2010 (4) TMI 239 - HC - Income Tax

Reassessment-Notice- the assessing authority issued the notice under section 143(1) & (2). During the course of assessment proceedings the assessing authority noticed the investment at Rs. 10,64,669.90 in the Construction of the factory building at Bhadoi. The assessing authority referred the matter to Departmental valuer. The valuing officer submitted his report. As per the valuation report, there were difference in the expenses incurred in the construction of the factory building as shown by the assessee in the aforesaid years. On the basis of the Departmental valuer s report and the alleged differences in the investment in the construction, the assessing authority made the addition in the assessment year 2001-02 and had also issued notices under section 148 of the Act for the Assessment year 1998-99. Held that- there is escaped assessment. The Departmental Valuer s report constituted material for entertaining a belief of escaped income in the year under consideration. The re assessment proceedings are valid.

Issues Involved:
1. Validity of notices issued under Section 143(2) and Section 148 of the Income-tax Act, 1961.
2. Legality of referring the matter to the Departmental Valuation Cell for determining the cost of construction.
3. Applicability of Section 142A of the Income-tax Act, 1961.
4. Justification for forming a belief of escaped assessment based on the Departmental Valuer's report.

Detailed Analysis:

1. Validity of Notices Issued Under Section 143(2) and Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notices dated May 13, 2004, issued under Section 143(2) and the notices dated March 22, 2004, issued under Section 148 for the assessment years 1998-99, 1999-2000, 2000-01, and 2002-03. The court noted that the returns for these years had been processed summarily under Section 143(1)(a) and accepted. However, the assessing authority issued the notices based on the Departmental Valuation Officer's report, which indicated discrepancies in the investment in the construction of factory buildings. The court held that the notices under Section 148 were in accordance with law, as the intimation under Section 143(1)(a) is not considered an assessment order.

2. Legality of Referring the Matter to the Departmental Valuation Cell:
The petitioner argued that the matter could not be referred to the Departmental Valuation Cell for estimating the cost of construction, citing the Supreme Court decision in Smt. Amiya Bala Paul v. CIT. The court, however, found that Section 142A of the Act, introduced to circumvent the Supreme Court's decision, allowed for such a reference for the purposes of Section 69, which pertains to unexplained investments. The court disagreed with the Delhi High Court's view in CIT v. Aar Pee Apartments P. Ltd. and held that investment in the construction of a building falls under Section 69 and not Section 69C.

3. Applicability of Section 142A of the Income-tax Act, 1961:
Section 142A allows the assessing officer to refer the matter to the Departmental Valuation Officer to estimate the value of any investment referred to in Section 69. The court held that the investment made in the construction of the building, if not recorded in the books of account, falls under Section 69. Thus, the reference to the Valuation Cell for determining the cost of construction was deemed lawful.

4. Justification for Forming a Belief of Escaped Assessment Based on the Departmental Valuer's Report:
The court emphasized that under Article 226 of the Constitution of India, it could only examine whether there was any material on which a belief of escaped assessment could be formed. The court found that the Departmental Valuer's report, which disclosed higher investments than those recorded in the books of account, constituted material for forming a belief of escaped income. The court cited several precedents, including Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd., to support its conclusion that the belief of escaped assessment need not be conclusively proven at the notice stage but must be based on relevant material.

Conclusion:
The court concluded that there was sufficient material to form a belief of escaped assessment for the assessment years in question. The notices issued under Section 148 were valid, and the reference to the Departmental Valuation Cell was lawful. The writ petition was dismissed.

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