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TMI Blog2002 (4) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... al premises during the years under consideration. The Valuation Officer, Nagpur vide letter No. VD/NGP/IT/97-98/318 dated 25-2-1998 furnished his valuation report of the property in question showing the valuation at Rs. 23,88,722 as against the cost of construction shown by the assessee at Rs. 12,44,546 in his books of account for assessment years 1995-96 and 1996-97. On the basis of the D.V.O.'s report, the Assessing Officer formed a belief that there was an escapement of income in the form of undervaluation of the cost of construction. He, therefore, reopened the assessments for both the years i.e. assessment years 1995-96 and 1996-97 by issuing notices under section 148. In response to the said notices, the assessee filed returns of income for both the years under consideration declaring the same income as was declared in the returns filed originally. Thereafter notices under sections 143(2) and 142(1) were issued by the Assessing Officer and the same were duly served on the assessee, During the course of assessment proceedings, the assessee relied on the valuation report of the registered valuer furnished by him ill support of the investment in the said property disclosed by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer also examined the books of account and other record maintained by the assessee in respect of construction work and pointed out some defects in the same as mentioned in his order before arriving at a conclusion that the said defects clearly revealed incorrectness of account maintained by the assessee in respect of construction of building account. The Assessing Officer also examined the books of account maintained by the assessee in respect of his medical profession and found that the professional fees disclosed by the assessee from his OPD and indoor patients is not fully vouched. He, therefore, was of the opinion that the assessee might have earned some professional income out of books and utilized the same for making investments in the building construction. Although he did not make any separate additions on this count, he tried to support the addition made by him on account of unexplained investment in the construction of building. 4. Aggrieved by the orders of the Assessing Officer, the assessee preferred appeals before the learned CIT (Appeals) in which the additions made by the Assessing Officer on account of unexplained investment in the construction of building was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised representative of the assessee having not disputed the valuation report of the Departmental Valuation Officer on merits before him, the cost of construction of the property determined by the Departmental Valuation Officer stood accepted by the assessee. He, therefore, dismissed the appeals filed by the assessee and confirmed the additions made by the Assessing Officer. Aggrieved by the same, the assessee is in appeal before us. 5. The assessee has raised as many as 9 grounds (as revised) each in these appeals out of which ground Nos. 1 to 4 relate to the legal issues challenging the validity of the reference made by the Assessing Officer under section 131(1)(a) to the D.V.O. whereas in the remaining grounds the assessee has disputed the additions made by the Assessing Officer on the merits of the case. In this regard we find it appropriate to consider and decide initially the preliminary ground Nos. 1 to 4 relating to the legal issues which are as follows: 1. Under the facts and circumstances of the case the reference to the Valuation Officer under section 131(a) when no proceedings were pending was bad in law. 2. Under the facts and circumstances of the case the reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r simply for reopening a completed assessment as held by Hon'ble Gauhati High Court in the case of Bhola Nath Majumdar. As regards ground No. 2, he contended that the valuation report obtained from the D.V.O. is merely an opinion and the same cannot be regarded as information under section 147(b) nor can it constitute a ground to form a reasonable belief so as to confer jurisdiction to the Assessing Officer for reopening an assessment. As regards ground Nos. 3 and 4, he contended that no defects in the books of account were pointed out by the Assessing Officer prior to the date of making a reference to the D.V.O. and in the absence of the same there was no case to make a reference by the Assessing Officer under section 131(1)(d). Referring to para No. 10 of Assessing Officer's order, he contended that the defects pointed out by the Assessing Officer much after the date of making reference to the D.V.O. during the assessment proceedings are not specific or material to justify the rejection of book results. He also made an attempt to explain the defects pointed out by the Assessing Officer by making a detailed submission in the light of relevant evidence placed in his paper book. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hunilal Patel wherein the scope of reopening of assessment after the amendments made in section 147 with effect from 1-4-1989 have been duly discussed before holding that the words "escaped assessment" are apt to cover the case of discovery of a mistake in assessment caused by either an erroneous, construction of transaction or due to its non consideration. He also invited our attention to the observations of Their Lordships of Hon'ble Gujarat High Court that if there is material placed on record which would show existence of income chargeable to tax and which ordinarily ought to have been included in the ascertainment of taxable income but not so included, that would itself provide a cause or justification for a belief to the Assessing Officer that such income had escaped assessment and the Assessing Officer in such cases would be ex facie justified in initiating the proceedings on such basis. The learned Departmental Representative also specifically drew our attention to the following observations given by the Hon'ble Gujarat High Court on page 841 of the Income-tax Report: "The function of the Assessing Officer is to administer the Act with solicitude for public treasury and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee did not raise any material arguments before the learned CIT (Appeals) to prove that the said defects pointed out by the Assessing Officer were not correct. He contended that the learned CIT (Appeals) has upheld the action of the Assessing Officer in rejecting the books of account and in adopting the construction cost valued by the D.V.O. as the assessee did not dispute the issue on merits before him. In this regard, he drew our attention to last 3 lines on page No. 14 of the learned CIT (Appeals) impugned order wherein he has clearly observed that the mistakes pointed out by the Assessing Officer in the assessment order are indicative of the facts that the books of account were not fully reliable. He, therefore, contended that the Assessing Officer having rejected the books of account produced by the assessee before him, was within his own right to adopt the cost of construction shown by the D.V.O. in his report after duly taking into consideration the objections raised by the assessee against the same. He, therefore, strongly supported the impugned order of the learned CIT (Appeals) stating that the same deserves to be upheld in law as well as on facts. 9. We have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. 10. From the perusal of the above provisions, it is evident that sub-section (1) of section 131 invest certain IT authorities with specific powers available to Civil Court under the Code of Civil Procedure, 1908. As far as the issue of commission is concerned which is relevant in the present context, provisions are contained in Order XXVI of CPC, 1908. It is also evident that the fields in which the powers under section 131(1) and section 131(1A) operate are different. Powers under section 131(1A) are the powers for making enquiry or investigation under the circumstances mentioned therein while the powers under section 131(1) are the powers which are akin to the powers of Civil Court while trying the suit. Use of the words "for the purpose of this Act" in section 131(1) have to be read in conjunction with the further words "have the same powers, as are vested in Civil Court under Code of Civil Procedure, 1908 when trying a suit". Thus for the purpose of the Act means for the purpose of making an assessment or trying a suit when it comes to the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jute Mills Co. Ltd., wherein it was held that the purpose of the Act is not only to make the assessment but all proceedings incidental thereto including the proceeding for investigation relating to reopening of the assessment. In this regard, we have already discussed the various decisions rendered by the different High Courts wherein a different view contrary to the one taken by the Hon'ble Calcutta High Court in the case of New Central Jute Mills Co. Ltd. has been taken and the same being favourable to the assessee, we opt to adopt the same. Nevertheless, the Hon'ble Calcutta High Court in the case of ITO v. James Joseph O' Gorman [1993] 204 ITR 454 has deviated from its earlier view taken in the case of New Central Jute Mills Co. Ltd. while holding that the power in respect of matters mentioned in section 131(1) including that of issuance of commission could be exercised only if a proceeding is pending before the concerned officer and not otherwise. It is thus clear that the pendency of proceeding is sine qua non for giving jurisdiction to the concerned authority to make a reference to the D.V.O. and the Assessing Officer can exercise the powers conferred on him under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the issue of notice under section 143(2) as a matter remedy available to the Assessing Officer, within the time limit prescribed in the statute, the assessment process is deemed to have completed on the issuance of intimation under section 143(1)(a) itself. Thus the issuance of notice under section 143(1)(a) operates as a completion or conclusion of assessment although without prejudice to the powers of the Assessing Officer to issue notice under section 143(2) and in our opinion the normal procedure of assessment cannot be said to have commenced or reopened unless and until a notice under section 143(2) is issued by the Assessing Officer. This view also gets support from the recent judgment of the Hon'ble Punjab Haryana High Court in the case of Punjab Tractors Ltd. v. Joint CIT [2002] 254 ITR 242 wherein it has been held that the intimation under section 143(1) operates as an order of assessment unless the authority proceeds to give notice under section 143(2) and passes an order under section 143(3). In the present case, admittedly notices under section 143(2) were not issued by the Assessing Officer prior to the date of making a reference to the D.V.O. on 12-9-1997 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the proceedings are pending before the Assessing Officer. As already observed, the powers given to the Assessing Officer under section 131(1) are akin to the powers given to the Court under Civil Procedure Code under section 75 and as per the provisions of section 75, the Court may issue a commission, inter alia, to make a local investigation or to hold scientific, technical or expert investigation subject to such conditions and limits as may be prescribed. Rules 9 and 10A of Order XXVI of the C.P.C. are relevant in this regard. Rule 9 clearly mentions that local investigation is to be made for the purpose of elucidating any matter in dispute or for ascertaining the market value of any property whereas as per Rule 10A the Court is empowered to issue a commission to resolve a question involving such investigation which in the opinion of the Court cannot be conveniently conducted before it. It is thus evident that the existence of a dispute or an issue in question before the Court is the pre-requisite for issue of commission and such issue or dispute relating thereto arises before the Court when material proposition of fact or law is affirmed by one party and denied by the other. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d go only by the valuation report given by the Valuation Officer. In the case of Asstt. CIT v. Radheyshyam Bansal [2000] 112 Taxman 246 the Rajkot Bench of ITAT has held that when the Assessing Officer has not been able to find out any defects in the books of account or is any other evidence to justify the plea that the cost of construction of the property was under-stated, he is not entitled to refer the case to the Valuation Officer to determine the cost of construction and make any addition on the basis of cost determined by the Valuation Officer. In the case of CIT v. Pratapsingh Amrosingh Rajendra Singh Deepak Kumar [1993] 200 ITR 788, the Hon'ble Rajasthan High Court has held that the valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the ITO is of the opinion that no reliance can be placed on such books of account. In the case of CIT v. Hotel Joshi [2000] 242 ITR 478 the Hon'ble Rajasthan High Court has held that in a ease where value of asset is claimed by the assessee on the basis of regular books of account maintained for the construction of the asset and not on the basis of valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the years under consideration before making a reference to the D.V.O. Thus the conditions precedent for making such a reference were not satisfied and this being the position, we are of the opinion that the Assessing Officer had no jurisdiction to make reference to the D.V.O. under section 131(1)(a). 15. In ground No. 2, the assessee has challenged the validity of the Assessing Officer's jurisdiction in making the reassessment when the reason to believe did not survive as a result of the foundation/basis of such belief i.e. D.V.O.'s report becoming non est in the eye of law. In this regard, we have already arrived at a conclusion while deciding ground Nos. 1, 3 and 4 in the preceding paras that the reference made by the Assessing Officer to the D.V.O. was without jurisdiction and, therefore, was invalid. In the case of Brig. B. Lall cited by the learned counsel for the assessee, the Hon'ble Rajasthan High Court on page 329 of the Income-tax Report held that a report submitted by the Valuation Officer in an invalid reference must be treated as a nullity in the eye of law, non est and void ab initio. Explaining further, the Hon'ble High Court also observed that the assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X
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