2002 (4) TMI 247 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reference to the Valuation Officer u/s 131(1)(a) when no proceedings were pending.
2. Validity of reopening of assessment u/s 147 based on the D.V.O.'s report.
3. Jurisdiction of Assessing Officer to estimate the cost of construction and make additions u/s 69.
4. Justification for rejecting the books of account.

Summary:

Issue 1: Validity of Reference to Valuation Officer u/s 131(1)(a):
The assessee contended that the reference to the Valuation Officer u/s 131(1)(a) was invalid as no proceedings were pending at the time. The Tribunal concluded that the pendency of a proceeding is a sine qua non for exercising powers u/s 131(1). The Tribunal cited various High Court decisions, including the Bombay High Court in Jamnadas Madhavji & Co. and the Rajasthan High Court in Brig. B. Lall, which held that powers under section 131(1) can only be exercised if a proceeding is pending. Since the returns were processed under section 143(1)(a) and no notice under section 143(2) was issued before making the reference, the Tribunal held that the Assessing Officer had no jurisdiction to make such a reference, rendering it invalid.

Issue 2: Validity of Reopening of Assessment u/s 147:
The Tribunal held that the reopening of assessments based solely on the D.V.O.'s report, obtained through an invalid reference, was not justified. The Tribunal referenced the Rajasthan High Court's decision in Brig. B. Lall, which stated that a valuation report from an invalid reference is non est and cannot form the basis for reopening assessments. Consequently, the reassessment proceedings were deemed not validly initiated and were quashed.

Issue 3: Jurisdiction of Assessing Officer to Estimate Cost of Construction:
The Tribunal observed that the Assessing Officer must apply judicial mind and derive satisfaction regarding the unreliability of the cost of construction disclosed in the books before making a reference to the D.V.O. In this case, the Assessing Officer did not point out specific defects in the books before making the reference. Citing various judicial pronouncements, including decisions from the Delhi Bench of ITAT and the Hon'ble Rajasthan High Court, the Tribunal held that the Assessing Officer was not justified in ignoring the evidence provided by the books of account and relying solely on the D.V.O.'s report.

Issue 4: Justification for Rejecting the Books of Account:
The Tribunal noted that the Assessing Officer pointed out defects in the books of account maintained by the assessee during the assessment proceedings. However, these defects were not specific or material enough to justify the rejection of the books. The Tribunal emphasized that the Assessing Officer must provide a reasonable opportunity to the assessee to substantiate the construction cost with relevant evidence before rejecting the books. Since this was not done, the Tribunal found the rejection of the books of account to be unjustified.

Conclusion:
The Tribunal quashed the reassessments for both assessment years 1995-96 and 1996-97, allowing the appeals of the assessee. The reassessments were deemed invalid due to the improper reference to the D.V.O. and the unjustified rejection of the books of account.