2006 (11) TMI 279 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment and assumption of jurisdiction u/s 147.
2. Validity of reference to the Valuation Officer under s. 55A.
3. Use of DVO's report as evidence.
4. Compliance with principles of natural justice.

Summary:

Reopening of Assessment and Assumption of Jurisdiction u/s 147:
The Department challenged the CIT(A)'s decision that the reopening of assessment and assumption of jurisdiction u/s 147 was bad in law, leading to the annulment of the order u/s 143(3) r/w s. 147. The Tribunal noted that the CIT(A) did not consider the post-1989 provisions of s. 147, which allow reopening even if the assessee had fully disclosed all material facts, unless covered by the proviso to s. 147. The Tribunal emphasized that the AO's belief that income had escaped assessment, based on the DVO's report, was sufficient for initiating proceedings u/s 147 within four years of the relevant assessment year.

Validity of Reference to the Valuation Officer under s. 55A:
The CIT(A) held that the reference to the Valuation Officer under s. 55A was invalid as it was made when no proceeding was pending, and it was contrary to the Supreme Court's decision in Smt. Amiya Bala Paul vs. CIT. The Tribunal, however, noted that the AO can consider the DVO's report as a piece of evidence, even if the reference was not strictly in accordance with s. 55A, as long as it was relevant to forming a belief that income had escaped assessment.

Use of DVO's Report as Evidence:
The Tribunal highlighted that the AO is not bound by strict rules of evidence and can rely on material that may not be admissible under the Indian Evidence Act. The DVO's report, showing a higher cost of construction than declared by the assessee, provided the AO with 'reason to believe' that income had escaped assessment. The Tribunal emphasized that the AO's belief need not be based on final adjudication at the stage of initiating proceedings u/s 147.

Compliance with Principles of Natural Justice:
The Tribunal acknowledged that evidence collected without the assessee's knowledge and used against them without an opportunity to rebut it would violate principles of natural justice. However, in this case, the Tribunal found that the AO had sufficient grounds to initiate proceedings based on the DVO's report and directed the CIT(A) to re-examine the case on merits, ensuring that the assessee is given an opportunity to present their case.

Conclusion:
The Tribunal reversed the CIT(A)'s order annulling the assessment u/s 147 and restored the case to the CIT(A) for a fresh examination on merits, considering the Supreme Court's decision in Smt. Amiya Bala Paul and ensuring compliance with principles of natural justice. The Department's appeal was partly allowed for statistical purposes, and the assessee's cross-objection was also partly allowed for statistical purposes.