2005 (3) TMI 67 - HC - Income Tax

Power of AO for reference to valuation officer - Revenue has not doubted the sale consideration received. The impugned addition is only towards alleged low cost of construction and has been made merely on the basis of the DVO s report - there is no record before us to show that an opportunity was provided to the asses-see before the report of the Valuation Officer was taken into consideration by the Assessing Officer. Assessing Officer has obviously no jurisdiction to refer the matter to the Valuation Officer in relation to cost of construction of the house property and furthermore the report of the DVO is stated to have been not disputed. Held that in the course of assessment proceedings the Assessing Officer does not have power under the Act to refer to the Valuation Officer the question of the cost of construction of house property. Therefore in this view of the matter the reference made to the Valuation Officer was itself without jurisdiction and therefore any addition made in pursuance of such reference is liable to be set aside - Held that impugned addition is untenable

Issues:
1. Jurisdiction of the Assessing Officer to refer the cost of construction to the Valuation Officer.
2. Addition of unexplained investment in the property under section 69 of the Income-tax Act.
3. Interpretation of section 142A of the Income-tax Act regarding the powers of the Assessing Officer.

Analysis:
1. Jurisdiction of the Assessing Officer:
The case involved a dispute regarding the Assessing Officer's power to refer the cost of construction of a property to the Valuation Officer. The Assessing Officer questioned the cost of construction provided by the assessee and made additions to the income based on a report from the valuer. However, the Income-tax Appellate Tribunal held that the Assessing Officer lacked the authority to refer such matters to the Valuation Officer. The Tribunal emphasized that the Assessing Officer cannot make additions based solely on estimation without factual support. The Tribunal concluded that the reference to the Valuation Officer was without jurisdiction, and any addition made in pursuance of such reference should be set aside. The High Court upheld the Tribunal's decision, stating that the Assessing Officer does not have the power under the Act to refer the cost of construction to the Valuation Officer.

2. Addition of Unexplained Investment:
Another issue in the case was the addition of unexplained investment in a property under section 69 of the Income-tax Act. The Assessing Officer had made an addition based on the presumption of undisclosed investments in the property. However, the Commissioner of Income-tax (Appeals) deleted the addition, noting various infirmities in the Assessing Officer's approach. The High Court concurred with the Commissioner's decision, emphasizing that the impugned addition was based on the alleged low cost of construction, which was not disputed. The Court cited a precedent to support that the Assessing Officer cannot refer the cost of construction to the Valuation Officer. Therefore, the addition was deemed untenable, and the decision to delete the addition was upheld.

3. Interpretation of Section 142A:
The case also involved the interpretation of section 142A of the Income-tax Act, which allows the Assessing Officer to consider reports submitted by the Valuation Officer. The appellant argued that the Tribunal's findings were vitiated in law due to the provisions of section 142A. However, the High Court clarified that section 142A, introduced by the Finance Act, has a retrospective effect with certain exceptions. The Court noted that the order of assessment in this case was made before the cut-off date specified in the proviso of section 142A. Therefore, the Assessing Officer could not assume powers to refer the matter to the Valuation Officer without providing an opportunity to the assessee. The Court held that the provisions of section 142A are clear and do not allow for a contrary interpretation.

In conclusion, the High Court dismissed the appeal, stating that it did not raise any substantial question of law. The Court upheld the decisions of the lower authorities regarding the jurisdiction of the Assessing Officer and the addition of unexplained investment, while clarifying the application of section 142A in the case.

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