2001 (11) TMI 216 - AT - Income Tax

Issues Involved:
1. Justification for initiation of proceedings under section 147.
2. Validity of proceedings under section 147 based on valuation report.
3. Addition of Rs. 1,00,464 towards alleged unexplained investment in building.
4. Reference to the Departmental Valuation Officer (DVO) for estimating construction costs.
5. Rejection of claims for depreciation on alleged unexplained cost of construction.
6. Allowance of unabsorbed depreciation for the assessment year 1967-68.
7. Overall validity of the CIT(A)'s order.

Detailed Analysis:

1. Justification for Initiation of Proceedings under Section 147:
The assessee contended that the CIT(A) was not justified in upholding the initiation of proceedings under section 147 on erroneous and insufficient grounds. The Assessing Officer (AO) issued a notice under section 148 after determining that the cost of construction declared by the assessee was significantly lower than the amount determined by the DVO. The AO believed that the difference of Rs. 1,00,464 had escaped assessment within the meaning of section 147.

2. Validity of Proceedings under Section 147 Based on Valuation Report:
The assessee argued that the AO could not reopen the assessment based on the DVO's valuation report received during the assessment proceedings for the year 1992-93. The CIT(A) held that under the amended provisions of section 147, the AO could reassess any income if he had "reason to believe" that such income had escaped assessment. The CIT(A) referenced decisions from the Gujarat High Court, stating that the power to reassess would be attracted even in cases of complete disclosure of all relevant facts.

3. Addition of Rs. 1,00,464 Towards Alleged Unexplained Investment in Building:
The AO added Rs. 1,00,464 to the assessee's income, treating it as unexplained investment based on the DVO's report. The CIT(A) upheld this addition, noting that the assessee could not identify the specific structures constructed in each year, and the DVO had to allocate costs proportionately.

4. Reference to the Departmental Valuation Officer (DVO) for Estimating Construction Costs:
The assessee contended that the AO had wrongly referred the matter to the DVO for valuation when complete books of account were maintained. The CIT(A) rejected this argument, stating that the AO had processed the return under section 143(1)(a) without examining the books of account or verifying the bills and vouchers. The CIT(A) cited the Guwahati High Court's decision, which allowed reference to the DVO at any time.

5. Rejection of Claims for Depreciation on Alleged Unexplained Cost of Construction:
The CIT(A) rejected the assessee's claim for depreciation on the alleged unexplained cost of construction, showing ignorance of the law. The Tribunal did not address this issue in detail, as it became infructuous after deciding the primary issue of reopening the assessment.

6. Allowance of Unabsorbed Depreciation for the Assessment Year 1967-68:
The assessee argued that the CIT(A) erred in not directing the AO to allow the benefit of unabsorbed depreciation for the assessment year 1967-68. The Tribunal did not address this issue in detail, as it became infructuous after deciding the primary issue of reopening the assessment.

7. Overall Validity of the CIT(A)'s Order:
The Tribunal found that the AO had reopened the assessment solely based on the DVO's report without any other material evidence. The Tribunal referenced several judicial decisions, including those from the Rajasthan High Court and the Andhra Pradesh High Court, which held that a valuation report alone could not constitute "reason to believe" for reopening an assessment. The Tribunal concluded that the AO was not justified in initiating proceedings under section 147 read with section 148 based solely on the DVO's report.

Conclusion:
The Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 1,00,464 made by the AO on account of alleged unexplained investment. The Tribunal also deleted similar additions for the assessment years 1991-92 and 1993-94. Ground Nos. 5 and 6 were dismissed as infructuous. All appeals were allowed partly.

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