TMI Blog2007 (8) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... correctness of the report of the District Valuation Officer determining the cost of investment in buildings constructed by the assessee as a builder for business purpose. (iv) The fourth issue relates to the assessee s claim that in case the addition on account of so-called undisclosed investment in construction of building made under section 69C of the Act, 1961, is upheld, then the assessee may be allowed corresponding deduction of similar expenditure under section 37 of the Act. (v) The fifth issue is against levy of interest under sections 234A, 234B and 234C of the Act. (vi) The sixth issue is against initiation of penalty proceedings under section 271(1)(c) of the Act. 3. We have heard the parties. 4.1 The brief facts as have been revealed from the records and are relevant for disposal of all these four appeals are that the assessee is in the line of construction of buildings for sale. The returns of income for the assessment years 1995-96, 1996-97, 1997-98 and 1998-99 declaring income at nil, Rs.8,09,820, Rs. 1,51,290 and Rs. 2,08,055 respectively were filed on November 30, 1996, November 30, 1996, August 31, 1998, and March 31, 1999, respectively. 4.2 The returns for all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid vouchers had filed the photocopies of relevant bills but the same were rejected by the Assessing Officer on the ground that the bills were handwritten. (b) With respect to the discrepancy at Sl. No. (ii), the assessee s reply was that the concerned person paying petty unskilled labour were not available when the assessment was going on and, therefore, their signatures could not be obtained at that time. The Assessing Officer considered this defect as a serious defect. (c) With respect to discrepancy at Sl. No. (iii), the assessee s case was that the signatures of these three persons (cited in above tabular form) could not be procured due to oversight. However, the Assessing Officer s observation at page No. 5 of the assessment order (specifically) was that the payments claimed in the names of these three persons cannot be accepted in principle. (iv) Another discrepancy alleged by the Assessing Officer was with respect to alleged difference with respect to accounts of the following parties available in the assessee s books of account and vice versa : (a) Account of M/s. Shiv Traders : From the copy of the assessee s accounts procured from M/s. Shiv Traders, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th comments, it is held that the book result shown by the assessee-firm is not acceptable. The correctness and completeness of the books of account are not found. It is, therefore, book result of the assessee-firm is hereby rejected by invoking the section 145(3) of the Act and accordingly, assessment is being finalized in the manner provided in section 144 of the Act. 4.5 The Assessing Officer, further noticed that the assessee had constructed bungalows under the name of the building Ashlesha Bungalows at Anand during the period July, 1993, to December, 1998 and had shown the total cost of construction for entire project at Rs. 2,37,96,653. 4.6 The Assessing Officer, for the reasons best known to him (since there is no reference as to how or on what basis, he doubted the correctness of cost of the construction of building, which was the assessee s stock-in-trade shown by the assessee as incorrect), referred the matter to the DVO requiring him to estimate the cost of construction of the said building during the period July, 1993, to December, 1998, by invoking his power under section 131(1)(d) of the Act. The DVO estimated the cost of construction of the entire building and also th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee assessment years, the Assessing Officer noticed similar petty discrepancies, such as absence of some vouchers and absence of signatures on some vouchers of the recipients, as were noticed in the assessment year 1997-98 and on the same reasoning rejected the books of account for these three assessment years also. 4.12 The details of assessed income for these assessment years as per orders dated March 28, 2003 are as under : Sl. No. Assessment year(s) Income as per return (Rs.) Total assessed income (Rs.) Addition 1. 1995-96 Nil 9,60,547* 9,60,547 2. 1996-97 8,09,824 + 24,88,488 32,98,312 3. 1998-99 2,08,055 + 16,93,468 19,01,523 *This addition, in all the three assessment years, is on account of alleged undisclosed investment in construction of building, which was assessee s stock-in-trade by mentioning in the caption expenses understated as disclosed above . 4.13. The assessee went in appeal against all the four assessments framed by the Assessing Officer after taking recourse to the provisions of section 147 of the Act, 1961 and in addition to objecting to the rejection of the books of account and addition/additions on merits, objected to the validity of the proceedings initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein, there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only return was processed under section 143(1)(a) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has first been taken up while taking the case under section 147 and accordingly, it cannot be said to be the change of opinion of the Assessing Officer as contended by the appellant. Hence, the action of the Assessing Officer in passing an order under section 143(3) read with section 147 is held correct. For assessment year 1996-97 : 3.3 Before discussing main ground No. 1, the appellant has also raised a ground against the issuance of notice under section 148. It was argued that reassessment cannot be reopened on the basis of report of the DVO. This argument has been considered. In fact, the decisions referred to by the appellant in this regard were related to the assessment year prior to the assessment year 1989-90. With effect from 1st April, 1989, the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, it was clear to the Assessing Officer that the appellant has understated the income, on the basis of the report of the DVO, wherein there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only return was processed under section 143(1) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in relation to the aforesaid point and decide the issue. The issue has first been taken up while taking the case under section 147 and accordingly, it cannot be said to be change of opinion of the Assessing Officer, as contended by the appellant. Hence, the action of the Assessing Officer in passing an order under section 143(3) read with section 147 is held correct. 4.15 For the assessment year 1997-98, the Commissioner of Income-tax (Appeals) duly noted the assessee s objection in para No. 3.4 of the appellate order, but did not decide this issue. 4.16 So far as the disallowance under section 40A(3), for the assessment year 1997-98 and additions in all four assessment years having been made by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escapement of disallowance to be made under section 40A(3) of the Act or the alleged undisclosed investment in the building, but on the facts of the case and as has been admitted by the Assessing Officer in the assessment order itself, these two additions could also not be the basis of forming a belief that the income had escaped assessment. The Learned counsel for the assessee has supported his plea by drawing our attention towards the second para of the assessment order at page 1 which specifically reads as during the course of hearing, it noticed that the assessee had made payment through bearer cheque to M/s. Harikrupa Engineering Works on March 23, 1996, amounting to Rs. 27,728, the same payment has violated the provisions of section 40A(3) of the Act, 20 per cent. of the said amount, i.e., Rs. 5,545 was disallowed and added to the income of the assessee . Referring to the aforesaid observations of the Assessing Officer, learned counsel for the assessee submitted that it is quite evident that the fact of payment of Rs. 27,728 having been made by bearer cheque also had come to the notice of the Assessing Officer only during the course of hearing of proceedings initiated in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned counsel for the assessee, in view of the above facts, submitted that the proceedings under section 147 of the Act, for the assessment year 1997-98 were initiated without there being any information or material with the Revenue authorities which could lead them or make them to have reasons to believe that any income chargeable to tax had escaped assessment. 6.6 He, therefore, submitted that the initiation of proceedings under section 147 of the Act, was illegal and bad in law and therefore, all subsequent proceedings were illegal and bad in law. 6.7 With respect to the assessment years 1995-96, 1996-97 and 1998-99, learned counsel for the assessee, submitted that though there is nothing in the assessment orders as to why and on what basis, the proceedings under section 147 of the Act were initiated, but from para 3.3 for the assessment year 1995-96, paras 3.3 and 3.4 for the assessment year 1996-97 and paras Nos. 3.3 and 3.4 for the assessment year 1998-99, it is gathered that the proceedings under section 147 of the Act for all the three years, were initiated solely on the basis of the valuation report and, therefore, the same were not validly initiated. According to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial question of law arises ; no interference warranted also for the reason that the tax effect would be of a very small amount. (iii) Roof and Tower Construction (P.) Ltd. v. Asst. CIT [2001] 72 TTJ (Cal) 433 Headnote : Reassessment-Reason to believe-Assessee-company engaged in the business of constructing residential complexes and selling flats therein-Assessing Officer reopened the assessments under the belief that sales consideration has been suppressed by the assessee which was formed on the basis of DVO s report-Not justified-Addition could not be made to the returned income because, the sale price as per assessee s account was less than the value indicated in the DVO s report-Reopening not valid. Held The scope and effect of section 147, as substituted with effect from April 1, 1989, is much wider. If the Assessing Officer simply has reason to believe that income has escaped assessment, it confers upon him the jurisdiction to reopen the assessment. However, a completed assessment cannot be reopened on the basis of DVO s report and a DVO report cannot amount to information or to reason to believe that any income has escaped assessment. A valuation report is at best an opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DVO after completion of assessment cannot be considered as information for making reassessment under section 147(b). (2) For the proposition that once the assessee has produced valuation report of a registered valuer the same cannot be rejected without giving itemwise comments/analysis and reasons to show that the same is not tenable, reliance was placed on the following : (i) Asst. CIT v. Vinodkumar Agarwal [2002] 82 ITD 1 (Hyd.) (page 11) : By the same principles we hold that the method of valuation to be adopted for evaluating the cost of construction should be the method that is most beneficial to the assessee and which is opted by him. We fail to understand as to why the DVO is unable to estimate the cost of construction on the basis of detailed quantities method, when with the same information the empanelled valuer of the Income-tax Department, i.e., the registered valuer could estimate the cost of construction on detailed quantities method. It is also found from record that the registered valuer s report containing the estimation of cost of construction by adopting detailed quantities method was available to the DVO. The Jaipur Bench of the Tribunal in Smt. Rekhadevi s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1997] 63 ITD 235 (Cal) (page 244). 11. On analyzing the aforesaid judgment, we find that in order to refer the matter to the valuation cell, the Assessing Officer should first point out the defects in the books maintained by the assessee. In the following decisions it was held that when the assessee maintained accounts regularly, addition cannot be made on the basis of the report of the DVO without pointing out any defects in the books : (a) Sheikhar Chand and Sons case [1990] 186 ITR 269 (All) (b) Western Estates case [1994] 209 ITR 343 (Cal) (c) Vindaban Chitra Mandir case [1994] 209 ITR 520 (All) (d) Shekhar Chand Jain Sons case [1988] 32 TTJ (Delhi) 570 (e) Tek Chand s case [1995] 52 ITD 197 (Jodh) (f) Nishant Housing Development (P.) Ltd. s case [1995] 52 ITD 103 (Pat) (g) Smt. Uma Devi Jhawar s case [1996] 218 ITR 573 (Cal) 12. From the aforesaid judgment the following proposition would emerge : (a) For the purpose of making an addition, towards unexplained investment, the Assessing Officer is under legal obligation to verify the books and vouchers maintained by the assessee in support of the cost of construction shown by him and point out specific defects ; (b) Upon rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 145. As there is no finding in the present case that any of the entries in the books of account was not correct, there is no finding that the assessee is not employing a method of accounting and there is no finding that such a method of accounting has been irregularly employed by the assessee. In the absence of any such finding, there being no reason germane to the unacceptability of the book results, it must be held that the Tribunal as well as the Revenue authorities below had no materials before them, on the basis of which it could be said that the trading results were not verifiable and that, therefore, they should not be accepted, nor is it their case that the trading results could not be deductible from the entries of the books of account regularly employed. Conclusion : Where method of accounting employed by the assessee had been regularly employed and income, profits and gains could properly be deduced from such method, no scope for rejection of books. (iv) CIT v. Padamchand Ramgopal [1970] 76 ITR 719 (SC) Headnote : Account-Rejection-Insignificant mistakes noticed in one year cannot be basis for rejecting the accounts of other year. Held It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the report of the DVO or any other case considered comparable. The additions sustained by the Commissioner of Income-tax (Appeals) are, therefore, deleted on this preliminary issue. (ii) Sri Har Sarup Cold Storage and General Mills v. ITO [1988] 27 ITD 1 (Delhi) 9. For these reasons, I am of the opinion that the Income-tax Officer not having pointed out any defects in the account books, should not have rejected the accounted version and the Commissioner of Income-tax (Appeals) having found that the valuation made by the DVO was excessive to a great extent, should have examined the matter in greater detail and in any case should have found out defects in the accounted version and not having done that, his order also suffers from the same defects as that of the Income-tax Officer and that the view expressed by the learned Judicial Member placing reliance upon another order of the Tribunal taking a similar view is more acceptable. I, therefore, agree with the view expressed by the learned Judicial Member. (iii) Babyland Hostel v. ITO [1988] 39 Taxman (Mag) 238 (Ahd) 10. We have carefully considered the rival submission of the parties and perused the material already brought on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax (Appeals). We would, therefore, direct the Income-tax Officer to accept the assessee s cost of construction at Rs. 3,27,728 and modify the assessment accordingly. In this view of the matter, we delete the addition as sustained by the Commissioner of Income-tax (Appeals). The Income-tax Officer is, therefore, directed to modify the assessment accordingly. (iv) ITO v. Pitamber Industries (P.) Ltd. [1992] 42 ITD 373 (Delhi) When the assessee maintained books of account and recorded investment in those books of account, it becomes compulsory as per the legislative mandate that the Income-tax Officer should point out defects in the maintenance of those books of account. It is not open to him to ignore the evidence provided by these entries in the books of account and go only by the valuation report given by the Valuation Officer. When the Income-tax Officer proposes to go by the Valuation Officer s report, it means that the books of account maintained by the assessee and produced by him in support of cost of construction within the meaning of section 143(3) of the Income-tax Act, require specific comment to reject the material as unreliable. The Income-tax Officer c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid amount of addition was not assessable in hands of assessee-Held, yes. (vii) ITO v. Dreamland Enterprises [1995] 81 Taxman (Mag) 143 (Ahd) Section 69 of the Income-tax Act, 1961-Unexplained investment-Assessment year 1987-88-Whether, when cost of construction declared by assessee was supported by regular books of account and vouchers, correctness of which was not disputed by Assessing Officer or District Valuation Officer (DVO) by bringing any specific material on record, Commissioner of Income-tax (Appeals) was fully justified in holding that no addition could be validly made on account of any understatement of cost of construction mearly on basis of difference between actual cost disclosed by assessee, which was supported by regular books of account and vouchers, and estimate of cost of construction made by DVO, particularly in a case where assessee had submitted complete details both in terms of quantity and value to DVO as well as Assessing Officer-Held, yes. (viii) M. Selvaraj v. ITO [2002] 258 ITR (AT) 82 (Chennai) (page 97) I am therefore, of the opinion that so far as the present case is concerned, the Revenue having not rejected the books of account of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, since unexplained investment does not go to the profit and loss account, there is no figure setting it off and the entire amount remains income. This distinction has not been kept in view by the Assessing Officer. In the present case, as has been discussed in the assessment order, even if there was some unexplained expenditure, the addition under section 69C of the Act and the additional debit in the profit and loss account will neutralize each other. (ii) Ruby Builders v. ITO [1999] 63 TTJ (Ahd.) 202 Income from undisclosed sources-Addition under section 69CAssessing Officer relied on the report of the DVO to make addition on account of unexplained cost of construction-Assessing Officer has not been able to find any specific defect in the books of account of the assessee-Cost of construction was recorded in books on the basis of bills issued by builder-Further, construction was made in the course of business-Assuming addition is made, the entire expenditure has to be allowed as deduction. Held It is pertinent to note that the Assessing Officer has not been able to find any specific defect in the books of account of the assessee with regard to the cost of construction may be bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that before invoking the section it must be conclusively established by evidence or material to prove that the amount spent is an expenditure and the expenditure is incurred by the assessee only and the same is not deductible while computing the income under any head under the Act. Thus, the primary onus is on the Revenue. (iv) Tirupati Builders v. ITO [2003] 126 Taxman (Mag) 54 (Rajkot) Section 145 of the Income-tax Act, 1961-Method of accounting Rejection of accounts-Assessment years 1985-86 to 1987-88Assessee was a partnership firm in construction business who constructed properties and declared cost of construction as per books of account maintained by them-Assessing Officer noted that assessee had understated cost of construction-So he referred matter to Departmental Valuation Officer (DVO) for determination of costAssessment was already complete under section 143(1) before DVO s report was received-Later Assessing Officer reopened assessments under section 147(b) and made addition of difference of cost-Commissioner of Income-tax (Appeals) held that proceedings under section 147(b) were invalid-Commissioner of Income-tax (Appeals) deleted additions but enhanced profit to 15 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Ahmedabad Bench of the Tribunal in the case of Ruby Builders [1999] 63 TTJ 202. Accordingly, the addition of Rs.13,59,000 on account of alleged unaccounted purchase of material is directed to be deleted. (vi) M. K. Mathivathanan v. ITO [1989] 31 ITD 114 (Mad) 10. Based on the remand report, we have heard the parties. The provisions of section 69C read as under : 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. The gist of the decision of the Tribunal in S. F. Wadia v. ITO [1986] 19 ITD 306 (Ahd) was that unexplained expenditure had to be asked with reference to the provisions of section 69C but where such unexplained expenditure was actually incurred for business purposes and not recorded in the books, such expenditure will have to be allowed separately as a deduction. To illustrate : Suppose the total unexplained expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclose fully and truly are material facts necessary for his assessment for that assessment year. 8.4 As per Explanation 2(b) to section 147 where the assessee has furnished the return of income, but no assessment has been made and if it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, then such claim or relief, as the case may be, will be deemed to be income which has escaped assessment, meaning thereby that the Assessing Officer can initiate proceedings under section 147 of the Act in such cases also. 9. So far as the present case is concerned, admittedly, the assessee had furnished returns of income for all the assessment years and no assessment under section 143(3) had been framed. Under these circumstances, we are of the opinion that the assessee s case could have been a case of escapement of income only in case : (i) the Assessing Officer was seized of any information or material which could have led him to have reason to believe that an income depicted by such information or material had escaped assessment, or (ii) if it was found that the assessee has understated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions referred to by the appellant in this regard were related to the assessment year prior to the assessment year 1989-90. With effect from April 1, 1989, the provisions of section 147 have undergone a vast change. Clause (b) of Explanation 2 clearly covers the position as in the case of the appellant. It has been provided in the aforesaid clause where a return of income has been furnished and no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return then the same will be deemed to be the case where income chargeable to tax has escaped assessment. In the instant case, it was clear to the Assessing Officer that the appellant has understated the income, on the basis of the report of the DVO, wherein there was substantial difference between the investment estimated by the DVO and shown by the appellant in its books. It may be mentioned here that earlier no assessment under section 143(3) was completed and only the return was processed under section 143(1) and accordingly, the Assessing Officer has earlier not had any occasion to apply his mind in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. (iv) So far as the assessment year 1997-98 is concerned, though the Commissioner of Income-tax (Appeals) has noted the assessee s objection in this regard, in para 3.4 of the appellate order, he has not decided the same. 12. From the aforesaid notings/observations/conclusion arrived at by the learned Commissioner of Income-tax (Appeals), it is absolutely clear that proceedings under section 147 of the Act for the assessment years 1995-96, 1996-97 and 1998-99 had been initiated solely on the basis of valuation report of the DVO, meaning thereby that before the availability of the DVO s report, the Assessing Officer had no information or material which could lead him to have reason to believe that any income for the assessment years 1995-96, 1996-97 and 1998-99 had escaped assessment. 13. Coming to the assessee s objection that proceedings under section 147 of the Act could not be initiated for these three assessment years solely on the basis of the report of the DVO. We, after having considered the totality of the facts and circumstances of the case, are of the opinion that the Assessing Officer having no other information or material except the report of the DVO, which was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order of the Tribunal (headnotes) reads as under : On a perusal of the reasons recorded by the Assessing Officer for reopening the assessment, it was clear that the reassessment proceedings were initiated merely on the basis of the DVO s report and there was no other material with the Assessing Officer for initiating the reassessment proceedings. In the case of CIT v. Smt. Usha Mathur [2001] 252 ITR 179 (P H) ; 119 Taxman 439 (P H), it was held that when the assessment was made under section 143(1), no addition could be made on the basis of valuation cell s report in a reassessment proceeding. The instant Bench of the Tribunal in the case of Smt. Peramjit Kaur v. ITO [I. T. A. Nos. 275 and 276 (Asr.) of 2001] also held that a valuation report is at best an information about the fair market value of the capital asset. It has also been held that the Assessing Officer is not justified in reopening the assessment merely on the basis of the report of the DVO. In the instant case also, there was no other material with the Assessing Officer except the report of the DVO and on the basis of which the reopening was not valid. Therefore, in view of the above decision, the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer was therefore, not authorized to make such reference when the assessments were already completed-Further, report of DVO was just an opinion and could not be used by the Assessing Officer as information for reopening the assessment-Commissioner of Income-tax (Appeals) rightly cancelled the reassessments. Held The reference was made by the Assessing Officer to the DVO only after the assessments were completed under section 143(1) and as provided in section 131(1)(d) such reference could have been made only while trying the suit and certainly not in respect of a completed suit. In the instant cases, the assessment had already been completed and as such the Assessing Officer had no reason to make the reference to DVO under section 131(1)(d). The report obtained from the DVO is just an opinion and cannot be considered as information for initiating reassessment proceedings. The Commissioner of Income-tax (Appeals) was quite justified in quashing the reassessment proceedings.-Brig. B. Lall v. WTO [1981] 127 ITR 308 (Raj) ; [1980] 15 CTR 180 (Raj), CIT v. Smt. Prem Kumari Surana [1994] 206 ITR 715 (Raj) and Smt. Amaldas v. CIT [1983] 34 CTR (P H) 268 ; [1984] 146 ITR 216 (P H) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the decision of the honourable Delhi High Court in the case of Bawa Abhai Singh v. Deputy CIT [2002] 253 ITR 83, though in favour of the Department, but we in view of the settled proposition that when there are conflicting decisions of the High Courts different than the jurisdictional High Court, then the decision favourable to the assessee should be followed, are bound to follow other decisions mentioned hereinbefore which are in favour of the assessee. 14.1(iii) Coming to the decision of the honourable Allahabad High Court in the case of Smt. Shashi Jain [1997] 228 ITR 682, we, for the reasons stated with respect to the decision of the honourable Delhi High Court (supra), are of the opinion that this decision is not binding on us, we follow the decision in favour of the assessee. 14.2 Even otherwise, so far as the decisions at Sl. Nos. (ii) and (iii) above are concerned, we are of the opinion that these decisions, at the most, can be applied only for the assessment years 1995-96, 1996-97 and 1998-99 but not in the assessment year 1997-98 and since the basis for taking action under section 147 of the Act, in all these three assessment years is the valuation report procured afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of hearing, the Assessing Officer called for the contra accounts of various parties and noticed the difference between the amount shown by the appellant and the contra accounts provided by the parties. Further, it is also observed during the course of hearing that some of the expenses were claimed, however, no supporting vouchers were produced. The Assessing Officer also made personal visit of the site, i.e., Ashlesha Bungalow , Anand Bakrol Road, Anand and found that it is situated on the Anand Bakrol Road in the posh area with all facilities such as garden, club, cable, EPABX systems, etc. (emphasis supplied) 18.1 From a plain reading of the aforesaid part of the order of the Commissioner of Income-tax (Appeals), it is gathered that the proceedings under section 147 of the Act were initiated without there being any information or material with the Assessing Officer for having reason to believe that any income chargeable to tax had escaped assessment and also that there was no allegation which could satisfy the requirement of Explanation 2(b) to section 147 of the Act. 18.2 Since the learned Departmental representative has also not brought to our notice any information or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., so far as the assessment year 1997-98 is concerned, since the reference to the Valuation Officer was made only during the course of carrying on the proceedings under section 147 of the Act, there was no justification either in rejecting the books of account or making a reference to the Valuation Officer. 20.2(i) To consider the assessee s aforesaid plea, it is necessary for us to travel in the body of the assessment order for the assessment year 1997-98 and after having gone throughout the assessment order, what we are able to find is that the Assessing Officer has rejected the assessee s books of account as per his observations contained in para 2 wherein he has pointed out various discrepancies (petty) and has rejected the assessee s explanation. These discrepancies and assessee s explanation have already been dealt with by us in para 4.4 of this order. (ii) From the in-depth analysis of the assessment order contained from pages 1 to 7, what is borne out is that the Assessing Officer has rejected the assessee s books of account solely on the basis of following discrepancies : (a) for absence of vouchers for carpentry work, colour work, fabrication work and plumbing work, tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses, but in no case was justified in rejecting the books of account. 22. The validity of rejection of books of account can further be test on the basis of the provision of section 145 of the Act as they adjusted at the relevant time. The provisions of section 145 prior to April 1, 1997, were as under : 145. Method of accounting.-(1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine : Provided further that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correctness or completeness of the assessee s books of account or was of the opinion that the assessee was not following the accounting standards as notified under sub-section (2) of section 145 or if the assessee was not regularly following the system of accounting, i.e., the cash or the mercantile that the Assessing Officer could reject the books of account and proceed to make assessment under section 144 of the Act. 22.3 If we test the assessee s case for the assessment year 1997-98, in the light of the aforesaid provisions of section 145 of the Act, it will be found that : (i) it is not the Revenue s case that the assessee has not followed accounting standard, if any, notified by the Government. (ii) the only basis for rejecting the books of account, as have been found from the assessment order and discussed in foregoing part of this order by us is the alleged discrepancy which we have already held to be to have been explained by the assessee and even otherwise were not sufficient so as to make the Assessing Officer itself dissatisfied with regard to correctness or completeness of the assessee s accounts. 22.4 In the totality of the facts and circumstances of the case, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 131(1)(d) of the Act for want of jurisdiction of the Assessing Officer and there being neither amendment in section 131(1)(d) of the Act nor there being validation clause in section 142A of the Act, the references made under section 131(1)(d) of the Act prior to the coming of section 142A of the Act on the statute and the assessment in such cases having remained pending after September 30, 2004, in our opinion, survive and in view of the decision of the honourable Supreme Court in the case of Smt. Amiya Bala Paul [2003] 262 ITR 407 get rendered illegal and bad in law. 23.2(iv) Coming to the provisions of section 142A of the Act on the statute with retrospective effect from November 15, 1972, in our opinion, has vested the Assessing Officer with jurisdiction to make a reference for estimation of the value of any investment referred to in section 69, 69A or 69B of the Act, in pending matters. In a nut-shell, we are of the opinion that retrospective applicability of the provisions of section 142A of the Act, affects cases where assessments are still pending and there has been no reference under section 131(1)(d) of the Act because after these provisions having come on the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a nutshell, taken the following stands : 26.(i) The first objection raised by the assessee is that the books of account for the assessment year 1997-98, have been rejected in an arbitrary and unjustified manner because the assessee had maintained the same in regular course of business, followed the same from time to time of accounting and had not contravened the requirement of the provisions of section 145 of the Act. So far as the assessment years 1995-96, 1997-98 and 1998-99 are concerned, the assessee had raised objection that when books of account for the assessment year 1997-98 could not be rejected, then there was no question of making reference to the Valuation Officer for estimation of cost of construction and if it was so, then there was no question for initiating proceedings under section 147 of the Act for these three assessment years which ultimately results in the proposition that there was no question of scrutinizing the assessee s books of account and, consequently, no question of rejecting the same. 26.(ii) The second objection raised by learned counsel for the assessee was that the assessee having furnished a report of the registered valuer, the Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings. In a nut-shell, learned counsel for the assessee submitting that the Assessing Officer had brushed aside the report of the registered valuer absolutely in an arbitrary and illegal manner contrary to the settled provisions of law. In support of his submissions, reliance was placed on the decisions detailed in para 6.8(2) (supra) of this order. 26.(iii) The third objection raised by learned counsel for the assessee was that even if it is assumed that the report of the Valuation Officer was validly procured, then also there could not be any addition solely on the basis of that report because the valuation report with respect to estimation of cost of construction was only an estimate, whereas addition under the provisions of the Income-tax Act can be made only on the basis of the positive evidence. Reference in this respect was made to the decisions having been detailed in para 6.8(4) (supra) of this order. 26.(iv) The next submission raised by learned counsel for the assessee that in any case, if any, addition is sustained by invoking the provisions of section 69C, i.e., on account of alleged difference in cost of construction ; there shall have to be a corresponding deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s objection with regard to arbitrary rejection of the report of the registered valuer, we, after having considered the observations of the Assessing Officer at page 14 of the assessment order, which were referred to by learned counsel for the assessee, during the course of hearing of these appeals and the learned Departmental representative having not refuted the factual observation of the Assessing Officer, are of the opinion that the Assessing Officer was bent upon making the additions and, consequently, for achieving that goal ignored/brushed aside the report of the registered valuer on conjunctures and surmises. The action of the Assessing Officer is, therefore, held to be illegal and bad in law. Our findings find support from the decisions relied upon by learned counsel for the assessee and details in para 6.8(2) (supra) of this order. (iv) So far as the assessee s objection that there could not be addition solely on the basis of the report of the Valuation Officer, we are, again of the opinion that when the Assessing Officer had no justification to reject the assessee s books of account, there was no question of obtaining the report of the Valuation Officer and even if he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... club house, swimming pool, common plots with gardening, etc. Expenditure incurred on the cost of construction of the scheme was accounted by the assessee in its books of account during the following years under consideration, as follows : Assessment year Expenditure shown by the assessee 1995-96 Rs. 27,45,946 1996-97 Rs. 67,39,422 1997-98 Rs. 68,78,879 1998-99 Rs. 45,22,750 3. Returns of income for these assessment years 1995-96, 1996-97, 1997-98 and 1998-99 were filed on November 30, 1996, November 30, 1996, August 31, 1998 and March 31, 1999, respectively. All these returns were processed under section 143(1)(a) of the Income-tax Act and no scrutiny assessments were made. Later on, the Assessing Officer issued notice under section 148 on November 28, 2000, for the assessment year 1997-98. During the course of assessment under section 143(3)/147 for the assessment year 1997-98, the Assessing Officer observed that certain contra accounts from various parties were called for and it was noticed that the amount shown by the assessee did not tally with the contra accounts provided by these parties. Further, it was observed during the course of hearing that some of the expenses were cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he observation that cost of construction of one bungalow No.A-27 was not incorporated in the report as the same was alleged to be constructed by a non-resident Indian residing abroad but no documentary evidence was produced by the assessee, the correctness of the assessee s claim therefore could not be ascertained. It was also observed that in some bungalows huge additions/alteration renovation work has been carried out but the same has not been considered in the valuation amount on the plea of the assessee that additions/alteration work was carried out by the occupants themselves. After the DVO s report was handed over by the Assessing Officer to the assessee on March 16, 2002, the assessee submitted a registered valuer report to the Assessing Officer on March 22, 2002. Even in the registered valuer report so furnished by the assessee, the valuation was worked out at Rs. 239.47 lakhs as against cost recorded by the assessee in its books of account at Rs. 237.96 lakhs. Thus, the cost recorded by the assessee in its books of account was lower by Rs. 1.51 lakhs as compared to the value determined by the assessee s own valuer. After calling for the assessee s explanation with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 145(3) of the Income-tax Act, and accordingly assessment was finalized in the manner provided in section 144 of the Income-tax Act. 8. Thereafter, the Assessing Officer made addition on account of difference in cost of construction as arrived at as per the DVO s report in respective assessment years. In the appeals filed by the assessee for the assessment years 1995-96, 1996-97 and 1998-99, the Commissioner of Income-tax (Appeals) held the reopening to be valid by observing that : For the assessment year 1995-96 3.3 During the course of assessment proceedings for assessment year 1997-98 the matter of estimating the cost of construction was referred to the DVO and report of the same was obtained, which was also given to the appellant for his explanation and comment, and the Assessing Officer after considering the objection of the appellant, has held that the report of the Valuation Officer is taken for the purpose of determining the investment in the construction of Ashlesha Bungalows. Accordingly, the investment as determined on the basis of report of the DVO related to the period under consideration was taken by the Assessing Officer and the difference between the above and the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(a). The appellant is a builder/organiser which has constructed scheme named as Ashlesha Bungalows . The case was taken up by issuing notice under section 148 read with section 147 dated January 28, 2000, and was completed under section 143(3). During the course of hearing, the Assessing Officer called for the contra accounts of various parties and noticed the difference between the amount shown by the appellant and the contra accounts provided by the parties. Further, it is also observed during the course of hearing that some of the expenses were claimed, however, no supporting vouchers were produced. The Assessing Officer also made personal visit of the site, i.e., Ashlesha bungalows Anand Bakrol Road, Anand and find that it is situated on the Anand Bakrol Road in the posh area with all facilities such as garden, club, cable, EPABX systems, etc. In view of the above, the Assessing Officer observed that the cost of construction shown by the appellant is not correct. Accordingly, the Assessing Officer referred the matter to the DVO, Ahmedabad, for computing the cost of construction of the project and submit valuation report. The DVO visited the site twice and after taking into con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant. As regards another argument of the appellant that section 142A is applicable only to section 69 or section 69B or section 69A and hence, as in appellant s case, additions are made under section 69C, same is not covered, is concerned, this argument is being discussed in detail in the subsequent paras of this order. In brief, it is mentioned here that the investment in the construction of Ashlesha bungalows is basically an investment and it cannot be treated as expenditure. In normal course also, wherever excess stock is found during the course of survey, same has been held to be unexplained investment in stock by the various High Courts and the same is added under section 69 or 69B depending upon whether it is fully undisclosed or partly undisclosed. Accordingly, even though the bungalows are stock-in-trade for the appellant-firm, but then, if any investment is found not fully recorded in the books, then, same is to be required to be added under section 69B. It cannot be considered as unexplained expenditure. In fact, the Assessing Officer has neither specifically mentioned section 69C nor section 69B. However, language of the additions gives an impression that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , alterations and renovations have been carried out in some of the bungalows but same has not been considered by him in the valuation amount on the plea that these additions/alterations was carried out by the occupants of the bungalows themselves and not by the appellant. If these were added, the valuation would have been much higher. On the other hand, in the valuation report of approved valuer, the valuation has been taken for 31 bungalows. Accordingly, the Assessing Officer is right in adopting the investment in the construction of Ashlesha Bungalows, as estimated by the DVO. 11. With regard to deduction claimed under section 69C, the Commissioner of Income-tax (Appeals) observed that : Section 69 covers the situation where in particular financial year the assessee has made investment which are not recorded in the books. Section 69B covers the situation wherein particular financial year, the assessee has made investment or is found to be owner of money, bullion, jewellery or other valuable articles and such investment is partly reflected in the books of account. Section 69C covers the situation wherein particular financial year the assessee incurred some expenditure and he is un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-trade, is required to be made under section 69B. It may be mentioned here that in fact the Assessing Officer has not specifically specified that the addition has been made under section 69C. As no any section has been specified, accordingly, the addition can be considered to have been made under section 69B, which is the correct section. Without prejudice to above, I also agree with the view of the Assessing Officer that mere technical mistake made by the erstwhile Assessing Officer by using the language of undervalued expenditure while making addition, instead of correct phrase namely unexplained investment (under section 69B), can be corrected by the Commissioner of Income-tax (Appeals). The argument of the appellant that deduction of same amount, which have been added may be given as the amount of excess expenditure is a business expenditure. I have considered this argument. Firstly, as discussed hereinabove, the addition has been in effect made by way of unexplained investment in acquiring stock-intrade. As already discussed, in any case, addition on account of excess investment in stock-in-trade has to be made under section 69B. 12. After having similar observation as was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery minor mistakes and the same could not be made the basis for rejection of the books of account and referring the matter to the DVO for estimating the cost of construction. He further has drawn our attention to various decisions of the Tribunal in support of the contention that unless defects are found in the books and same are rejected, no addition can be made only on the basis of the DVO s report which is just an estimate of cost of construction. All other contentions made by the learned authorised representative have already been recorded in the draft order of Brother Judicial Member, therefore they are not repeated here. 16. On the other hand, the learned Departmental representative submitted that mistakes were found in the books of account during scrutiny assessment for the assessment year 1997-98, with respect to construction cost debited therein. The Assessing Officer rejected the books of account and the matter was referred to the DVO for determining the correct cost incurred on construction. Huge difference of Rs. 87.66 lakhs was found in the construction cost as compared to the DVO s report. The registered valuer s report submitted by the assessee himself was also showi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted new section 147, the existence of only the first condition would suffice. In other words, if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled, if the case falls within the ambit of the proviso to section 147 as stood after amendment. 22. Thus as per the amended provisions of section 147, for reopening of an assessment there should be a reason to believe that income chargeable to tax had escaped assessment for any assessment year. Such reason to believe can be raised in any manner and is not qualified by a pre-condition of faith and true disclosure of material facts by an assessee as contemplated in pre-amended section 147(a) and the Assessing Officer can, under the amended provisions, legitimately reopen the assessment in respect of income which had escaped assessment. Viewed in that angle, power to reassess is much wider under the amended provisions and can be exercised even after the assessee has dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer as compared to the balances as appearing in the assessee s books of account as found during scrutiny assessment for the assessment year 1997-98, huge difference of Rs. 87.66 lakhs found as per DVO s report, report of the DVO was qualified for not furnishing of various information and details called for by him, have definitely close nexus with the belief that there was escapement of income in these years. It is very pertinent to mention here that while forming the belief the Assessing Officer is required to establish that there were some cogent reason for forming belief that there was escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a reasonable belief. The DVO s report was prepared after having physical inspection of the building in the presence of the partners and authorised representative of the assessee. After considering the reply of the assessee, the DVO arrived at a valuation which was much higher than the cost recorded in the books of account in the respective assessment years under consideration. Formation of belief by the Assessing Officer was essen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring before making the report. It was held by the honourable High Court that valuer report was with respect to house constructed by the assessee and that on the basis of valuer report the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment. It was further held by the court that the assessee will have opportunities to contest the correctness of the valuer s report during the course of assessment proceedings in pursuance of notice under section 148. 25. Similarly, the Delhi High Court in Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83 held that the DVO s report can constitute foundation or information to invoke the jurisdiction on the Assessing Officer to reopen the assessment under section 147 for the assessment year 1995-96, which have already been completed even under section 143(3). It was categorically observed by the honourable court that after considering the valuation, the Assessing Officer has come to the conclusion that the assessee has understated the amount invested in the house and it cannot be said that the report of the Valuation Officer containing his conclusion about valuation cannot constitute information or has to be totally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in Grover Nursing Home s case [2001] 248 ITR 493, held that though the report of the Departmental Valuation Officer cannot be made the sole basis for initiating action under section 147 read with section 148, it can certainly be considered with other facts for forming belief that the assessee s income has escaped assessment. It was held that there being no explanation by the assessee about the difference between the cost of construction of building shown by the assessee and the cost determined by the DVO, reopening of assessment by issuing notice under section 148 was valid. 29. In the instant case before us, the Assessing Officer has found during the course of scrutiny assessment for the assessment year 1997-98 that there were defects in the books of account with regard to the cost of construction accounted for in respect of building which was also under construction during the assessment years 1995-96, 1996-97 and 1998-99. These defects in the books of account accompanied with the DVO s report indicating the huge difference of Rs. 87.66 lakhs and the facts of the assessee s failure to furnish details regarding quantities of different materials consumed and various services like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial was available for forming the opinion that income for the assessment years 1995-96, 1996-97 and 1998-99 had escaped assessment : (i) Defects found by the Assessing Officer in the books of account with regard to (a) construction cost debited therein, (b) discrepancy in the contra account of various parties, i.e., supplier of building materials, (c) absence of vouchers of expenses on construction account, (d) discrepancy with reference to expenditure claimed under the head carpentry work, colour work, fabrication work, plumbing work attributable to amount of expenses claimed in the books of account vis-avis amount of vouchers furnished, (e) certain transactions or balances as appearing in the copy of accounts of various concerns not tallying with the accounts of the assessee. (ii) the DVO report indicating (a) vast difference of Rs. 87.66 lakhs in the cost of construction as shown by the assessee in its books of account as compared to the valuation arrived at by the DVO, (b) qualifications with regard to failure of the assessee in supplying details regarding quantities of different materials consumed and various services like water supply, sanitary installation and electrical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be preceded by any judicial or quasi-judicial enquiry. Reasons which may weigh with the Assessing Officer may be the result of his own investigation and may come from any source that he considers reliable. Formation of his belief is not a judicial decision but is an administrative decision. Nevertheless, he is required to act fairly and judiciously. 36. In view of the above discussion we are inclined to hold that there were more than sufficient reasons for forming the belief regarding escapement of income. The Assessing Officer was justified in issuing notice under section 148 in respect of the assessment years 1995-96, 1996-97 and 1998-99, the returns for which were processed under section 143(1)(a). Before parting with the matter, it is very pertinent to mention here that reopening of assessments which have been completed under section 143(3), is not so easy to reopen under section 147, merely on the basis of the DVO s report subject to certain exceptions where the peculiar facts and circumstances warrants so, as compared to cases where returns have been merely processed under section 143(1)(a). 37. Let us now discuss the Tribunal orders relied on by the brother Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -97, 1997-98 and 1998-99 under consideration as compared to the scope of section 143(1) as existed prior to April 1, 1989. 39. The crux of the provisions of section 143(1), up to March 31, 1989, was that after a return of income was filed the Assessing Officer could make an assessment under section 143(1) without requiring presence of the assessee or production by him of any evidence in support of the return. Where the assessee objected to such assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under section 143(1), but wanted to make an inquiry, a notice under section 143(2) was required to be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, the officer had power to make assessment under section 143(3). 40. With effect from April 1, 1989, the provisions underwent substantial and material changes. A new scheme was introduced and the new substituted section 143(1) prior to subsequent substitution with effect from June 1, 1999 in clause (a), a provision was made that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at right is reserved and not taken away. Between the period from April 1, 1989, to March 31, 1998, the second proviso to section 143(1)(a), required that where adjustments were made under the first proviso to section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till June 1, 1999. The requirement was that intimation was to be sent to the assessee whether or not any adjustments had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, 1998, to March 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. 43. Thus, the legislative intent is very clear from the use of the word intimation as substituted for assessment , the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is mostly done by the ministerial staff and not by the Assessing Officer. Thus, the intimation does not have all the characteristics of an assessment as understood in the common parlance or even during taxing statutes. Further, the intimation under section 143(1)(a) was deemed to be a notice of demand under section 156 for the purpose of making machinery provisions relating to recovery of tax applicable. By such application only tax amount indicated to be payable by the intimation became permissible and nothing more can be inferred from the deeming section. Thus, during the relevant assessment years 1995-96, 1996-97 and 1997-98 under consideration, when the returns were processed under section 143(1)(a), there being no assessment as such, there is no room to contend that there was change of opinion or that cost of construction debited in the books of account were subject to verification by the Assessing Officer, when such intimation was sought to be reopened. 47. Recently, the jurisdictional High Court in the case of S. R. Koshti v. CIT [2005] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 143(1). In this case, the assessee, along with her husband constructed a house. The assessee was having 50 per cent. share. During the assessment proceedings in the case of the assessee s husband, the Assessing Officer referred the matter to the valuation cell. On the basis of report, certain additions were made in the cost of construction. As a result, addition of Rs. 10,704 was made in the hands of the assessee s husband on account of investment in construction of house. On the basis of valuation report, the Assessing Officer issued notice under section 148 to the assessee and reopened her case. The assessee s husband challenged the action of the Assessing Officer in making the addition in his income. The Deputy Commissioner of Income-tax (Appeals) accepted the contention of the assessee s husband. The Revenue did not challenge that order of the Deputy Commissioner of Income-tax (Appeals). 53. In the present case, the assessee challenged the validity of the order reopening her assessment and also addition made to her income on account of cost of construction. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer. Aggrieved by the order, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no direct nexus between the DVO s report and the assessment of suppressed sales consideration and that addition could not be made to the returned income because, the sale price as per the assessee s action was less than the value indicated in the DVO s report. Merely because the DVO s report suggests a higher fair market value than the sale price disclosed by the assessee, it cannot be said that there is any reason to believe that income has escaped assessment. 58. It is crystal clear that in the above case the reopening of assessment was based on the plea that sale consideration has been suppressed by the assessee which was arrived at on the basis of the DVO s report. However, in the instant case under our consideration, it is the cost of construction recorded in the books of account which has been disputed and the DVO has arrived at a higher cost of construction, after having physical inspection and measurement of the property. There is no dispute in the instant case regarding suppression of sale consideration nor the question of fair market value of the property, so constructed. Thus, this case is also of no help to the assessee. 59. Another Tribunal order relied on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was escapement of income and it is not only on the basis of the mere DVO s report that assessment has been reopened. Thus, this case is also of no help to the assessee. 62. The next case relied on by the brother Judicial Member was Bhola Nath Majumdar v. ITO [1996] 221 ITR 608, wherein the honourable Gauhati High Court held that there is no authority in the Income-tax Officer under section 55A to refer the valuation of a property after the assessment is completed by him, as the purpose under section 55A is not to arm the Income-tax Officer to make a roving and fishing inquiry for finding out materials for reopening or revising a completed assessment. 63. In the case discussed by the honourable High Court, relevant assessment years under consideration were 1984-85 and 1985-86. In this case, the assessments for the assessment years 1984-85 and 1985-86 were reopened on the basis of valuation report obtained under section 55A after the original assessments were completed. However, in the instant case before us, only returns have been processed and intimation has been issued under section 143(1)(a) which cannot be put at par with the assessment completed under old scheme of section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, take into account such report in making such assessment or reassessment. It is very much pertinent here to bring on record that while making a reference to the DVO after rejecting the books of account or pointing out mistakes in the construction account, the only moot question before the Assessing Officer pertains to know the quantum of unaccounted investment made out of unaccounted money which has not been recorded in the books of account, and for which the assessee do not offer any explanation about the nature and source of investment or the explanation offered by him is not found to be satisfactory. It is only after knowing the quantum of unexplained investment or the unaccounted money, that the second step before the Assessing Officer is to make addition under any of the provisions contained under section 69/69A/69B or 69C. It is, therefore, not very much pertinent to say that since after receipt of the DVO s report the addition was made under section 69C and not under section 69/69A or 69B, the reference made to the DVO under section 131(1)(d) was not valid, since there is no mention of section 69C in section 142A. 66. The Income-tax Appellate Tribunal, Ahmedabad Bench, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by a technical person on the basis of physical inspection and measurement of building, without pointing out specific defects in the construction account kept in the books of account and/or rejecting the books of account under section 145 or unless there is failure on the part of assessee to furnish the requisite information, details, etc., required by the DVO/Assessing Officer. Whenever the Assessing Officer wants to adopt the valuation as made by the DVO, he is first of all required to point out the specific defects in the construction account maintained by the assessee or to indicate that construction cost shown in the books of account are not correct or that cost of construction could not be correctly deduced due to the information asked from the assessee but could not supplied by him to the Assessing Officer/DVO. 71. In the instant case, we found that mistakes pointed out by the Assessing Officer in the books of account are not very serious so as to warrant rejection of books of account. No defect was found by the Assessing Officer in the method of accounting regularly and consistently followed by the assessee. Expenses which were not supported by vouchers were negligible l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bitumen road, casted sitting chair, borewell with pump, street lighting and cable laying with fluorescent tubes, EPABX cable laying, etc., were not provided in the registered valuer s report. We also found that the extra items provided in the entire scheme were item-wise valued by the DVO after physical inspection at a much higher value against which the total value was taken by the registered valuer at a much lower side without specifying each and every such item. 73. So far as the Assessing Officer s complete reliance on the DVO s report is concerned, we are inclined to agree with the learned authorised representative Mr. S. N. Soparkar that the Assessing Officer had relied on the DVO s report as a conclusive evidence while making the addition with reference to the total difference between the cost recorded in the books of account and the value arrived at by the DVO, rather than treating the DVO s report as a mark of guidance. At this stage, as per our considered view, the Assessing Officer should have confined himself to the points of difference indicated in the report of the DVO by treating the report supplied by him (DVO) in advisory capacity, as a mark of guidance. 74. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That is the reason why the Commissioner of Income-tax (Appeals) has not adjudicated this ground in his appellate order. For the first time before the Tribunal the assessee has taken a plea that the Commissioner of Income-tax (Appeals) was not justified in confirming the action of the Assessing Officer for reopening of assessment under section 147. However, after carefully going through the order of the Commissioner of Income-tax (Appeals), we do not find any mention of rejection of the assessee s ground regarding the reopening of assessment under section 147. Thus, the ground taken before the Tribunal is misconceived. However, since it is a legal ground, the assessee has all the rights to raise it before the Tribunal for the first time. However, at the very same time, it is pertinent to mention that this legal ground is not with regard to not issuing notice under section 143(2) after filing of return in compliance with notice under section 148 within a period of one year, nor is there any grievance regarding limitation for passing the order. It appears that the assessee is aggrieved for insufficient reasons for reopening of assessment. Since it is an appeal filed by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding or observations with regard to sufficiency or insufficiency of reasons of reopening. The Commissioner of Income-tax (Appeals) in his order did not utter a single word justifying the action of the Assessing Officer for reopening. The brother Judicial Member has taken a view that since reopening of the assessment year 1997-98 was invalid, reference having been made by the Assessing Officer, to the DVO during the course of assessment proceedings under section 143(3)/147 for the assessment year 1997-98, the same was also illegal and, therefore, no reopening can be made on the basis of such DVO s report. He, thus, concluded that the DVO report obtained by reopening the assessment for the assessment year 199798 itself was not valid, therefore, reopening for the assessment years 199596, 1996-97 and 1998-99 was also invalid. It is a trite law and also spelt out by honourable Supreme Court in Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 and Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166, that information even though collected during illegal search is capable of being utilized by the Department for several purposes. It has been held that it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type-D-double-storied and Bungalow A27 during the previous years relevant to the assessment years 1995-96 1996-97, 1997-98 and 1998-99? Question No. 3. Whether, in the facts and circumstances of the case and in law, the addition made on account of alleged investment in construction of building, known as Ashlesha Bungalows situated at Anand Bakrol Road, Bakrol, Anand having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and bungalow A-27 during the previous years relevant to the assessment year 1997-98 solely on the basis of valuation report of the DVO can be sustained? B. Assessment years 1995-96, 1996-97 and 1998-99 : Question No. 1.-Whether, in the facts and circumstances as well as in law, the proceedings initiated under section 147 of the Income-tax Act, 1961, solely on the basis of valuation report of the DVO procured by the Assessing Officer during the course of proceedings under section 147 of the Act for the assessment year 1997-98, can be held to be valid proceedings in the eye of law and, consequently, can the subsequent proceedings also be held to be valid? Question No. 2.-Whether, in the facts and circumstances as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of different building materials consumed and various services like water, sanitary installation and electrical provisions in the building, extra items valued individually by the DVO after physical inspection of building, against which a lump sum value at a very low figure taken by the registered valuer in his report, warrants and justify addition of five per cent. of the cost of construction recorded by the assessee in his books of account. B. Assessment years 1995-96, 1996-97, 1997-98 and 1998-99 Whether, on the facts and circumstances of the case and in law, after insertion of section 142A in the statute by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972, a reference made by the Assessing Officer to the DVO to make an estimate of such value and report, was justified, in view of consistent view taken by different Benches of the Tribunal. C. Assessment year 1997-98 Whether, on the facts and circumstances of the case, where the assessee having not disputed the sufficiency of reasons for reopening, neither before the Assessing Officer, nor before the Commissioner of Income-tax (Appeals), nor where any decision was rendered by the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law and, consequently, can the subsequent proceedings also be held to be valid? 2. Whether, in the facts and circumstances as well as in law, the rejection of books of the account can be held to be valid in the eye of law for all these three years? 3. Whether, in the facts and circumstances as well as in law, the addition made in all these three assessment years, on account of alleged investment in construction of building, known as Ashlesha Bungalows situated at Anand Bakrol Road, Bakrol, Anand, having 31 units out of which having 20 units of A-type, 2 units of type-C, 1 unit of type-D double-storied and Bungalow A-27 during the previous years relevant to the assessment years 1995-96, 1996-97 and 1998-99, solely on the basis of valuation report of the Departmental valuer can be sustained? Questions by Accountant Member A. Assessment years 1995-96, 1996-97 and 1998-99 : 1. Whether, on the facts and circumstances of the case, where returns have been merely processed under section 143(1), there was reason to believe that there was an escapement of income under section 147, in view of various defects found in the books of account in the assessment year 1997-98 regarding cost of cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r nor before the Commissioner of Income-tax (Appeals), nor where any decision was rendered by the Commissioner of Income-tax (Appeals), nor is there any material Available on record for deciding the question of sufficiency of reasons of reopening, which has been raised for the first time before the Tribunal, the matter is required to be restored to the Commissioner of Income-tax (Appeals) for deciding the issue after appreciation of reasons recorded for reopening the assessment under section 147. 2. The assessee is in the business of construction of buildings for sale. The returns of income for all the four impugned assessment years were processed under section 143(1)(a) of the Income-tax Act, 1961, accepting the returned income. The assessee constructed a bungalow, namely, Ashlesha Bungalows , situated on Anand Bakrol Road, Bakrol, Anand, during the period from July, 1993, to December, 1998, showing a total expenditure on construction at Rs. 2,37,96,653. Notice under section 148 of the Act was issued for the assessment year 1997-98 on January 28, 2000, and in these reassessment proceedings, the Assessing Officer noticed that certain contra accounts called for from various parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the statement of closing stock of work-in-progress of the building under construction noted that the scheme of the assessee was to construct 51 units, whereas the assessee had shown details of 33 units. In response to the explanation called for by the Assessing Officer, the assessee submitted that many customers had purchased two plots, construction was carried out only at one plot but the assesseefirm had charged development cost for both the plots. The Assessing Officer further observed that the assessee was silent on the details of plot Nos. 1-3, 5, 10, 12, 13, 26, 27, 32, 33 and 45-47. He held that even if it were presumed that no construction was carried out on these plots, the expenses of common amenities should have been equally divided and charged by the assessee and should have been reflected in the chart of closing stock of work-in-progress. According to the Assessing Officer, the working of closing stock of work-in-progress was not correct. He thus completed assessments making addition on account of undisclosed investment in construction in the assessment years 1995-96 at Rs. 9,60,547, 1996-97 at Rs. 24,88,488 and 1998-99 at Rs. 16,93,468. 6. For all the four asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02] 123 Taxman (Mag) 324 and Jodhpur Bench, in the case of ITO v. Vijay Kumar [2001] 73 TTJ 17. On the merits, he deleted the additions by holding that there was no good reason for rejecting the books of account and additions could not be made on mere difference in the cost of construction estimated by the DVO and as recorded in books of account of the assessee. 8. The learned Accountant Member, on the other hand, held that it was a case of post amendment period after April 1, 1989, and the Assessing Officer can reopen the assessment for escapement of income read with the Explanation to section 147. According to him, the issue of reopening assessment for the assessment year 1997-98 is to be set aside. He however upheld the validity of reopening in other three years. According to him, the defects though minor in amount were sufficient to refer the matter to DVO and after the insertion of section 142A in the statute these defects along with the DVO report justified reopening. On the merits, he held that though the defects were trifle and the books of account may not be rejected but looking to the facts and circumstances of the case, a disallowance of five per cent. of the expenses wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer made reference to the DVO on noticing such defects and rejection of books of account for determining the cost incurred on construction. There was a huge difference in the cost of construction as per the books of account and the valuation report. He further submitted that section 142A is applicable as it was a case of continuing proceedings and in that connection, he relied on the decision of the Allahabad High Court in CIT v. Smt. Shashi Agarwal [2007] 159 Taxman 340 and the decision of the Tribunal, Delhi Bench, in the case of Asst. CIT v. Shakti Builders [2005] 93 ITD 269. He further submitted that the discrepancies were only samples and, therefore, sufficient for making the additions in the income of the assessee. He also submitted that the Valuation Officer has also found difference of about Rs. 1.50 lakhs in the cost of construction. This coupled with the qualified report of the DVO was sufficient for reopening the assessment and making the additions. In this regard, he relied on the decision of the Tribunal, Delhi Bench, in the case of Hanemp Properties P. Ltd. v. Assistant CIT [2006] 285 ITR (AT) 26. 11. The parties are heard and their rival submissions c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etical errors in the return, accounts or documents accompanying the return ; (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly those claims which were, on the basis of the information available in the return, prima facie inadmissible, and were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts and documents, either in allowing or in disallowing deductions, allowance or relief. The legislative intent is very clear from the use of the word intimation as substituted for assessment that two different concepts emerge. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a) no addition, which is impermissible by the information given in the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude cases falling within and enumerated in Explanations (a) to (e), below section 147. The present cases are claimed to fall in clause (b) of the Explanation. This clause reads as under : (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. 15. In these cases, the assessee has furnished the returns. No assessments were made, as processing of returns under section 143(1) are not the assessments as aforesaid. There is no allegation that the assessee had claimed excessive loss, deduction, allowance or relief in the return. It is, therefore, to be seen whether the assessee had understated the income in the return. The Assessing Officer noticed that the assessee did it, namely, he understated the income. 16. The reopening of assessment for the assessment year 1997-98 is to be examined first as this year is the starting point. Reasons recorded for reopening this assessment are as under : In this case the return of income was filed on August 31, 1998 showing total income of Rs. 1,51,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affording adequate opportunity to the parties in the matter. 18. As for the assessment years 1995-96, 1996-97 and 1998-99, the reopening is for reasons which are identical except the quantum difference, recorded as under : The assessee has constructed one bungalow scheme named as Ashlesha Bungalows at Anand Bakrol, Anand. The activities were carried out from the financial year 1993-94. During the course of the assessment proceedings for the assessment year 1997-98, it was noticed that certain site expenses such as carpentry work, fabrication work, plumbing work, colour work, etc., were not tallied with vouchers. Further, it was also noticed that balances shown in the name of M/s. Shiv Traders and M/s. Amit Traders were also not tallied with the copies of accounts submitted by the concerned parties. Considering these aspects, the case was referred to the DVO, Ahmedabad, for working out cost of construction of the project. The DVO, Ahmedabad, has scientifically worked out the expenses incurred during the assessment year 1995-96 amounting to Rs. 37,06,493, vide letter No. 2(28)DVO/2001-02/60(C), dated March 5, 2002, whereas the assessee has shown expenses for the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished by the assessee. Extra items provided in the entire scheme were item-wise valued by the DVO after physical inspection of site and building along with the assessee and his authorised representative at Rs. 1,24,81,677 against which total value taken by the registered valuer in its report was only Rs.34,52,964 without specifying each and every item. This material/information was sufficient to form a belief that there was escapement of income in the assessment years 1995-96, 1996-97 and 1998-99 as well. All these factors have rational connection with and relevant bearing on the formation of the belief that income had escaped assessment. These reasons are not extraneous or irrelevant for the formation of belief of escapement of income. It has to be kept in mind that at the time of issuing notice under section 148 the sufficiency or correctness of the material is not a thing to be considered. It is another thing that after reopening of the assessment the assessee could prove that the assumptions of facts, which were made the basis of reopening the assessments, were not fully correct. 21. The next question is whether the report of the DVO can be a valid ground for reopening. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liers of building materials, these could be the valid and sufficient materials for forming the belief of escapement of income and in my opinion, they were good reasons for making a reference to the DVO, where a huge difference of Rs. 87.66 lakhs in cost of construction was noticed. The reopening on these facts cannot be said to be unjustified. 24. The report of the DVO constitutes a valid foundation or information to invoke the jurisdiction on the Assessing Officer to reopen the assessment under section 147. In view of various decisions referred, namely, the Allahabad High Court in Smt. Shashi Jain v. ITO [1997] 228 ITR 682 (All), the Delhi High Court in Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83 (Delhi) and in Ganga Saran and Sons (HUF) v. ITO [1981] 130 ITR 212, the Madhya Pradesh High Court in Vippy Processors Pvt. Ltd. v. CIT [2001] 249 ITR 7, the Madras High Court in Sri Krishna Mahal v. Asstt. CIT [2001] 250 ITR 333. The Supreme Court in the case of ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996] 217 ITR 597 has even held that report given by the Government Department after conducting inspection, giving reasonably specific estimate of excessive coal mining done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not suffer from any jurisdiction or legal infirmity, which may justify interference by this court under article 226 of the Constitution of India. It discussed the cases of Acchut Kumar S. Inamdar v. P.R. Hajarnavis [1981] 132 ITR 331 (Bom), Smt. Amal Das v. CIT [1984] 146 ITR 216 (P H), Kamalam Rajendran s case [1999] 237 ITR 299 (Mad), Desai Brothers v. Deputy CIT [1999] 240 ITR 121 (Guj) and CIT v. Laxmidebi Mehta [1993] 70 Taxman 399 (Cal) and concluded that though the report of the DVO cannot be made the sole basis for initiating action under section 147 read with section 148, it can certainly be considered with other facts for forming the belief that the income of the assessee has escaped assessment ; there being no explanation about the difference between the cost of construction of building shown by it and the cost determined by DVO, notice could not be quashed. 26. The cases relied on by the assessee relate to reopening of assessment before the amendment with effect from April 1, 1989, on which date the provisions underwent substantial and material change and, therefore, are not of much help. The first case is of Smt. Usha Mathur [2001] 252 ITR 179 (P H). In this case, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It was not a case of difference in the cost of construction recorded in the books of account, which has been disputed and the DVO has arrived at higher cost of construction, after having physical inspection and measurement of the property. It was a case of assessment of higher consideration received by the assessee as if the DVO report depicted the actual sale consideration. The Supreme Court decision in K. P. Varghese [1981] 131 ITR 597 does not support it. Thus, this case is of no help to the assessee. 28. In Vijay Kumar s case [2001] 73 TTJ 17 (Jodh), the assessment was reopened by issue of notice under section 147(b) for the assessment years 1986-87 and 1987-88. The reopening was held to be not justified by the Tribunal on the ground that reference could have been made by the Assessing Officer to the DVO only while trying the suit and certainly not in respect of completed suit where assessment had already been completed under section 143(1) and as such the Assessing Officer had no reason to make the reference to the DVO under section 131(1)(d) was made. As already discussed, the scope of section 143(1), prior to the amendment in 1989, where the earlier provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of dealing with such reference, to have all the powers that he has under section 38A of the Wealth-tax Act, 1957. Sub-section (3) of section 142A provides that on receipt of report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. While making a reference to the DVO the only question the Assessing Officer has to find out is the quantum of unaccounted investment not recorded in the books of account. It is only after knowing the quantum of unexplained investment or the unaccounted money that the second step before the Assessing Officer is to make addition under any of the provisions contained under section 69/69A/69B or 69C. The Assessing Officer made a reference to the DVO, and found defects in the construction expenses recorded in the books of account, during scrutiny assessment proceedings for the assessment year 1997-98, therefore, there is no infirmity in the action of the Assessing Officer for making reference to the Valuation Officer for determining the quantum of unexplained investment involved in the cost of construction. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer retrospectively only in those cases which are pending for adjudication before the higher forum. If the contention of the assessee s counsel were accepted then the entire purpose of the retrospective legislation would be lost. The proviso to section 142A is applicable only to those cases where assessments have been made on or before September 30, 2004, and such assessments have become final and conclusive by such date. Consequently, where such assessments have not become final due to pendency of appeal, this proviso would not be applicable and the reference made by the Assessing Officer to the DVO is to be deemed validly made. 31.1 It is therefore held that only to those cases where assessments had been concluded before September 30, 2004, the proviso to section 142A would be applicable and where the assessments had not concluded on that date due to pendency of appeal, etc., reference made to the DVO by the Assessing Officer was deemed to have been validly made. 32. In Hanemp Properties P. Ltd. [2006] 285 ITR (AT) 26 before the Tribunal, Delhi Bench, it was held that where there is significant undervaluation of the property in the consideration as disclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 260A of the Income-tax Act is a provision of appeal to the High Court only on the satisfaction of the High Court that the case involves substantial question of law. It is not an appeal under the statute giving a vested right to challenge the assessment order after the assessment proceedings had crossed the stage of the Tribunal. Even otherwise without any further detailed discussion it is to be kept in mind that in the appeal under section 260A of the Income-tax Act, the High Court would only look into the substantial question of law and would not enter into question of fact or reappreciation of evidence unless the findings recorded are perverse. The order in the instant case passed by the Tribunal cannot be said to be bad in law nor can it be said that it suffers from any such error, which raises any substantial question of law. If the Tribunal while considering the appeals has correctly stated the facts and has rightly applied the law as was applicable on the date of consideration of the appeals, the same cannot be said to be faulty on any ground, which was not available to the Tribunal on the date of decision. It is further held that the order passed by the Tribunal canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 142A empowers the Assessing Officer to require the Valuation Officer for making the estimate of the value of any asset, which the Assessing Officer may require for the purpose of making assessment or reassessment. It does not empower the Assessing Officer to refer the matter to the DVO for gathering information for reopening of assessment. Making of reassessment and reopening of the assessment are two different things. For issuing notice under section 148, there should be reason to believe that any income has escaped assessment. The said condition prescribed in section 147 exists even after the insertion of section 142A. Here in this case the reference was made during the course of assessment proceedings for the assessment year 1997-98, therefore, the above case would be no help to the assessee. 37. Various defects in the books of account along with vast difference in the report of the DVO as compared to cost of construction recorded in the assessee s books of account, which by itself is indicative of the unreliability of the accounts maintained by the assessee, the qualification in the DVO report and the difference reflected also in the cost determined by the registered valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case, it would be right to retain the addition to the extent of 5 per cent. (five per cent.) of cost of construction as recorded by the assessee in its books of account in the respective assessment years under consideration, so as to cover unaccounted expenses with regard to observations made by the DVO in his report as well as the excess cost worked out by the own valuer of the assessee, as compared to the cost actually recorded by the assessee in its books of account, as discussed hereinabove. 38. My opinion, therefore, on the questions referred is as under : 1. On the facts and in the circumstances of the case and in law, the proceedings initiated under section 147 of the Act, for the assessment year 1997-98, are to be set aside to examine validity of proceedings in the eye of law and the consequent subsequent proceedings. And also On the facts and circumstances of the case, when the assessee having not disputed the sufficiency of reasons for reopening, neither before the Assessing Officer nor before the Commissioner of Income-tax (Appeals), nor where any decision was rendered by the Commissioner of Income-tax (Appeals), nor there is any material available on record for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances and in law, the proceedings initiated under section 147 of the Income-tax Act, 1961, on the basis of valuation report of the DVO procured by the Assessing Officer during the course of proceedings under section 147 of the Act for the assessment year 1997-98, coupled with other defects pointed out above can be held to be valid proceedings in the eye of law and, consequently, the subsequent proceedings also can be held to be valid. And also Where returns have been merely processed under section 143(1), there was reason to believe that there was an escapement of income under section 147, in view of various defects found in the books of account in the assessment year 1997-98 regarding cost of construction of very same building which was also under construction during the assessment years 199596, 1996-97 and 1998-99, huge difference of Rs. 87.66 lakhs found as per DVO s report, shortfall of Rs. 1.51 lakhs as per registered valuer s report, failure of the assessee to furnish detail of materials consumed and various services like water, sanitary installation and electrical provisions in the building, qualification in the DVO s report regarding huge cost incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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