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TMI Blog2004 (7) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 143(2) appears to have been issued in respect of other three assessment years. 4. During the course of regular assessment proceedings for assessment year 1995-96, the Assessing Officer made a reference to the Valuation Officer under section 131 of the Act to estimate the cost of construction of the building owned by the assessee. On the basis of the report of the Valuation Officer, the necessary addition under section 69 of the Act was made in the assessment year 1995-96. As the construction was spread over a number of years including the assessment years in question before us, the Assessing Officer felt that the income chargeable to tax in these years have escaped assessment. The Assessing Officer, therefore, issued the notices under section 148 of the Act on 30-5-2001 for all the years after recording the following reasons: "In the course of assessment proceedings of M/s. Janki Prasad Garden Enclave Pvt. Ltd., 538, Sitapur Road, Lucknow, for assessment year 1995-96 a reference was made the District Valuation Officer for determining the cost of construction of certain properties constructed by the assessee vide his report dated 31-10-1997, the District Valuation O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Valuation Officer's report. Accordingly, no addition on account of undisclosed investment in the construction of property was made by the Assessing Officer. However, the Assessing Officer still passed orders under section 143(3)/148 of the Act by making the following additions: ------------------------------------------------------------------------------ Sl. Particulars A.Y. A.Y. A.Y. A.Y. No. 1993-94 1994-95 1996-97 1997-98 ------------------------------------------------------------------------------ 1. Pooja Expenses 7,080 - 2,131 - 2. Subscription to Estate Builders Association of U.P. treated as donation 1,500 - - - 3. Ad hoc disallowances 10,000 - - - under the head: (i) Advertisement Exp. (ii) Telephone Exp. (iii) Travelling Exp. (iv) General Exp. 4. Travelling Exp. - 2,616 8,528 - 5. Telephone Exp. - - 8,272 20,149 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer has to hold that he had reason to believe that income chargeable to tax has escaped assessment. From the perusal of the reasons recorded, it was clear that nowhere the Assessing Officer has held that income chargeable to tax has escaped assessment. Moreover, it was also necessary that the Assessing Officer should have enough material for formation of his belief that income chargeable to tax has escaped assessment. The existence of tenable material for the formation of belief is a pre-requisite for initiation of action under section 147 of the Act. He stated that the only material before the Assessing Officer was the valuation report which was not to be considered in view of the Hon'ble Supreme Court decision in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407. The learned Counsel stated that as the very reference to the Valuation Officer was invalid, the Assessing Officer had no material for formation of belief that income chargeable to tax has escaped assessment. He, therefore, pleaded that the assumption of jurisdiction under section 147 of the Act itself was illegal. 8. On merits also, the learned Counsel stated that the Addl. CIT had directed not to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. DR supported the order of the ld. CIT(A). 9. We have considered the rival submissions. The facts have been mentioned above. Section 147 of the Act which has been invoked by the Assessing Officer reads as under: "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 10. In the amended section 147, with effect from 1-4-1989, if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment, for any assessment year, he has been empowered subject to the provisions of sections 148 to 153 of the Act to assess or re-assess such income and any other income chargeable to tax which has escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve reason to believe that any part of income has escaped assessment." 13. The above view was also expressed by various courts in the cases in Ganga Saran Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and 97 ITR 237 (51c). The Hon'ble Supreme Court in the case of Ganga Saran Sons (P.) Ltd. has held that that reason should be such which can lead to a belief. This cannot be a mere pretense, fanciful or arbitrary or irrational. It is admitted position that the sufficiency of the material cannot be investigated but certainly, whether there was a material at all for formation of belief can always be examined by a Court. The view finds support from the decision of Hon'ble Rajasthan High Court in the case of Sardar Kehar Singh v. CIT [1992] 195 ITR 769. 14. The Hon'ble Delhi High Court in the case of Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83 and in the case of United Electricals Co. (P.) Ltd. v. CIT [2002] 258 ITR 317 (Delhi) has held as under: "crucial expression "reason to believe" predicates that Assessing Officer must hold a belief... by the existence of reasons for holding such a belief. In other words, it contemplates exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1994-95, it was beyond the period of four years. The total addition made in this year was less than Rs. 10,000. One may say that as there was difference of about Rs. 50,000 between the cost of construction declared by the assessee and estimated by the Valuation Officer, the escaped income exceeded Rs. 50,000 and therefore, the initiation of proceedings under section 147 was valid. But as we have held that the valuation report was not a material at all for the formation of belief, the same has to be ignored. Similarly, for assessment year 1993-94, the addition made by the Assessing Officer did not exceed Rs. 25,000. In this year, the order was made under section 143(1)(a) of the Act. As per section 149 of the Act, the notice beyond a period of four years could be issued if the income chargeable to tax has escaped assessment amounts to Rs. 25,000. Thus, even in this year the assumption of jurisdiction under section 147 was invalid. 18. It may be mentioned that in the reasons recorded, the Assessing Officer has only relied on the Valuation Officer's report. He has not pointed out any other material which led to believe that any income chargeable to tax has escaped assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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