1997 (7) TMI 219 - AT - Income Tax

Summary

Issues Involved:

(a) Justification of the Assessing Officer in issuing notice under section 148 of the Income-tax Act, 1961 for failure of the assessee in filing a return disclosing investment made during the previous year in the construction of the Hotel Building.

(b) Justification of the Assessing Officer in assuming jurisdiction under section 144 of the Act and completing the assessment ex parte.

(c) Whether the assessment is barred by limitation as provided in section 153 of the Act.

(d) Whether, on the basis of the report of the Departmental Valuation Officer (DVO), the Assessing Officer can make an addition under section 69 as income from undisclosed sources towards unexplained investment in the construction of the hotel building.

(e) Justification of the Assessing Officer in charging interest under sections 139(8) and 217 of the Act.

Issue-wise Detailed Analysis:

(a) Justification of the Assessing Officer in issuing notice under section 148:

The core issue was whether the Assessing Officer (AO) was justified in issuing a notice under section 148 for the failure of the assessee to file returns disclosing investments made in the construction of a hotel building. The Tribunal noted that the AO issued the notice based on the DVO's report, which estimated the cost of construction at Rs. 5,37,500, significantly higher than the Rs. 2,47,200 recorded by the assessee. The Tribunal emphasized that the term "income" under section 2(24) of the Act is inclusive and not exhaustive, thus covering deemed incomes under sections 68 to 69D. The Tribunal concluded that the AO had reasonable grounds to believe that income had escaped assessment due to the assessee's failure to file returns, thereby justifying the issuance of the notice under section 148.

(b) Justification of the Assessing Officer in assuming jurisdiction under section 144 and completing the assessment ex parte:

The assessee did not press for adjudication of this issue during the hearing. Consequently, the Tribunal did not provide a decision on this matter.

(c) Whether the assessment is barred by limitation as provided in section 153 of the Act:

Similarly, the assessee did not press for adjudication of this issue during the hearing. Therefore, the Tribunal did not offer a decision on this matter.

(d) Whether the AO can make an addition under section 69 based on the DVO's report:

The Tribunal examined whether the AO could make an addition under section 69 based on the DVO's report. The Tribunal held that the DVO's report constituted specific, reliable, and relevant information that could form the basis for the AO's reasonable belief that income chargeable to tax had escaped assessment. The Tribunal noted that the DVO's report was obtained through a valid reference under section 131(1)(d) and that the AO had no other material to form a reasonable belief. The Tribunal concluded that the DVO's report was sufficient to justify the addition under section 69.

(e) Justification of the AO in charging interest under sections 139(8) and 217 of the Act:

The assessee did not press for adjudication of this issue during the hearing. Consequently, the Tribunal did not provide a decision on this matter.

Separate Judgments:

Judgment by Judicial Member (Shri Abdul Razack):

The Judicial Member opined that the AO erred in assuming jurisdiction under section 147(a) and issuing the notice under section 148. He argued that the DVO's report could not form the basis for a reasonable belief that income had escaped assessment, as it was merely an opinion. He emphasized that deemed incomes under sections 68 to 69D were not included in the definition of "income" under section 2(24) and, therefore, were not required to be disclosed in returns under section 139. Consequently, he held that the assessment was void and without jurisdiction.

Judgment by Accountant Member (Shri V.K. Sinha):

The Accountant Member disagreed with the Judicial Member's conclusion. He argued that the definition of "income" under section 2(24) was inclusive and not exhaustive, thereby encompassing deemed incomes under sections 68 to 69D. He emphasized that the DVO's report constituted specific, reliable, and relevant information that could form the basis for the AO's reasonable belief that income had escaped assessment. He concluded that the AO was justified in issuing the notice under section 148 and making the addition under section 69 based on the DVO's report.

Third Member Decision:

The Third Member (President) resolved the points of difference between the Judicial and Accountant Members. He held that the AO was justified in issuing the notice under section 148 based on the DVO's report, which constituted specific, reliable, and relevant information. He emphasized that the definition of "income" under section 2(24) was inclusive and covered deemed incomes under sections 68 to 69D. He concluded that the AO had reasonable grounds to believe that income had escaped assessment due to the assessee's failure to file returns, thereby justifying the issuance of the notice under section 148 and the addition under section 69 based on the DVO's report.

Conclusion:

The Tribunal ultimately held that the AO was justified in issuing the notice under section 148 and making the addition under section 69 based on the DVO's report. The assessment was upheld, and the assessee's appeal was dismissed.