2007 (5) TMI 274 - AT - Income Tax

Assessment completed u/s 143(3) - reference u/s 131(1)(d) to the DVO - determination of the cost of construction - Addition u/s 69 - Income From Undisclosed Sources - retrospective effect of amendments in section 142A - time-limit for issuance of notice under section 143(2) - HELD THAT - In the case of CWT v. R.L. Kasliwal 1993 (12) TMI 15 - RAJASTHAN HIGH COURT and Prakash Chand v. Dy. CIT 2004 (3) TMI 39 - MADHYA PRADESH HIGH COURT court held that reference made to the Valuation Officer after the completion of assessment was invalid. We, thus, concur with the view of the learned CIT(A) in this regard that when assessment proceedings were not pending for the year in the present case, the Assessing Officer was not justified in making reference to the DVO to determine the cost of construction, hence the reference was invalid and, thus, the report furnished by the DVO. The first appellate order in this regard is, thus, upheld. Submission of the ld AR that the assessment order in the present case has reached its finality before 30-9-2004 as per the provisions of section 142A of the Act is concerned, we do not agree with him, because under the wordings of proviso to section 142A inserted by the Finance (No. 2) Act, 2004 with retrospective effect 15-11-1972 is very much clear. We find substance in the submission of the ld AR that without pointing out specific defects in the books of account or rejecting the books of account, reference could not be made by the Assessing Officer to the DVO for determination of cost of construction. Even otherwise, we find that there were certain defects in the report of the DVO, which have been observed by the learned CIT(A) in the first appellate order. He has noted that his predecessor had made an attempt to verify the plinth area of the spot and found that DVO had adopted higher plinth area than measured on the spot by his predecessor. Even the Assessing Officer had not accepted the valuation of the property at Rs. 62,85,000 determined by the DVO and after considering several objections of the assessee to the report, he had arrived at the figure of Rs. 56,39,509. In view of the decision in the case of CIT v. Pratapsingh Amrosingh Rajendra Singh v. Deepak Kumar 1992 (3) TMI 35 - RAJASTHAN HIGH COURT and Tribunal in the cases of Smt. Rekha Devi v. Asstt. CIT 1993 (8) TMI 137 - ITAT JAIPUR , the learned CIT(A) has taken the view that the local PWD rates should be applied as against CPWD rates while working out the value of the property in question. Thus, even on the merits of the case, the learned CIT(A) has decided the issue in favour of the assessee with this observation that expenditure should have been spread over in different years as construction was made in more than one year. The first appellate order is, thus, upheld. The grounds are, thus, decided accordingly. In result, the appeal is dismissed.

Summary

Issues:
1. Validity of reference to DVO for estimating construction cost
2. Application of CPWD rates vs. PWD rates
3. Finality of assessment order under section 142A

Issue 1 - Validity of reference to DVO for estimating construction cost:
The case involved an appeal by the Revenue challenging the deletion of an addition made under section 69 due to undisclosed investment in a property. The Assessing Officer had referred the matter to the DVO to estimate the construction cost of the property. The DVO's report led to an addition of income from undisclosed sources. The CIT(A) set aside the assessment for a de novo order. The Tribunal upheld the CIT(A)'s decision, ruling that the reference to the DVO was invalid as there were no pending assessment proceedings at the time of the reference. The Tribunal cited relevant case laws to support its decision, emphasizing that the Assessing Officer was not justified in making the reference, and thus, the first appellate order was upheld.

Issue 2 - Application of CPWD rates vs. PWD rates:
The Revenue argued that the CIT(A) erred in concluding that the DVO wrongly applied CPWD rates for construction cost estimation. The Authorized Representative defended the CIT(A)'s decision, stating that even CPWD rates could be used if they encompassed PWD rates. The Tribunal found merit in the Authorized Representative's submission, supporting the use of CPWD rates if they accounted for PWD rates. Consequently, the Tribunal upheld the first appellate order on this issue as well.

Issue 3 - Finality of assessment order under section 142A:
The Tribunal addressed the finality of the assessment order under section 142A, which required two conditions for non-application: the assessment was made before September 30, 2004, and it became final and conclusive by that date. In this case, the assessment was initially completed in 1998, meeting the first condition. However, the Tribunal noted that the assessment order had not reached finality by September 30, 2004, as it was under appeal. Therefore, the Tribunal disagreed with the first appellate authority's decision on this issue. Nevertheless, the Tribunal deemed this finding academic due to the primary issue of the invalid reference to the DVO. Ultimately, the appeal was dismissed.

In conclusion, the Tribunal's detailed analysis covered the validity of the DVO reference, the application of CPWD rates, and the finality of the assessment order under section 142A, providing a comprehensive overview of the judgment's key aspects and legal reasoning.