2001 (11) TMI 1018 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessments under section 147(b) of the Income-tax Act.
2. Validity of the Departmental Valuation Officer's (DVO) report and the cost of construction estimation.
3. Non-compliance with the Tribunal's direction for cross-examination of the DVO.
4. Rejection of books of account under section 145.
5. Estimation of profit and cost of construction.
6. Contempt proceedings against the Assessing Officer for non-compliance with Tribunal's directions.

Detailed Analysis:

1. Reopening of Assessments under Section 147(b):
The Tribunal justified the reopening of assessments for the years 1985-86 and 1987-88, holding that the Assessing Officer was correct in referring the cost of construction to the DVO. However, the Tribunal noted that the Assessing Officer did not provide proper opportunity for the assessees to be heard before estimating the cost of construction.

2. Validity of the DVO's Report and Cost of Construction Estimation:
The DVO estimated the cost of construction at Rs. 1,531 per sq. meter for M/s. Tirupati Builders and Rs. 1,530 per sq. meter for M/s. Mahavir Builders, which was higher than the costs declared by the assessees. The Tribunal found that the DVO's report was not properly considered by the Assessing Officer, and the assessees were not given an opportunity to cross-examine the DVO. The Tribunal directed the Assessing Officer to reconsider the cost of construction, allowing the assessees to cross-examine the DVO and submit further evidence.

3. Non-compliance with Tribunal's Direction for Cross-examination of the DVO:
The Tribunal noted that the Assessing Officer did not comply with its direction to allow the assessees to cross-examine the DVO. This non-compliance reduced the evidentiary value of the DVO's report. The Tribunal criticized the Assessing Officer's conduct as arrogant and against judicial discipline but did not render the proceedings null. Instead, it directed the Assessing Officer to reassess the cost of construction, considering the assessees' submissions and allowing cross-examination of the DVO.

4. Rejection of Books of Account under Section 145:
The Assessing Officer rejected the books of account, citing defects such as lack of detailed records for purchases and consumption of materials, absence of closing stock details, and unverifiable nature of expenses. The Tribunal found these defects to be without substantial evidence and held that the rejection of books was not justified. The Tribunal emphasized that the Assessing Officer should have considered other material before estimating the cost of construction.

5. Estimation of Profit and Cost of Construction:
The CIT(A) had enhanced the profit rate to 15% from the 10% disclosed by the assessees. The Tribunal set aside this enhancement and directed the Assessing Officer to re-examine whether the proviso to section 145 or section 145(2) could be applied. The Tribunal instructed the Assessing Officer to determine the income in accordance with recognized accounting methods and standards.

6. Contempt Proceedings Against the Assessing Officer:
The Tribunal considered initiating contempt proceedings against the Assessing Officer for wilful disobedience of its directions. However, it concluded that the limitation period for such proceedings had expired. The Tribunal did not approve the Assessing Officer's conduct and awarded costs to the assessees for being dragged into unnecessary litigation.

Conclusion:
The Tribunal allowed the appeals of the assessees, set aside the orders of the CIT(A) and the Assessing Officer, and directed fresh assessments in accordance with law. The Tribunal also awarded costs to the assessees, directing the revenue to deposit the costs with the Tribunal's Registry. The appeals of the revenue were dismissed.