9911796707
TMI Blog2007 (8) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... information or material had escaped assessment, and (ii) if it were found that the assessee had understated the income or had claimed excessive loss, deduction, allowance or relief in the return. For the reopening for the assessment year 1997-98 he held that though the Commissioner of Income-tax (Appeals) has not decided the issue, it being a legal issue can be decided by the Tribunal as no investigation of facts were required. He referred to para 3.17 of the order of the Commissioner of Income-tax (Appeals) and held that the proceedings under section 147 were initiated without there being any information or material with the Assessing Officer for having reason to believe that any income chargeable to tax had escaped assessment and also that there was no allegation which could satisfy the requirement of Explanation 2(b) to section 147 of the Act and, therefore, it has to be taken that the proceedings under section 147 were initiated solely for the purpose of roving enquiry. He further held that books of account cannot be rejected as the defects were trifle and insignificant and reference to the DVO was not valid. He further observed that the cases of the assessee for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and the consequent subsequent proceedings. And also On the facts and circumstances of the case, when the assessee having not disputed the sufficiency of reasons for reopening, neither before the Assessing Officer nor before the Commissioner of Income-tax (Appeals), nor where any decision was rendered by the Commissioner of Income-tax (Appeals), nor there is any material available on record for deciding the question of sufficiency of reasons of reopening, which has been raised for the first time before the Tribunal, the matter is required to be restored to the Commissioner of Income-tax (Appeals) for deciding the issue after appreciation of reasons recorded for reopening the assessment u/s 147. 2. The rejection of books of account for the assessment year 1997-98 was justified so as to authorize the Assessing Officer to make reference to the DVO asking to determine the cost of construction of the building known as Ashlesha Bungalows situated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and Bungalow A-27. And also, after insertion of section 142A in the statute by the Finance (No. 2) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation and electrical provisions in the building, qualification in the DVO s report regarding huge cost incurred in addition/alteration work carried out but not considered in the valuation report. And on the answer to the aforesaid question above being affirmative, on the facts and in the circumstances of the case the report of the DVO which was obtained during the course of proceedings u/s 143(3)/ 147 for the assessment year 1997-98 in respect of very same building which was also under construction during the assessment years 1995-96, 1996-97 and 1998-99, can be validly used during the course of assessment proceedings u/s 143(3)/147 for the assessment years 1995-96, 1996-97 and 1998-99. Both the Members opined that, the rejection of books of account may not be valid in the eye of law for all these three years. - HON'BLE R.P. GARG, VICE PRESIDENT, I.S. VERMA, J.M. AND R.C. SHARMA, A.M. For the Appellant : S. N. Soparkar For the Respondent : D. C. Patwari ORDER I. S. Verma (Judicial Member). 1. As these appeals are by the same assessee, for the sake of convenience, we dispose of these appeals by this common/consolidated order. 2. Though the assessee has raised various grounds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same in violation of the provisions of section 40A(3) of the Act, disallowed 25 per cent. of the said payment. 4.4 During the course of carrying on proceedings under section 147 of the Act, the Assessing Officer scrutinized the assessee s books of account and rejected the same as per his finding contained in para II of the assessment order, where, inter alia, the Assessing Officer alleged to have found the following discrepancies : (i) According to the Assessing Officer, vouchers for the following expenses were not available : (a) for carpentry work Rs. 1,000 (b) for colour work Rs. 1,320 (c) for fabrication work Rs. 472 (d) for plumbing work Rs. 27,793 (ii) The Assessing Officer had, further, found that vouchers for following expenses were not bearing signatures of the recipient : (a) voucher in the name of Shri Rameshbhai Nathabhai Parmar for Rs. 20 paid on account of welding of gate and voucher for Rs. 10 paid for one acid bottle. (b) voucher in the name of Shri Parmar Mangalbhai Somabhai for Rs. 200 paid on account of garden levelling work of block No. 6. (c) voucher in the name of Shri Prafulbhai for Rs. 550 paid for water sprinkling for 22 days at the rate of Rs. 25 per day. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s book and it was on verification from M/s. Shiv Traders that they had accounted for only an amount of Rs. 45,323. The difference of Rs. 506 was on account of Kasar accounted by M/s. Shiv Traders in their books of account and credited to the assessee s accounts. In support of this explanation, the assessee had filed a letter from M/s. Shiv Traders confirming the accounting for Rs. 506 on account of Kasar allowed to the assessee. The Assessing Officer, however, did not accept this explanation on the ground that the assessee s books were audited under section 44AB of the Act and any reconciliation should have been carried on direct audit. (b) Account of M/s. Amit Traders: According to the Assessing Officer, the assessee s books of account were showing a closing balance of Rs. 50,200, whereas M/s. Amit Traders had shown the closing balance in the accounts of the assessee at Rs. 47,200. When the assessee was called upon to explain the discrepancy, the assessee submitted that the difference was on account of credit note No. 1914 of Rs. 200 and credit note No. 1891 of Rs. 2,800 both dated December 31, 1996, which were accounted for by M/s. Amit Traders by crediting the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 3/1997 68,78,879 94,57,014 25,78,135 5. 4/1997 to 3/1998 45,22,750 62,16,218 19,01,523 6. 4/1998 to 12/1998 15,44,733 21,21,871 5,77,138 Total 2,37,96,653 3,25,63,445 4.8. The Assessing Officer, after providing the assessee an opportunity of being heard, considered the cost of construction estimated by the DVO as correct and subsequently completed assessment under section 143(3) read with section 148 of the Act on March 28, 2002 by making the following two additions : (i) Disallowance under section 40A(3) of the Act = 5,545 (ii) Addition on account of alleged undisclosed investment in construction of building by mentioning caption expenses understated as discussed in para 2 = 25,78,135 4.9. Before completing the assessment for the assessment year 1997-98, i.e., when the assessment proceedings for the assessment year 1997-98 were going on, the Assessing Officer issued notice under section 148 of the Act for the assessment years 1995-96, 1996-97 and 1998-99 on March 27, 2002, which were served on the assessee on March 30, 2003. 4.10. In response to the aforesaid notices under section 148 of the Act, the assessee wrote letters dated March 29, 2003 (seems to have been wrongly mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of assessment proceedings for the assessment year 1997-98, the matter of estimating the cost of construction was referred to the DVO and report of the same was obtained, which was also given to the appellant for his explanation and comment, and the Assessing Officer after considering the objection of the appellant, has held that the report of the Valuation Officer is taken for the purpose of determining the investment in the construction of Ashlesha Bunglows. Accordingly, the investment as determined on the basis of report of the DVO related to the period under consideration was taken by the Assessing Officer and difference between the above and the amount shown by the appellant being Rs. 9,60,547 was added. Before discussing main ground No. 1, the appellant has also raised ground against the issuance of notice under section 148. It was argued that reassessment cannot be reopened on the basis of report of the DVO. This argument has been considered. In fact, the decisions referred to by the appellant in this regard were related to the assessment year prior to the assessment year 1989-90. With effect from 1st April, 1989, the provisions of section 147 have undergon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer that the appellant has understated the income on the basis of the report of the DVO, wherein there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only return was processed under section 143(1) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has first been taken up while taking the case under section 147 and accordingly, it cannot be said to be change of opinion of the Assessing Officer, as contended by the appellant. Hence, the action of the Assessing Officer in passing an order under section 143(3) read with section 147 is held correct. For assessment year 1998-99: 3.3 Before discussing main ground No. 1, the appellant has also raised a ground against the issuance of notice under section 148. It was argued that reassessment cannot be reopened on the basis of the report of the DVO. This argument has been considered. In fact, the decisions referred to by the appellant in this regard were related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed the return for all the assessment years under section 143(1)(a) of the Act, was not justified in initiating the proceedings under section 147 of the Act. 6.1 Referring to the assessment orders as well as the orders of the Commissioner of Income-tax (Appeals), learned counsel for the assessee, submitted that so far as the assessment year 1997-98 is concerned, none of the authorities has referred to any evidence or reason which could have made the Assessing Officer to have reasons to believe that a particular income had escaped assessment. Learned counsel for the assessee, after drawing our attention to para No. 3.1 of the Commissioner of Income-tax (Appeals) for the assessment year 1997-98 submitted that in the absence of any other finding of any of the two authorities, the observation of the Commissioner of Income-tax (Appeals) to the effect that the case was taken up by issuing notice under section 148 read with section 147 of the Act dated January 28, 2000, and was completed under section 143(3) of the Act , is the only clue which leads one to believe that proceedings under section 147 of the Act, for the assessment year 1997-98 were initiated without there being any inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is concerned, here again the alleged difference in cost of construction shown by the assessee and estimated by the DVO was known to the Assessing Officer only in consequence upon the reference made under section 131(1)(d) of the Act, to the DVO only on December 26, 2001, as is evident from para 1.2 of the valuation report where the DVO, in the column letter number and date under which reference was received , has mentioned as Nil dated December 26, 2001 . From this fact, learned counsel for the assessee submitted that the notice under section 148 of the Act for the assessment year 1997-98 was issued on January 28, 2000, and served on the assessee on February 8, 2000, whereas the reference under section 131(1)(d) to the DVO was made by the Assessing Officer as per letter No. Nil, dated December 26, 2001, i.e., only during the course of assessment proceedings under section 147 of the Act, 1961. (emphasis supplied). 6.4 Coming to the rejection of the assessee s books of account, learned counsel for the assessee, first of all, submitted that the Assessing Officer having not made any addition as a result of rejection of books of account in any of the assessment year, he could not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er [2002] 123 Taxman (Mag) 324 (Asr.) Section 147, read with section 148, of the Income-tax Act, 1961Income escaping assessment-Position after 1st April, 1989-Assessment year 1995-96-Whether the Assessing Officer was justified in reopening assessment merely on basis of Valuation Officer s report where there was no other material with Assessing Officer for initiating reassessment proceedings and the assessee s return had been processed earlier under section 143(1)(a)-Held, no (ii) CIT v. Smt. Usha Mathur [2001] 252 ITR 179 (P H) Headnote : Appeal (High Court)-Substantial question of law-Tribunal has recorded each finding on the basis of the evidence on the file and also held that valuation report cannot be made basis of reopening of the assessment and also deleted addition on sale of jewellery-No error in the finding of fact recorded by the Tribunal has been pointed out Consequently, no substantial question of law arises also the ultimate tax liability would be of a very small amount. There is therefore no ground to interfere under section 260A. Held Each finding has been recorded by the Tribunal on the basis of the evidence on the file. No error in the findings of fact recorded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned earlier the reasons of reopening the assessments are not relevant to any suppression of sales which is said to be the income escaping assessment. If the reasons of reopening cannot be said to be relevant for ascertaining whether or not any income has escaped assessment due to suppression of sales, it is only axiomatic that such reasons cannot constitute even prima facie material on the basis of which the Revenue could reopen the case. ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and Bhola Nath Majumdar v. ITO [1996] 221 ITR 608 (Gauhati) relied on ; K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) and N. R. K. Ram Kumar Raja v. ITO [1999] 106 Taxman 81 (Mad) applied. Conclusion : Reopening of assessment merely on the basis of the DVO s report is not sustainable. (iv) ITO v. Vijay Kumar (ITO v. Mahesh Kumar) (ITO v. Parmanand) [2001] 73 TTJ (Jodh) 17. Headnote : Reassessment under section 147(b)-Information-Assessing Officer was not authorized to make reference to DVO when the assessments were already completed-Report of DVO is an opinion and the Assessing Officer cannot use it as information for reopening the assessment. Held The assessment had already been completed and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the DVO has acted in a cavalier manner while inspecting the premises of the building in an hour, that too on the date of reference itself, which happened to be the date of search operations, during the course of search operations, without notice, transcending all principles of natural justice. Further, he declined to adopt the detailed quantities method of valuation, on the pretext that some material drawings were not furnished to him. The short-cut methods of evaluating cost of construction, i.e., plinth area method is resorted to on the pretext of non-availability of some material, when a registered valuer could do the same valuation of the same building on the basis of the same material/drawings on a detailed valuation method. Private parties cannot be expected to maintain all the detailed drawings sought by the DVO. Law does not require the impossible to be done. The DVO has also not stated as to why he was unable to accept the quantities and rates arrived at by the registered valuer. He gave no reason why they have to be disbelieved or are inaccurate. The Assessing Officer should have insisted that the DVO investigate the matter properly adhering to the principles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defects in accounts-Assessee wrongly showing the attendance of workers on 29th and 30th February-Plausible explanation given-Assessing Officer could have verified the wages from other relevant records-Internal vouchers could be relied upon and cross verified from other relevant records Simply a few clerical errors, lack of few vouchers or absence of a particular record do not make the whole accounts incorrect if fair profits are deducible-Provisions of section 145(2) could not be invoked in above circumstances-Assessing Officer comparing expenditure per metric tonne under each head with similar expenditure incurred by some other firms Conditions under which assessee-firm was functioning was altogether different-Disallowances deleted. (ii) Alka Stone Crusher Co. v. Assessing Officer [1998] 101 Taxman (Mag) 271 (Jab) Section 145 of the Income-tax Act, 1961-Method of accounting Estimation of profit-Assessment years 1986-87 and 1987-88Whether, where lower authorities disallowed expenditures shown in profit and loss account which were very nominal compared to gross profit on ground that vouchers for all expenses were not available and where no default was pointed out in account books, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act, 1961-Method of accounting Rejection of accounts-Assessment year 1995-96-Assessing Officer rejected books of account of assessee on ground that muster rolls did not indicate complete addresses of labourers, signatures and thumb impressions were not verifiable, cartage, transport, repair and maintenance expenses were not supported by vouchers and some vouchers were self-made-Assessing Officer estimated net profit at rate of 12.5 per cent. against 10.13 per cent. claimed by assessee and made addition accordingly-Whether basis for rejection of books of account under section 145 should be more than mere stereo type allegation, especially when assessee claims that accounts are regularly maintained, supported with bills and vouchers and subject to statutory audit-Held, yes-Tribunal in case of same assessee for assessment years 1985-86, 1987-88 and 1993-94 had not justified such stereo type basis for rejection of book results under section 145(2)-Whether, therefore, there was no justification to invoke section 145(2) and reject books of account and make addition applying net profit rate of 12.5 per cent-Held, yes. (4) For the proposition that if regular books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary, the Commissioner of Income-tax (Appeals) has given clear finding that such position is available in this case. In this view of the matter, we fail to appreciate how an addition could not be made on the basis of probable cost of construction. We are constrained to observe that even though the Commissioner of Income-tax (Appeals) has given his findings which are clearly in favour of the assessee, he thought it fit to sustain certain additions by estimating the cost of constructions at Rs. 500 per sq. mtr., without any basis for this action. It appears to us that all these litigations have started only because such operation under section 132 of the Act carried out at the premises of the assessee and the Department could not find anything in such operation. We make this observation as according to us, the Income-tax authorities were not justified in ignoring the books of account of the assessee specifically maintained in respect of the cost of construction of the property in question which were fully supported by vouchers, bills, etc. In fact, as would appear from the orders of the Income-tax authorities (reproduced above) that they have simply ignored the books of account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nreliability of the books of account without showing defect in that, cannot be taken for granted. (v) Asst. CIT v. Smt. P. Appayamma [1993] 66 Taxman (Mag) 104 (Hyd) Section 69 of the Income-tax Act, 1961-Unexplained investment -Assessment years 1986-87 and 1987-88-Assessee constructed second floor of building and produced account books as well as valuation report in support of cost of construction-ITO, however, obtained valuation report from Valuation Officer wherein cost of construction was estimated at a higher value-Relying on this report and without pointing out any defects in the assessee s accounts book ITO added difference as an explained investment to the assessee s income Whether ITO s action could be sustained-Held, No Section 7 of the Wealth-tax Act, 1957-Valuation of assets assessment years 1986-87 and 1987-88-Whether addition on account of unexplained investment was sustainable mearly on basis of report of Valuation Officer when the assessee had produced accounts in support of cost of construction and no defects had been found therein-Held, no (vi) Shiv Engg. Works v. ITO [1990] 53 Taxman (Mag) 109 (Jaipur) Section 69 of the Income-tax Act, 1961-Unexplained investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) The assessee s books of account having not been rejected, no addition was called for on the ground that the cost of construction shown by the assessee was not correct. (iv) If at all the valuation was to be determined it should have been determined on the basis of the State Public Works Department rates and not the Central Public Works Department rates. Having arrived at the aforesaid conclusions, I am of the opinion that on the facts and circumstances of the case, there can be no addition under section 69 of the Act either as a whole or on proportionate basis in any of the assessment years, i.e., 1990-91 and 1991-92, on the basis of the report of the Departmental Valuation Officer and, consequently, I answer the question referred for my opinion in the negative in favour of the assessee and against the Revenue. The assessee s appeals are accordingly allowed. (5) For the proposition that even if any addition is made under section 69C, there shall have to be a corresponding deduction of identical amount till the assessment year 1999-2000. (i) Nishant Housing Development (P.) Ltd. v. Asst. CIT [1995] 52 ITD 103 (Patna) It follows that in the former case, if the assessee has incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying out the construction of the shopping centre in the course of business. Thus, in the present case assuming that even if any addition is required to be made under section 69C, the entire expenditure towards it has to be allowed as a deduction under section 37(1). Thus, taking into consideration the totality of the facts and circumstances of the case, the Departmental authorities were not justified in making the disputed addition because even if the assessee did incur some additional expenditure in the cost of construction, the equivalent debit in the profit and loss account will neutralize each other and no addition could be made. Conclusion : Addition could not be made on account of unexplained investment in construction simply on the basis of report of DVO where the cost of construction was debited in accounts on the basis of bills raised by builder and the Assessing Officer found no specific defect in the books of account. (iii) S. F. Wadia v. ITO [1986] 19 ITD 306 (Ahd) 13. When we are on the provisions contained in section 69C, we would like to mention that section was inserted vide Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, on the basis of recomm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings a nullity though it reduced considerable evidential value of DVO s report-Held, yes-Whether moment, Commissioner of Income-tax (Appeals) arrived at conclusion that DVO s report solely could not be made basis for estimating cost, he should have considered some other material-Held, yes-Whether Assessing Officer had wilfully violated directions of Tribunal and that arrogant conduct could expose him to contempt proceedings-Held, yes-Whether addition to assessee s income could have been made on common knowledge that persons engaged in construction usually understate cost of construction-Held, no-Whether estimation of cost of construction by Assessing Officer was justified-Held, no Whether, therefore, addition to assessee s income had to be deleted - Held, yes. (v) B and Bros. Engg. Works v. Deputy CIT [2003] 84 ITD 243 (Ahd) The next ground of appeal relates to the addition made by the Assessing Officer on account of investment of Rs. 13,59,000 on account of alleged unrecorded purchases as per discussion contained in para 3 of the assessment order. The contention of the assessee before us was that there was no unrecorded purchase as per detailed explanation given by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture relates to a disclosed business then D will be equal to A and while rupees A can be added under section 69C, an equivalent amount of rupees D would have to be now separately allowed as a deduction. 7.1 On the other hand, the learned Departmental representative in addition to supporting the order of the Commissioner of Income-tax (Appeals) submitted that proceedings under section 147 of the Act can be initiated on the basis of the report of the DVO and for that purpose, relied on the decisions in following cases : (i) Praful Chunilal Patel v. M. J. Makwana, ACIT [1999] 236 ITR 832 (Guj) ; (ii) Grover Nursing Home v. ITO [2001] 248 ITR 493 (P H) ; (iii) Smt. Shashi Jain v. ITO [1997] 228 ITR 682 (All) ; (iv) Bawa Abhai Singh v. DCIT [2002] 253 ITR 83 (Delhi). 7.2 With respect to the assessee s submission that if addition is made under section 69C of the Act, the corresponding deduction should be allowed on account of expenses/purchases, the learned Departmental representative submitted that so far as the assessment years prior to amendment are concerned, the assessee may be allowed corresponding deduction. 8. We have considered the rival submissions, facts and circumstances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 8.1 From the aforesaid provisions, it is gathered that the Assessing Officer has been given power to initiate proceedings under section 147 of the Act, if he has reason to believe that any income chargeable to tax has escaped assessment and, subject to the provisions of sections 148 to 153, can assess or reassess such escaped income and also any other income chargeable to tax which has escaped assessment, but comes to his notice, subsequently, in the course of proceedings under section 147 of the Act. 8.2 The Assessing Officer, not only can assess or reassess the escaped income, but can recompute the loss or the depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case, we have gathered from assessment orders passed under section 143(3) of the Act, read with section 148 of the Act, and orders of the Commissioner of Income-tax (Appeals) that the orders are absolutely silent as to the availability of any information or material with the Assessing Officer before initiating the proceedings under section 147 of the Act, which could have made him to have reason to believe that any income had escaped assessment. 11. Similarly, neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) has alleged that they had noticed any understatement of income or excessive claim of loss, deduction, allowance or relief in any of the return, except that (i) para 3.3 for the assessment year 1995-96, the learned Commissioner of Income-tax (Appeals) has stated as under : 3.3 During the course of assessment proceedings for the assessment year 1997-98, the matter of estimating the cost of construction was referred to the DVO and report of the same was obtained, which was also given to the appellant for his explanation and comment, and Assessing Officer after considering the objection of the appellant, has held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer that the appellant has understated the income, on the basis of the report of the DVO, wherein, there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only the return was processed under section 143(1) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has first been taken up while taking the case under section 147 and accordingly, it cannot be said to be change of opinion of the Assessing Officer, as contended by the appellant. Hence, the action of the Assessing Officer in passing an order under section 143(3) read with section 147 is held correct. (iii) In the appellate order for the assessment year 1998-99, the Commissioner of Income-tax (Appeals) has again, in para 3.4, observed as under : 3.4 In the instant case, it was clear to the Assessing Officer that the appellant has understated the income, on the basis of the report of the DVO, wherein, there was substantial difference between the investment estimated by the DVO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1995-96 which was processed under section 143(1)(a) of the Act. Since the assessee has constructed a house, the Assessing Officer has referred the case of the house constructed by the assessee to the Departmental Valuation Officer (DVO). The valuation made by the DVO was more than the cost of construction shown by the assessee. Thereupon, the Assessing Officer issued a notice under section 148 of the Act and required the assessee to produce the books of account and other materials made of the assessee s valuer, to do the same. The Assessing Officer framed the assessment order under section 144 of the Act and, thereby added the difference between the value of the house as declared by the assessee and as reported by the DVO to the total income of the assessee. On appeal, the Commissioner of Income-tax (Appeals) reduced the amount of addition made by the Assessing Officer. 13.1(ii) On further appeal to the Tribunal, the honourable Amritsar Bench allowed the assessee s appeal after relying on the decision of the Incometax Appellate Tribunal, Amritsar Bench of Karamjit Electrical Mfg. Co. P. Ltd. [I. T. A. Nos. 515 to 517/Amritsar/2000] for the assessment years 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year relevant to the assessment years 1986-87 and 1987-88 respectively. Initially, the assessments of the relevant years in respect of all the three assessees were completed under section 143(1). Subsequently, the Assessing Officer made a reference under section 131(1)(d) to the DVO who furnished his report on March 27, 1989, estimating the total cost of construction at Rs. 8,61,827 out of which the amount of Rs. 5,99,916 was estimated as related to the assessment year 1986-87 whereas the balance amount of Rs. 2,61,911 was estimated as having been incurred during the previous year relevant to the assessment year 1987-88. Consequently, the Assessing Officer considered the cost of construction shown less by the assessee as income escaping assessment and notices under section 148 were issued to all the three assessees. Finally, the assessments were completed under section 148 by the Assessing Officer on all the three assessees for the assessment year 1986-87 as well as the assessment year 1987-88 relying on the report of DVO and adding the cost of construction shown less by the assessees as unexplained investment in their hands in equal ratio. The matter was carried before the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een relied upon by the learned Departmental representative also, where the honourable High Court has held that the report of the DVO cannot be made the sole basis for initiating action under section 147 of the Act read with section 148 of the Act. According to the honourable High Court, the valuation report can be considered with other facts, for forming the belief that the assessee s income has escaped assessment which, in our opinion, means that the Assessing Officer cannot form the belief that the assessee s income has escaped assessment solely on the basis of report of the DVO. 13.2(iv)(b) We, further, rely on the decision of the honourable Gauhati High Court in the case of Bhola Nath Majumdar v. ITO [1996] 221 ITR 608 wherein the honourable High Court has held that report of the DVO is not an opinion within the meaning of section 147(b) of the Act. 14.1(i) So far as the decisions relied upon by the learned Departmental representative are concerned, we, after having gone through the same, are of the opinion that the decision of the Punjab and Haryana High Court in the case of Grover Nursing Home [2001] 248 ITR 493 is of no help to the Revenue because the honourable High Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with section 148 of the Act are cancelled as being illegal and bad in law. 16. So far as initiation proceedings under section 147 of the Act for the assessment year 1997-98 is concerned, we are of the opinion that since the Commissioner of Income-tax (Appeals) has not decided the issue, we, in the normal course, would have remanded the issue back to him for fresh decision, but since the issue is a legal one and requires no investigation of any further fact, the remanding of the issue back to the file of the Commissioner of Income-tax (Appeals) will not serve any useful purpose. More so when it is well settled that if the Commissioner of Income-tax (Appeals) has failed to decide a particular ground, the said ground is deemed to have been rejected. In view of these facts, we, in the interest of substantial justice, and to avoid multiplicity of the proceedings, decide the issue considering that the Commissioner of Income-tax (Appeals) has rejected the assessee s objection against validity of initiation of proceedings under section 147/validity of notice under section 147 of the Act. 17. From the assessment order as well as the order of the Commissioner of Income-tax (Appeals), for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making roving inquiries and for referring the matter relating to cost of construction of the building to the Valuation Officer (supra), we, after following the decision of the Tribunal, Amritsar Bench and Jodhpur Bench in the case of Darshan Singh [2002] 123 Taxman (Mag) 324 and in the case of Vijay Kumar [2001] 73 TTJ 17 respectively, are of the opinion that the proceedings initiated under section 147 of the Act for the assessment year 1997-98 were not legal in the eye of law and, therefore, the same are held to be illegal and bad in law. 19.2 Having held as above, we are further of the opinion that all the consequential proceedings including issuance of notice under section 148 of the Act and assessment framed under section 143(3) read with section 148 of the Act on March 28, 2002, were also illegal and bad in law. The assessment is, therefore, quashed/cancelled. 20.1 Even otherwise, the validity of initiation of proceedings under section 147 of the Act, so far as the assessment year 1997-98 is concerned, can be tested on the basis of another plea of the assessee that the Assessing Officer has no jurisdiction to make reference to the Valuation Officer unless he was of the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for Rs. 900 paid to Shri Rameshbhai Nathabhai, Rs. 1,400 paid to Shri Bhanubhai Manibhai and Rs. 1,500 paid to Shri Kiritbhai J. (d) the discrepancy for the accounts of two parties : namely, M/s. Shiv Traders and M/s. Amit Traders. (iii) Further, first of all, we are of the opinion that the explanation and evidence furnished by the assessee with respect to the aforesaid alleged serious (in the opinion of the Assessing Officer) discrepancies, were rejected by the Assessing Officer in an arbitrary manner and with predetermined notion, which is evident from the fact that the evidence furnished by the assessee was never verified by the Assessing Officer. For example, the copies of bills, for which vouchers were not found were rejected on the ground that they were hand made. Similarly, the payment of salary was not accepted for want of signature on vouchers. If the Assessing Officer was not satisfied, he could have verified from the assessee s books of account as to whether the work for which the salary was paid had been done or not. Similarly, the amounts for which vouchers were found as unsigned was totalling to Rs. 835 (Rs. 30 + 200 + 550 + 55) which could not be basis for rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 144. 145. Method of accounting (with effect from 1st April, 1997).-(1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. 22.1 Since the assessment year, in which the Assessing Officer had initiated proceedings under section 147 of the Act, after rejecting the books of account and had referred to the matter for valuation of cost of construction to the Valuation Officer is the assessment year 1997-98, we would like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer was illegal and bad in law. 23.2(i) Without prejudice to the above, we, further, are of the opinion that the reference made to the Valuation Officer by the Assessing Officer in exercise of powers under section 131(1)(d) of the Act, as has been held by the honourable Supreme Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407, was illegal and bad in law and the same could not be taken into account (i) for making any addition in the assessment year 1997-98. (ii) for initiating the proceedings under section 147 for the assessment years 1995-96, 1996-97 and 1998-99 as well as for making any addition on the basis of such report in these three assessment years. 23.2(ii) Here, it can be argued that after the insertion of the provisions of section 142A by the Finance (No. 2) Act, 2004 with retrospective effect from November 15, 1972, the decision of the honourable Supreme Court in the case of Smt. Amiya Bala Paul [2003] 262 ITR 407 does not survive, but we are of the opinion that it is not so because the provisions of section 142A, though made applicable only to the cases where the assessments had not become final on or before September 30, 2004, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that if assessments have not become final in such cases by September 30, 2004, such references and consequential report of the Valuation Officer have to be held to be illegal and bad in law and we do so. 23.2(v) Even otherwise, the words used in section 142A(i) of the Act, are an estimate of the value which refers to only estimate and an estimate can never be a basis for having reason to believe. We are, therefore, of the opinion that even if for the sake of arguments, the reference under section 139(1)(d) of the Act in this case is considered to be valid, then also the valuation report could not be a basis for the Assessing Officer to have reason to believe that any income chargeable to tax escaped assessment so as to make it power with the authority to make a reference to the Valuation Officer so far as the assessment years 1995-96, 1996-97 and 1998-99 are concerned. 24. In view of the above discussion and the facts and circumstances of the case, we are of the opinion that initiation of proceedings under section 147 of the Act, for the assessment year 1997-98, was absolutely illegal and bad in law. 25. So far as the assessment years 1995-96, 1996-97 and 1998-99 are conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to learned counsel for the assessee, this report of the registered valuer was ignored by the Assessing Officer solely on the basis of the following observations : (a) That, the valuation (as per report) itself differed with the value shown by the assessee-firm, i.e., Rs. 2,37,96,653 for the entire project. (b) That, the report was hurriedly prepared by Shri Mahesh P. Bhatt, registered valuer. (c) That, the assessee-firm has submitted a fresh another valuation report prepared by Shri Mahesh P. Bhatt mentioned dated March 15, 2002, on March 22, 2002, whereas the same could have been submitted during the course of hearing dated March 18, 2002. (d) After having observed as above, the Assessing Officer has concluded that it proves that this report was prepared in a hurried manner, whereas the DVO has made detailed report after visiting the site twice and after taking all aspects relevant to cost of construction into consideration . Analyzing the aforesaid reasons given by the Assessing Officer for ignoring the assessee s valuation report, learned counsel for the assessee submitted that none of the observations of the Assessing Officer were relevant for rejecting the valuation report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s claim of deduction of corresponding expenditure (in case of any addition is sustained under section 69C of the Act), it was agreed by him that the assessee is entitled to benefit of expenses to the extent of investment which is taxed in the years prior to the amendment in this section 69C of the Act. 28. Having considered the rival submissions, the facts and circumstances of the case, various decisions relied upon by the parties and the provisions of law, we are of the opinion that : (i) So far as the assessee s objection against justification of rejection of books of account for the assessment year 1997-98 is concerned, we have already discussed this issue in the aforesaid para 26(i) (supra) of this order and have already concluded that there was no justification for rejecting the assessee s books of account for the assessment year 1997-98. The action of the Assessing Officer was illegal and bad in law. (ii) So far as rejection of books of account for the assessment years 1995-96, 1996-97 and 1998-99 are concerned, we are of the opinion that we, having held the rejection of books of account for the assessment year 1997-98 as unjustified and illegal, there was no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us courts and Tribunals in the cases detailed in para 6.8(4) (supra) of this order delete the addition having been made on account of the alleged undisclosed investment in construction in all four assessment years. 30. So far as the assessee s plea that in case any addition is sustained under section 69C of the Act, the assessee may be allowed corresponding deduction on account of expenditure because amendment brought in section 69C of the Act in prospective was applicable only for the assessment year 19992000 and subsequent years, we are of the opinion that the amendment brought in section 69C of the Act being of clarificatory nature will be deemed to be applicable retrospectively, i.e., to all the matters pending on that date and, therefore, in our considered opinion, the assessee will not be entitled to any deduction on this account. 31. In the result, all the four appeals of the assessees are allowed except on the point of claim of corresponding deduction against the addition under section 69C of the Act, 1961. 32. In the result, all the four appeals of the assessee are allowed. R. C. Sharma (Accountant Member). 26th Dec, 2005 1. I have carefully gone through the order proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After having above observation and calling for the assessee s explanation, the Assessing Officer held that the correctness and completeness of books of account are not found. The project cost debited in the books of account was not found satisfactory by the Assessing Officer. He, therefore, rejected the books by invoking the provisions of section 145(3) and made reference to the DVO for working out the correct cost of construction. The team of the DVO visited the site twice in the presence of the partners of the assesseefirm and its chartered accountant/authorised representative and worked out the cost of construction of the entire project to the tune of Rs.3,25,63,445 whereas the assessee has shown the cost of construction in its books of account at Rs.2,37,96,653. Thus, a difference of Rs. 87,66,792 was found in the cost of construction debited in its books during the relevant assessment years under consideration and the valuation arrived at by the DVO. 4. The year-wise cost of construction shown by the assessee and as determined by the DVO was as under : Sl. No. Period of construction Cost of construction as shown by the assessee (Rs.) Fair cost of construction (Rs.) Difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). Similar discrepancy was noticed by the Assessing Officer in the books of account, bills, vouchers, etc., while completing the assessment under section 143(3) read with section 147 for these assessment years. 7. While verifying the statement of closing stock of work-in-progress of the building under construction, the Assessing Officer found that the scheme of the assessee was for constructing 51 units, whereas the assessee had shown details of 33 units. It was explained by the assessee that many customers had purchased two plots, but construction was carried out at one plot, the assessee-firm had charged development cost for both the plots. The Assessing Officer further observed that the assessee was silent on the details of plots Nos. 1-3, 5, 10, 12, 13, 26, 27, 32, 33 and 45-47. Even if it is presumed that no construction is carried out on these plots the expenses of common amenities should have been equally divided and charged by the assessee and should have been reflected in the chart of closing stock of work-in-progress. Therefore, as per the Assessing Officer, the working of closing stock of work-in-progress is not correct. After pointing out some other minor defects, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2 clearly covers the position as in the case of the appellant. It has been provided in the aforesaid clause where a return of income has been furnished and no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return then, the same will be deemed to be the case where income chargeable to tax has escaped assessment. In the instant case, it was clear to the Assessing Officer that the appellant has understated the income on the basis of the report of the DVO, wherein there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only the return was processed under section 143(1)(a) and accordingly the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has first been taken up while taking the case under section 147 and accordingly, it cannot be said to be change of opinion of the Assessing Officer, as contended by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has made addition of difference between the cost of construction estimated by the DVO and the cost of construction shown by the appellant pertaining to the year under consideration. One of the arguments of the appellant is against rejection of book results under section 145(3) and referring the matter to the DVO for taking his opinion regarding cost of construction. On a perusal of the assessment order, it is noticed that the Assessing Officer has pointed out various defects in the books of account maintained by the appellant for the year under consideration. Another argument taken by the appellant is that in view of the decision of the Supreme Court in the case of Smt. Amiya Bala Paul [2003] 262 ITR 407, reference to the DVO made by the Assessing Officer for estimating cost of construction is bad in law. I have considered the argument taken by the appellant. It may be mentioned that the provision of newly inserted section 142A are quite clear in this regard. This section has been inserted with retrospective effect from November 15, 1972. As per this section, where an estimate of the value of any investment referred to in section 69 or 69B is required to be made, then, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in Ashlesha bungalows . Without prejudice to above, as regards the decision of the honourable Supreme Court in the case of Smt. Amiya Bala Paul [2003] 262 ITR 407 is concerned, the attention of the undersigned was drawn by the Assessing Officer in its remand report that the honourable Income-tax Appellate Tribunal in I. T. A. No. 2841/2847 Kol. of 1997 in the case of Binadevi Shah v. ITO, Ward 1, Silliguri, supra has upheld the decision of the honourable Supreme Court to the extent that the Assessing Officer was not competent to make a reference to the Departmental valuer for determining the cost of construction as per the provisions of section 55A of the Income-tax Act. In the aforesaid decision, the Tribunal has further clarified that the decision of the honourable Supreme Court was regarding erroneous exercise of power under section 55A for determining the cost of construction but is not applicable. In case where the report of the Departmental valuer is obtained under section 131(1)(d) of the Act, for determining the cost of construction which is used by the Assessing Officer as an evidence. In view of the aforesaid facts and circumstances, it is held that reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture may be in relation to household expenses or may be expenditure on marriage or other such situation. In any case, fully unaccounted or partly unaccounted amount used in purchasing or acquiring stock-in-trade will not be treated as unexplained expenditure and it has to be obviously treated as unexplained investment in acquiring the asset, which is stock-intrade. Accordingly, addition on account of unexplained investment in the construction of bungalows, though same may be stock-in-trade, has to be made correctly under section 69B. In this regard the decision of the honourable High Court in the case of Dhansiram Agarwal is quite relevant. In this judgment, the honourable High Court has held that where there is discrepancy between the value of stock disclosed to the bank and value shown in the books of account and no satisfactory is offered regarding such discrepancy, the amount of discrepancy regarding stock is held assessable under section 69B of the Income-tax Act. There are other ample number of decisions in which issue of addition of closing stock has been held to be correctly made as unexplained investment under section 69B. Some of them are mentioned as below : (1) CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the above orders of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before us. 13. The assessee is aggrieved by reopening of assessment under section 147, for rejection of books of account under section 145, confirmation of addition under section 69B, not giving deduction under section 69C and addition made on account of difference in cost of construction. 14. The basic two issues which fall for our consideration are (i) validity of reopening under section 147, and (ii) the merits of the addition made after pointing out defects in the books of account, qualifications found in the DVO report regarding non-furnishing of various details, etc., and with reference to difference in cost of construction recorded in the books of account vis-a-vis the value determined by the DVO. 15. First we will take up the assessment years 1995-96, 1996-97 and 1998-99 wherein reopening was based on defects pointed out in the books of account in respect of construction cost debited therein during the course of scrutiny assessment proceedings under section 143(3) for the assessment year 1997-98, and the huge difference in cost of construction amounting to Rs.87.66 lakhs, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judicial precedents cited by the learned authorised representative and the learned Departmental representative at the Bar as well as discussed by the lower authorities in their respective orders in the factual matrix of the instant case. 18. First, I will take up the legal issue regarding reopening for the assessment years 1995-96, 1996-97 and 1998-99. 19. As per the provisions of section 147 prevailing during the assessment years under consideration, 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 provisions of sections 148 to 153, assess or reassess such income. 20. On a comparison of the provisions as it stood before the Direct Tax Laws (Amendment) Act, 1987 and the provisions as substituted by the Direct Tax Laws (Amendment) Act, 1987, it would be clear that: the scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as stood prior to such substitution. 21. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific information. 23. Undisputedly, in the present case, the returns filed for all the assessment years 1995-96, 1996-97 and 1998-99 were processed under section 143(1)(a), and no scrutiny assessment was framed thereon. During the course of assessment under section 143(3)/147 in the assessment year 1997-98, the Assessing Officer found defects in the books of account and matter was referred to the DVO and a huge difference of Rs. 87.66 lakhs in cost of construction was found. The main issue before us is whether on the basis of defects found in the books of account, discrepancies noted in the construction expenses and the suppliers accounts, etc., in the course of scrutiny assessment for the assessment year 1997-98 and the huge difference of Rs. 87.66 lakhs found in the cost of construction of the same building which was also under construction during the relevant assessment years 1995-96, 1996-97 and 1998-99, and where the report of the DVO was qualified with reference to the fact that the assessee had not supplied various details regarding quantities of different materials consumed and various services provided in the scheme like water supply, sanitary installation and electrical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1998-99 during which similar cost for the construction of the same building has also been incurred by the assessee. It is also pertinent to mention here that even though the defects found in the books of account were not serious as to justify the rejection of book results for making addition after the assessment has been reopened, but those defects were undoubtedly relevant while making a reference to the DVO and while forming the belief that there was escapement of income. Furthermore, the quantum involved in the defects pointed by the Assessing Officer may lead to the addition on lower side once the assessment has been reopened but it cannot be ignored altogether while forming the belief regarding escapement of income. Even if small defects found in the books regarding cost of construction or small discrepancy found in the statement of suppliers of building materials involving not huge amount, these are one of the cogent materials for forming the belief that there is escapement of income in the form of similar construction cost incurred by the assessee in respect of very same building which was under construction during the assessment years 1995-96, 1996-97 and 1998-99. 24. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing inspection, giving reasonably specific estimate of excessive coal mining done by the assessee over and above the figures disclosed by it was sufficient for reopening the completed assessment. It was further observed that whether facts stated in the report are true or not is not the concern at the stage of issuing notice under section 148 for reopening the assessment. It may well be that the assessee may be able to establish that the facts stated in the said letter are not true, but that conclusion can be arrived at only after making the necessary enquiry. At the stage of issuance of notice under section 148, the only question is whether there was relevant material on which reasonable person could have formed the requisite belief. It was, therefore, held that issuance of notice under section 148 was valid. 27. In Ganga Saran and Sons (HUF) v. ITO [1981] 130 ITR 212, the Delhi High Court observed that where the Assessing Officer obtained information that for the purpose of bank loan, the assessee has produced valuer s report to the bank wherein the valuation of the property has been shown at a figure higher than the consideration shown by the assessee in the sale deed, the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Sri Krishna Mahal v. Asst. CIT [2001] 250 ITR 333, held that the report of the DVO prima facie showed that cost of construction had been understated by the assessee, that was sufficient for giving jurisdiction to the Assessing Officer for the belief that income had escaped assessment and for issuing the impugned notice under section 148. 32. In the instant case before us, while comparing the DVO s report with the report of the registered valuer as submitted by the assessee, we found that cost estimated by the DVO specifically in respect of bitumen road, casted sitting chair, borewell with pump, street lighting and cable laying with fluorescent tubes, EPABX cable laying, etc., were not provided in the registered valuer s report. We also found that extra items provided in the entire scheme was item-wise valued by the DVO after physical inspection at Rs. 1,24,81,677 against which total value was taken by the registered valuer at only Rs. 34,52,964 without specifying each and every such item. We also found that specific qualification was made by the DVO in his report regarding non-furnishing of documentary evidence of construction of one bungalow A-27, by one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer report submitted by the assessee himself also indicated excess cost incurred in the construction, amounting to Rs.1.51 lakhs as compared to the cost found recorded in the assessee s books of account. (iv) Difference in the DVO s report as compared to registered valuer report with respect to cost determined specifically in respect of bitumen road, casted sitting chair, bore-well pump, street lighting and cable laying with fluorescent tubes, and EPABX cable lying, etc., which were not provided in the registered valuer s report furnished by the assessee. Extra item provided in the entire scheme was item-wise valued by the DVO after physical inspection of site and building along with the assessee and his authorised representative at Rs.1,24,81,677 against which the total value taken by the registered valuer in its report was only Rs. 34,52,964 without specifying each and every item. 35. As per our considered view, the above material/information was sufficient to form a belief that there was escapement of income in the assessment years 1995-96, 1996-97 and 1998-99 during which construction of project was undertaken by the assessee. All these reasons have rational connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whether it is really applicable to the facts and circumstances of this case and the provisions of law as applicable to the assessment years under consideration. As and when we say that the issue under consideration is squarely covered by the proposition laid down in a particular decision of the Tribunal, the High Court or the Supreme Court, we have to see that not only the facts and circumstances are the same, but also the provisions of the Act are in pari materia. In saying so, I am guided by the following observations of the honourable Supreme Court in the case of Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (headnote) : It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain adjustments in the income or loss declared in the return. They were as follows : (a) an arithmetical error in the return, accounts and documents accompanying it were to be rectified ; (b) any loss carried forward, deductions, allowance or relief which on the basis of the information available in such return, accounts or documents, was prima facie admissible, but which was not claimed in the return was to be allowed ; and (c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed. 41. What were permissible under the first proviso to section 143(1)(a) to be adjusted were (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly, (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible for correction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation, as introduced by the Finance (No. 2) Act, 1999, an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for purposes of section 246 between June 1, 1994, to March 31, 1995, and under section 264 between October 1, 1991, and May 31, 1999. The expressions intimation and assessment order have been used at different places. The contextual difference between the two expressions has to be understood in the context of the expressions used. Assessment is used as meaning sometimes the computation of income sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer . In the scheme of things the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a), as stood prior to April 1, 1989, the Assessing Officer had to pass an order if he decided to accept the return, but un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent by issuing of notice under section 148 for the assessment year 1995-96 is not valid on the basis of valuer s report where return has been processed under section 143(1)(a). The following was the observation and conclusion of the Bench : Shri Sudhir Sahgal, advocate, learned counsel for the assessee, draw our attention to the decision of the jurisdictional High Court in the case of CIT v. Smt. Usha Mathur [2001] 252 ITR 179 (P H) and submitted that the facts of the present case are almost similar to the facts of the case of Smt. Usha Mathur [2001] 252 ITR 179 (P H) and the honourable High Court in the said case held that when the assessment was made under section 143(1), reopening on the basis of valuation cells report no addition can be made which amounts to review of its earlier order. In our view, in the instant case also on the basis of the decision of the honourable Punjab and Haryana High Court in the case of Smt. Usha Mathur [2001] 252 ITR 179 it can be held that the Assessing Officer was not justified in reopening the assessment, on the basis of report of the DVO. 50. It is very clear from the above observation and conclusion that the Tribunal has treated the issue as sq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out. Consequently, we do not find that any substantial question of law arises for the consideration of this court in this appeal. There is another aspect of the matter. Even if the contention raised by the Revenue were to be gone into, the ultimate tax liability would be of a very small amount. Keeping in view the fact that the financial implications are of a very trivial nature, we do not find any ground to interfere under section 260A of the Income-tax Act, 1961. 54. It is crystal clear from the above judgment that the Revenue s appeal was dismissed on the plea that detailed finding has been recorded by the Tribunal on the basis of evidence on file and no error in the finding of fact recorded by the Tribunal was pointed out. The High Court, therefore, held that no substantial question of law arises for consideration of this court in this appeal. Thus, it cannot be inferred that the honourable High Court has given any verdict or proposition on the question of law regarding the validity of the reopening of assessment on the basis of the DVO s report. 55. In view of the above, the order of the Tribunal relied on by the learned Brother is of no help to the assessee for arriving at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 131(1)(d). In this case, reference to the DVO was held to be invalid as the assessments were already completed under section 143(1). As we have already discussed, the scope of section 143(1) prior to the amendment in 1989, the relevant assessment years in this case was 1986-87 and 1987-88 where the earlier provisions of section 143(1) were applicable and assessments were framed accordingly. However, in the instant case, before us no assessment has been framed and the returns have been processed under section 143(1)(a). As discussed hereinabove, intimation issued under section 143(1)(a) cannot be said to be an assessment at par with earlier provisions of section 143(1), as they existed prior to 1989. Furthermore, the power of the Assessing Officer to make a reference to the DVO has been specifically inserted by introduction of section 142A with retrospective effect. Thus, this case is also of no help to the assessee for the relevant assessment years, namely, 1995-96, 199697, 1997-98 and 1998-99 under consideration. 60. The brother Judicial Member has also discussed the decision of the Punjab and Haryana High Court in the case of Grover Nursing Home [2001] 248 ITR 493 in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered view that various defects in the books of account along with vast difference in the DVO s report as compared to the cost of construction recorded by the assessee in its books of account, qualification in the DVO s report and the difference in the cost determined by the registered valuer in the report furnished by the assessee himself, as compared to the actual cost recorded by the assessee in its books of account were sufficiently valid reasons for forming a belief that there was escapement of income. We, therefore, hold that reopening of assessment for the assessment years 1995-96, 1996-97 and 1998-99 were justified. 65. Now, coming to the merits of the addition made by the Assessing Officer on the basis of the DVO s report. It involves two aspects. The first is justification/power of the Assessing Officer to make a reference to the DVO and the second is, the addition to be made on the basis of report obtained under such reference. Section 142A has been introduced in the statute book by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972, according to which for the purpose of making an assessment or reassessment under this Act, where an estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, 1972, reference can be made by the Assessing Officer to the Valuation Officer (VO) for making estimate of the value of investment referred to in section 69 or 69A and report to the Assessing Officer. In view of the above amended provisions empowering the Assessing Officer to make a reference to the DVO, and the defects found in the construction expenses recorded in the books of account resulting in their rejection under section 145(3), during scrutiny assessment proceedings for the assessment year 1997-98, we do not find any infirmity in the action of the Assessing Officer for making reference to the Valuation Officer for determining the quantum of unexplained investment involved in the cost of construction. The decisions cited by the learned authorised representative with reference to powers of Assessing Officer to make a reference, relates to the pre-amended position, therefore not applicable to the facts and circumstances of the instant case in view of the amendment brought in by the insertion of section 142A with retrospective effect. 68. Now, coming to the quantum of addition which can be made on the basis of such report. 69. There is no dispute to the well-settled legal pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent materials consumed and various services like water supply, sanitary installation and electrical provisions provided in the property. The DVO also qualified his report with the observation that the cost of construction of one bungalow No. A-27 was not incorporated in the report as the same was alleged to be constructed by the occupant, but no documentary evidence was produced by the assessee therefore the correctness of the assessee s claim could not be ascertained. It was also observed that in some bungalows huge additions/alteration renovation work has been carried out but the same has not been considered in the valuation amount on the plea of the assessee that additions/alteration work was carried out by the occupants. 72. However, on a perusal of record, we found that the objections raised by the DVO with regard to non-furnishing of details of quantities of different materials consumed could not be met by the assessee before the lower authorities. However, with regard to the DVO s observation regarding bungalow No. A-27 and addition/ alteration work carried out in some of the bungalows, no addition was finally made by the Assessing Officer while framing the order under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see also supported the construction cost recorded by the assessee in its books of account with a variation of Rs.1.51 lakhs. Keeping in view the totality of facts and circumstances of the case, we are inclined to retain the addition to the extent of 5 per cent. (five per cent.) of cost of construction as recorded by the assessee in its books of account in respective assessment years under consideration, so as to cover unaccounted expenses with regard to observations made by the DVO in his report as well as the excess cost worked out by the own valuer of the assessee in its report, as compared to the cost actually recorded by the assessee in its books of account, as discussed hereinabove. 75. Now, coming to the assessment year 1997-98, which was reopened by issue of notice under section 148 after return was processed under section 143(1)(a). From the record, we found that neither at the stage of the Assessing Officer nor before the Commissioner of Income-tax (Appeals), the assessee was having any grievance with regard to insufficiency of reasons for reopening the assessment. During the entire course of reassessment proceedings the assessee has not disputed the reopening as invalid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd by the assessee in its paper book nor has the same been dealt with by any of the lower authorities in their respective order as the same was not disputed before them. The Commissioner of Income-tax (Appeals) has also not decided the issue of validity of reopening since no ground was raised before him in the memo of appeal filed. In view of the above discussion, keeping in view the interests of justice we are restoring this ground to the file of the Commissioner of Income-tax (Appeals) for deciding the issue of reopening and the assessee is directed to raise this ground with supporting evidence for inadequacy of reasons recorded for reopening, if any, before the Commissioner of Income-tax (Appeals). Needless to say that the assessee should be given full opportunity before deciding the issue on validity of reopening. 77. Before parting with the matter, it is pertinent to mention that the learned brother Judicial Member has taken the view that since the Commissioner of Income-tax (Appeals) has failed to the dispose of the particular ground the said ground is deemed to have been rejected but since this ground has not been decided by the Commissioner of Income-tax (Appeals), we deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are squarely covered by the issue decided by me with detailed discussion, in respect of the assessment years 1995-96, 1996-97 and 1998-99. 79. As we have already taken a view that mistakes pointed out were not sufficient for rejection of books of account but at the same time keeping in view the observation and qualification in the DVO s report vis-a-vis the difference in the DVO s report and estimate prepared by the registered valuer, we are inclined to retain the addition to the extent of five per cent. of the cost of construction recorded by the assessee in its books of account. We direct accordingly. 80. In the result, the appeal of the assessee is allowed in part in terms indicated herein above. REFERENCE UNDER Section 255(4) OF THE IT ACT. 1961 I.S. Verma, J.M. January, 2006 1. As there is a difference of opinion, the matter is being referred to the honourable President of the Tribunal with a request that the following questions may be referred to a Third Member or pass such order as the honourable President may think fit. A. Assessment year 1997-98 : Question No. 1. Whether, in the facts and circumstances of the case and in law, the proceedings initiated under section 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995-96, 1996-97 and 1998-99 solely on the basis of valuation report of the Departmental valuer can be sustained? Annexure A A. Assessment years 1995-96, 1996-97 and 1998-99 Question No. 1.-Whether, on the facts and circumstances of the case, where returns have been merely processed under section 143(1), there was reason to believe that there was an escapement of income under section 147, in view of various defects found in the books of account in the assessment year 1997-98 regarding cost of construction of very same building which was also under construction during the assessment years 199596, 1996-97 and 1998-99, huge difference of Rs. 87.66 lakhs found as per the DVO s report, shortfall of Rs. 1.51 lakhs as per the registered valuer s report, failure of the assessee to furnish details of materials consumed and various services like water, sanitary installation and electrical provisions in the building, qualification in the DVO s report regarding huge cost incurred in addition/alteration work carried out but not considered in the valuation report. Question No. 2.-In case, answer to question No. 1 above is the affirmative, whether, on the facts and circumstances of the case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under : Questions by Judicial Member A. Assessment year 1997-98 : 1. Whether, in the facts and circumstances of the case and in law, the proceedings initiated under section 147 of the Act, for the assessment year 1997-98, can be held to be valid proceedings in the eye of law and, consequently, can the subsequent proceedings also be held to be valid? 2. In case, the answer to question No. 1 above, is in the affirmative, then whether, the rejection of books of account for the assessment year 1997-98 was justified so as to authorize the Assessing Officer to make reference to the DVO asking to determine the cost of construction of the building known as Ashlesha Bungalows situated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double storied and Bungalow A-27 during the previous years relevant to the assessment years 1995-96, 1996-97, 1997-98 and 1998-99? 3. Whether, in the facts and circumstances of the case and in law, the addition made on account of alleged investment in construction of building, known as Ashlesha Bungalows situated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case, answer to question No. 1 above is in the affirmative, whether on the facts and circumstances of the case, the report of DVO which was obtained during the course of proceedings under section 143(3)/147 for the assessment year 1997-98 in respect of very same building which was also under construction during the assessment years 1995-96, 1996-97 and 1998-99, can be validly used during the course of assessment proceedings under section 143(3)/147 for the assessment years 1995-96, 1996-97 and 1998-99. 3. In case, answer to question No. 1 above is in the affirmative, whether on the facts and circumstances of the case, keeping in view defects pointed out in the books of account, failure of the assessee to furnish details regarding quantities of different building materials consumed and various services like water, sanitary installation and electrical provisions in the building, extra items valued individually by the DVO after physical inspection of building, against which a lump sum value at a very low figure taken by the registered valuer in his report, warrants and justify addition of five per cent. of the cost of construction recorded by the assessee in his books of account. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Rs. 550, Rs. 55, Rs. 900, Rs. 1,400, Rs. 1,500, Rs. 506 and Rs. 3,000 were also not signed by the recipients. He, accordingly, rejected the books of account by invoking section 145(3) of the Act. 3. The Assessing Officer referred the matter to the District Valuation Officer (for short DVO ), who estimated the cost of construction of the entire building and also year-wise investment at an aggregate amount of Rs. 3,25,63,445. The year-wise cost of construction as shown by the assessee and as estimated by the DVO, is as under : Sl. No. Period of construction Cost of construction as shown by the assessee (Rs.) Fair cost of construction (Rs.) Difference (Rs.) 1. 7/1993 to 3/1994 13,64,923 18,33,939 4,79,016 2. 4/1994 to 3/1995 27,45,946 37,06,493 9,60,547 3. 4/1995 to 3/1996 67,39,422 92,27,910 32,98,312 4. 4/1996 to 3/1997 68,78,879 94,57,014 25,78,135 5. 4/1997 to 3/1998 45,22,750 62,16,218 19,01,523 6. 4/1998 to 12/1998 15,44,733 21,21,871 5,77,138 Total 2,37,96,653 3,25,63,445 4. The assessee also filed a valuation report from the registered valuer who worked out the value at Rs. 2,39,47,000. After giving an opportunity of being heard to the assessee, the Assessing Officer made tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been made and therefore it could have been a case of escapement only in a case where-(i) the Assessing Officer was seized of any information or material which could lead him to have reason to believe that an income depicted by such information or material had escaped assessment, and (ii) if it were found that the assessee had understated the income or had claimed excessive loss, deduction, allowance or relief in the return. For the reopening for the assessment year 1997-98 he held that though the Commissioner of Income-tax (Appeals) has not decided the issue, it being a legal issue can be decided by the Tribunal as no investigation of facts were required. He referred to para 3.17 of the order of the Commissioner of Income-tax (Appeals) and held that the proceedings under section 147 were initiated without there being any information or material with the Assessing Officer for having reason to believe that any income chargeable to tax had escaped assessment and also that there was no allegation which could satisfy the requirement of Explanation 2(b) to section 147 of the Act and, therefore, it has to be taken that the proceedings under section 147 were initiated solely for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs. 9. Learned counsel for the assessee submitted that there were no valid reasons for reopening the assessment under section 147 as there was no information/material by which the Assessing Officer could have reason to believe that any income had escaped assessment ; that the report of the DVO cannot be a basis for reopening the assessment in view of the decision of the Gauhati High Court in the case of Bishnu Talkies v. CIT [2006] 287 ITR 372. He also relied on the decision of the Tribunal, Delhi Bench, in the case of Asst. CIT v. O. P. Chawla [2006] 8 SOT 242. Stating that it was nothing but a change of opinion, he referred to the decision of the Tribunal, Ahmedabad Bench, in the case of Umiya Co-operative Housing Society Ltd. v. ITO [2005] 94 TTJ 392. He submitted that the reference to the DVO was invalid as the defects pointed out during assessment proceedings for the assessment year 1997-98 were very minor mistakes and the same could not be made the basis for rejection of books of account and/or referring the matter to the DVO for estimating the cost of construction. On the merits, he submitted that both the Members agreed that the books of account could not be rejected and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso, however, provides for reopening the cases of earlier completed assessment under section 143(3) or section 147 only on failure of the assessee to disclose fully and truly all material facts. 12. The scope and effect of section 147 have undergone a substantial change on amendment with effect from April 1, 1989. The amended provisions empower the Assessing Officer to reopen the assessment if he, for whatever grounds, has reason to believe that income has escaped assessment. Power to reassess now can be exercised even after the assessee had disclosed fully and truly all material facts. Reasons for reopening may be the result of the Assessing Officer s own investigation and might also come from any outside source. 13. The returns for all these assessment years 1995-96, 1996-97, 1997-98 and 1998-99 were processed under section 143(1)(a) and intimations issued thereunder. Such processing of returns or issuance of intimation cannot be said to be assessments in the eye of law much less assessments under section 143(3) or section 147 of the Act in view of the clear legislative intent that an intimation is not an assessment order. It is also evident from the use of the word intimation fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement is reason to believe and not to establish the fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. It followed ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996] 217 ITR 597 (SC) and Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). It is further held that taxing income escaping assessment in the case of an intimation under section 143(1)(a) is covered by the main provision of section 147 as substituted with effect from April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by the main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued by distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Rs. 6,11,236 as on March 31, 1996 to Rs. 9,42,560 during the relevant financial year. Thus even though there has been sharp decrease in receipt and expenses, during the year, there has been phenomenal increase in unsecured loan. The requirement of funds, against, decline in receipts and expenses needs to be verified. The introduction of capital by all the partners of the firm also needs to be verified. In view of the above stated facts, coupled with the adverse remarks given by the chartered accountant in Schedule 1 forming part of accounts, it can be concluded that income liable to taxation has escaped assessment. 17. There was no challenge to the validity of reopening for this year either before the Assessing Officer or before the Commissioner of Income-tax (Appeals) ; nor is there any discussion or finding on this issue in either of the order. It is challenged before the Tribunal for the first time and both the Members allowed it to be raised and have dealt with the same, it being a question of law. The aforesaid reasons for reopening as extracted above are material to test the validity of reopening were not considered by either. In these circumstances the reopening questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., supplier of building materials, (c) absence of vouchers of expenses on construction account, (d) discrepancy with reference to expenditure claimed under the head carpentry work, colour work, fabrication work, plumbing work attributable to amount of expenses claimed in the books of account vis-a-vis amount of vouchers furnished, (e) certain transactions or balances as appearing in the copy of accounts of various concerns not tallying with the accounts of the assessee. The DVO report also indicated the qualifications with regard to failure of the assessee in supplying details of quantities of different materials consumed and various services like water supply, sanitary installation and electrical provisions provided in the property ; the non-inclusion of cost of construction of one Bungalow (No. A-27) in the valuation report alleged to be constructed by the non-resident Indian for which no documentary evidence was produced by the assessee and the huge additions/alterations, renovation work carried out in some bungalows but the same was not considered in the valuation amount as the assessee claimed that additions/alterations work was carried out by the occupants. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 131(1)(d) of the Act. In other words, it held that a reference can be made under section 131(1)(d) by way of commission. 22. Be that as it may, section 142(2A) was introduced to validate the reference made with retrospective effect from November 15, 1972, for purposes of assessment. It starts with the wording that where an estimate of the value of any investment is required to be made, the Assessing Officer requires the Valuation Officer to make an estimate of such value and report the same to him . The starting question is, where an estimate of the value of any investment is required . What are the parameters for such requirement? When does this situation arise? One thing is obvious that it is for the Assessing Officer to decide. But, is it absolute power unguided by any material as parameters? In other words, is it his sweet will or it should have some rationale? The Act is silent on this. It has to be on entertaining the view that the assessee had not declared the true cost of construction in its books of account. It is thus when the cost declared by the assessee is lower. The reference was made by the Assessing Officer on December 26, 2001, during the proceedings for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was relevant material on which reasonable person could have formed the requisite belief. The report in this case was, though prepared for the purpose of bank loan constituted information before the Assessing Officer as the market value of the property on the date of sale was considerably in excess of the consideration shown by the assessee in the sale deed. It might be true that the DVO report is an estimate of the cost of construction but to hold that no reopening can be made on the basis of such report may not be correct in view of the aforesaid. 25. The Punjab and Haryana High Court, in Grover Nursing Home s case [2001] 248 ITR 493, held that though report of the DVO cannot be made the sole basis for initiating action under section 147 read with section 148, it could, certainly be considered with other facts for forming belief that the assessee s income has escaped assessment. There being no explanation by the assessee about the difference between the cost of construction of building shown by the assessee and the cost determined by the DVO, reopening of assessment by issuing notice under section 148 was valid. In the present cases, the report of the DVO was not the sole basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issued notice under section 148 to the assessee on the basis of that valuation report. In the meantime, her husband challenged the action of the Assessing Officer in making the addition in his income and the Deputy Commissioner of Income-tax (Appeals) accepted the contention of the assessee s husband and deleted the addition. The Revenue did not challenge that order of the Deputy Commissioner of Income-tax (Appeals). The High Court decided the case on the merits and in view of the smallness of the amount. It did not entertain the Revenue s appeal on the plea that detailed finding has been recorded by the Tribunal on the basis of evidence on file and no error in the finding of fact recorded by the Tribunal was pointed out and, therefore, no substantial question of law had arisen for consideration of the court in the appeal. No finding or a verdict or a proposition on the question of law regarding validity of reopening of assessment on the basis of report of the DVO was given or discussed. 27. In the decision of the Tribunal Calcutta Bench in the case of Roof and Tower Construction (P.) Ltd. [2001] 72 TTJ (Cal) 433 the Assessing Officer reopened the assessment under the belief tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration. 29. In Bhola Nath Majumdar v. ITO [1996] 221 ITR 608, the Gauhati High Court held that there is no authority in the Income-tax Officer under section 55A to refer the valuation of a property after the assessment is completed by him, as the purpose of section 55A is not to arm the Income-tax Officer to make a roving and fishing inquiry for finding out materials for reopening or revising a completed assessment. In this case, the relevant assessment years under consideration were 1984-85 and 1985-86, which were reopened on the basis of valuation report obtained under section 55A after the original assessments were completed. The case before us is not a case when assessment has already been completed. It is a case where only processing of the returns was thereby issue of intimations under section 143(1)(a). Furthermore, a reference was made to the DVO during the course of assessment proceedings for the assessment year 1997-98 after pointing out defects in the cost of construction as recorded by the assessee in his books of account and discrepancy in the statement of supplier of building materials, as compared to their respective balances in the assessee s books of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee and also give reasons and justification for adopting the valuation made by the DVO, in place of construction cost actually debited in the books of account which is also supported by the report of the registered valuer furnished by the assessee. In Shakti Builders [2005] 93 ITD 269, the Tribunal held that section 142A has been brought on the statute book retrospectively in order to nullify the effect of the judgment of the Supreme Court in the case of Smt. Amiya Bala Paul [2003] 262 ITR 407 wherein it has been held that none of the provisions of the Act conferred any power on the Assessing Officer to refer the matter to the Valuation Officer for determining the value of investment mentioned in section 69 or section 69A or section 69B. Because of this judgment, all the references to the Valuation Officers made by the Assessing Officer in various cases throughout the country became illegal being without authority of law and consequently, the additions made on the basis of valuation reports made by the Valuation Officers could be quashed/set aside/deleted by the appellate authorities/Tribunal/courts. Faced with this situation, Parliament inserted section 142A with retros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be bad in law, in view of the provisions of section 142A, as inserted by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972 ; that the Departmental Valuer was a qualified engineer employed in the parent Department of Central Public Works Department. Being a civil engineer he was an expert in the field of civil constructions. The opinion of an expert is admissible as evidence in a court of law. If there was a significant undervaluation that would be material evidence of understatement of consideration also in the event of the undervaluation not being satisfactorily explained by the assessee. In this case, the decision of Smt. Amiya Bala Paul [2003] 262 ITR 407, Britannia Industries Limited v. Deputy CIT [1999] 238 ITR 571 (Cal), CIT v. Kelvinator of India Ltd. [2002] 256 ITR 12 (Delhi) [FB], C. B. Gautam v. Union of India [1993] 199 ITR 530 (SC), Raza Sugar Co. Ltd. v. CIT [1981] 130 ITR 421 (Delhi), Rajinder Nath v. CIT [1979] 120 ITR 14 (SC), Roof Tower Construction (P.) Ltd. s case [2001] 72 TTJ (Cal) 433, K. M. Sharma v. ITO [1996] 221 ITR 202 (Delhi), K. P. Varghese [1981] 131 ITR 597 (SC) and Vidya Sagar v. CIT [2005] 277 ITR 120 (P H) are consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identiary value. Therefore, the valuation report obtained during the course of assessment under section 143(3) read with section 147 for the assessment year 1997-98 can be utilized and made basis for reopening the assessments for the assessment years 1995-96, 1996-97 and 1998-99. 35. In Bishnu Talkies v. CIT [2006] 287 ITR 372 the High Court of Gauhati held that the function of a valuer of a property is a technical function requiring expert investigation for the purpose of estimating the cost of construction. A report of a valuer estimating the cost of construction would only be an opinion of the expert on a technical matter. It followed its earlier decision in the case of CIT v. Smt. Basana Rani Saha [2000] 243 ITR 780 (Gauhati). The report of the Valuation Officer is an opinion and it may create suspicion and doubt. Suspicion and doubt cannot be treated as opinion capable of forming reason to believe within the meaning of section 147. A report of a valuer estimating the cost of construction would only be an opinion of the expert on a technical matter and it cannot be treated as an opinion forming reason to believe within the meaning of section 147 and there being nothing on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled for at all. Neither seems be right in this regard. The report of the DVO in view of the clear provisions of section 142A(3) has to be used by the Assessing Officer in making the assessment or reassessment. On the contrary, for making addition the Department cannot place sole reliance on the DVO report and make the addition of entire difference. It is not sacrosanct but an estimate by a technical person and taken in advisory capacity and as a mark of guidance. On the contrary the mistakes pointed out by the Assessing Officer being very venial, might not justify the rejection of books of account under section 145(3), but these would be relevant to make disallowances, and additions to that extent have to be made. The books of account can be relied upon for what that is recorded therein and not, for that which is not recorded in the books. For that rejection of books for defect found therein may not be relevant. The DVO report shows a huge difference, a part of which of course is explained by the assessee but the other part remained unexplained. Therefore, the Revenue cannot place full reliance on the DVO report and make addition for the entire difference. The DVO report though of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and Bungalow A-27. And also On the facts and in the circumstances of the case and in law, after insertion of section 142A in the statute by the Finance (No. 2) Act, 2004, with retrospective effect from 15-11-1972, a reference made by the Assessing Officer to the DVO to make an estimate of such value and report, was justified. 3. On the facts and in the circumstances of the case and in law, the addition made on account of alleged investment in construction of building, known as Ashlesha Bungalows situated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and Bungalow A-27 during the previous year relevant to the assessment year 1997-98 on the basis of huge difference in the cost estimated in the valuation report of the DVO coupled with other defects pointed out and the difference in such value even by the assessee s own appointed registered valuer can be sustained in all the years. And also On the facts and in the circumstances of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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