The Commissioner Income Tax vs M/S Baldev Plaza
2013 Latest Caselaw 6408 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

					   Judgment reserved on   19.9.2013						   Judgment delivered on  10.10.2013
 

 
1.	       INCOME TAX APPEAL NO.80 OF 2005
 
	CIT Gorakhpur & another vs. M/s Baldev Plaza, Golgha
 
				Connected with		
 
2.		INCOME TAX APPEAL NO.574 OF 2012
 
	Commissioner, Trade Tax & anr vs. M/S Baldev Plaza
 
3.		INCOME TAX APPEAL NO.575 OF 2012
 
	Commissioner of Income Tax & anr vs. M/S Baldev Plaza
 
4.		INCOME TAX APPEAL NO.578 OF 2012
 
	Commissioner of Income Tax & anr vs. M/S Baldev Plaza
 
5.		INCOME TAX APPEAL NO.580 OF 2012
 
	Commissioner of Income Tax & anr vs. M/S Baldev Plaza
 
6.		INCOME TAX APPEAL NO.581 OF 2012
 
	Commissioner of Income Tax & anr vs. M/S Baldev Plaza
 
7.		INCOME TAX APPEAL NO.582 OF 2012
 
	Commissioner of Income Tax & anr vs. M/S Baldev Plaza
 
8. 		INCOME TAX APPEAL NO.583 OF 2012
 
	Commissioner of Income Tax & anr vs. M/S Baldev Plaza
 

 
Hon'ble Sunil Ambwani, J.

Hon'ble Surya Prakash Kesarwani, J.

1. We have heard Shri Dhananjai Awasthi appearing for the Income Tax department. Shri S.K. Garg, Shri Ashish Bansal and Shri Krishna Agarwal appear for the respondent-assessee.

2. The Income Tax Appeals referred to as above arise out of a judgment and order dated 30.6.2004 passed by the Income Tax Appellate Tribunal for the assessment years 1990-91 to 1998-99. The Income Tax Appeal No.80 of 2005 was admitted on the questions of law as follows:-

"1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that there was no material on record for the Assessing Authority to initiate the proceedings under Section 147/148 of the Income Tax Act, 1961?

2.Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that in the absence of any proceedings pending under the Income Tax Act, 1961, no reference under Section 131 (1) (d) could be made to the D.V.O?

3. Whether on the facts and in the circumstances of the case, the Tribunal's order is not bad in law in view of the new provisions of Section 142-A introduced retrospectively w.e.f. 15.11.72 in the Income Tax Act by the Finance Act, 2004 which empowers the A.O to require the Valuation Officer to make an estimate of value of movable/immovable property?

3.The connected appeals were admitted on the questions of law as follows:-

"1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that there was no material on record for the Assessing Authority to initiate the proceedings under Section 147/148 of the Income Tax Act, 1961?

2. Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that the report of the D.V.O u/s 131 of the Act could not be used for the purpose of initiating proceedings u/s 147/148 of the Act and thereby quashing the re-assessment order?

3.Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that in the absence of any proceedings pending under the Income Tax Act, 1961, no reference under Section 131 (1) (d) could be made to the D.V.O?

4. Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that the reference made by DVO by Assessing Officer in the assessment proceedings is beyond the power of the Assessing Officer in view of the judgment of Hon'ble Supreme Court in the case of Amiya Bala Paul reported in 262 ITR 407?

3.Whether on the facts and in the circumstances of the case, the Tribunal's order is not bad in law in view of the new provisions of Section 142-A introduced retrospectively w.e.f. 15.11.1972 in the Income Tax Act by the Finance Act, 2004 which empowers the A.O to require the Valuation Officer to make an estimate of value of movable/immovable property?

4. Brief facts giving rise to these Income Tax Appeals are that the assessee AOP had been constructing a multi storeyed commercial complex known as "Baldeva Plaza" in which substantial investment was made. The assessee did not file returns for the assessment years 1990-91 to 1996-97.

5. The Assistant Commissioner of Income Tax, Range-II, Gorakhpur (AO), in order to ascertain the cost of constructions, referred the case to District Valuation Officer (DVO), Kanpur under Section 131 (1) (d) of the Income Tax Act, 1961 (in short the Act). A notice under Section 142 (1) of the Act was issued by the AO on 20.7.1998 for the assessment year 1997-98.

6. The DVO, Kanpur inspected the building in question for the purpose of estimating the cost of construction on 20/21.3.1999 and submitted his report on 30.6.1999 estimating the cost at Rs.3,48,91,900/-. The assessee filed a return for the assessment year 1999-2000 on 2.11.1999, which was processed under Section 143 (1) (a) on 16.2.2000 on which an assessment order was passed under Section 143 (3) for the assessment year 1997-98 on 30.3.2000 in which on the basis of DVO's report dated 30.6.1999 the alleged unexplained investment in construction of Baldev Plaza was added. A notice was thereafter issued under Section 148 on 24.1.2001 to the assessee for the assessment years 1990-91 to 1996-97.

7. The assessee preferred an appeal for the assessment year 1997-98, which was decided by the Commissioner of Income Tax (Appeals) by which the entire addition on account of alleged unexplained investments in construction was deleted, on findings that the investment that had been made in the constructions dated 21.3.1999 and holding that there was no unexplained investment in constructions. This appellate order dated 15.3.2011 was not challenged by the revenue in the Income Tax Appellate Tribunal.

8. The returns in compliance with the notice under Section 148 dated 24.1.2001 for the assessment years 1990-91 to 1996-97 were filed on 30.2.2003. The A.O. by the separate orders assessed the income and demanded tax on such income on the basis of DVO's report.

9. During the course of assessment proceedings the assessee brought to the notice of the AO the orders of the Commissioner of Income Tax (Appeals) dated 15.3.2011 for the assessment year 1997-98 and the order of CIT (A) dated 19.11.2001 for the assessment year 1998-99 on which the A.O. observed as follows:-

"4....The facts are similar to that of A.Yrs 1997-98 and 1998-99. The decisions of the Ld. Commissioners of Income Tax (Appeals)-I and II, Lucknow have not been accepted by the department and second appeals have been authorised. However, the contention of the assessee that the progressive investments of A.Yrs 1998-89 and 1989-90 amounting to Rs.13,31,202/- (1,56,542 + 11,74,660) should not be added to the investment for the year under consideration, is accepted. The difference in investment for the year under consideration, works out to Rs.2,41,370/- for which the explanation offered by the assessee is not satisfactory and is rejected. The amount of Rs.2,41,370/- is treated as unexplained u/s69 and added to his income."

10. The appeals filed by the assessee against the order of AO for the assessment years 1990-91 to 1996-97 were allowed by the CIT (A) and the assessee was given relief of the income tax demanded in respect of all the seven years.

11. The Income Tax Appellate Tribunal (ITAT) dismissed all the departmental appeals and the cross objections on the ground that as per decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul vs. CIT (2003) 262 ITR 467, no reference can be made to the DVO for estimating the cost of construction. The assessee was not having any other taxable income. It was not required to file return of income. The reasons for initiating proceedings under Section 148 are based on report of DVO, which does not legally exist and therefore, the AO was not justified in relying upon the report of DVO for the purposes of initiating proceedings under Section 148 of the Act. There was no other material to initiate the proceedings under Section 148, and thus the CIT (A) was justified in cancelling the assessment order.

12. On merits the Tribunal observed in paragraph-29 of its judgment as follows:-

"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 become 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% 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."

13. Shri Dhananjai Awasthi, appearing for the Income Tax department submits that the proceeding under Section 147/148 was rightly initiated by the AO. He had sufficient reasons on record to have reason to believe on the basis of DVO's report that the income of the assessee, chargeable to tax has escaped assessment. The report of the DVO in respect of cost of construction of the building was a valid report in view of the insertion of Section 142-A of the Act w.e.f. 15.11.1972 by the Finance (No.2) Act, 2004, which gave ample power to the AO to make a reference to the DVO in respect of valuation of movable as well as immovable property and hence in the circumstances of the case the Tribunal has erred in holding that the AO had no power to refer the valuation of property to the DVO. After enactment of Finance (No.2) Act, 2004 the principles laid down in Amiya Bala Paul's case is not longer valid.

14. Shri Dhananjai Awasthi has relied upon judgment of Supreme Court in Raymond Woollen Mills Ltd vs. Income-Tax Officer and others (1999) 236 ITR 34, the judgment of Delhi High Court in Suman Sehgal vs. Union of india (2006) 154 Taxman 195 (Delhi) and the judgments of this Court in Smt. Shashi Jain vs. Income-Tax Officer and another (1997) 228 ITR 682, Sunder Carpet Industries vs. Income-Tax Officer and another (2010) 324 ITR 417 (All) and Dr. Roop vs. Commissioner of Income-Tax, Meerut (2012) 20 Taxman.com 205 (All.). He submits that Section 142A has been inserted by the Finance (No.2) Act, 2004 w.e.f. 15.11.1972 authorising a reference to be made for the purpose of Section 69 of the Act. Where investment made in the constructions of the building is not recorded in the books of accounts, a reference can be made to the DVO and the assessment may be framed after giving an opportunity to the assessee. The report of the DVO will in such case constitute material for entertaining a plea of escaped assessment in the order under consideration.

15. Shri S.K. Garg, appearing for the assessee, on the other hand, submits that the power of enquiry given to AO under Section 133 (6) and 142 (2) does not include the power to refer the matter to the DVO for an enquiry. The assessment proceeding must be pending, if such a reference is made. He has relied on judgment in Smt. Amiya Bala Paul v. Commissioner of Income Tax (supra) and submits that the amendment made under Section 142A is not of any help to the appellant. He submits that in Asstt. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd (2007) 291 ITR 500 (SC) (page 511) it was held that the word "reason" in the phrase 'reason to believe' under Section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said that he has reason to believe that an income had escaped assessment. It does not mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. At that stage the final outcome of the proceeding is not relevant.

16. Shri S.K. Garg further submits that the assessee had no income to return in the assessment years 1991-96 to 1996-97. The AO did not have jurisdiction to issue commission under Section 131 (1) (d) to the DVO on 15.5.1998, as no proceedings were pending on that date. A notice under Section 142 (1) of the Act for the assessment year 1997-98 was issued on 20.7.1998. The notice under Section 148 of the Act for the years 1990-91 to 1996-97 was issued on 24.1.2001. The DVO's report obtained by issuing commission under Section 131 (1) (d) could not be relied upon for the assessment years 1990-91 to 1996-97 as well as for 1997-98 as the report was obtained without there being any proceedings pending on the date when the commission was issued.

17. We are of the opinion that all the appeals filed by the Revenue deserve to be dismissed inasmuch as the entire foundation of the framing assessments was the report of the DVO. The notice under Section 147/148 was issued on the basis of DVO's report. The AO did not have authority to refer the matter to DVO under Section 131 (1) (d) on 15.5.1998 as no proceedings were pending on that date. Neither any return was filed nor any notice under Section 147/148 was issued by the AO to the assessee by that date.

18. For the assessment year 1997-98 the AO issued a notice under Section 142 (1) on 20.7.1998, and assessee filed return of income on 29.3.2000. The assessment order was passed on 30.3.2000.

19. In our view the Tribunal rightly rejected the arguments raised on behalf of revenue that since a letter was written on 11.2.1998 by a Senior Officer of the Income Tax department to AO, the proceeding would be deemed to be pending for the assessment for the year 1997-98. Since no return of income was filed till 11.2.1998, there was no question of any assessment proceedings pending before the AO prior to that date. No other proceedings were pending for the assessment year 1997-98. Any internal correspondence between an officer of the department to AO would not amount to pendency of the proceeding before the AO. The AO intimated the assessee about the reason for issuing a notice under Section 148 by his letter dated 25.1.2002 in which the reason intimated was the difference of valuation in the construction of the property as reported by the DVO to the assessee. There was no other material for recording reasons for the AO for re-opening the proceedings under Section 148 of the Act.

20. In Smt. Amiya Bala Paul vs. Commissioner of Income Tax (supra) while considering the powers of the AO to make a reference under Section 131 (1) of the IT Act, it was held that the power of enquiry under Section 133 (6) and 142 (2) does not include the power to refer the matter to the Valuation Officer for an enquiry by the latter. If the power to refer any dispute to a Valuation Officer is available under Section 131 (1), 133 (6) and 142 (2), there was no need to specifically empower the Assessing Officer to do so under Section 55-A. It is not open to the Valuation Officer to act in his capacity as Valuation Officer otherwise than in discharge of his statutory functions. He cannot be called upon, nor would he have the jurisdiction, to give a report to the Assessing Officer under the Act except when a reference is made under and in terms of Section 55A or to a competent authority under Section 269-L. The Assessing Officer could not have referred the matter to the Valuation Officer for estimating the cost of constructions of the house property.

21. In Assistant Commissioner of Income Tax vs. Dhariya Construction Co. (2010) 328 ITR 515 (SC) in a short judgment the Supreme Court held as follows:-

"Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment.

Civil Appeal is, accordingly, dismissed. No order as to costs."

22. The Tribunal further found that the investment in the assessment year 1999-2000 was considered favourably by the CIT (A) in the assessment year 1997-98. No second appeal was filed. The order of the CIT (A) had become final. If the investment for that year is considered even as per the report of the DVO, then the difference would be approximately 1% of the total investment and as such, no case was made out for any addition.

23. The DVO, Kanpur had estimated the investment after inspecting the building and taking full details, cash memos and information on 21.3.1999, and submitted his report on 30.6.1999 estimating the construction at Rs.3,48,91,900/- spreading over the cost of construction upto the date of inspection for the assessment year 1999-2000.

24. The detail of the actual investment in the construction as per the books of accounts, and the details, spread over estimated investment till the date of inspection i.e. 21.3.1999 by DVO quoted in para-6 of the order of the Tribunal, is reproduced as below:-

Assessment

Cost of construction shown by us as per books of account

Cost of construction estimated by the D.V.O

Difference

1988-89

1,20,831.50

1,56,542.00

35,710/-

1989-90

9,06,688.50

11,74,660.00

2,67,971.00

1990-91

8,16,640.00

10,58,010.00

2,41,370.00

1991-92

5,14,065.10

6,65,996.00

1,51,931.00

1992-93

69,64,714.10

90,23,125.00

20,58,411.00

1993-94

73,46,827.26

95,18,171.00

21,71,344.00

1994-95

42,59,789.60

55,18,764.00

12,58,975.00

1995-96

23,00,716.64

29,80,301.00

6,79,885.00

1996.97

16,05,983.23

20,80,629.00

4,74,646.00

1997-98

10,49,035.93

13,59,077.00

3,10,041.00

1998-99

10,47,143.05

13,56,625.00

3,09,482.00

1999-2000

76,15,028.06

Not considered

Total

34547170.77

34891900/-

25. The difference of approximately 1% in actual investment and estimated investment did not fulfill the conditions prescribed for issuing notice under Section 148 of the Act. On the same set of facts in the assessment years 1997-98 and 1998-99 the CIT (A) had deleted the entire additions.

26. On the aforesaid facts even on merits we do not find any good ground to interfere with the findings recorded by the ITAT.

27. The questions of law are thus decided in favour of assessee and against the revenue.

28. All the Income Tax Appeals are consequently dismissed.

Dt.10.10.2013

RKP/