2015 (1) TMI 189 - AT - Income Tax

Validity of reopening of assessment Notice issued u/s 148 and reference made to DVO for making addition - Held that - The AO has received certain information with regard to the unexplained investment in the property by the assessee during the course of assessment proceedings in the case of Shri. Khem Chand Agarwal Rakabganj Lucknow and on the basis of such information the AO has formed a belief that unexplained investment in the property was made by the assessee and later on constructed flats which were sold and no income was offered thereon. On the basis of this information the AO has formed a belief that income chargeable to tax has escaped assessment and issued notice u/s 148 of the Act there was no illegality in the formation of belief and issuance of notice u/s 148 of the Act - There is nothing borne out from the order sheet recorded by the AO with regard to the filing of return in response to notice u/s 148 of the Act - The notice u/s 148 of the Act was issued only on 18.1.2005 and immediately thereafter on 2.2.2005 notice u/s 143(2) of the Act was issued fixing the hearing on 11.2.2005. When the AO has issued notice u/s 143(2) of the Act fixing the hearing on 11.2.2005 he should have waited for the reply of the assessee in response to that notice - Instead of waiting for the reply the AO was in a hurry to make reference to the DVO on 9.2.2005 the action of AO cannot be accepted - in Sargam Cinema vs. CIT 2009 (10) TMI 569 - Supreme Court of India it has been held that before making reference to the DVO for estimating the cost of investment in the construction of property the books of account maintained by the assessee in this regard has to be rejected thus the reference made by the AO to the DVO is illegal invalid and cannot be relied on for estimating the cost of construction in the property - The AO has blindly followed the DVO s report of which reference is invalid and made addition u/s 69C of the Act cannot be sustained Decided in favour of assessee.

Summary

Issues:
Validity of reopening of assessment and addition made based on DVO's report under section 142A of the Income-tax Act, 1961.

Analysis:

Issue 1: Validity of Reopening of Assessment
The assessee filed the return of income after the due date, which was treated as non est. The assessment was framed under section 143(3) of the Act, and the ld. CIT(A) upheld the addition made by the Assessing Officer on account of unexplained investment in the property under section 69 of the Act. The Tribunal directed the Assessing Officer to decide the objections raised by the assessee as per norms laid down by the High Court. The Assessing Officer made additions under section 69 of the Act based on the DVO's report. The assessee contended that the reopening of assessment was invalid as the Assessing Officer made a reference to the DVO without waiting for a reply to the notice under section 143(2) of the Act.

Issue 2: Addition Based on DVO's Report
The Assessing Officer referred the case to the DVO under section 142A of the Act for estimating the cost of investment in the property without rejecting the books of account. The assessee argued that the reference to the DVO was illegal and invalid as the Assessing Officer did not follow the proper procedure. The Assessing Officer formed a belief that income had escaped assessment based on information received during the assessment proceedings of another individual. The Tribunal found the reference to the DVO to be invalid and unsustainable in the eyes of the law, deleting the addition made on account of unexplained investment in the property.

In conclusion, the Tribunal partially allowed the appeal of the assessee, holding that the additions made based on the DVO's report were not sustainable. The Tribunal emphasized the importance of following proper procedures and legal requirements before making references to valuation officers and making additions under section 69 of the Act.