TMI Blog2004 (6) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... l) and C.O. No. 39 (Alld.)/2004 -Assessment year 1990-91 3. Brief facts as taken from the record are that the Assessing Officer has taken the status of assessee as AOP and observed that the assessee has been constructing a multi-storeyed commercial complex known as "Baldeva Plaza" in which substantial investment was made. To know the cost of the construction, the case was referred to the Departmental Valuation Officer, Kanpur under section 131(1)(d) of the Income-tax Act, 1961 who after inspecting the complex on 21-3-1999 and after considering the objections of the assessee, submitted report to the Assessing Officer. The D.V.O. estimated the cost of construction at Rs. 3,48,91,900 and spread over the investment in the different years as under: ------------------------------------------------------------------------------- Assessment Cost of construction Cost of construction Difference estimated by the Declared by the DVO Assessee ------------------------------------------------------------------------------- 1988-89 1,56,542 1,20,831 35,710 ---------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1999-2000 upto 21st March, 1999 (i.e. date of inspection of the property) had not been considered by the D.V.O. while estimating the cost of construction. It was further contended that the investment of Rs. 1,56,542 for the assessment year 1988-89 and Rs. 11,74,660 in assessment year 1989-90 as per D.V.O.'s report has been added to the investment of Rs. 10,58,010 made during the year under consideration is apparently wrong. The difference during the year under consideration as per D.V.O. actually comes to Rs. 2,41,370. It was further submitted that on the similar set of facts and circumstances additions of Rs. 3,10,000 and Rs. 3,09,480 were made by the Assessing Officer under section 69 of the I.T. Act for the assessment years 1997-98 and 1998-99 respectively and the above additions have been deleted by the CIT(A)-I and CIT(A)-II, Lucknow vide orders dated 15-3-2001 and 19-11-2001. It was, thus, submitted before the Assessing Officer that there is no case for addition of unexplained investment. The Assessing Officer considering the facts and circumstances and orders of the CIT(A) for the assessment years 1997-98 and 1998-99 was of the view that the facts are similar to that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s report dated 30-6-1999 at Rs. 3,48,91,900. It was also explained that the cost of construction is to be spread over till the date of inspection i.e. assessment year 1999-2000. The details of the actual investment in the construction of building as per the books of account and details of spread over estimated investment till the date inspection i.e. 21-3-1999 by the D.V.O. are as under: -------------------------------------------------------------------------------------- Assessment Cost of Cost of construction Difference construction shown estimated by the by us as per books D.V.O. of account --------------------------------------------------------------------------------------- 1988-89 1,20,831.50 1,56,542.00 35,710.00 --------------------------------------------------------------------------------------- 1989-90 9,06,688.50 11,74,660.00 2,67,971.00 --------------------------------------------------------------------------------------- 1990-91 8,16,640.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings under section 147 and the issuance of notice under section 148 of the I.T. Act as well as the assessment order passed in pursuance thereof are wholly without jurisdiction. It was also submitted that there is no justification for issuance of notice under section 148 of the Act because the difference of 1% in actual investment and estimated investment does not fulfil the condition prescribed for issuing notice under section 148 of the I.T. Act. It was also submitted that in the assessment years 1997-98 and 1998-99, the CIT(A) on the same set of facts deleted the entire addition considering the investment made in the assessment year 1999-2000 i.e. upto the date of the inspection by D.V.O. on 21-3-1999. The CIT(A) considering facts and circumstances of the case and earlier orders of the CIT(A), cancelled the assessment orders for all the assessment years in question i.e. from 1990-91 to 1996-97 and passed the following order which is reproduced below: "I have given careful consideration to the matter. In case the ld. Assessing Officer wanted to scrutinise the quantum of investment made in the building, he ought to have taken the returns for scrutiny in the manner provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,036. Thus the appellant gets total relief of tax demand of Rs. 1,86,09,715 in respect of the seven appeals." The entire additions were, thus, deleted and all the appeals of the assessee for the assessment years 1990-91 to 1996-97 were allowed. 8. The Revenue is in appeal on the following grounds: "1. That the Learned CIT(A) has erred in annulling the assessment on technical ground instead of deciding it on merit. 2. That the Learned CIT(A) has erred in law and facts in appreciating the fact that there was no pendency of any proceeding in this case as such reference under section 131(1)(d) of the Income-tax Act, 1961 to the D.V.O., Kanpur is illegal. In fact the assessment proceedings for assessment year 1997-98 was pending in this case as evident from Dy. CIT Range letter dated 11-2-1998 while the reference under section 131(1)(d) was made subsequently vide letter dated 15-5-1998 as evident from the CIT(A) order para 1.3 under dispute. Since the proceeding was pending, a reference under section 131(1)(d) of the Income-tax Act, 1961 was made to the D.V.O., Kanpur for estimating cost of construction. 3. That learned CIT(A) has erred in law and facts in holding that "proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 2004 stating that the case of the assessee is covered by the decision of the Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407. 10. We have heard the ld. DR and the ld. Counsel for the assessee and perused the observations of the authorities and the details filed in the Paper Book. Before considering the rival submissions, it would be relevant to mention certain dates and facts which are not in dispute: (i) Originally no return was filed in the assessment years 1990-91 to 1996-97; (ii) Commission under section 131(1)(d) was issued by the Assessing Officer in favour of D.V.O., Kanpur on 15th May, 1998; (iii) Notice under section 142(1) of the Income-tax Act, 1961 dated 20-7-1998 was issued for the assessment years 1997-98; (iv) D.V.O., Kanpur inspected the building in question on 20/21st March, 1999 for the purpose of estimating cost of construction; (v) D.V.O. submitted his report dated 30-6-1999; (vi) On 2-11-1999, return for the assessment year 1999-2000 was filed which was processed under section 143(1)(a) on 16-2-2000; (vii) On 29-3-2000, the assessee filed return of income for the assessment year 1997-98; (viii) On 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for initiating proceeding under section 147/148 of the Income-tax Act. The ld. D.R. relied upon the following decisions in support of his contentions: 1. G. Sukesh v. Dy. CIT [2001] 252 ITR 230 (Ken); 2. Raj Kumar Sharwan Kumar v. CBDT [1977] 107 ITR 570 (All.); 3. Rakesh Aggarwal v. Asstt. CIT [1997] 225 ITR 496 (Delhi); 4. Elgin Mills Co. Ltd. v. ITO [1978] 111 ITR 287 (All.); 5. R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 (SC); 6. Claggett Brachi Co. Ltd. v. CIT [1989] 177 ITR 409 (SC); 7. ALA Firm v. CIT [1991] 189 ITR 285 (SC); 8. ITO v. Purushottam Das Bangur [1997] 224 ITR 362 (SC); 9. New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi); 10. CIT v. First Leasing Co. of India Ltd. [2000] 241 ITR 248 (Mad.); 11. Smt. Indira Devi v. CIT [1994] 210 ITR 537 (Mad.); 12. CIT v. Surendra Kumar Bhadani [1987] 164 ITR 323 (Pat.); 12. On the other hand, the ld. Counsel for the assessee argued that there should be valid reasons for initiating proceedings under section 147 of the I.T. Act, which has vital nexus with the material on record for escapement of income. He has submitted that the case law referred by the ld. D.R. are not applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was deleted by the CIT(A) in which no second appeal has been filed by the department before the Tribunal, therefore, the finding of the CIT(A) in assessment year 1997-98 has become final. The Id. Counsel for the assessee accordingly argued that the departmental appeals as such have no merits and are liable to be dismissed on the same set of facts. The ld. Counsel for the assessee further argued that the CIT(A) accepted the plea of the assessee with regard to investment made in the property till date of inspection i.e. 21-3-1999, therefore, no addition could be made in the assessment years under consideration. The ld. Counsel for the assessee submitted that the case of the assessee is, thus, not afterthought. The ld. counsel for the assessee further submitted that the return for the year 1999-2000 was filed on 2-11-1999. Therefore, it was prior to the initiating of proceeding under section 148 of the I.T. Act and as such cannot be treated as an afterthought story. The ld. Counsel for the assessee further reiterated that if the investment of 1999-2000 is considered in its entirety as is held by the CIT(A) in the assessment year 1997-98, then there would be no case for any addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee with regard to maintainability of the Cross objection, argued that the Cross objection is in the nature of cross appeal. He has argued that the Cross Objection need not be confined to the points taken by the Revenue-department. He has argued that the assessee in the Cross objection can challenge not only on the quantum but on other points also. He has argued that the Cross Objection of the assessee is maintainable as it is filed in accordance with law. 14. We have bestowed our careful consideration. The main controversy raised before us had been whether reference under section 131(1)(d) of the I.T. Act was valid in nature and whether the Assessing Officer was justified in initiating proceeding under section 147 of the I.T. Act. Section 131(1)(d) of the I.T. Act provides that the Assessing Officer shall, for the purpose of this Act, have the same powers are vested in a court under Code of Civil Procedure when trying a suit in respect of the following matters, namely; issuing commission. 15. A bare perusal of section clarifies that the Assessing Officer is vested with specific powers available to the civil court in the Code of Civil Procedure. (Order 26 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, no assessment proceeding for the assessment year 1997-98 would be pending before the Assessing Officer. The ld. D.R. referred to the letter dated 11-2-1998, which is mentioned in ground of appeal No. 2. The ld. D.R. stated that since this letter was written on 11-2-1998, therefore, proceeding was pending for assessment year 1997-98. We do not agree with the contention of the ld. D.R. Since no return of income was filed till 11-2-1998, therefore, there is no question of pendency of any assessment proceeding before the Assessing Officer. Even no other proceeding was pending for the assessment year 1997-98. Merely because, some letter was written by Senior Officer to the Assessing Officer would not amount to pendency of the proceeding before the Assessing Officer. At the most it could have been termed as some internal matter between the Income-tax Authorities, which would be in the nature of administrative matter. The letter dated 11-2-1998 is referred to paragraph 1.3 in the order of the CIT(A), but no such letter is mentioned by CIT(A) in the order in such para. Therefore, the contention of the ld. D.R. is rejected that any proceeding for assessment year 1997-98 was pendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation for reopening the assessment - CIT(A) rightly cancelled the reassessments." 15.3 Nagpur Bench of the I.T.A.T. in the matter of Dr. Arjun D. Bharad v. ITO [2003] 259 ITR (AT) 1 held: "Power to issue commission - Condition precedent for exercise of power-under section 131(1) - Assessment proceedings must be pending." Reassessment - Reassessment based on report of D.V.O. estimating cost of construction of property - Reference to D.V.O. not valid - Reassessment proceeding not justified. All these orders were considered by this Tribunal in the matter of ITO v. East West Trading Corpn. in which we have dismissed the departmental appeal vide order dated 27-8-2003, in which we have held that "No proceedings were pending before the Assessing Officer in all the assessment years and as such Assessing Officer was not legally justified to send the reference to the D.V.O. calling for the estimate of construction and as such, the Assessing Officer was not justified in re-opening the assessment under section 147/148 on such material." 15.4 The Hon'ble Supreme Court in the matter of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 while considering the powers of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of the respondent could not be curtailed. The Cross Objection is in the nature of cross appeal and cross objection could be filed against any part of the order of the Commissioner (Appeals). 17. In the case before us, since the order of the CIT(A) was in favour of the assessee, therefore, legally the order of the CIT(A) could not be treated against the interest of the assessee. The ld. Counsel for the assessee referred to the decision in the case of CIT v. Purbanchal Paribahan Gosthi [1998] 234 ITR 663 (Gauhati) in which it was held that the assessee in cross objection can challenge the order of the Dy. CIT not only on quantum of tax but on other points also. The ld. Counsel for the assessee also relied upon the decision in the case of ITO v. Fagoomal Lakshmi Chand [1979] 118 ITR 766 (Mad.) in which it was precisely held that the Cross Objection could be filed against the entirety of the order of the A.A.C. in so far as it is prejudicial to the Cross Objector. The decision of the Madras High Court in the matter of CIT v. Sundaram Clayton Ltd. [1982] 136 ITR 315 is referred in which it was held that when the assessee has succeeded wholly before the A.A.C. and the Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paul allowed the writ petition of the assessee quashing the reference made to the Valuation Officer. Considering the above facts, we reject the contention of the ld. D.R. and we hold that no proceeding under Income-tax Act was pending before the Assessing Officer on 15-5-1998 i.e. the day when reference was made to the D.V.O. Therefore, the report of the D.V.O. could not be taken into consideration by the Assessing Officer in the present case. 21. Considering the above facts, we also propose to decide the second issue i.e.: "Whether the Assessing Officer was justified in relying upon the report of D.V.O. dated 30-6-1999 for initiating proceedings under section 147/148 of the I.T. Act on 24-1-2001 and whether proceedings under section 148 are validly initiated by the Assessing Officer?" 21.1 The Assessing Officer acquires the jurisdiction to issue notice under section 148 of the Income-tax Act if two conditions are satisfied namely- (i) The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; (ii) He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 147 is that the Assessing Officer must have good reason to believe that some income had escaped assessment. Once this belief is well-founded, recourse to re-assessment proceeding cannot be said to be illegal. 23. Considering the above decisions and the facts of the case, we are if the view that since no valid reference was made under section 131(1)(d) of the I.T. Act and no other material was available with the Assessing Officer except the report of the DVO, therefore, the condition precedent for issue of notice under section 148 of the I.T. Act are not satisfied in this case. Whatever material was collected by the DVO as is relied upon by the Assessing Officer was irrelevant and as such the Assessing Officer was not justified in relying upon the report of the DVO for initiating the proceeding under section 148 of the I.T. Act. 24. Now we take up the decisions referred to by the ld. D.R. in the case of G. Sukesh v. Dy. CIT [2001] 252 ITR 230, Hon'ble Kerala High Court held that the information at the time of issuing notice need not be complete and accurate. 24.1 In the case of Raj Kumar Sharwan Kumar v. CBDT [1977] 107 ITR 570 (All.), the Board's circular was considered f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing cost of construction. Assessee was not having any other taxable income, so was not required to file return of income. The reasons for initiating proceedings under section 148 are based on report of D.V.O. which does not legally exist. Therefore, belief of Assessing Officer is not well founded. Considering the above discussion and the case law referred to above, we are of the considered view that the Assessing Officer was not justified in relying upon the report of the D.V.O. for the purpose of initiating proceeding under section 148 of the I.T. Act. There is no other material. Therefore, the proceedings under section 148 of the I.T. Act are not validly initiated and the CIT(A) was justified in cancelling the assessment order. 27. Apart from above discussion, we may mention that the first assessment proceedings were completed in the case of the assessee under section 143(3) of the Income-tax Act for the assessment year 1997-98 vide order dated 30-3-2000. The CIT(A) vide order dated 15-3-2001 deleted the entire addition and allowed the appeal of the assessee mainly on the reasons that if the investment in whole is considered upto the date of inspection by D.V.O. i.e., 21-3-1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter of Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 held (Head Note): "Income-tax Department - Decision of High Court in the case of one assessee against department - No appeal to Supreme Court filed. Subsequent decision of High Court in the cases of other assessees following earlier decision-Department not entitled to accept judgment in earlier case and challenge its correctness without just cause in the cases of other assessees." 29. Therefore, one fact is very specific that the investment in the assessment year 1999-2000 had been considered favourably by the CIT(A) in the assessment year 1997-98. There is no second appeal. Therefore, the order of the CIT(A) has became final. If the investment for that year is considered even as per the report of the D.V.O., then the difference would be approximately 1 per cent of the total investment and as such, the department would have no case for making any addition against the assessee on the same set of facts. 30. Considering the above facts and circumstance and discussion and the cases referred to above, we are of the view that there is no merit in the departmental appeal. The same is dismissed. Since we have d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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