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TMI Blog2004 (7) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3), no notice under section 143(2) appears to have been issued in respect of other three assessment years. 4. During the course of regular assessment proceedings for assessment year 1995-96, the Assessing Officer made a reference to the Valuation Officer under section 131 of the Act to estimate the cost of construction of the building owned by the assessee. On the basis of the report of the Valuation Officer, the necessary addition under section 69 of the Act was made in the assessment year 1995-96. As the construction was spread over a number of years including the assessment years in question before us, the Assessing Officer felt that the income chargeable to tax in these years have escaped assessment. The Assessing Officer, therefore, issued the notices under section 148 of the Act on 30-5-2001 for all the years after recording the following reasons: "In the course of assessment proceedings of M/s. Janki Prasad Garden Enclave Pvt. Ltd., 538, Sitapur Road, Lucknow, for assessment year 1995-96 a reference was made the District Valuation Officer for determining the cost of construction of certain properties constructed by the assessee vide his report dated 31-10-1997, the Distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,37,51,936 2,44,36,600 -------------------------------------------------------- The District Valuation Officer has further noted that this estimated cost does not include the cost of land, Transformer, Lift, Generator Phase III construction started after reference item of work not done stated to be sold on unfinished Flat No. B1-201, A1-25 & 26 and semifinished sold Flat Nos. Al-125, 225, A2-28, 127, B1-1, 2, 101, 102, 202, 226, 326, B2-4, 103, 104, 204, B3-5, 6, 105, 205, 306, B4-307 & 308. But includes the cost of W/S & S/I electric installation (without fans and fittings) external services, development of lawn and pavement. After accounting for the escalation mentioned by the District Valuation Officer in his report e.g. cost of land etc. the amount of understated 100 by the assessee shall be higher considering the facts the amount of superseded investment appears to be higher than the prescribed amount for issue of notice under section 148." 5. When the re-assessment proceedings for all these four years commenced, the assessee challenged the assumption of jurisdiction by the Assessing Officer under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (iii) Travelling Exp. (iv) General Exp. 4. Travelling Exp. - 2,616 8,528 - 5. Telephone Exp. - - 8,272 20,149 6. Directors Travelling - - - 4,118 7. Office Car Exp. - - &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Valuation Officer's report was made by the Assessing Officer in assessment year 1995-96. But the Tribunal had deleted the addition made by the Assessing Officer. Thus, the disallowances made by the Assessing Officer were beyond the scope of reassessment. It was also pleaded that for assuming jurisdiction under section 147 of the Act, there should be cogent material for formation of belief that income chargeable to tax has escaped assessment. In the instant case, though there is no material except the valuation report, it is almost settled law that no proceedings under section 147 of the Act can be initiated on the basis of valuation report. However, these submissions did not find favour with the ld. CIT(A), who upheld the initiation of reassessment proceedings as well as the additions on merits. 7. It is argued by the learned Counsel that in order to attract the provisions of section 147, the Assessing Officer has to hold that he had reason to believe that income chargeable to tax has escaped assessment. From the perusal of the reasons recorded, it was clear that nowhere the Assessing Officer has held that income chargeable to tax has escaped assessment. Moreover, it was also nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el also stated that the Assessing Officer had made certain small additions on account of building material, electric material and building construction. The Assessing Officer, in his order has mentioned that during re-assessment proceedings, the bills to that extent were not produced though the vouchers for such expenses were available. How the Assessing Officer could form his belief that any income chargeable to tax has escaped assessment when the vouchers were available, was beyond the cannons of law. It was stated that it is not necessary that for petty items there has to be bills. In every case, the bill is not raised. Where the payments are made, the necessary vouchers are prepared. On this basis, it could not be said that any income chargeable to tax has escaped assessment. The additions made by the Assessing Officer were, therefore, not justified and deserve to be deleted. On the other hand, the ld. DR supported the order of the ld. CIT(A). 9. We have considered the rival submissions. The facts have been mentioned above. Section 147 of the Act which has been invoked by the Assessing Officer reads as under: "If the Assessing Officer has reason to believe that any income cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment Corpn. [1992] 198 ITR 520 (Ker.), CIT v. Sukh Lal Ice Cold Storage Co. [1992] 196 ITR 562 (All.). The perusal of the reasons recorded as mentioned earlier, will clearly indicate that nowhere the Assessing Officer has satisfied the condition of reason to believe. Thus, in absence of this mandatory condition, the initiation of re-assessment proceedings itself was illegal. 12. The Hon'ble Calcutta High Court in the case of Bibhuti Bhusan Ghosh v. ITO [1993] 203 ITR 536, had considered similar issue and observed as under: "The words "reason to believe" are stronger than the words "is satisfied". The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be based on reasons which are relevant and material. If there is no rational or intangible nexus between the reasons and the belief, the conclusion could be inescapable that the Assessing Officer could not have reason to believe that any part of income has escaped assessment." 13. The above view was also expressed by various courts in the cases in Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) and 97 ITR 237 (51c). The Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 131 of the Act for estimating the cost of construction was invalid reference. As the Hon'ble Supreme Court interprets the law from the date the provision was brought on the statute, the reference under section 131 of the Act itself was illegal and therefore, the report of the Valuation Officer cannot be a material for formation of belief. Thus the assumption of jurisdiction on the basis of such report was itself illegal as there was no material for formation of belief that any income chargeable to tax has escaped assessment. 17. There is another important factor in this case. Section 149 has prescribed the limit for the issue of notice under section 148. In case the assessment under section 143(3) was made, the notice beyond a period of four years could be issued only when the escapement of income exceeded Rs. 50,000. As the notice under section 148 was issued in 2001, certainly for assessment year 1994-95, it was beyond the period of four years. The total addition made in this year was less than Rs. 10,000. One may say that as there was difference of about Rs. 50,000 between the cost of construction declared by the assessee and estimated by the Valuation Officer, the escaped inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the basis for formation of belief, no addition in respect of other items mentioned in the assessment order could be made. On this basis also it could be clearly said that the mandatory condition that the income chargeable to tax in respect of even those items has escaped assessment was not satisfied. 21. We have also gone through the additions made by the Assessing Officer. We find that some year pooja expenses have been allowed. Various Courts have held that pooja expenses were allowable deductions. Thus, such amount could not be said to have escaped assessment. Similarly, in the case of a company, there could not be any disallowance on account of vehicle and telephone. Such disallowance, therefore, cannot be said to have escaped assessment earlier. Similar is the position in respect of other items. Keeping in view these facts, we hold that the assumption of jurisdiction under section 147 of the Act itself was illegal. Even on merits, the addition made by the Assessing Officer could not be said to have escaped assessment earlier and therefore, re-assessing the same will amount to mere change of opinion and in view of Hon'ble Delhi High Court decision in the case of Kelvinat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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