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TMI Blog2001 (11) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciating the fact that no proper opportunity of being heard had been given to the appellant. 4. That the CIT(A) has wrongly rejected the grounds of the appellant that in the absence of any defects in the construction accounts, in the books of account supported by vouchers, no reference could possibly be made to the D.V.O. for making an estimate. 5. That the CIT(A) has wrongly rejected the claims of the appellant for depreciation on the alleged unexplained cost of construction. He finds in this behalf to say the least show his utter ignorance of the provisions of the law. 6. That the CIT(A) has erred in not directing the Assessing Officer the allow the benefit of unabsorbed depreciation for assessment year 1967-68 as had been directed by the appellate authorities in earlier years. It is not understood as how allowance of unabsorbed depreciation for Assessment Years 1984-85 to 1988-89 could govern this position. Even otherwise the necessary claims had duly been made in the return. 7. That the order of the CIT(A) is against law and facts of the case and is liable to be set-aside." 2.1 We will deal with ground Nos. 1 to 4 and 7 since these grounds are interlinked. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed under section 143(1)(a) at the total income of Rs. Nil It was noticed that the assessee had constructed property at Kartarpur. Its cost of construction was shown at Rs. 65,136 by the assessee. In order to elucidate the correctness of the cost of construction, the case was referred to the Valuation Cell and the cost of construction was worked out to Rs. 1,65,600 in the year under consideration. Thus, there is difference of Rs. 1,00,464 between declared amount and the amount determined by the Valuation Cell. I have, therefore, reason to believe that total difference to the tune of Rs. 1,00,464 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. In view of this necessary approval to issue notice under section 148 of the Income-tax Act, 1961 may kindly be accorded. Sd/- (Mrs. Rachna Singh) IRS, Asstt. Commissioner of Income-tax, Circle 1(1), Jalandhar." The Assessing Officer has pointed out the above difference to the assessee. The reasons recorded for re-opening were also brought to the notice of the assessee. The contention of the assessee was that the Assessing Officer has never referred the matter relating to valuation of cost of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cannot open the assessment on the basis of change of opinion. (6) That the Assessing Officer was not justified in re-opening the assessment particularly when the assessee had disclosed all the relevant facts before the Assessing Officer during the course of assessment proceedings. (7) That the Assessing Officer cannot change his opinion on the basis of same set of facts. (8) That the valuation report did not constitute the information for initiating proceedings under section 147. (9) That the re-assessment proceedings were not valid particularly when the assessee was maintaining regular bills of construction supported by valuation report. (10) That the D.V.O.'s report after the assessment was invalid. (11) That the Assessing Officer was not justified in re-opening the assessment on the basis of the order of the CIT, Jalandhar passed under section 263 of the Act for the assessment year 1992-93. 4. The learned CIT(A) rejected the above contentions of the assessee for the reasons stated in paragraphs 6, 7 and 8 of the impugned order, which are reproduced hereunder:- "6. The provisions of section 147 have changed w.e.f. 1-4-1989 and the new provisions are reproduced below:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 1992-93 were pending and during those valuation proceedings, the assessee was not able to identify as to which structure were constructed in which year. In these circumstances, the V.O. made valuation of the building and allocated various amounts to different years on proportionate basis as per claim of the assessee regarding investment made in various years. When the assessee itself was not in position to identify as to which building was constructed in which year, it is not possible to accept that the books of account of the assessee should be considered as reliable. The observations made by the ld. V.O. in the valuation report regarding discrepancies in the bills and accounts were also not rebutted and for this reason also the books of account of the assessee could not be considered as reliable. It was further pointed out that there is distinction between reasons to believe and change in opinion. When the Assessing Officer has only processed the return under section 143(1)(a), it cannot be held that the assessment has been re-opened by change of opinion. Reference is invited to the decision of Hon'ble Gujarat High Court in the case of P.C. Patel v. M.J. Makwana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reason to suspect and not reason to believe for reopening the assessee and once the Assessing Officer has proper reasons to believe, the decisions of Hon'ble Supreme Court as mentioned in para (e) above would be of no help to the assessee in view of the above discussion, I am of the view that the Assessing Officer was justified in reopening of the assessment." From the above findings of the CIT(A), it would be clear that he has held that the Assessing Officer was justified in reopening the assessment. 5. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. Before us, Shri Y.K. Sud, C.A., the learned counsel for the assessee, reiterated the submissions made before the authorities below. Reliance was also placed on the following decisions:- (1) Roof & Tower Construction (P.) Ltd. v. Asstt. CIT [2001] 72 ITJ (Cal.) 433. (2) Bhagwandas Jain v. Dy. CWT [2000] 246 ITR 632 (MP). (3) Tara Chand Mundhra v. Union of India [2000] 245 ITR 187 (Raj.). (4) S. Sreeramachandra Murthy v. Dy. CIT [2000] 243 ITR 427 (AP). (5) Grover Nursing Home v. ITO [2001] 248 ITR 493 (Punj. & Har.). 6. On the other hand, Shri B.M. Verma, the learned D.R. strongly supported the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount and as determined by the D.V.O. The assessment for the year under consideration was re-opened on the basis of Departmental Valuer's report obtained after the completion of original assessment. The issue, which is to be determined by us, is whether on the above facts, the Assessing Officer could have initiated the proceedings under section 148, read with section 147 of the Act or not. Section 147 [as amended by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989] reads as under:- "147. If the (Assessing) Officer (has reason to believe) that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):. Section 148 reads as under:- "148(1) Before making the assessment, reass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extend, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a court of law: Keeping in view the above ruling of the Hon'ble Supreme Court, we are of the view that on the facts and in the circumstances of the present case, it cannot be held that the Assessing Officer was justified in assuming jurisdiction under section 147 read with section 148 of the Act. In this regard, we may refer to the decision of the Calcutta Bench of the Income-tax Appellate Tribunal in the case of Roof & Tower Construction (P.) Ltd., wherein it has been held that the valuation report is only an opinion of valuer and it can neither amount to 'information' nor to 'reason to believe' that any income has escaped assessment and, therefore, reopening merely on the basis of D.V.O.'s report is not sustainable. The Hon'ble Rajasthan High Court in the case of Tara Chand Mundhra has held at pages 191-192 as under:- "In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar, even the valuer report cannot be made the basis far re-opening the assessment. 7.2 On a perusal of the recorded reasons, reproduced hereinabove, it would be clear that the Assessing Officer has issued a notice under section 148 an the basis of the report of the D.V.O. and he had no other material or evidence in his possession far farming the belief that the income of the assessee had escaped assessment. Even the Hon'ble Punjab and Haryana High Court in the case of Grover Nursing Home held that even the report of the D.V.O. cannot be made the sale basis for initiating action under section 147 read with section 148 of the Act. On this scare alone, the Assessing Officer was not justified far initiating the section under section 147 read with section 148 of the Act. 7.3 In the case of S.S. Sreeramachandra Murthy, the Hon'ble Andhra Pradesh High Court has held that in order to attract section 147 of the Act, the first and foremast requirement is that the Assessing Officer should have reason to believe that the income chargeable to tax had escaped assessment far any assessment year. In the said case, re-assessment proceedings were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n there turn of income, such ground or reason is not to be found in the reasons recorded by the Assistant Commissioner leading to the initiation of reassessment proceedings. Hence, the statement in the counter-affidavit is not accurate. Therefore, as already observed by us, the sole basis for initiating reassessment proceedings is the estimate of constructional cost made by the Departmental Valuer long after the search operations. The formation of reasonable belief cannot obviously be based on such valuation done after the assessment was completed, when there was no other material to suggest that the petitioner failed to disclose the true and relevant primary facts which have a bearing on the construction of the building. The reason recorded in support of the belief which the Assessing Officer is expected to form before initiating reassessment proceedings is thus an irrelevant reason and does not go to establish that the petitioner failed to discharge the duty of disclosing the primary facts to the Assessing Officer before the assessment was made. Learned senior standing counsel for the Department has submitted that the petitioner had shown the differential cost proportionately in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made on account of alleged unexplained investment in the building. For the assessment year 1991-92, the addition made by the Assessing Officer and confirmed by the CIT(A) is at Rs. 4,21,514 while for the assessment year 1993-94, the addition of Rs. 30,955 was upheld by the CIT(A). It is relevant to note that for the assessment year 1989-90, the impugned addition was at Rs. 1,00,464. While deciding the appeals of the assessee by the CIT(A) for the assessment years 1991-92 and 1993-94, he has followed his order for the assessment year 1989-90. Admitted position is that the facts and the circumstances of these cases are similar to the facts of the case relating to the assessment year 1989-90. Even the rival contention of the parties are similar. While deciding the ITA No. 515 (Asr.)/2000, we have deleted the addition of Rs. 1,00,464 made by the Assessing Officer and confirmed by the CIT(A) for the reasons stated hereinabove. In view of the findings given in ITA No. 515 (Asr.)/2000, we also delete the additions of Rs. 4,21,514 for the assessment year 1991-92 and Rs. 30,955 for the assessment year 1993-94 made by the Assessing Officer and confirmed by the CIT(A) on account of allege ..... X X X X Extracts X X X X X X X X Extracts X X X X
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