2009 (9) TMI 652 - AT - Income Tax

Whether, Commissioner of Income-tax (Appeals) is justified in quashing the Assessing Officer s action of reference under section 131 of the Act to valuation cell and consequently quashing the action under section 147 vis-a-vis assessment of unexplained investment under section 69 of the Act, without considering the merits of the case. Secondly, the action under section 131 is not appealable before the income-tax authorities and. only writ, before the court, is permissible - Since the assessee never had taxable income, the provisions of section 139(1)(b) are not applicable in its case and, therefore, it was not obligatory on the part of the assessee to file return of income. Hence, the assessee never filed its return of income in respect of the year under appeal, assessee has contended that since no proceedings under the Act, were pending at that point of time, the reference itself made to valuation cell by invoking the provisions of section 131(1)(d) by issuing commission were invalid Held that - Assessing Officer could only have referred the matter to the District Valuation Officer if independent proceedings were pending with him for the year under appeal in accordance with the decision of the Gujarat High Court in CIT v. Umiya Co-operative 2006 -TMI - 34339 - GUJARAT HIGH COURT , there were no proceedings pending, we confirm the order of the learned Commissioner of Income-tax (Appeals) in quashing the notices issued under section 148 of the Income-tax Act. appeal of Revenue is dismissed.

Summary

Issues:
1. Validity of Assessing Officer's action under section 147 based on unaccounted investment information.
2. Legality of investing unaccounted money in construction by a co-operative housing society.
3. Justification of quashing Assessing Officer's action under section 131 and section 147 by the Commissioner of Income-tax (Appeals).

Issue 1 - Validity of Assessing Officer's action under section 147:
The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) regarding the Assessing Officer's action under section 147 based on unaccounted investment information. The Revenue questioned whether technical snag could bar the Assessing Officer from taking action under section 147 using information from an illegal search. The Revenue cited the case of Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC) to support their argument. The core issue was whether the evidence collected during an illegal search could be used for assessment purposes under section 147.

Issue 2 - Legality of investing unaccounted money in construction by a co-operative housing society:
The case involved a co-operative housing society registered under the Gujarat Co-operative Societies Act, 1962, which undertook construction activities for its members. The question raised was whether the society could pool unaccounted money to invest in construction, misusing provisions for constituting a non-trading concern like a co-operative housing society. The issue revolved around the legality of such investments and the profit motive of the society formed on the concept of mutuality.

Issue 3 - Justification of quashing Assessing Officer's action under section 131 and section 147:
The Commissioner of Income-tax (Appeals) quashed the Assessing Officer's action under section 131 and section 147 without considering the merits of the case. The Commissioner questioned the validity of the reference made under section 131(1)(d) to the valuation cell and the subsequent action under section 147 regarding unexplained investments. The Commissioner highlighted that the Assessing Officer should have initiated reassessment proceedings based on concrete reasons before involving the valuation cell. The Commissioner's decision was based on the lack of pending proceedings against the appellant, as required for issuing summons under section 131.

In conclusion, the judgment addressed the issues of the Assessing Officer's actions under section 147, the legality of investments by a co-operative housing society, and the justification for quashing the Assessing Officer's actions under section 131 and section 147. The decision upheld the Commissioner of Income-tax (Appeals)'s order, emphasizing the need for pending proceedings before involving the valuation cell and quashing the notices issued under section 148.