargeable to tax for this year escaped assessment to tax. It is all in the realm of conjectures, surmises and suspicion. We, therefore, find it difficult to accept the contention of the DR that it is not necessary at the stage of issuing notice under section 148 to form a reasonable belief that the extra amount spent on the construction of a hotel will, on DVO's report, be deemed as an unexplained investment in terms of section 69 of the Act." Therefore, it is very clear that the ld. Judicial Member held that the DVO's report cannot form the basis for reopening the proceedings under section 147(a). Now, let me see whether this position held by the ld. Judicial Member is valid in law. In this....
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.... not in dispute that the Rules framed under the Wealth-tax Act will also apply in this behalf." Thus, it is categorically held by the Andhra Pradesh High Court that the report of the Valuation Officer can be validly made use of by the Valuation Officer to determine the real value of the property or the construction cost of the property. According to the Calcutta High Court, on the basis of the valuation report, the proceedings can also be reopened validly. Thus, the valuation report is an authentic document which can be made use of as relevant material in the hands of the Assessing Officer, on the basis of which he can validly reopen the proceedings. In this connection, regarding the validity of reopening under section 147(a), the learned Accountant Member had relied upon the Hon'ble Supreme Court's decision in Phool Chand Bajrang Lal's case wherefrom he had quoted extensively. In that decision, it was held that reopening under section 147(a) can be made on the basis of specific, reliable and relevant information coming to his possession subsequently, on the basis of which he has reason to believe that by reason of omission or failure on the part of the assessee to make a true a....
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....he reasons recorded under section 148(2) of the Act, and the Income-tax Officer is not authorised to refer to any other reason even if it can be otherwise inferred and/or gathered from the records. If the reasons so recorded are such that, on their basis, it can possibly be said that income chargeable to tax has escaped assessment for a certain assessment year because of the omission or failure on the part of the assessee to make a return for that year or to disclose fully and truly all material facts necessary for such assessment there can be a valid case for invoking the jurisdiction conferred by clause (a) of section 147. If, on the contrary, the reasons recorded by the Income-tax Officer cannot lead to such a conclusion, the proceedings initiated by the Income-tax Officer under that clause must be declared as ab initio void." It is the claim of the assessee that since the DVO's report was not specifically mentioned in the reasons recorded, the reopening was bad in law. I do not agree with the contention of the learned counsel for the assessee. The reasons recorded for assessment year 1981-82 were the only reasons repeated even for assessment year 1982-83. In the reasons reco....
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....having jurisdiction over the Calcutta company, informed the ITO, Azamgarh, by a letter dated 7-7-1970 that the Mg. Director of the Calcutta company made a confession to the effect that the company was only a name-lender and never advanced any loans to any person and this confession was acted upon while making the assessments against the company for assessment years 1962-63 to 1964-65. After the receipt of the letter of the Calcutta ITO dated 7-7-1970, the ITO, Azamgarh, re-opened the assessments of the assessee-firm under section 147(a) on the ground that income had escaped assessment to tax as a result of the failure of the appellant to fully and truly disclose material facts. A writ petition was filed in the High Court challenging the validity of re-opening. In the writ petition, it was put forward that a partner of the assessee-firm had gone to Calcutta with a draft for Rs. 31,000 and some cash to make payment of outstandings against the assessee-firm and he had raised a cash loan of Rs. 50,000 from the company at Calcutta for making purchases of cloth and paying other outstandings. On his return, the partner of the assessee-firm deposited the sum of Rs. 50,000 on 25-5-1962 and ....
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....ee brought to my notice the specific language of the section, namely, "With a view to ascertaining the fair market value of a capital asset". The learned counsel also brings to my notice that section 55A obtaining in Chapter IV-E which deals exclusively with capital gains. The learned counsel, no doubt, fairly admitted that the heading "E- Capital gains" under Chapter IV is part of Chapter IV but still because section 55A was obtaining under a specific caption "Capital gains" it should be applied only when ascertainment of capital gains was subject-matter of the appeal and not otherwise. This proposition was hotly contested by the learned Departmental Representative who referred my attention to the Madras High Court decision in C.T. Laxmandas's case, where this matter directly cropped up for decision and in the headnote it is stated as follows: "Section 55A of the Income-tax Act, 1961, was inserted with the deliberate object of empowering the Income-tax Officer to find out the market value of capital assets for the purpose of Chapter IV, which is titled "Computation of total income" and having regard to the language employed, viz., 'for the purpose of this Chapter', there was no....
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....o believe that there had been any non-disclosure as regards material facts, whether the grounds are adequate or not, is not a matter for the Tribunal to investigate because the sufficiency of the grounds which induced the Assessing Officer to act is not a justiciable issue. Thus, the Tribunal has jurisdiction to determine the question whether there was a live-link or close nexus between the reasons for the issue of reassessment notice and the plea regarding escapement of income. The above propositions are laid down in the following cases: 1. S. Narayanappa v. CIT [1967] 63 ITR 219 at pages 221-2 (SC). 2. Thanthi Trust v. ITO [1989] 177 ITR 307 at page 317/43 Taxman 51 (Mad.). In the first of the cases, the Hon'ble Supreme Court laid down its ratio which is now reflected as part of the head-note obtaining at page 219 which is as follows: "Two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 of the Income-tax Act in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, viz., (i) the Income-tax Officer must have reason to belie....