2003 (11) TMI 309 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reference to the District Valuation Officer (DVO) under Section 131(1)(d) of the Income Tax Act, 1961.
2. Justification for reopening assessments under Section 147/148 of the Income Tax Act, 1961.
3. Admissibility of the DVO's report as evidence for making additions to the assessee's income.
4. Requirement of pending proceedings for making a reference to the DVO.

Issue-wise Detailed Analysis:

1. Validity of Reference to the DVO under Section 131(1)(d):
The primary issue was whether the Assessing Officer (AO) was justified in making a reference to the DVO for estimating the cost of construction of "Rohit Bhawan" when no assessment proceedings were pending. The Tribunal observed that the AO made the reference on 11th July, 1995, but the assessments for the relevant years (1989-90 to 1991-92) were completed by 31st March, 1994. The Tribunal cited several case laws, including Dwijendra Lal Brahamchari vs. New Central Jute Mills Co. Ltd., Jamnadas Madhavji & Co. vs. J.B. Panchal, and G.M. Breweries Ltd. vs. Union of India, which established that the AO could exercise powers under Section 131(1) only if proceedings were pending before him. The Tribunal concluded that the reference to the DVO was invalid as no proceedings were pending.

2. Justification for Reopening Assessments under Section 147/148:
The Tribunal examined whether the AO had valid reasons to believe that income had escaped assessment, justifying the reopening of assessments under Section 147/148. The AO's belief was based solely on the DVO's report, which estimated a higher cost of construction than declared by the assessee. The Tribunal noted that the AO had already scrutinized the assessee's books of account and supporting documents during the original assessments and found them acceptable. Citing the Supreme Court's ruling in ITO vs. Lakhmani Mewaldas and Ganga Saran & Sons (P) Ltd. vs. ITO, the Tribunal held that the AO's belief must be based on relevant and material reasons, and a mere change of opinion does not justify reopening assessments. The Tribunal found that the reopening was not justified as it was based solely on the DVO's report, which was invalid.

3. Admissibility of the DVO's Report as Evidence:
The Tribunal examined whether the DVO's report could be used as evidence for making additions to the assessee's income. The Tribunal referred to the Supreme Court's decision in Smt. Amiya Bala Paul vs. CIT, which held that the AO had no authority to make a reference to the DVO under Section 131(1)(d) for estimating the cost of construction. The Tribunal concluded that the DVO's report could not be used as evidence for making additions, as the reference itself was invalid.

4. Requirement of Pending Proceedings for Making a Reference to the DVO:
The Tribunal emphasized that the existence of pending proceedings is a condition precedent for making a reference to the DVO under Section 131(1)(d). The Tribunal cited multiple High Court rulings, including those in the cases of ITO vs. James Joseph O' Gorman and Smt. Rina Sen vs. CIT, which affirmed that the AO could exercise powers under Section 131(1) only if proceedings were pending. The Tribunal concluded that since no proceedings were pending when the reference was made, the AO's action was outside his jurisdiction.

Conclusion:
The Tribunal allowed the assessee's appeals, holding that the AO's reference to the DVO was invalid, the reopening of assessments was unjustified, and the DVO's report could not be used as evidence for making additions. Consequently, the additions made to the assessee's income for the assessment years 1989-90, 1990-91, and 1991-92 were deleted.