2006 (3) TMI 256 - AT - Income Tax

Summary

Issues:
Reopening of assessment under section 147/148 based on Valuation Officer's report for alleged unexplained investment. Addition made under section 69 for difference in cost of construction as per Valuation Officer's report. Justification of reopening by CIT(A) but deletion of addition by CIT(A) based on valuation method used. Validity of reopening under section 147 of completed assessment based on Valuation Officer's report.

The appeal before the Appellate Tribunal ITAT Jodhpur involved the reopening of assessment under section 147/148 for the assessment year 1997-98 based on a Valuation Officer's report. The assessee, a hospital, initially declared a total income of Rs. 93,140, but the assessment was completed at Rs. 9,22,970 with an addition of Rs. 8,29,729 under section 69 for unexplained investment. In the subsequent assessment year 1998-99, the Valuation Officer determined the cost of construction of a new hospital building at Rs. 37,99,695, differing from the assessee's declared amount. The AO made an addition of Rs. 1,35,000 for the difference in cost of construction as per the Valuation Officer's report. The assessee challenged the reassessment proceedings initiated solely based on the Valuation Officer's report, arguing that the property value was wrongly determined using CPWD rates instead of local PWD rates.

The CIT(A) upheld the justification for reopening but deleted the addition, noting that the Valuation Officer used CPWD rates, while a registered valuer valued the property based on local PWD rates. The Department appealed this decision. The Tribunal, after considering the submissions and evidence, highlighted the settled legal position that for valuation purposes, local PWD rates should be adopted, as established by various High Court decisions. The Tribunal held that the CIT(A)'s decision to delete the addition was correct based on this legal principle.

The authorized representative argued the validity of the reopening under section 147, contending that the information from the Valuation Officer did not meet the requirements for reopening assessments. Citing relevant case law, including decisions from the Tribunal and High Courts, the representative emphasized that reassessment cannot be solely based on the Valuation Officer's report. Ultimately, the Tribunal dismissed the Department's appeal, concluding that both the reopening and the addition made were not sustainable in law. The appeal of the Department was thus dismissed, affirming the CIT(A)'s decision to delete the addition.