TaxTMI 
TaxTMI 
2004 (6) TMI 239
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....)/2003 (Revenue's appeal) and C.O. No. 39 (Alld.)/2004 -Assessment year 1990-91 3. Brief facts as taken from the record are that the Assessing Officer has taken the status of assessee as AOP and observed that the assessee has been constructing a multi-storeyed commercial complex known as "Baldeva Plaza" in which substantial investment was made. To know the cost of the construction, the case was referred to the Departmental Valuation Officer, Kanpur under section 131(1)(d) of the Income-tax Act, 1961 who after inspecting the complex on 21-3-1999 and after considering the objections of the assessee, submitted report to the Assessing Officer. The D.V.O. estimated the cost of construction at Rs. 3,48,91,900 and spread over the investment in the different years as under: ------------------------------------------------------------------------------- Assessment Cost of construction Cost of construction Difference estimated by the Declared by the &nbs....
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....; 73,46,827 21,71,344 ------------------------------------------------------------------------------- 1994-95 55,18,764 42,59,789 12,58,975 ------------------------------------------------------------------------------- 1995-96 29,80,301 23,00,716 6,79,885 ------------------------------------------------------------------------------- 1996-97 20,80,629 ....
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.... the assessment years 1997-98 and 1998-99 was of the view that the facts are similar to that of assessment years 1997-98 and 1998-99. However, the Assessing Officer observed that the decisions of the CIT(A) in the above assessment years have not been accepted by the department and the second appeals have been authorised. The Assessing Officer, however, agreed that the additions for the assessment years 1988-89 and 1989-90 amounting to Rs. 13,31,020 (Rs. 1,56,542 + Rs. 11,74,660) should not be added to the investment for the year under consideration. The Assessing Officer accordingly did not take these figures while making the addition. However, the Assessing Officer treated the difference in investment in the year under consideration as reported by the D.V.O. and worked out the difference to Rs. 2,41,370 and added the same to the income of the assessee being unexplained investment. 6. Being aggrieved, the assessee filed appeal before the CIT(A). It was briefly submitted that the power under section 131(1)(d) of the I.T. Act can be exercised by the authority concerned only if a proceeding is pending before such authority. However, in the case of the assessee no proceeding of any as....
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....p; D.V.O. of account --------------------------------------------------------------------------------------- 1988-89 1,20,831.50 1,56,542.00 35,710.00 --------------------------------------------------------------------------------------- 1989-90 9,06,688.50 11,74,660.00 2,67,971.00 --------------------------------------------------------------------------------------- 1990-91 8,16,640.00 10,58,010.00 &nb....
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....bsp; 10,49,035.93 13,59,077.00 3,10,041.00 --------------------------------------------------------------------------------------- 1998-99 10,47,143.05 13,56,625.00 3,09,482.00 --------------------------------------------------------------------------------------- 1999-2000 76,15,028.06 Not considered --------------------------------------------------------------------------------------- Total 3,45,47,170.77 3,48,91,900.00 -----------------------....
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....here is a proceeding pending before the authorities concerned, power under section 131(1)(d) cannot be exercised. I am of the opinion that language of section 131(1) is so clear that reference of any court decision is not necessary. Section 131(1)(d) states that the Director General or his subordinate can issue notice "notwithstanding that no proceeding with respect to such person or class of persons are pending before him or any income-tax authority." It is thus clear that DG, DI, DDI, and ADI can issue summons under section 131 even when no proceedings are pending. It follows, therefore, that other income-tax authorities can exercise the power under section 131(1) only when some proceedings are pending under the Act. It is thus clear that reference made to Valuation Cell under section 131(1)(d) is illegal and proceedings initiated under section 147 on the basis of valuation report illegally obtained is also illegal. Consequently, assessment orders passed pursuant to proceedings under section 147 of the Income-tax Act, 1961 became null and void The only alternative left before me is, therefore, to cancel the assessment orders without considering the merits of the additions as disc....
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....the grounds of non-pendency of proceedings before making reference under section 131(1)(d) as it was neither grounds of appeal in original grounds of appeal nor in additional grounds of appeal. 5. Though the Learned CIT(A) called for Assessing Officer's comment on additional grounds which was submitted vide Assessing Officer's letter dated 11-9-2002 yet he [Ld. CIT(A)] failed to inquire about pendency of proceeding before making reference under section 131(1)(d) to the D.V.O. Kanpur. Thus, the annulling of assessment order without grounds of appeal and providing opportunity to the Assessing Officer is violation of principle of natural justice. 6. Considering the facts and circumstances of the case and materials available on record order passed in appeal being erroneous in law and fact, the case may be set aside and the order of the Assessing Officer may be restored." 9. The assessee on receipt of the notice of the appeal filed the Cross Objection mainly on the grounds that the assessee had maintained books of account in regular course of business, which were even found acceptable in the proceeding under section 147 read with section 143(3) and the investment made by the assessee....
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....justified in initiating proceeding under section 147 of the I.T. Act. The ld. D.R. submitted that the CIT(A) cancelled the assessment order on two reasons i.e. (i) no reference under section 13l(1)(d) of the I.T. Act should be made as no proceeding was pending under the Income-tax Act before the Assessing Officer and (ii) that scrutiny of return should be made in the manner provided by the department. The ld. D.R. submitted that since no return was filed, therefore, the question of taking the return for scrutiny does not arise. Hence, the CIT(A) was wrong in cancelling the assessment order. The ld. D.R. also submitted that reference was made under section 131(1)(d) of the I.T. Act when proceedings for assessment year 1997-98 were pending. Therefore, the CIT(A) was not justified in cancelling the assessment order on both the reasons. The ld. D.R. further argued that there was failure on the part of the assessee to disclose true and correct income and therefore action under section 147 of the I.T. Act was justified. The ld. D.R. further argued that the departmental appeal should be considered in the light of the CIT(A)'s order. The ld. D.R. also argued that the order of the CIT(A) wa....
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....ties for any of the assessment years, therefore, the Assessing Officer was not justified in making a reference to the D.V.O. on 15-5-1998. The ld. Counsel for the assessee relied upon the following decisions: 1. ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); 2. Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC). The ld. Counsel for the assessee argued that in this case the material on record for initiating the proceeding under section 147 of the Act had been the report of the D.V.O. which the Assessing Officer was not authorised to make reference. Therefore, the Assessing Officer was unjustified in having reasons to believe that the income escaped assessment. The ld. Counsel for the assessee submitted that the letter referred in grounds of appeal dated 11-2-1998 was considered as pendency of the proceeding by the authorities below. It was some letter issued by the Senior Officer to the Assessing Officer. Therefore, it cannot be considered as pendency of the proceeding before the Assessing Officer. He has argued that commission is issued to settle the dispute and when no dispute was pending before the Assessing Officer, the reference is invalid. He has relied upon the order of the....
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....d the arguments by referring the decision of Hon'ble Allahabad High Court in the matter of Pradeep Kumar Har Saran Lal v. AO [1998] 229 ITR 46. The ld. Counsel for the assessee argued that since reference under section 131 of the Income-tax Act, 1961 was invalid, therefore, no reliance could be placed by the Assessing Officer for initiating proceeding under section 147 of the I.T. Act as no proceeding was pending on the date of making the reference to the Assessing Officer. He has argued that there was no good reason for the Assessing Officer to initiate the proceeding and that the belief of the Assessing Officer was not bona fide and well-founded. He has relied upon the decision in the matter of K.M. Bansal v. CIT [1992] 195 ITR 247 (All.). The ld. Counsel for the assessee argued that the letter dated 11-2-1998 as is referred in ground No. 2 could at the most be treated as some administrative action by the department, but could not be termed to be pendency of any proceeding against the assessee. He has relied upon the decisions in CIT v. Mahalakshmi Textile Mills Ltd [1967] 66 ITR 710 (SC) and Dr. Avinesh Kumar Agarwal v. Asstt. Director of Income-tax [2004] 269 ITR 388 (All.). Th....
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....ve the same powers, as are vested in Civil Court under Code of Civil Procedure when trying a suit". Therefore, it clearly shows that the powers exercisable while making an assessment or while trying the suit have been specifically and separately classified under section 131(1) and the same are to be exercised by the Assessing Officer for making the assessment. The Code of Civil Procedure conferred upon the courts the power to issue commission while trying a suit and, therefore, the pendency of the suit or proceeding before the Court is necessary condition in exercising said power. The combined reading of both the provisions would show that there could be pendency of proceeding before the Assessing Officer before issuing any commission under section 131(1)(d) of the I.T. Act. The scope of section 131(1)(d) of the Income-tax Act, 1961 and Order 26 of the Code of Civil Procedure is that commission could be issued when proceeding/suit is pending before the Assessing Officer or the Court. Now, we examine the facts of the case on the following issue- (i) Whether any proceeding under the Income-tax Act was pending before the Assessing Officer on 15-5-1998 i.e. the date of making referenc....
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....erty as reported by the D.V.O. and the assessee. No other material or reason was available with the Assessing Officer for reopening of the proceeding under section 148 of the I.T. Act. Since no proceeding under the Income-tax Act, 1961 was pending before the Assessing Officer, therefore, whatever material was collected by the Assessing Officer against the provisions of law cannot be taken into consideration for the purpose of initiating proceeding under section 148 of the Act. We may refer to the following orders of different Benches of the I.T.A.T. which are relevant to the issue: 15.1 The Mumbai Bench of the I.T.A.T. in the matter of Asstt. CIT v. Smt. Saranga Aggarwal [2003] SOT 307 held: "Section 147 of the Income-tax Act, 1961 - Income escaping assessment position prior to 1-4-1989 - Assessment year 1986-87 - Assessing Officer made reference to D.V.O. subsequent to completion of assessment and reopened assessment on basis of DVO's report - Whether valuation report is only an opinion of valuer and neither it amounts to Information' nor can form a ground for reason to believe that assessee had failed to disclose his income fully and truly - Held, yes - Whether re-opening of as....
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....to a Valuation Officer to act in his capacity as Valuation Officer otherwise than in discharge of his statutory functions. He cannot be called upon, nor would he have the jurisdiction, to give a report to the Assessing Officer under the Income-tax Act except when a reference is made under and in terms of section 55A or to a competent authority under section 269L." The Hon'ble Supreme Court, therefore, held that the Tribunal had not erred in holding that the Assessing Officer cannot refer the matter to the Valuation Officer for estimating the cost of constructions of house property. 16. We may mention that the assessee in the Cross Objection has mentioned that the assessee-respondent maintained books of account in regular course showing value of the cost of construction. It is also mentioned that if the investment is considered upto the date of the inspection i.e. 21-3-1999, then there would be no addition. It is also mentioned that since no proceeding was pending before the Assessing Officer, therefore, no reference under section 131(1)(d) of the I.T. Act could be made to the D.V.O. In the Cross Objection, letter dated 9-4-2004 has also been filed in which the assessee has placed,....
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....een argued by the counsel for the assessee in the departmental appeal is order to support the finding of the CIT (Appeals). Even if the assessee has taken up these grounds in the Cross Objection, but being a respondent in the departmental appeal, the assessee is within his right to argue on facts as well as on point of law in order to support the impugned order. As far as the decision of the Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul is concerned, the same is binding upon the Tribunal. Article 141 of the Constitution of India provides that the law declared by the Hon'ble Supreme Court shall be binding on all the courts throughout the territory of India. Even if the assessee has placed reliance on the decision of the Hon'ble Supreme Court in the cross objection but the decision of the Hon'ble Supreme Court is binding upon this Tribunal and, therefore, we take into consideration the decision of the Hon'ble Supreme Court while deciding the matter in controversy. 19. We may also refer to the decision of the Hon'ble Supreme Court in the matter of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 in which the Hon'ble Supreme Court held- "If for reasons recorded by ....
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....a justiciable issue. It is, of course, open to the assessee to contend that the Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law." 21.2 The Hon'ble Supreme Court in the matter of Sheo Nath Singh v. AAC [1971] 82 ITR 147 held- "There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstancial....
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....e case of A.L.A. Firm v. CIT [1991] 189 ITR 285 (SC), subsequent re-opening of the assessment on consideration of High Court's decision was held valid. 24.6 In the case of ITO v. Purushottam Das Bangur [1997] 224 ITR 362 (SC) subsequent letter of the D.D.I. was considered for the purpose of reassessment. 24.7 In the case of New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi), audit report, which was independently examined by the Assessing Officer was held to be information for re-assessment. 24.8 In the case of CIT v. First Leasing Co. of India Ltd. [2000] 241 ITR 248 (Mad.). The report of audit constituted information for the purpose of reassessment. 24.9 In the case of Smt. Indira Devi v. CIT [1994] 210 ITR 537 (Mad.) the audit note overlooked by the Assessing Officer at the time of original assessment constitutes information for re-assessment. 24.10 In the case of CIT v. Surendra Kumar Bhadani [1987] 164 ITR 323 (Pat.), it was held that no restriction of number of proceeding which can be taken for reassessment was considered. 25. All the above decisions referred by the ld. D.R. are, thus, clearly distinguishable on facts and are not applicable to the facts and circumst....
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....e had been filed alongwith the return for assessment year 1999-2000. This had been filed on November 2, 1999, - a date prior to the receipt of the D.V.O.'s report by the appellant. Most important, the appellant would have incurred expenditure for the period relevant to assessment year 1999-2000 and these transactions can be very well verified by the Assessing Officer in these circumstances, the Assessing Officer is not justified in ignoring the account books for assessment year 1999-2000, as it was open to him to make an addition for period relating to the assessment year 1999-2000. If he felt that the source of the investment was not proved. Accordingly the addition of Rs. 3,10,000 made is deleted." It is admitted fact that no departmental appeal is filed against the order of the CIT(A) dated 15-3-2001 for the assessment year 1997-98. The same facts and submissions were made before the Assessing Officer in the assessment year under appeal in assessment year 1990-91 to 1996-97. The assessee has taken the similar plea before the Assessing Officer and submitted that if the investment for the assessment year 1999-2000 upto 21-3-1999 is considered then there would be no addition. It w....