TaxTMI 
TaxTMI 
2007 (8) TMI 639
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....isions of section 145 of the Act. (iii) The third issue relates to the correctness of the report of the District Valuation Officer determining the cost of investment in buildings constructed by the assessee as a builder for business purpose. (iv) The fourth issue relates to the assessee' s claim that in case the addition on account of so-called undisclosed investment in construction of building made under section 69C of the Act, 1961, is upheld, then the assessee may be allowed corresponding deduction of similar expenditure under section 37 of the Act. (v) The fifth issue is against levy of interest under sections 234A, 234B and 234C of the Act. (vi) The sixth issue is against initiation of penalty proceedings under section 271(1)(c) of the Act. 3. We have heard the parties. 4.1 The brief facts as have been revealed from the records and are relevant for disposal of all these four appeals are that the assessee is in the line of construction of buildings for sale. The returns of income for the assessment years 1995-96, 1996-97, 1997-98 and 1998-99 declaring income at nil, Rs.8,09,820, Rs. 1,51,290 and Rs. 2,08,055 respectively were filed on N....
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....ubhai Manibhai Salary 1,400 3. Shri Kiritbhai J. Salary 1,500 Assessee' s explanation and Assessing Officer's findings : (a) With respect to the discrepancy at Sl. No. (i), the assessee, however, when called upon to explain the non-availability of the aforesaid vouchers had filed the photocopies of relevant bills but the same were rejected by the Assessing Officer on the ground that the bills were handwritten. (b) With respect to the discrepancy at Sl. No. (ii), the assessee' s reply was that the concerned person paying petty unskilled labour were not available when the assessment was going on and, therefore, their signatures could not be obtained at that time. The Assessing Officer considered this defect as a serious defect. (c) With respect to discrepancy at Sl. No. (iii), the assessee' s case was that the signatures of these three persons (cited in above tabular form) could not be procured due to oversight. However, the Assessing Officer' s observation at page No. 5 of the assessment order (specifically) was that the payments claimed in the names of these three persons cannot be accepted in principle. (iv) Another di....
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....ver, did not accept this explanation and clothed himself with the jurisdiction to reject the assessee' s books of account by invoking the provisions of section 145(3) of the Act and for making assessment under section 144 of the Act. The relevant observation of the Assessing Officer at page 7 of the assessment order are in the following terms : "That, in view of para-wise discussion along with comments, it is held that the book result shown by the assessee-firm is not acceptable. The correctness and completeness of the books of account are not found. It is, therefore, book result of the assessee-firm is hereby rejected by invoking the section 145(3) of the Act and accordingly, assessment is being finalized in the manner provided in section 144 of the Act." 4.5 The Assessing Officer, further noticed that the assessee had constructed bungalows under the name of the building " Ashlesha Bungalows" at Anand during the period July, 1993, to December, 1998 and had shown the total cost of construction for entire project at Rs. 2,37,96,653. 4.6 The Assessing Officer, for the reasons best known to him (since there is no reference as to how or on what basis, he doubted the corr....
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....he Assessing Officer to consider the returns of income filed by the assessee for these three relevant assessment years on November 30, 1996, November 30, 1996, and March 31, 1999, respectively as having been furnished in response to aforesaid notices under section 148 of the Act. The assessment for the assessment years 1995-96, 1996-97 and 1998-99 were completed under section 143(3) read with section 148 of the Act on March 28, 2003. 4.11 During the course of assessment proceedings, in consequence upon initiation of proceedings under section 147 of the Act for all these three assessment years, the Assessing Officer noticed similar petty discrepancies, such as absence of some vouchers and absence of signatures on some vouchers of the recipients, as were noticed in the assessment year 1997-98 and on the same reasoning rejected the books of account for these three assessment years also. 4.12 The details of assessed income for these assessment years as per orders dated March 28, 2003 are as under : Sl. No. Assessment year(s) Income as per return (Rs.) Total assessed income (Rs.) Addition 1. 1995-96 Nil 9,....
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....ment year prior to the assessment year 1989-90. With effect from 1st April, 1989, the provisions of section 147 have undergone a vast change. Clause (b) of Explanation 2 clearly covers the position as in the case of the appellant. It has been provided in the aforesaid clause where a return of income has been furnished and no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return then, the same will be deemed to be the case where income chargeable to tax has escaped assessment. In the instant case, it was clear to the Assessing Officer that the appellant has understated the income, on the basis of the report of the DVO, wherein, there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only return was processed under section 143(1)(a) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has f....
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....ent cannot be reopened on the basis of the report of the DVO. This argument has been considered. In fact, the decisions referred to by the appellant in this regard were related to the assessment year prior to the assessment year 1989-90. With effect from April 1, 1989, the provisions of section 147 have undergone a vast change. Clause (b) of Explanation 2 clearly covers the position as in the case of the appellant. It has been provided in the aforesaid clause where a return of income has been furnished and no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return then, the same will be deemed to be the case where income chargeable to tax has escaped assessment. 3.4 In the instant case, it was clear to the Assessing Officer that the appellant has understated the income, on the basis of the report of the DVO, wherein there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only return was proce....
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.... completed under section 143(3) of the Act" , is the only clue which leads one to believe that proceedings under section 147 of the Act, for the assessment year 1997-98 were initiated without there being any information/material with the Revenue which could make the Assessing Officer to have reasons to believe that a particular income had escaped assessment. In other words, according to learned counsel, proceedings under section 147 of the Act were initiated only to make roving inquiries and referring the matter relating to cost of construction to the DVO. 6.2 Learned counsel for the assessee, after referring to the assessment order, submitted that though the Assessing Officer has also not specified or referred to any information/material for having reason to believe that any income had escaped assessment, the only reason could be either the escapement of disallowance to be made under section 40A(3) of the Act or the alleged undisclosed investment in the building, but on the facts of the case and as has been admitted by the Assessing Officer in the assessment order itself, these two additions could also not be the basis of forming a belief that the income had escaped assessment.....
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....e assessee' s books of account, learned counsel for the assessee, first of all, submitted that the Assessing Officer having not made any addition as a result of rejection of books of account in any of the assessment year, he could not have any information which could have led him to have reason to believe that any income had escaped assessment that could be taxed only by rejecting the books of account. For supporting his plea, he drew our attention to the last sentence of the third para at page 2 of the assessment order for the assessment year 1997-98 which reads " while hearings were carried out and following discrepancies were noted" . From this narration, learned counsel for the assessee submitted that the so-called discrepancies were also found only during the course of proceedings in consequence upon the issuance of notice under section 148 of the Act, 1961. 6.5 The learned counsel for the assessee, in view of the above facts, submitted that the proceedings under section 147 of the Act, for the assessment year 1997-98 were initiated without there being any information or material with the Revenue authorities which could lead them or make them to have reasons to believe that....
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....ently, no substantial question of law arises also the ultimate tax liability would be of a very small amount. There is therefore no ground to interfere under section 260A. Held Each finding has been recorded by the Tribunal on the basis of the evidence on the file. No error in the findings of fact recorded by the Tribunal has been pointed out. Consequently, no substantial question of law arises for the consideration of the court in this appeal. There is another aspect of the matter. Even if the contention raised by the Revenue were to be gone into, the ultimate tax liability would be of a very small amount. Keeping in view the fact that financial implications are of a very trivial nature, there is no ground to interfere under section 260A. Conclusion : Findings recorded by the Tribunal and setting aside the reopening of assessment and deleting the addition on the basis of evidence on record wherein no error has been found hence no substantial question of law arises ; no interference warranted also for the reason that the tax effect would be of a very small amount. (iii) Roof and Tower Construction (P.) Ltd. v. Asst. CIT [2001] 72 TTJ (Ca....
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....able. (iv) ITO v. Vijay Kumar (ITO v. Mahesh Kumar) (ITO v. Parmanand) [2001] 73 TTJ (Jodh) 17. Headnote : Reassessment under section 147(b)-Information-Assessing Officer was not authorized to make reference to DVO when the assessments were already completed-Report of DVO is an opinion and the Assessing Officer cannot use it as information for reopening the assessment. Held The assessment had already been completed and as such the Assessing Officer had no reason to make the reference to DVO under section 131(1)(d). The report obtained from the DVO is just an opinion and cannot be considered as information for initiating reassessment proceedings. The Commissioner of Income-tax (Appeals) was justified in quashing the reassessment proceedings. Brig. B. Lall v. WTO [1981] 127 ITR 308 (Raj), CIT v. Smt. Prem Kumari Surana [1994] 206 ITR 715 (Raj) and Smt. Amal Das v. CIT [1984] 146 ITR 216 (P&H) followed ; Abdul Majid v. ITO [1989] 178 ITR 616 (MP) and Smt. Tarawati Debi Agarwal v. ITO [1986] 162 ITR 606 (Cal) relied on. Conclusion : Valuation report by the DVO after completion of assessment cannot be considered as informati....
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....ing on the basis of the same material/drawings on a detailed valuation method. Private parties cannot be expected to maintain all the detailed drawings sought by the DVO. Law does not require the impossible to be done. The DVO has also not stated as to why he was unable to accept the quantities and rates arrived at by the registered valuer. He gave no reason why they have to be disbelieved or are inaccurate. The Assessing Officer should have insisted that the DVO investigate the matter properly adhering to the principles of natural justice. We are convinced with the argument of learned counsel for the assessee that when as late as in the year 1991, apartments and commercial spaces were being sold in the city at the rate of Rs. 225 to Rs. 275 per sq. yd. inclusive of land cost and development and profit, the DVO valued the cost of construction at Rs. 368 per sq. yd. during the years 1985 to 1987. To our mind, this is highly irrational and far from reality. For all these reasons we uphold the contentions of the assessee' s counsel and reject the report of the DVO as not good evidence. (ii) Modern Construction Development and Project Promotion v. Asst. CIT [1997] 63 ITD 235 (....
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....Assessing Officer comparing expenditure per metric tonne under each head with similar expenditure incurred by some other firms Conditions under which assessee-firm was functioning was altogether different-Disallowances deleted. (ii) Alka Stone Crusher Co. v. Assessing Officer [1998] 101 Taxman (Mag) 271 (Jab) Section 145 of the Income-tax Act, 1961-Method of accounting Estimation of profit-Assessment years 1986-87 and 1987-88Whether, where lower authorities disallowed expenditures shown in profit and loss account which were very nominal compared to gross profit on ground that vouchers for all expenses were not available and where no default was pointed out in account books, gross profit declared by assessee on basis of account books could not be rejected merely on ground that certain small expenses were not properly vouched-Held, yes. (iii) Md. Umer v. CIT [1975] 101 ITR 525 (Patna) Headnote : Accounts-Rejection-Once the method of accounting has been regularly employed and profit could properly be deduced from such method, that is the end of the matter. Held The method of accounting employed by the assessee has been reg....
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....nd some vouchers were self-made-Assessing Officer estimated net profit at rate of 12.5 per cent. against 10.13 per cent. claimed by assessee and made addition accordingly-Whether basis for rejection of books of account under section 145 should be more than mere stereo type allegation, especially when assessee claims that accounts are regularly maintained, supported with bills and vouchers and subject to statutory audit-Held, yes-Tribunal in case of same assessee for assessment years 1985-86, 1987-88 and 1993-94 had not justified such stereo type basis for rejection of book results under section 145(2)-Whether, therefore, there was no justification to invoke section 145(2) and reject books of account and make addition applying net profit rate of 12.5 per cent-Held, yes. (4) For the proposition that if regular books of account are maintained, no addition can be made under section 69B/69C only on the basis of the report of the DVO. (i) Nishant Housing Development (P.) Ltd. v. Asst. CIT [1995] 52 ITD 103 (Patna) 27. The case law is, therefore, overwhelmingly in favour of the assessee that the cost of construction as per books cannot be rejected and an estimat....
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.... the Commissioner of Income-tax (Appeals) has given his findings which are clearly in favour of the assessee, he thought it fit to sustain certain additions by estimating the cost of constructions at Rs. 500 per sq. mtr., without any basis for this action. It appears to us that all these litigations have started only because such operation under section 132 of the Act carried out at the premises of the assessee and the Department could not find anything in such operation. We make this observation as according to us, the Income-tax authorities were not justified in ignoring the books of account of the assessee specifically maintained in respect of the cost of construction of the property in question which were fully supported by vouchers, bills, etc. In fact, as would appear from the orders of the Income-tax authorities (reproduced above) that they have simply ignored the books of account of the assessee without pin-pointing any glaring or major defects therein. Surely, the addition made by giving blink eye to the material available on record cannot get approval from a judicial body like the Tribunal. In fact, in the aforesaid two orders of the Tribunal, the Tribunal has deleted cer....
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....7 and 1987-88-Assessee constructed second floor of building and produced account books as well as valuation report in support of cost of construction-ITO, however, obtained valuation report from Valuation Officer wherein cost of construction was estimated at a higher value-Relying on this report and without pointing out any defects in the assessee' s accounts book ITO added difference as an explained investment to the assessee' s income Whether ITO' s action could be sustained-Held, No Section 7 of the Wealth-tax Act, 1957-Valuation of assets assessment years 1986-87 and 1987-88-Whether addition on account of unexplained investment was sustainable mearly on basis of report of Valuation Officer when the assessee had produced accounts in support of cost of construction and no defects had been found therein-Held, no (vi) Shiv Engg. Works v. ITO [1990] 53 Taxman (Mag) 109 (Jaipur) Section 69 of the Income-tax Act, 1961-Unexplained investment-Assessment year 1981-82-Assessee had started construction of building in 1973 and completed it in December 1981-Finding cost of construction disclosed by assessee unsatisfactory, ITO referred matter to valuation cell Diff....
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....essee was not correct. (iv) If at all the valuation was to be determined it should have been determined on the basis of the State Public Works Department rates and not the Central Public Works Department rates. Having arrived at the aforesaid conclusions, I am of the opinion that on the facts and circumstances of the case, there can be no addition under section 69 of the Act either as a whole or on proportionate basis in any of the assessment years, i.e., 1990-91 and 1991-92, on the basis of the report of the Departmental Valuation Officer and, consequently, I answer the question referred for my opinion in the negative in favour of the assessee and against the Revenue. The assessee' s appeals are accordingly allowed." (5) For the proposition that even if any addition is made under section 69C, there shall have to be a corresponding deduction of identical amount till the assessment year 1999-2000. (i) Nishant Housing Development (P.) Ltd. v. Asst. CIT [1995] 52 ITD 103 (Patna) It follows that in the former case, if the assessee has incurred expenditure in excess of the amounts recorded in the books, then the unexplained expenditure would ....
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....course of business. Thus, in the present case assuming that even if any addition is required to be made under section 69C, the entire expenditure towards it has to be allowed as a deduction under section 37(1). Thus, taking into consideration the totality of the facts and circumstances of the case, the Departmental authorities were not justified in making the disputed addition because even if the assessee did incur some additional expenditure in the cost of construction, the equivalent debit in the profit and loss account will neutralize each other and no addition could be made. Conclusion : Addition could not be made on account of unexplained investment in construction simply on the basis of report of DVO where the cost of construction was debited in accounts on the basis of bills raised by builder and the Assessing Officer found no specific defect in the books of account. (iii) S. F. Wadia v. ITO [1986] 19 ITD 306 (Ahd) 13. When we are on the provisions contained in section 69C, we would like to mention that section was inserted vide Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, on the basis of recommendation made by the ....
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....le proceedings a nullity though it reduced considerable evidential value of DVO' s report-Held, yes-Whether moment, Commissioner of Income-tax (Appeals) arrived at conclusion that DVO' s report solely could not be made basis for estimating cost, he should have considered some other material-Held, yes-Whether Assessing Officer had wilfully violated directions of Tribunal and that arrogant conduct could expose him to contempt proceedings-Held, yes-Whether addition to assessee' s income could have been made on common knowledge that persons engaged in construction usually understate cost of construction-Held, no-Whether estimation of cost of construction by Assessing Officer was justified-Held, no Whether, therefore, addition to assessee' s income had to be deleted - Held, yes. (v) B and Bros. Engg. Works v. Deputy CIT [2003] 84 ITD 243 (Ahd) The next ground of appeal relates to the addition made by the Assessing Officer on account of investment of Rs. 13,59,000 on account of alleged unrecorded purchases as per discussion contained in para 3 of the assessment order. The contention of the assessee before us was that there was no unrecorded purchase as per detailed expl....
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....' and there is no personal expenditure and no capital expenditure and the whole unexplained expenditure relates to a disclosed business then ' D' will be equal to ' A' and while rupees ' A' can be added under section 69C, an equivalent amount of rupees ' D' would have to be now separately allowed as a deduction." 7.1 On the other hand, the learned Departmental representative in addition to supporting the order of the Commissioner of Income-tax (Appeals) submitted that proceedings under section 147 of the Act can be initiated on the basis of the report of the DVO and for that purpose, relied on the decisions in following cases : (i) Praful Chunilal Patel v. M. J. Makwana, ACIT [1999] 236 ITR 832 (Guj) ; (ii) Grover Nursing Home v. ITO [2001] 248 ITR 493 (P&H) ; (iii) Smt. Shashi Jain v. ITO [1997] 228 ITR 682 (All) ; (iv) Bawa Abhai Singh v. DCIT [2002] 253 ITR 83 (Delhi). 7.2 With respect to the assessee' s submission that if addition is made under section 69C of the Act, the corresponding deduction should be allowed on account of expenses/purchases, the learned Departmental representative submitted that so far as the assessment years prior....
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....f any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." 8.1 From the aforesaid provisions, it is gathered that the Assessing Officer has been given power to initiate proceedings under section 147 of the Act, if he has reason to believe that any income chargeable to tax has escaped assessment and, subject to the provisions of sections 148 to 153, can assess or reassess such escaped income and also any other income chargeabl....
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.... 1998-99 would be a case of escapement of income, only if conditions mentioned in Explanation (2)(b) to section 147 of the Act are satisfied, otherwise not, whereas for the assessment year 1998-99, the assessee' s case could be only of regular assessment and not of escapement of income. 10. Coming to the facts and circumstances of the case, we have gathered from assessment orders passed under section 143(3) of the Act, read with section 148 of the Act, and orders of the Commissioner of Income-tax (Appeals) that the orders are absolutely silent as to the availability of any information or material with the Assessing Officer before initiating the proceedings under section 147 of the Act, which could have made him to have reason to believe that any income had escaped assessment. 11. Similarly, neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) has alleged that they had noticed any understatement of income or excessive claim of loss, deduction, allowance or relief in any of the return, except that (i) para 3.3 for the assessment year 1995-96, the learned Commissioner of Income-tax (Appeals) has stated as under : "3.3 During the course of assessmen....
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....y the appellant. Hence, the action of the Assessing Officer in passing an order under section 143(3) read with section 147 is held correct." (ii) In the appellate order for the assessment year 1996-97, the Commissioner of Income-tax (Appeals) in para 3.4 has observed as under : "3.4 In the instant case, it was clear to the Assessing Officer that the appellant has understated the income, on the basis of the report of the DVO, wherein, there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only the return was processed under section 143(1) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has first been taken up while taking the case under section 147 and accordingly, it cannot be said to be change of opinion of the Assessing Officer, as contended by the appellant. Hence, the action of the Assessing Officer in passing an order under section 143(3) read with section 147 is held correct." (iii) In the appellate ord....
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.... of the Income-tax Appellate Tribunal, Amritsar Bench, in the case of Darshan Singh v. Assessing Officer [2002] 123 Taxman (Mag) 324 and the decision of the Income-tax Appellate Tribunal, Jodhpur Bench in the case of ITO v. Vijay Kumar [2001] 73 TTJ 17. 13.1(i) The facts, in the case of Darshan Singh [2002] 123 Taxman (Mag) 324 were that the assessee had furnished its return for the assessment year 1995-96 which was processed under section 143(1)(a) of the Act. Since the assessee has constructed a house, the Assessing Officer has referred the case of the house constructed by the assessee to the Departmental Valuation Officer (DVO). The valuation made by the DVO was more than the cost of construction shown by the assessee. Thereupon, the Assessing Officer issued a notice under section 148 of the Act and required the assessee to produce the books of account and other materials made of the assessee' s valuer, to do the same. The Assessing Officer framed the assessment order under section 144 of the Act and, thereby added the difference between the value of the house as declared by the assessee and as reported by the DVO to the total income of the assessee. On appeal, the Commission....
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....ion in the case of Vijay Kumar [2001] 73 TTJ 17 (Jodh). 13.2(ii) The brief facts in this case were as under : " 3. The facts giving rise to these appeals are that Shri Parmanand, Shri Mahesh Kumar and Shri Vijay Kumar jointly made investment in construction of the hotel building at Mt. Abu on co-ownership basis. As per the books of account, such investment was shown as Rs.3,34,132 and Rs. 1,45,868 during the previous year relevant to the assessment years 1986-87 and 1987-88 respectively. Initially, the assessments of the relevant years in respect of all the three assessees were completed under section 143(1). Subsequently, the Assessing Officer made a reference under section 131(1)(d) to the DVO who furnished his report on March 27, 1989, estimating the total cost of construction at Rs. 8,61,827 out of which the amount of Rs. 5,99,916 was estimated as related to the assessment year 1986-87 whereas the balance amount of Rs. 2,61,911 was estimated as having been incurred during the previous year relevant to the assessment year 1987-88. Consequently, the Assessing Officer considered the cost of construction shown less by the assessee as income escaping assessment and notic....
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....ebi Agarwal v. ITO [1986] 162 ITR 606 (Cal) ; [1987] 60 CTR 183 (Cal) relied on." 13.2(iv)(a) Reliance is also placed on the decision of the honourable Madras High Court in the case of Kamalam Rajendran v. IAC [1999] 237 ITR 299, 314 (Mad) wherein the honourable High Court has observed that valuation report is only an opinion and also the decision of the honourable Punjab and Haryana High Court in the case of Grover Nursing Home [2001] 248 ITR 493 which has been relied upon by the learned Departmental representative also, where the honourable High Court has held that the report of the DVO cannot be made the sole basis for initiating action under section 147 of the Act read with section 148 of the Act. According to the honourable High Court, the valuation report can be considered with other facts, for forming the belief that the assessee' s income has escaped assessment which, in our opinion, means that the Assessing Officer cannot form the belief that the assessee' s income has escaped assessment solely on the basis of report of the DVO. 13.2(iv)(b) We, further, rely on the decision of the honourable Gauhati High Court in the case of Bhola Nath Majumdar v. ITO [1996] 221 ITR ....
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....-98, and we, already having held the action under section 147 of the Act for the assessment year 1997-98 as illegal and bad in law, these decisions are also of no help to the Revenue. 15.1 Having held as above, all subsequent proceedings including issuance of notices under section 148 of the Act and subsequent framing of assessments are also held to be illegal and bad in law. 15.2 Consequently, the assessments for all these three assessment years framed under section 143(3) read with section 148 of the Act are cancelled as being illegal and bad in law. 16. So far as initiation proceedings under section 147 of the Act for the assessment year 1997-98 is concerned, we are of the opinion that since the Commissioner of Income-tax (Appeals) has not decided the issue, we, in the normal course, would have remanded the issue back to him for fresh decision, but since the issue is a legal one and requires no investigation of any further fact, the remanding of the issue back to the file of the Commissioner of Income-tax (Appeals) will not serve any useful purpose. More so when it is well settled that if the Commissioner of Income-tax (Appeals) has failed to decide a particular ground,....
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....e Assessing Officer to have reason to believe that any income chargeable to tax had escaped assessment or requirement of Explanation 2(b) were satisfied, it has to be taken that proceedings under section 147 of the Act were initiated solely for the purpose of making roving inquiries and referring the issue relating to cost of construction of the building (which otherwise was assessee' s stock-in-trade), to the Valuation Officer. 19.1 Having come to the finding that proceedings under section 147 of the Act were initiated only for making roving inquiries and for referring the matter relating to cost of construction of the building to the Valuation Officer (supra), we, after following the decision of the Tribunal, Amritsar Bench and Jodhpur Bench in the case of Darshan Singh [2002] 123 Taxman (Mag) 324 and in the case of Vijay Kumar [2001] 73 TTJ 17 respectively, are of the opinion that the proceedings initiated under section 147 of the Act for the assessment year 1997-98 were not legal in the eye of law and, therefore, the same are held to be illegal and bad in law. 19.2 Having held as above, we are further of the opinion that all the consequential proceedings including issuanc....
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....alling to Rs. 30,585 though, the assessee had produced photocopies of bills for these expenses also. (b) for absence of signatures of four persons on the vouchers for payment of Rs. 20 and Rs. 10 for welding of gate, and for one acid bottle, respectively paid to Shri Rameshbhai Nathabhai, vouchers for Rs. 200 on account of payment for garden levelling work of block No. 6 and paid to Shri Parmar Maganbhai S., expenditure of Rs. 550 paid to Shri Prafulbhai for water sprinkling for 22 days (at Rs. 25 perday) and (c) for absence of signatures on salary vouchers for Rs. 900 paid to Shri Rameshbhai Nathabhai, Rs. 1,400 paid to Shri Bhanubhai Manibhai and Rs. 1,500 paid to Shri Kiritbhai J. (d) the discrepancy for the accounts of two parties : namely, M/s. Shiv Traders and M/s. Amit Traders. (iii) Further, first of all, we are of the opinion that the explanation and evidence furnished by the assessee with respect to the aforesaid alleged serious (in the opinion of the Assessing Officer) discrepancies, were rejected by the Assessing Officer in an arbitrary manner and with predetermined notion, which is evident from the fact that the evidence furnished by the a....
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.... as the income of the previous year in which such interest is due to the assessee : Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year. (2) Where the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." " 145. Method of accounting (with effect from 1st April, 1997).-(1) Income chargeable under the head ' Profits and gains of business or profession' or ' Income from other sources' shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.....
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....dissatisfied with regard to correctness or completeness of the assessee' s accounts. 22.4 In the totality of the facts and circumstances of the case, we are, therefore, of the opinion that the provisions of section 145(3) could not be invoked so far as the assessee' s case for the assessment year 1997-98 is concerned. 23.1 Since we have come to the conclusion that the assessee' s books of account for the assessment year 1997-98 could not be rejected, our next conclusion is that if the books of account could not be rejected, then, the Assessing Officer had no jurisdiction to refer the matter relating to cost of construction to the Valuation Officer, meaning thereby that reference to Valuation Officer made by the Assessing Officer was illegal and bad in law. 23.2(i) Without prejudice to the above, we, further, are of the opinion that the reference made to the Valuation Officer by the Assessing Officer in exercise of powers under section 131(1)(d) of the Act, as has been held by the honourable Supreme Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407, was illegal and bad in law and the same could not be taken into account (i) for making any addition....
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....42A of the Act, affects cases where assessments are still pending and there has been no reference under section 131(1)(d) of the Act because after these provisions having come on the statute the Assessing Officer has been given power to make a reference to the Valuation Officer and not the cases where reference under section 131(1)(d) had been made before coming to section 142A of the Act and the assessments have not become final by September 30, 2004. In such case, the reference made under section 131(1)(d) of the Act and, consequently, valuation report gets hit by the decision of the honourable Supreme Court (supra). In other words, so far as references having already been made under section 131(1)(d) of the Act are concerned, we are of the opinion that if assessments have not become final in such cases by September 30, 2004, such references and consequential report of the Valuation Officer have to be held to be illegal and bad in law and we do so. 23.2(v) Even otherwise, the words used in section 142A(i) of the Act, are " an estimate of the value" which refers to only estimate and an estimate can never be a basis for having reason to believe. We are, therefore, of the opinion....
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....nsequently, no question of rejecting the same. 26.(ii) The second objection raised by learned counsel for the assessee was that the assessee having furnished a report of the registered valuer, the Assessing Officer was not justified in not considering the same without pointing out any infirmity or defect therein. Drawing our attention towards observation of the Assessing Officer at page 14 of the assessment order, learned counsel for the assessee had submitted that the assessee had along with its reply dated March 22, 2002, submitted the report of registered valuer, Shri Mahesh P. Bhatt which was dated March 15, 2002, and as per which the cost of construction had been estimated at Rs.2,39,47,000 as against Rs.2,37,96,653 as per the assessee' s books of account. According to learned counsel for the assessee, this report of the registered valuer was ignored by the Assessing Officer solely on the basis of the following observations : (a) That, the valuation (as per report) itself differed with the value shown by the assessee-firm, i.e., Rs. 2,37,96,653 for the entire project. (b) That, the report was hurriedly prepared by Shri Mahesh P. Bhatt, registered v....
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....his order. 26.(iv) The next submission raised by learned counsel for the assessee that in any case, if any, addition is sustained by invoking the provisions of section 69C, i.e., on account of alleged difference in cost of construction ; there shall have to be a corresponding deduction of an identical amount because the amendment brought about in section 69C by the Finance (No. 2) Act of 1999 being effective from April 1, 1999 was applicable only for the assessment year 1999-2000 and subsequent assessment years. Reliance in this respect was placed on the decisions which have been detailed in para 6.8(5) (supra) of this order. 27. The learned Departmental representative, on the other hand, so far as the first three objections are concerned, supported the orders of the Commissioner of Income-tax (Appeals). However, with respect to the assessee' s claim of deduction of corresponding expenditure (in case of any addition is sustained under section 69C of the Act), it was agreed by him that the assessee is entitled to benefit of expenses to the extent of investment which is taxed in the years prior to the amendment in this section 69C of the Act. 28. Having considered the rival ....
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....iv) So far as the assessee' s objection that there could not be addition solely on the basis of the report of the Valuation Officer, we are, again of the opinion that when the Assessing Officer had no justification to reject the assessee' s books of account, there was no question of obtaining the report of the Valuation Officer and even if he had obtained such report, the same being only an estimate, no addition could be made solely on the basis of that report. So far as the facts of the present case are concerned, the Revenue has not drawn our attention towards any evidence, what to be said of positive/cogent evidence, which could suggest that there was any other material except the record of the Valuation Officer for making addition for all these four assessment years. 29. In view of the above facts and circumstances of the case, we, after following the proposition of law laid down by various courts and Tribunals in the cases detailed in para 6.8(4) (supra) of this order delete the addition having been made on account of the alleged undisclosed investment in construction in all four assessment years. 30. So far as the assessee' s plea that in case any addition is sustain....
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.... 1997-98. During the course of assessment under section 143(3)/147 for the assessment year 1997-98, the Assessing Officer observed that certain contra accounts from various parties were called for and it was noticed that the amount shown by the assessee did not tally with the contra accounts provided by these parties. Further, it was observed during the course of hearing that some of the expenses were claimed under construction account, however, no supporting vouchers were produced. The Assessing Officer also noticed some discrepancy with reference to expenditure claimed under the head " carpentry work, colour work, fabrication work, plumbing work" with reference to the amount of expenses claimed in the books of account vis-a-vis the amounts for which vouchers were furnished. The Assessing Officer also noted that certain transactions or balances as appearing in the copy of the accounts of various concerns were not tallying with the accounts of the assessee. After having above observation and calling for the assessee' s explanation, the Assessing Officer held that the correctness and completeness of books of account are not found. The project cost debited in the books of account was....
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....fficer to the assessee on March 16, 2002, the assessee submitted a registered valuer report to the Assessing Officer on March 22, 2002. Even in the registered valuer report so furnished by the assessee, the valuation was worked out at Rs. 239.47 lakhs as against cost recorded by the assessee in its books of account at Rs. 237.96 lakhs. Thus, the cost recorded by the assessee in its books of account was lower by Rs. 1.51 lakhs as compared to the value determined by the assessee' s own valuer. After calling for the assessee' s explanation with regard to the difference in the cost of construction and the qualifications in the DVO' s report, the Assessing Officer made an addition of Rs. 25,78,135 pertaining to the difference in the cost of construction for the assessment year 1997-98 under consideration. Disallowance under section 40A(3) was also made while finalizing the assessment. 6. Thereafter, a notice under section 148 was issued on March 27, 2002, for reopening the assessment for the assessment years 1995-96, 1996-97 and 1998-99, the returns of which had already been processed under section 143(1)(a). Similar discrepancy was noticed by the Assessing Officer in the books of ac....
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.... estimating the cost of construction was referred to the DVO and report of the same was obtained, which was also given to the appellant for his explanation and comment, and the Assessing Officer after considering the objection of the appellant, has held that the report of the Valuation Officer is taken for the purpose of determining the investment in the construction of Ashlesha Bungalows. Accordingly, the investment as determined on the basis of report of the DVO related to the period under consideration was taken by the Assessing Officer and the difference between the above and the amount shown by the appellant being Rs. 9,60,547 was added. Before discussing main ground No. 1, the appellant has also raised a ground against the issuance of notice under section 148. It was argued that the assessment cannot be reopened on the basis of report of the DVO. This argument has been considered. In fact, the decisions referred to by the appellant in this regard were related to the assessment year prior to the assessment year 1989-90. With effect from April 1, 1989, the provisions of section 147 have undergone a vast change. Clause (b) of Explanation 2 clearly covers the position as....
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....ver, no supporting vouchers were produced. The Assessing Officer also made personal visit of the site, i.e., ' Ashlesha bungalows' Anand Bakrol Road, Anand and find that it is situated on the Anand Bakrol Road in the posh area with all facilities such as garden, club, cable, EPABX systems, etc. In view of the above, the Assessing Officer observed that the cost of construction shown by the appellant is not correct. Accordingly, the Assessing Officer referred the matter to the DVO, Ahmedabad, for computing the cost of construction of the project and submit valuation report. The DVO visited the site twice and after taking into consideration whatever details was given by the appellant, prepared his report. Copy of the report was given by the Assessing Officer to the appellant for his explanation and comments, if any. The Assessing Officer has noticed various defects in the books of account and accordingly, rejected the book results shown by the appellant. After considering the objection of the appellant, the Assessing Officer observed that cost of construction as estimated by the DVO is to be taken against the cost of construction shown by the appellant. Accordingly, ....
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...., wherever excess stock is found during the course of survey, same has been held to be unexplained investment in stock by the various High Courts and the same is added under section 69 or 69B depending upon whether it is fully undisclosed or partly undisclosed. Accordingly, even though the bungalows are stock-in-trade for the appellant-firm, but then, if any investment is found not fully recorded in the books, then, same is to be required to be added under section 69B. It cannot be considered as unexplained expenditure. In fact, the Assessing Officer has neither specifically mentioned section 69C nor section 69B. However, language of the additions gives an impression that this has been added considering unexplained expenditure, which is nothing but a technical mistake made by the Assessing Officer and the same is not going to effect the contents and logic of addition. The addition has been made in effect, under section 69B as it is in relation to unexplained investment. Accordingly, it is quite clear that the provisions of section 142A are clearly applicable in the instant case and the valuation report of the DVO is a valid piece of evidence, which has been obtained for the purpose....
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....icer is right in adopting the investment in the construction of Ashlesha Bungalows, as estimated by the DVO." 11. With regard to deduction claimed under section 69C, the Commissioner of Income-tax (Appeals) observed that : " Section 69 covers the situation where in particular financial year the assessee has made investment which are not recorded in the books. Section 69B covers the situation wherein particular financial year, the assessee has made investment or is found to be owner of money, bullion, jewellery or other valuable articles and such investment is partly reflected in the books of account. Section 69C covers the situation wherein particular financial year the assessee incurred some expenditure and he is unable to explain the source of such expenditure fully or partly. Now, it has to be seen that whether investment in stock-in-trade not fully or partly recorded in the books, is to be required to be added under section 69/69B (as the case may be) or under section 69C. There have been ample number of decisions of the honourable High Courts wherein, the excess investment in stock-in-trade has been held to be correctly added under section 69B and not unde....
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....also agree with the view of the Assessing Officer that mere technical mistake made by the erstwhile Assessing Officer by using the language of undervalued expenditure while making addition, instead of correct phrase namely unexplained investment (under section 69B), can be corrected by the Commissioner of Income-tax (Appeals). The argument of the appellant that deduction of same amount, which have been added may be given as the amount of excess expenditure is a business expenditure. I have considered this argument. Firstly, as discussed hereinabove, the addition has been in effect made by way of unexplained investment in acquiring stock-intrade. As already discussed, in any case, addition on account of excess investment in stock-in-trade has to be made under section 69B." 12. After having similar observation as was made in the assessment year 1995-96, in the assessment years 1996-97 and 1998-99 also the Assessing Officer made addition on account of difference in construction cost as recorded by the assessee in its books of account as compared to the valuation determined by the DVO in his report. The Commissioner of Income-tax (Appeals) also for 1996-97 and 1998-99 confi....
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....tion can be made only on the basis of the DVO' s report which is just an estimate of cost of construction. All other contentions made by the learned authorised representative have already been recorded in the draft order of Brother Judicial Member, therefore they are not repeated here. 16. On the other hand, the learned Departmental representative submitted that mistakes were found in the books of account during scrutiny assessment for the assessment year 1997-98, with respect to construction cost debited therein. The Assessing Officer rejected the books of account and the matter was referred to the DVO for determining the correct cost incurred on construction. Huge difference of Rs. 87.66 lakhs was found in the construction cost as compared to the DVO' s report. The registered valuer' s report submitted by the assessee himself was also showing excess cost of Rs. 1.51 lakhs. All these were sufficient for having a reasonable belief that similar construction cost incurred in the assessment years 199596, 1996-97 and 1998-99 in respect of very same building had escaped assessment. 17. I have considered the rival contentions, carefully gone through the orders of the lower authorit....
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....risdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled, if the case falls within the ambit of the proviso to section 147 as stood after amendment. 22. Thus as per the amended provisions of section 147, for reopening of an assessment there should be a reason to believe that income chargeable to tax had escaped assessment for any assessment year. Such reason to believe can be raised in any manner and is not qualified by a pre-condition of faith and true disclosure of material facts by an assessee as contemplated in pre-amended section 147(a) and the Assessing Officer can, under the amended provisions, legitimately reopen the assessment in respect of income which had escaped assessment. Viewed in that angle, power to reassess is much wider under the amended provisions and can be exercised even after the assessee has disclosed fully and truly all material facts. Reasons which may weigh with the Assessing Officer may be the result of his own investigation and may also come from any source that he considers reliable. Forming of this belief is an administrative decision to be arrived at in judicial manner. The Assessing Officer is re....
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....alled for by him, have definitely close nexus with the belief that there was escapement of income in these years. It is very pertinent to mention here that while forming the belief the Assessing Officer is required to establish that there were some cogent reason for forming belief that there was escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a reasonable belief. The DVO' s report was prepared after having physical inspection of the building in the presence of the partners and authorised representative of the assessee. After considering the reply of the assessee, the DVO arrived at a valuation which was much higher than the cost recorded in the books of account in the respective assessment years under consideration. Formation of belief by the Assessing Officer was essentially with his objective satisfaction. The huge difference in the cost of construction arrived at, as per the DVO' s report, accompanying by defects found in the cost of construction recorded by the assessee during the assessment year 1997-98 which was under scrutiny and the qualification made by the DVO in....
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....by the court that the assessee will have opportunities to contest the correctness of the valuer' s report during the course of assessment proceedings in pursuance of notice under section 148. 25. Similarly, the Delhi High Court in Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83 held that the DVO' s report can constitute foundation or information to invoke the jurisdiction on the Assessing Officer to reopen the assessment under section 147 for the assessment year 1995-96, which have already been completed even under section 143(3). It was categorically observed by the honourable court that after considering the valuation, the Assessing Officer has come to the conclusion that the assessee has understated the amount invested in the house and it cannot be said that the report of the Valuation Officer containing his conclusion about valuation cannot constitute information or has to be totally excluded from the consideration, even if it is held that the report is of no significance after the assessment has been completed. It was further observed that " reason to believe" must be tenable in law and only if the reason has no nexus with the belief or there is no material or tangible inform....
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....at the assessee' s income has escaped assessment. It was held that there being no explanation by the assessee about the difference between the cost of construction of building shown by the assessee and the cost determined by the DVO, reopening of assessment by issuing notice under section 148 was valid. 29. In the instant case before us, the Assessing Officer has found during the course of scrutiny assessment for the assessment year 1997-98 that there were defects in the books of account with regard to the cost of construction accounted for in respect of building which was also under construction during the assessment years 1995-96, 1996-97 and 1998-99. These defects in the books of account accompanied with the DVO' s report indicating the huge difference of Rs. 87.66 lakhs and the facts of the assessee' s failure to furnish details regarding quantities of different materials consumed and various services like water supply, sanitary installation and electrical provisions in the property, was sufficient to form opinion that there was escapement of income during these years also. 30. The Madhya Pradesh High Court in Vippy Processors Pvt. Ltd. v. CIT [2001] 249 ITR 7, held that ....
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....herein, (b) discrepancy in the contra account of various parties, i.e., supplier of building materials, (c) absence of vouchers of expenses on construction account, (d) discrepancy with reference to expenditure claimed under the head carpentry work, colour work, fabrication work, plumbing work attributable to amount of expenses claimed in the books of account vis-avis amount of vouchers furnished, (e) certain transactions or balances as appearing in the copy of accounts of various concerns not tallying with the accounts of the assessee. (ii) the DVO report indicating (a) vast difference of Rs. 87.66 lakhs in the cost of construction as shown by the assessee in its books of account as compared to the valuation arrived at by the DVO, (b) qualifications with regard to failure of the assessee in supplying details regarding quantities of different materials consumed and various services like water supply, sanitary installation and electrical provisions provided in the property, (c) non-inclusion of cost of construction of one bungalow (No. A-27) in the valuation report alleged to be constructed by non-resident Indian but no documentary evidence was produced by the assessee, the....
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....ion of his belief is not a judicial decision but is an administrative decision. Nevertheless, he is required to act fairly and judiciously. 36. In view of the above discussion we are inclined to hold that there were more than sufficient reasons for forming the belief regarding escapement of income. The Assessing Officer was justified in issuing notice under section 148 in respect of the assessment years 1995-96, 1996-97 and 1998-99, the returns for which were processed under section 143(1)(a). Before parting with the matter, it is very pertinent to mention here that reopening of assessments which have been completed under section 143(3), is not so easy to reopen under section 147, merely on the basis of the DVO' s report subject to certain exceptions where the peculiar facts and circumstances warrants so, as compared to cases where returns have been merely processed under section 143(1)(a). 37. Let us now discuss the Tribunal orders relied on by the brother Judicial Member for reaching the conclusion that there was no reason to believe that any escapement of income was there and that the DVO' s report which is nothing but only an estimate, the Assessing Officer had no jurisdi....
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...., 1989, was that after a return of income was filed the Assessing Officer could make an assessment under section 143(1) without requiring presence of the assessee or production by him of any evidence in support of the return. Where the assessee objected to such assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under section 143(1), but wanted to make an inquiry, a notice under section 143(2) was required to be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, the officer had power to make assessment under section 143(3). 40. With effect from April 1, 1989, the provisions underwent substantial and material changes. A new scheme was introduced and the new substituted section 143(1) prior to subsequent substitution with effect from June 1, 1999 in clause (a), a provision was made that where a return was filed under section 139 or in response to a notice under section 142(1) and any tax or refund was found due on the basis of such return after adjustment of TDS, any ....
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....at where adjustments were made under the first proviso to section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till June 1, 1999. The requirement was that intimation was to be sent to the assessee whether or not any adjustments had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, 1998, to March 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. 43. Thus, the legislative intent is very clear from the use of the word " intimation" as substituted for " assessment" , the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Asse....
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....at the acknowledgment is mostly done by the ministerial staff and not by the Assessing Officer. Thus, the intimation does not have all the characteristics of an assessment as understood in the common parlance or even during taxing statutes. Further, the intimation under section 143(1)(a) was deemed to be a notice of demand under section 156 for the purpose of making machinery provisions relating to recovery of tax applicable. By such application only tax amount indicated to be payable by the intimation became permissible and nothing more can be inferred from the deeming section. Thus, during the relevant assessment years 1995-96, 1996-97 and 1997-98 under consideration, when the returns were processed under section 143(1)(a), there being no assessment as such, there is no room to contend that there was change of opinion or that cost of construction debited in the books of account were subject to verification by the Assessing Officer, when such intimation was sought to be reopened. 47. Recently, the jurisdictional High Court in the case of S. R. Koshti v. CIT [2005] 276 ITR 165 (Guj) dealing with the assessment year 2001-02, has categorically held that " intimation under section ....
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.... The assessee was having 50 per cent. share. During the assessment proceedings in the case of the assessee' s husband, the Assessing Officer referred the matter to the valuation cell. On the basis of report, certain additions were made in the cost of construction. As a result, addition of Rs. 10,704 was made in the hands of the assessee' s husband on account of investment in construction of house. On the basis of valuation report, the Assessing Officer issued notice under section 148 to the assessee and reopened her case. The assessee' s husband challenged the action of the Assessing Officer in making the addition in his income. The Deputy Commissioner of Income-tax (Appeals) accepted the contention of the assessee' s husband. The Revenue did not challenge that order of the Deputy Commissioner of Income-tax (Appeals). 53. In the present case, the assessee challenged the validity of the order reopening her assessment and also addition made to her income on account of cost of construction. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer. Aggrieved by the order, the assessee filed appeal before the Tribunal. After considering the matter, the asses....
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....DVO' s report and the assessment of suppressed sales consideration and that addition could not be made to the returned income because, the sale price as per the assessee' s action was less than the value indicated in the DVO' s report. Merely because the DVO' s report suggests a higher fair market value than the sale price disclosed by the assessee, it cannot be said that there is any reason to believe that income has escaped assessment. 58. It is crystal clear that in the above case the reopening of assessment was based on the plea that sale consideration has been suppressed by the assessee which was arrived at on the basis of the DVO' s report. However, in the instant case under our consideration, it is the cost of construction recorded in the books of account which has been disputed and the DVO has arrived at a higher cost of construction, after having physical inspection and measurement of the property. There is no dispute in the instant case regarding suppression of sale consideration nor the question of fair market value of the property, so constructed. Thus, this case is also of no help to the assessee. 59. Another Tribunal order relied on by the learned Brother was IT....
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....t of income and it is not only on the basis of the mere DVO' s report that assessment has been reopened. Thus, this case is also of no help to the assessee. 62. The next case relied on by the brother Judicial Member was Bhola Nath Majumdar v. ITO [1996] 221 ITR 608, wherein the honourable Gauhati High Court held that there is no authority in the Income-tax Officer under section 55A to refer the valuation of a property after the assessment is completed by him, as the purpose under section 55A is not to arm the Income-tax Officer to make a roving and fishing inquiry for finding out materials for reopening or revising a completed assessment. 63. In the case discussed by the honourable High Court, relevant assessment years under consideration were 1984-85 and 1985-86. In this case, the assessments for the assessment years 1984-85 and 1985-86 were reopened on the basis of valuation report obtained under section 55A after the original assessments were completed. However, in the instant case before us, only returns have been processed and intimation has been issued under section 143(1)(a) which cannot be put at par with the assessment completed under old scheme of section 143, prior....
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....ard, take into account such report in making such assessment or reassessment. It is very much pertinent here to bring on record that while making a reference to the DVO after rejecting the books of account or pointing out mistakes in the construction account, the only moot question before the Assessing Officer pertains to know the quantum of unaccounted investment made out of unaccounted money which has not been recorded in the books of account, and for which the assessee do not offer any explanation about the nature and source of investment or the explanation offered by him is not found to be satisfactory. It is only after knowing the quantum of unexplained investment or the unaccounted money, that the second step before the Assessing Officer is to make addition under any of the provisions contained under section 69/69A/69B or 69C. It is, therefore, not very much pertinent to say that since after receipt of the DVO' s report the addition was made under section 69C and not under section 69/69A or 69B, the reference made to the DVO under section 131(1)(d) was not valid, since there is no mention of section 69C in section 142A. 66. The Income-tax Appellate Tribunal, Ahmedabad Benc....
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....t an estimate prepared by a technical person on the basis of physical inspection and measurement of building, without pointing out specific defects in the construction account kept in the books of account and/or rejecting the books of account under section 145 or unless there is failure on the part of assessee to furnish the requisite information, details, etc., required by the DVO/Assessing Officer. Whenever the Assessing Officer wants to adopt the valuation as made by the DVO, he is first of all required to point out the specific defects in the construction account maintained by the assessee or to indicate that construction cost shown in the books of account are not correct or that cost of construction could not be correctly deduced due to the information asked from the assessee but could not supplied by him to the Assessing Officer/DVO. 71. In the instant case, we found that mistakes pointed out by the Assessing Officer in the books of account are not very serious so as to warrant rejection of books of account. No defect was found by the Assessing Officer in the method of accounting regularly and consistently followed by the assessee. Expenses which were not supported by vouc....
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....e DVO specifically in respect of bitumen road, casted sitting chair, borewell with pump, street lighting and cable laying with fluorescent tubes, EPABX cable laying, etc., were not provided in the registered valuer' s report. We also found that the extra items provided in the entire scheme were item-wise valued by the DVO after physical inspection at a much higher value against which the total value was taken by the registered valuer at a much lower side without specifying each and every such item. 73. So far as the Assessing Officer' s complete reliance on the DVO' s report is concerned, we are inclined to agree with the learned authorised representative Mr. S. N. Soparkar that the Assessing Officer had relied on the DVO' s report as a conclusive evidence while making the addition with reference to the total difference between the cost recorded in the books of account and the value arrived at by the DVO, rather than treating the DVO' s report as a mark of guidance. At this stage, as per our considered view, the Assessing Officer should have confined himself to the points of difference indicated in the report of the DVO by treating the report supplied by him (DVO) in advisory ca....
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....efore the Commissioner of Income-tax (Appeals). That is the reason why the Commissioner of Income-tax (Appeals) has not adjudicated this ground in his appellate order. For the first time before the Tribunal the assessee has taken a plea that the Commissioner of Income-tax (Appeals) was not justified in confirming the action of the Assessing Officer for reopening of assessment under section 147. However, after carefully going through the order of the Commissioner of Income-tax (Appeals), we do not find any mention of rejection of the assessee' s ground regarding the reopening of assessment under section 147. Thus, the ground taken before the Tribunal is misconceived. However, since it is a legal ground, the assessee has all the rights to raise it before the Tribunal for the first time. However, at the very same time, it is pertinent to mention that this legal ground is not with regard to not issuing notice under section 143(2) after filing of return in compliance with notice under section 148 within a period of one year, nor is there any grievance regarding limitation for passing the order. It appears that the assessee is aggrieved for insufficient reasons for reopening of assessmen....
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.... Commissioner of Income-tax (Appeals) recorded any finding or observations with regard to sufficiency or insufficiency of reasons of reopening. The Commissioner of Income-tax (Appeals) in his order did not utter a single word justifying the action of the Assessing Officer for reopening. The brother Judicial Member has taken a view that since reopening of the assessment year 1997-98 was invalid, reference having been made by the Assessing Officer, to the DVO during the course of assessment proceedings under section 143(3)/147 for the assessment year 1997-98, the same was also illegal and, therefore, no reopening can be made on the basis of such DVO' s report. He, thus, concluded that the DVO report obtained by reopening the assessment for the assessment year 199798 itself was not valid, therefore, reopening for the assessment years 199596, 1996-97 and 1998-99 was also invalid. It is a trite law and also spelt out by honourable Supreme Court in Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 and Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166, that information even though collected during illegal search is capable of being utilized by the Departm....
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.... Bakrol, Anand having 31 units out of which having 20 units of Atype, 2 units of type-C, 1 unit of type-D-double-storied and Bungalow A27 during the previous years relevant to the assessment years 1995-96 1996-97, 1997-98 and 1998-99? Question No. 3. Whether, in the facts and circumstances of the case and in law, the addition made on account of alleged investment in construction of building, known as " Ashlesha Bungalows" situated at Anand Bakrol Road, Bakrol, Anand having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and bungalow A-27 during the previous years relevant to the assessment year 1997-98 solely on the basis of valuation report of the DVO can be sustained? B. Assessment years 1995-96, 1996-97 and 1998-99 : Question No. 1.-Whether, in the facts and circumstances as well as in law, the proceedings initiated under section 147 of the Income-tax Act, 1961, solely on the basis of valuation report of the DVO procured by the Assessing Officer during the course of proceedings under section 147 of the Act for the assessment year 1997-98, can be held to be valid proceedings in the eye of law and, consequent....
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....mative, whether, on the facts and circumstances of the case keeping in view defects pointed out in the books of account, failure of the assessee to furnish details regarding quantities of different building materials consumed and various services like water, sanitary installation and electrical provisions in the building, extra items valued individually by the DVO after physical inspection of building, against which a lump sum value at a very low figure taken by the registered valuer in his report, warrants and justify addition of five per cent. of the cost of construction recorded by the assessee in his books of account. B. Assessment years 1995-96, 1996-97, 1997-98 and 1998-99 Whether, on the facts and circumstances of the case and in law, after insertion of section 142A in the statute by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972, a reference made by the Assessing Officer to the DVO to make an estimate of such value and report, was justified, in view of consistent view taken by different Benches of the Tribunal. C. Assessment year 1997-98 Whether, on the facts and circumstances of the case, where the assessee having no....
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....er section 147 of the Income-tax Act, 1961, solely on the basis of valuation report of the DVO procured by the Assessing Officer during the course of proceedings under section 147 of the Act for the assessment year 1997-98, can be held to be valid proceedings in the eye of law and, consequently, can the subsequent proceedings also be held to be valid? 2. Whether, in the facts and circumstances as well as in law, the rejection of books of the account can be held to be valid in the eye of law for all these three years? 3. Whether, in the facts and circumstances as well as in law, the addition made in all these three assessment years, on account of alleged investment in construction of building, known as ' Ashlesha Bungalows' situated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and Bungalow A-27 during the previous years relevant to the assessment years 1995-96, 1996-97 and 1998-99, solely on the basis of valuation report of the Departmental valuer can be sustained?" Questions by Accountant Member A. Assessment years 1995-96, 1996-97 and 1998-99 : " 1. W....
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....g Officer to the DVO to make an estimate of such value and report was justified in view of the consistent view taken by different Benches of the Tribunal." C. Assessment year 1997-98 : " Whether, on the facts and circumstances of the case, where the assessee having not disputed the sufficiency of reasons for reopening, neither before the Assessing Officer nor before the Commissioner of Income-tax (Appeals), nor where any decision was rendered by the Commissioner of Income-tax (Appeals), nor is there any material Available on record for deciding the question of sufficiency of reasons of reopening, which has been raised for the first time before the Tribunal, the matter is required to be restored to the Commissioner of Income-tax (Appeals) for deciding the issue after appreciation of reasons recorded for reopening the assessment under section 147." 2. The assessee is in the business of construction of buildings for sale. The returns of income for all the four impugned assessment years were processed under section 143(1)(a) of the Income-tax Act, 1961, accepting the returned income. The assessee constructed a bungalow, namely, " Ashlesha Bungalows" , situated....
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....and addition on account of undisclosed investment in construction for the year under consideration at Rs. 25,78,135. During the reassessment proceedings for the assessment year 1997-98, the Assessing Officer also issued notices under section 148 of the Act for the other three years 1995-96, 1996-97 and 1998-99 on March 27, 2002, which was served on the assessee on March 30, 2003. The assessee requested the Assessing Officer to consider the returns originally filed in pursuance of these notices. 5. The Assessing Officer, on verification of the statement of closing stock of work-in-progress of the building under construction noted that the scheme of the assessee was to construct 51 units, whereas the assessee had shown details of 33 units. In response to the explanation called for by the Assessing Officer, the assessee submitted that many customers had purchased two plots, construction was carried out only at one plot but the assesseefirm had charged development cost for both the plots. The Assessing Officer further observed that the assessee was silent on the details of plot Nos. 1-3, 5, 10, 12, 13, 26, 27, 32, 33 and 45-47. He held that even if it were presumed that no construct....
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.... defects were trifle and insignificant and reference to the DVO was not valid. He further observed that the cases of the assessee for the assessment years 1995-96, 1996-97 and 1998-99 were reopened solely on the basis of the valuation report of the DVO and there was no other information for reopening the assessment. The DVO report is only an estimate in advisory capacity and, therefore, could not be the basis for reopening of assessment in view of the decisions of the Tribunal, Amritsar Bench, in the case of Darshan Singh v. Assessing Officer [2002] 123 Taxman (Mag) 324 and Jodhpur Bench, in the case of ITO v. Vijay Kumar [2001] 73 TTJ 17. On the merits, he deleted the additions by holding that there was no good reason for rejecting the books of account and additions could not be made on mere difference in the cost of construction estimated by the DVO and as recorded in books of account of the assessee. 8. The learned Accountant Member, on the other hand, held that it was a case of post amendment period after April 1, 1989, and the Assessing Officer can reopen the assessment for escapement of income read with the Explanation to section 147. According to him, the issue of reopeni....
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....rned Accountant Member was called for on the basis of the DVO reports and the remarks about not furnishing of details. He also submitted that valuation of cost of construction of the property is only an opinion and the amendment in section 142A was not relevant for this purpose. 10. The learned Departmental representative, on the other hand, relied on the orders of the Commissioner of Income-tax (Appeals) and submitted that reasons for reopening assessment for 1997-98 are not the valuation report but certain defects as pointed out in the reasons recorded. The Assessing Officer made reference to the DVO on noticing such defects and rejection of books of account for determining the cost incurred on construction. There was a huge difference in the cost of construction as per the books of account and the valuation report. He further submitted that section 142A is applicable as it was a case of continuing proceedings and in that connection, he relied on the decision of the Allahabad High Court in CIT v. Smt. Shashi Agarwal [2007] 159 Taxman 340 and the decision of the Tribunal, Delhi Bench, in the case of Asst. CIT v. Shakti Builders [2005] 93 ITD 269. He further submitted that the d....
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.... Gujarat High Court in the case of S. R. Koshti v. CIT [2005] 276 ITR 165, has categorically held that " intimation under section 143(1) is not an order of assessment" . It is also held by the Supreme Court in the case of Assistant CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, that under the scheme of section 143(1) of the Income-tax Act, 1961, as substituted with effect from April 1, 1989, and prior to its substitution with effect from June 1, 1999, what were permissible to be adjusted under the first proviso to section 143(1)(a) were : (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return ; (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly those claims which were, on the basis of the information available in the return, prima facie inadmissible, and were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any deb....
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....ents) [1999] 240 ITR 224 (Guj). It held accordingly, that the Assessing Officer had jurisdiction to issue notice under section 148 for bringing to tax income escaping assessment in an intimation under section 143(1)(a) on the ground that the claim for bad debts by the assessee was not acceptable as the conditions for allowance specified in section 36(1)(vii) and (2) were not fulfilled. 14. Therefore, the assessment of these years can be reopened under section 147 if the income of the assessee had escaped assessment by whatsoever reasons. The term " income escaped assessment" is enlarged to include cases falling within and enumerated in Explanations (a) to (e), below section 147. The present cases are claimed to fall in clause (b) of the Explanation. This clause reads as under : " (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return." 15. In these cases, the assessee has furnished the returns. No assessments were made, as processing of returns under section 143(1) ....
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.... the reopening question admitted for consideration has to be examined with reference to reasons recorded and the material contained therein. It might further be stated that reopening in this year is not on the basis of valuation report of the DVO and, therefore, it cannot be considered to determine the validity or invalidity of reopening the assessment and the reference to the DVO but has to be decided taking into consideration the reasons recorded aforesaid. In my opinion, therefore, the right course is to send the matter back for adjudication by the Commissioner of Income-tax (Appeals) to decide the issue afresh in the light of the reasons and after affording adequate opportunity to the parties in the matter. 18. As for the assessment years 1995-96, 1996-97 and 1998-99, the reopening is for reasons which are identical except the quantum difference, recorded as under : " The assessee has constructed one bungalow scheme named as ' Ashlesha Bungalows' at Anand Bakrol, Anand. The activities were carried out from the financial year 1993-94. During the course of the assessment proceedings for the assessment year 1997-98, it was noticed that certain site expenses such as car....
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....rk was carried out by the occupants. Therefore, the correctness of the assessee' s claim could not be ascertained. 20. Further, the registered valuer' s report submitted by the assessee himself also indicated excess cost incurred in the construction to the extent of Rs.1.51 lakhs as compared to the cost found recorded in the assessee' s books of account. Further, on comparison between the DVO report and the registered valuer report with respect to cost determined specifically in respect of bitumen road, showed sitting chair, borewell pump, street lighting and cable laying with fluorescent tubes and EPABX cable laying, etc., were found not provided in the registered valuer' s report furnished by the assessee. Extra items provided in the entire scheme were item-wise valued by the DVO after physical inspection of site and building along with the assessee and his authorised representative at Rs. 1,24,81,677 against which total value taken by the registered valuer in its report was only Rs.34,52,964 without specifying each and every item. This material/information was sufficient to form a belief that there was escapement of income in the assessment years 1995-96, 1996-97 and 1998-99 ....
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....e Assessing Officer on December 26, 2001, during the proceedings for the assessment year 1997-98. 23. It is true that the defects were minor and even though the defects found in the books of account were not so serious as to justify the rejection of book results for determining the income to the best of the judgment of the Assessing Officer, these are defects, could be relevant and justified for making a reference to the DVO and forming the belief that there was escapement of income. Small, howsoever, the defects may be, would be defects and do not lose the character of defects. Even if small defects found in the books regarding cost of construction or small discrepancy found in the statement of suppliers of building materials, these could be the valid and sufficient materials for forming the belief of escapement of income and in my opinion, they were good reasons for making a reference to the DVO, where a huge difference of Rs. 87.66 lakhs in cost of construction was noticed. The reopening on these facts cannot be said to be unjustified. 24. The report of the DVO constitutes a valid foundation or information to invoke the jurisdiction on the Assessing Officer to reopen the a....
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....ion 148 was valid. In the present cases, the report of the DVO was not the sole basis but also the defects enumerated in the reasons recorded aforesaid. It was a case of a civil writ relating to the assessment years 1993-94, 1994-95 and 1995-96. The court held " even though the report of the DVO cannot be made the sole basis for initiating action under section 147, read with section 148, it can certainly be considered with other facts for forming the belief that the income of the assessee had escaped assessment and in the facts of the present case, it is not possible to hold that the belief formed by respondent No. 2 is not based on any material whatsoever. On the basis of the above conclusion, the impugned notices do not suffer from any jurisdiction or legal infirmity, which may justify interference by this court under article 226 of the Constitution of India." It discussed the cases of Acchut Kumar S. Inamdar v. P.R. Hajarnavis [1981] 132 ITR 331 (Bom), Smt. Amal Das v. CIT [1984] 146 ITR 216 (P&H), Kamalam Rajendran' s case [1999] 237 ITR 299 (Mad), Desai Brothers v. Deputy CIT [1999] 240 ITR 121 (Guj) and CIT v. Laxmidebi Mehta [1993] 70 Taxman 399 (Cal) and concluded that thou....
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.... Ltd. [2001] 72 TTJ (Cal) 433 the Assessing Officer reopened the assessment under the belief that the sale consideration was suppressed by the assessee and that belief was formed on the basis of report of the DVO. It was held by the Tribunal that there was no direct nexus between report of the DVO and the assessment of suppressed sales consideration and that addition could not be made to the returned income because the sale price as per the accounts of the assessee was less than the value indicated in the report of the DVO. Merely because the report of the DVO suggests higher fair market value than the sale price disclosed by the assessee, it cannot be said that there is any reason to believe that income has escaped assessment. It was not a case of difference in the cost of construction recorded in the books of account, which has been disputed and the DVO has arrived at higher cost of construction, after having physical inspection and measurement of the property. It was a case of assessment of higher consideration received by the assessee as if the DVO report depicted the actual sale consideration. The Supreme Court decision in K. P. Varghese [1981] 131 ITR 597 does not support it.....
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....t of supplier of building materials, as compared to their respective balances in the assessee' s books of account. Thus, this case is also of no help to the assessee. 30. On justification/power of the Assessing Officer to make a reference to the DVO a reference to section 142A, as introduced by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972, would be useful. According to sub-section (1) of this section, where an estimate of the value of any investment is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. Sub-section (2) grants powers to the Valuation Officer to whom a reference is made under sub-section (1) shall, for the purpose of dealing with such reference, to have all the powers that he has under section 38A of the Wealth-tax Act, 1957. Sub-section (3) of section 142A provides that on receipt of report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. While making a reference to the DVO the only question the Assessing Offi....
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....he appellate authorities/Tribunal/courts. Faced with this situation, Parliament inserted section 142A with retrospective effect so as to save the past actions of the Assessing Officer. However, Parliament in its own wisdom considered it necessary to exclude certain assessments from retrospective application of section 142A. Accordingly, a proviso was added to such section. The Legislature has excluded only the cases falling in the second category, i.e., the concluded assessments from the operation of the provisions of the main section in order to avoid the hardships/chaos, which would have been caused/created because of the retrospective operation of such section. In other words, the Legislature considered it necessary to confer the powers on the Assessing Officer retrospectively only in those cases which are pending for adjudication before the higher forum. If the contention of the assessee' s counsel were accepted then the entire purpose of the retrospective legislation would be lost. The proviso to section 142A is applicable only to those cases where assessments have been made on or before September 30, 2004, and such assessments have become final and conclusive by such date. Co....
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....996] 221 ITR 202 (Delhi), K. P. Varghese [1981] 131 ITR 597 (SC) and Vidya Sagar v. CIT [2005] 277 ITR 120 (P & H) are considered. 33. In Smt. Shashi Agarwal [2007] 159 Taxman 340, the Allahabad High Court considered the scope of the proviso to section 142A and the contention of the Revenue was that the appeal under section 260A like an appeal before the Tribunal is also a continuance of the assessment proceedings and it has to be treated as such within the meaning of the aforesaid proviso and since the appeals before the High Court are still pending which could not be finalized before September 30, 2004, therefore, the case would not stand excluded from the applicability of the provisions of section 142A of the Income-tax Act. The High Court held that " section 260A of the Income-tax Act is a provision of appeal to the High Court only on the satisfaction of the High Court that the case involves substantial question of law. It is not an appeal under the statute giving a vested right to challenge the assessment order after the assessment proceedings had crossed the stage of the Tribunal. Even otherwise without any further detailed discussion it is to be kept in mind that in the a....
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....l matter and it cannot be treated as an opinion forming reason to believe within the meaning of section 147 and there being nothing on record to show that the Assessing Officer had recorded reasons, reopening merely on the basis of the report of the Valuation Officer was not valid. It was a reference to the High Court involving the assessment year 1988-89. Apparently a case before amendment in section 147 and insertion of section 142A of the Act with effect from April 1, 1989. 36. In Umiya Cooperative Housing Society Ltd. [2005] 94 TTJ 392, the Ahmedabad Bench of the Tribunal held in a case for the assessment years 1997-98 to 1999-2000 that the Assessing Officer was not competent to refer the matter to the DVO at the time when no proceedings were pending before him. Section 142A empowers the Assessing Officer to require the Valuation Officer for making the estimate of the value of any asset, which the Assessing Officer may require for the purpose of making assessment or reassessment. It does not empower the Assessing Officer to refer the matter to the DVO for gathering information for reopening of assessment. Making of reassessment and reopening of the assessment are two differe....
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.... unexplained. Therefore, the Revenue cannot place full reliance on the DVO report and make addition for the entire difference. The DVO report though of a technical expert, as aforesaid, has to be taken as a guidance and cannot be disregarded in view of the specific provisions of section 142A(3) for taking into consideration the report of the DVO in making assessment or reassessment on giving the assessee an opportunity of being heard on such report. The report of the registered valuer furnished by the assessee also supports the fact that the construction cost recorded by the assessee in its books of account was lower by Rs. 1.51 lakhs it would also not be justified to wholly rely on the accounts and making no addition at all. Keeping in view the totality of facts and circumstances of the case, it would be right to retain the addition to the extent of 5 per cent. (five per cent.) of cost of construction as recorded by the assessee in its books of account in the respective assessment years under consideration, so as to cover unaccounted expenses with regard to observations made by the DVO in his report as well as the excess cost worked out by the own valuer of the assessee, as compar....
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.... defects pointed out and the difference in such value even by the assessee' s own appointed registered valuer can be sustained in all the years. And also On the facts and in the circumstances of the case and keeping in view defects pointed out in the books of account, failure of the assessee to furnish details regarding quantities of different building materials consumed and various services like water, sanitary installation and electrical provisions in the building, extra items valued individually by the DVO after physical inspection of building, against which a lump sum value at a very low figure taken by the registered valuer in his report, warrants and justify addition of five per cent. of the cost of construction recorded by the assessee in his books of account. For assessment years 1995-96, 1996-97 and 1998-99 : 4. On the facts and in the circumstances and in law, the proceedings initiated under section 147 of the Income-tax Act, 1961, on the basis of valuation report of the DVO procured by the Assessing Officer during the course of proceedings under section 147 of the Act for the assessment year 1997-98, coupled with other defects pointed out above....