Income Tax Appellate Tribunal - Allahabad
The Acit, Range-Ii vs Baldev Plaza on 30 June, 2004
Equivalent citations: [2005]93ITD579(ALL), (2005)94TTJ(ALL)135
ORDER
1. All the above departmental appeals for the assessment years 1990-91 to 1996-97 are directed against the common order CIT(A)-III, Lucknow dated 31.10.2002. I.T.A.No. 52(Alld.)/2002 by Revenue is directed against the order of the CIT(A)-II, Lucknow dated 19.11.2001 for assessment year 1998-99. All the Cross Objections are filed by the assessee mainly in support of the impugned orders. However, in assessment year 1997-98, Cross Objection is filed by the assessee without there being any departmental appeal, which we shall take up separately about its maintainability.
2. Since common questions are involved in all the appeals, therefore, all the appeals were heard together alongwith Cross Objections. However, for the sake of convenience, we take up the departmental appeal in I.T.A.No. 68(Alld.)/2003 and C.O.No. 39(Alld.)/2004 for the assessment year 1990-91 first for the purpose of disposal.
I.T.A.NO. 68(ALLD.)/2003 (REVENUE'S APPEAL) AND C.O.NO. 39(ALLD.)/2004-A.Y.1990-91.
3. Brief facts as taken from the record are that the AO 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 known 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 AO. 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
1989-90 11,74,660 9,06,688 2,67,971
1990-91 10,58,010 8,16,640 2,41,369
1991-92 6,65,996 5,14,065 1,51,931
1992-93 90,23,125 69,64,14 20,58,411
1993-94 95,18,171 73,46,827 21,71,344
1994-95 55,18,764 42,59,789 12,58,975
1995-96 29,80,301 23,00,716 6,79,885
1996-97 20,80,629 16,05,983 4,74,646
4. The AO found that no return for the year under consideration was filed by the assessee. Accordingly after recording reasons under Section 147 of the Income-tax Act, 1961 and after obtaining the prior sanction of the ld. Additional CIT(A), Gorakhpur Range, Gorakhpur, notice under Section 148 dated 24.1.2001 was issued, which was served upon the assessee on 1.2.2001. The reasons for issue of notice under Section 148 of the of the Income-tax Act, 1961 were made available to the assessee on 25.1.2002 on his request.
5. The assessee filed return in pursuance of notice on 25.2.2002 declaring income of Rs. 4,620 under the head "Income from house property". Thereafter notice under Section 142(1) of the I.T.Act dated 28.2.2002 alongwith questionnaire was served upon the assessee. The assessee through the Counsel attended before the AO and filed written reply. It was contended before the AO that the investment of Rs. 76,15,028 made by the assessee in the assessment 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 AO 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 AO that there is no case for addition of unexplained investment. The AO considering the facts and circumstances and orders of the CIT(A) for the assessment years 1997-98 and 1989-99 was of the view that the facts are similar to that of assessment years 1997-98 and 1998-99. However, the AO observed that the decisions of the CIT(A) in the above assessment years have not been accepted by the department and the second appeals have been authorized. The AO, however, agreed that the additions for the assessment years 1988-89 and 1989-90 amounting to Rs. 13,31,020 (Rs. 1,56,542 + Rs. 11,74,660) should not be added to the investment for the year under consideration. The AO accordingly did not take these figures while making the addition. However, the AO treated the difference in investment in the year under consideration as reported by the D.V.O. and worked out the difference to Rs. 2,41,370 and added the same to the income of the assessee being unexplained investment.
6. Being aggrieved, the assessee filed appeal before the CIT(A). It was briefly submitted that the power under Section 131(1)(d) of the I.T.Act can be exercised by the authority concerned only if a proceeding is pending before such authority. However, in the case of the assessee no proceeding of any assessment year as well as no proceeding of concerned assessment year was pending at the time of issuing such commission under Section 131(1)(d) of the I.T.Act. Therefore, the jurisdiction was wrongly exercised by the authorities concerned. The submissions made before the AO with regard to investment made in the assessment year 1999-2000 was also reiterated and it was submitted that the investment of Rs. 76,15,028 made in the construction of the building in the assessment year 1999-2000 has not been considered by the D.V.O. in the total actual cost of construction disclosed by the assessee and for making the comparison with the estimate prepared for the construction of the building during March, 1988 till the date of inspection i.e. 21.3.1999. It was accordingly submitted that if the value of cost of construction for assessment year 1999-2000 be considered then there would be nominal difference of Rs. 3,44,738 which is hardly 1% of the cost of construction. It was also explained that the total investment made upto previous year relevant to the assessment year 1999-2000 was worked out to Rs. 3,45,47,170. The D.V.O., Kanpur estimated the investment after inspecting the building and taking full details, cash memos and information till 21.3.1999 on the basis of his 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 accounts and details of spread over estimated investment till the date of 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.
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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 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 12,58975.00
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 34891900.00
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7. It was also submitted that the AO is not correct to draw the conclusion regarding the failure of the assessee to disclose fully and truly all material facts of the case only on the basis of report of D.V.O. dated 30.6.1999. It was also submitted that no notice under Section 143(2) was issued within time. It was also submitted before the CIT(A) that the authority concerned is not entitled to exercise power under Section 131(1)(d) as a mere cloak for the purpose of making fishing investigation and roving enquiry in order to take proceedings 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. AO wanted to scrutinize the quantum of investment made in the building, he ought to have taken the returns for scrutiny in the manner provided by the department and then only he could have passed the assessment order after obtaining the report of the DVO. But in the case of the appellant, all the returns were accepted Under Section 143(1)(a) and when no proceeding were pending, reference was made to the Valuation Cell of the department Under Section 131(1)(d) of the I.T.Act, 1961. It is an established law that summon/commission Under Section 131 can be issued only when some proceedings are pending. Hon'ble Calcutta High Court in the case of ITO v. James Joseph O'Gorman, 1989 TLR 871 (Cal.) ruled that unless there is a proceeding pending before the authorities concerned, power Under Section 131(1)(d) cannot be exercised. I am of the opinion that language of Section 131(1) is so clear that reference of any court decision is not necessary. Section 131(1)(d) states that the Director General or his subordinate can issue notice "notwithstanding that no proceeding with respect to such person or class of persons are pending before him or any income tax authority." It is thus clear that DG, DI, DDI, and ADI can issue summons Under Section 131 even when no proceedings are pending. It follows, therefore, that other income-tax authorities can exercise the power Under Section 131(1) only when some proceedings are pending under the Act. It is thus clear that reference made to Valuation Cell Under Section 131(1)(d) is illegal and proceedings initiated under Section 147 on the basis of valuation report illegally obtained is also illegal. Consequently, assessment orders passed pursuant to proceedings under Section 147 of the I.T.Act, 61 became null and void. The only alternative left before me is, therefore, to cancel the assessment orders without considering the merits of the additions as discussed in the assessment orders passed Under Section 143(3)/148 by the ACIT, Range-II, Gorakhpur. As the assessment order can be cancelled on one point only, it is not necessary to consider other objections raised by the appellant.
6. On the facts and circumstances of the case and the position of law, the assessment orders passed Under Section 143(3)/148 of the I.T.Act, 1961 for A.Yrs. 90-91, 91-92, 92-93, 93-94, 94-95,95,96 and 96-97 are ANNULLED giving the appellant relief of tax demand of Rs. 7,00,986, Rs. 4,02,166, Rs. 67,99,058, Rs. 47,87,314, Rs. 25,22,241, Rs. 26,87,916 and 7,10,036. 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 I.T.Act, 1961 to the D.V.O., Kanpur is illegal. In fact the assessment proceedings for A.Y.97-98 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 C.I.T.(A) order para 1.3 under dispute. Since the proceeding was pending, a reference under Section 131(1)(d) of the I.T.Act, 1961 was made to the D.V.O., Kanpur for estimating cost of construction.
3. That learned C.I.T.(A) has erred in law and facts in holding that "proceedings initiated Under Section 147 on the basis of valuation report illegally obtained is also illegal." is also against the facts. A valid reference to the D.V.O., Kanpur Under Section 131(1)(d) of the I.T.Act, 1961 was made and there was large difference in cost of construction shown by the assessee and estimated (SIC) the D.V.O., Kanpur. Hence, proceedings Under Section 147 has legally (SIC) initiated and approval of the Addl. Commissioner of Income-tax, Gorakhpur was accorded on 12.12.2000.
4. That the learned CIT(A) erred in law and facts in annulling the assessment on the grounds of non-pendency of proceedings before making reference Under Section 131(1)(d) as it was neither grounds of appeal in original grounds of appeal nor in additional grounds of appeal.
5. Though the Learned CIT(A) called for A.O.'s comment on additional grounds which was submitted vide A.O.'s letter dated 11,9,2002 yet he (Ld.CIT(A) failed to inquire about pendency of proceeding before making reference Under Section 131(1)(d) to the D.V.O., Kanpur. Thus, the annulling of assessment order without grounds of appeal and providing opportunity to the A.O. is violation of principle of natural justice.
6. Considering the facts and circumstances of the case and materials available on record order passed in appeal being erroneous in law and fact, the case may be set aside and the order of the A.O. may be restored."
9. The assessee on receipt of the notice of the appeal filed the Cross Objection mainly on the grounds that the assessee had maintained books of accounts in regular course of business, which were even found acceptable in the proceeding under Section 147 read with Section 143(3) and the investment made by the assessee in the building stood verified and supported by the books of accounts and no defects have been pointed out in the books of accounts. It is also stated that there is no variation in the investment shown by the assessee and estimated by the D.V.O. till assessment year 1999-2000. It is also mentioned in the Cross Objection that there being no enabling provision under the law to issue commission under Section 131(1)(d) of the I.T.Act, the D.V.O.'s report could not have been made the basis even for initiation of action under Section 147. The assessee also filed submission in the Cross Objection dated 9th 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, 262 ITR 407 (S.C.).
10. We have heard the ld. D.R. 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, 1996-97;
(ii) Commission under Section 131(1)(d) was issued by the AO 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 30th March, 2000, assessment order under Section 143(3) was passed for the assessment year 1997-98;
(ix) On 24.1.2001, notice under Section 148 of the Income-tax Act, 1961 was issued to the assessee for the assessment years 1990-91 to 1996-97.
11. The ld. D.R. in the background of the above facts submitted that there were more than one component in the computation of income as is mentioned in the assessment order. The ld. D.R. argued that since no return was filed under Section 139 of the Income-tax Act, 19961 for the assessment years 1990-91 to 1996-97. Therefore, the AO was justified in initiating proceeding under Section 147 of the I.T.Act. The ld. D.R. submitted that the CIT(A) cancelled the assessment order on two reasons i.e. (i) no reference under Section 131(1)(d) of the I.T.Act should be made as no proceeding was pending under the Income-tax Act before the AO and (ii) that scrutiny of return should be made in the manner provided by the department. The ld. D.R. submitted that since no return was filed, therefore, the question of taking the return for scrutiny does not arise. Hence, the CIT(A) was wrong in canceling the assessment order. The ld. D.R. also submitted that reference was made under Section 131(1)(d) of the I.T.Act when proceedings for assessment year 1997-98 were pending. Therefore, the CIT(A) was not justified in canceling the assessment order on both the reasons. The ld. D.R. further argued that there was failure on the part of the assessee to disclose true and correct income and therefore action under Section 147 of the I.T.Act was justified. The ld. D.R. further argued that the departmental appeal should be considered in the light of the CIT(A)'s order. The ld. D.R. also argued that the order of the CIT(A) was in favour of the assessee, therefore, no Cross objection would lie. Hence the same is not maintainable. The ld.D.R. further argued that the CIT(A) did not consider good reasons of the AO, which were well-founded. The ld. D.R. further argued that since no return of income was filed in the year under consideration, therefore, the AO was having no option except to proceed under Section 148 of the Act. The ld.D.R. also argued that since reference under Section 131 was made to the D.V.O., Kanpur valid and in accordance with law, therefore, such material could be used 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, 252 ITR 230(Ker.);
2. Raj Kumar Shrawan Kumar v. C.B.D.T., 107 ITR 570(All.);
3. Rakesh Aggrawal v. ACIT, 225 ITR 496 (Del.);
4. Elgin Mills Co. Ltd. v. ITO, 111 ITR 287 (All.);
5. Claggett Brachi Co. Ltd. v. CIT, 177 ITR 409 (S.C.);
6. A.L.A. Firm v. CIT, 189 ITR 285(S.C.);
7. I.T.O. v. Purushottam Das Bangur and Anr., 224 ITR 362;
8. New Light Trading Co. v. CIT, 256 ITR 391 (Del.);
9. CIT v. First Leasing Co. of India Ltd., 241 ITR 248(Mad.);
10. Smt. Indira Devi v. CIT, 210 ITR 537(Mad.);
11. CIT v. Surendra Kumar Bhadani, 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 applicable to the facts of this case. The ld. Counsel for the assessee has referred to the reasons communicated by the AO vide letter dated 25.1.2002 in which the reason for initiating proceeding under Section 147 of the I.T. Act had been the difference in the valuation of the cost of construction as is reported by the D.V.O. and the assessee. The ld. Counsel for the assessee argu(SIC) the AO should have reasons to believe that the income has escaped which in the case of the assessee is not available. He has argued (SIC) since no proceeding was pending before the Income-tax Authorities for any of the assessment years, therefore, the AO was not justified in making a reference to the D.V.O. on 15.5.1998. The ld. Counsel for the assessee relied upon the following decisions:
1. ITO v. Lakhmani Mewal Das, 103 ITR 437(S.C.);
2. Sheo Nath Singh v. A.A.C., 82 ITR 147(S.C.).
The ld. Counsel for the assessee argued that in this case the material on record for initiating the proceeding under Section 147 of the Act had been the report of the D.V.O. which the A.O. was not authorized to make reference. Therefore, the AO was unjustified in having reasons to believe that the income escaped assessment. The ld. Counsel for the assessee submitted that the letter referred in grounds of appeal dated 11.2.1998 was considered as pendency of the proceeding by the authorities below. It was some letter issued by the Senior Officer to the AO. Therefore, it cannot be considered as pendency of the proceeding before the AO. He has argued that commission is issued to settle the dispute and when no dispute was pending before the AO, the reference is invalid. He has relied upon the order of the I.T.A.T., Chennai Bench in the matter of M. Selvaraj v. ITO, 258 ITR (ITAT) 82. The ld. Counsel for the assessee argued that return for assessment year 1997-98 was filed. All the books of accounts have been maintained. Therefore, there was no relevance to make the reference as no defect was pointed out by the AO in the books of accounts. The ld. Counsel for the assessee argued that since the contention of the assessee is accepted by the CIT(A) in the assessment year 1997-98 for considering the investment made upto assessment year 1999-2000 and the entire addition 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 ld. 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 after-thought. 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. The ld. Counsel for the assessee submitted that the case of the assessee is squarely covered by the decision of Hon'ble Supreme Court in the matter of Smt. Amiya Bala Paul v. CIT, 262 ITR 407 in which the Hon'ble Supreme Court held that the AO cannot refer the matter to the Valuation Officer for estimating the cost of construction of house property. The ld. Counsel for the assessee argued that for initiating proceeding under Section 147, the AO must have good reasons to believe that some income had escaped assessment and the belief should be well-founded. He has supported the arguments by referring the decision of Hon'ble Allahabad High Court in the matter of Pradeep Kumar Har Saran Lal v. AO, 229 ITR 46 (All.). The ld. Counsel for the assessee argued that since reference under Section 131 of the Income-tax Act, 1961 was invalid, therefore, no reliance could be placed by the AO for initiating proceeding under Section 147 of the I.T.Act as no proceeding was pending on the date of making the reference to the AO. He has argued that there was no good reason for the AO to initiate the proceeding and that the belief of the AO was not bona fide and well-founded. He has relied upon the decision in the matter of K.M. Bansal v. CIT, 195 ITR 247 (All.). The ld. Counsel for the assessee argued that the letter dated 11.2.1998 as is referred in ground No. 2 could at the most be treated as some administrative action by the department, but could not be termed to be pendency of any proceeding against the assessee. He has relied upon the decisions in CIT v. Mahalakshmi Textile Mills Ltd., 66 ITR 710(S.C.) and Dr. Avinash Kumar Agrawal. The ld. Counsel for the assessee argued that no year-wise inspection was made and as such total investment could be spread over upto the date of the inspection and the same view is taken by the CITA in the assessment year 1997-98 in which no second appeal is preferred by the department before the Appellate Tribunal. The ld. Counsel for the assessee lastly argued that since there was no other material on record available with the AO, therefore, the AO was not justified in initiating proceedings under Section 147 of the Income-tax Act.
13. The ld. Counsel 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 AO 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 AO 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 the section clarifies that the AO is vested with specific powers available to the Civil court in the Code of Civil Procedure. Order 26 of the Code of Civil Procedure provides process for issuing commission. The powers given to the AO under Section 13(1) of the Act are for the purpose of Income-tax Act, which are vested in the court under Code of Civil Procedure when trying a suit in the matter. The language of Order 26(1) of Code of Civil Procedure provides that any Court may in any suit issue a commission for examination on interrogatories or otherwise of any person resident within the local limits of its jurisdiction. The words "For the purpose of this Act" in Section 131(1) have to be read in conjunction with further words "have the same powers, as are vested in Civil Court under Code of Civil Procedure when trying a suit." Therefore, it clearly shows that the powers exercisable while making an assessment or while trying the suit have been specifically and separately classified under Section 131(1) and the same are to be exercised by the Assessing Officer for making the assessment. The Code of Civil Procedure conferred upon the courts the power to issue commission while trying a suit and, therefore, the pendency of suit or proceeding before the Court is necessary condition in exercising said power. The combined reading of both the provisions would show that there should be pendency of proceeding before the AO before issuing any commission under Section 131(1)(d) of the I.T.Act. The scope of Section 131(1)(d) of the Income-tax Act, 1961 and Order 26 of Code of Civil Procedure is that commission could be issued when proceeding/suit is pending before the AO or the Court. Now, we examine the facts of the case on the following issue-
(i) Whether any proceeding under the Income-tax Act was pending before the AO on 15.5.1998 i.e. the date of making reference to D.V.O. under Section 13(1)(d) of the I.T.Act and if the finding on the above is negative, the effect thereof:-
It is an admitted fact that no return of income was filed for the assessment years 1990-91 to 1996-97. Therefore, there is no question of pendency of any proceeding before the AO for the year under consideration in this appeal. For the assessment year 1997-98, the AO issued notice under Section 142(1) dated 20.7.1998 to the assessee and the assessee filed return of income on 29.3.2000. The assessment order is dated 30.3.2000. Therefore, no assessment proceeding for assessment year 1997-98 would be pending before the AO. 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 AO. Even no other proceeding was pending for the assessment year 1997-98. Merely because, some letter was written by Senior Officer to the AO would not amount to pendency of the proceeding before the AO. 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 1.2 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 pending on the date of reference on 15.5.1998. For the assessment year 1998-99, no return of income was due on 15.5.1998 i.e. the day of the reference. Considering the above dates and the facts of the case as mentioned above, we are of the view that no proceeding under Income-tax Act was pending before the AO on 15.5.1998 i.e. date of making reference to the D.V.O. The AO intimated the assessee about the reasons for issue of the notice under Section 148 of the Act vide letter dated 25.1.2002 in which (SIC) reason so intimated was the difference of valuation in the construction of the property as reported by the D.V.O. and the assessee. No other material or reason was available with the AO for re-opening of the proceeding under Section 148 of the I.T.Act. Since no proceeding under the Income-tax Act, 1961 was pending before the AO, therefore, whatever material was collected by the AO against the provisions of law cannot be taken into consideration for the purpose of initiating proceeding under Section 148 of the Act. We may refer to the following orders of different Benches of the I.T.A.T. which are relevant to the issue :
15.1 The Mumbai Bench of the I.T.A.T. in the matter of Smt. Saranga Aggarwal, SOT-307 (Mumbai) held :
"Section 147 of the Income-tax Act, 1961-Income escaping assessment- position prior to 1.4.1989-Assessment year 1986-87-Assessing Officer made reference to D.V.O. subsequent to completion of assessment and reopened assessment on basis of DVO's report - Whether valuation report is only an opinion of valuer and neither it amounts to "Information' nor can form a ground for reason to believe that assessee had failed to disclose his income fully and truly-Held, yes-Whether re-opening of assessment was invalid and hence liable to be cancelled-Held, yes."
15.2 Jodhpur Bench of the I.T.A.T. in the matter of Vijay Kumar, 73 TTJ-17 held:
"Reassessment under Section 147(b)-Information-Valuation report of DVO-Reference under Section 13(1)(d) can be made only to DVO only while trying a suit and not in a completed suit- AO 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 AO as information 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. Bharat v. ITO reported in 259 ITR - (ITAT-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 I.T.O. v. East West Trading Corporation, 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 AO in all the assessment years and as such AO was not legally justified to send the reference to the D.V.O. calling for the estimate of construction and as such, the AO 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, 262 ITR 407 (S.C.) while considering the powers of the AO to make a reference under Section 131(1) of the I.T.Act to the D.V.O. held "However, the power of inquiry granted to an Assessing Officer under Sections 133(6) and 142(2) does not include the power to refer the matter to the Valuation Officer for an enquiry by him." It was further held "the ld. Counsel for the appellant has correctly submitted that if the power to refer any dispute to a Valuation Officer were already available in Sections 131(1), 133(6) and 142(2), there was no need to specifically empower the Assessing Officer to do so in certain circumstances under Section 55A. It was further held ".. it is not open to a 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 Income-tax Act except when a reference is made under and in terms of Section 55A or to a competent authority under Section 269L." The Hon'ble Supreme Court, therefore, held that the Tribunal had not erred in holding that the AO cannot refer the matter to the Valuation Officer for estimating the cost of constructions of house property.
16. We may mention that the assessee in the Cross Objection has mentioned that the assessee-respondent maintained books of accounts in regular course showing value of the cost of construction. It is also mentioned that if the investment is considered upto the date of the inspection i.e. 21.3.1999, then there would be no addition. It is also mentioned that since no proceeding was pending before the AO, therefore, no reference under Section 131(1)(d) of the I.T.Act could be made to the D.V.O. In the Cross Objection, letter dated 9.4.2004 has also been filed in which the assessee has placed reliance upon the decision of the Hon'ble Supreme Court in the matter of Smt. Amiya Bala Paul (supra). However, the ld. D.R. objected to the grounds taken in the Cross Objection and placing reliance upon the decision of the Hon'ble Supreme Court in the matter of Smt. Amiya Bala Paul v. CIT (supra). It was further stated that the order of the CIT(A) was in favour of the assessee, therefore, the cross objection is not maintainable. We may mention that though the order of the CIT(A) was in favour of the assessee as the CIT(A) has cancelled the assessment in question, but the 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, 234 ITR 663 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 and Anr., 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., 136 ITR 315 (Mad.) is referred in which it was held that when the assessee has succeeded wholly before the A.A.C. and the Tribunal, there was no scope for filing the appeal or cross objection.
18. In the matter of CIT v. New India Assurance Co. Ltd., 141 ITR 367 (Bom.) as is relied upon by the ld. Counsel for the assessee, the Cross objection is treated as an independent right given to the assessee. But the fact remains that in this case, the entire order of the CIT(A) was in favour of the assessee, therefore, legally the cross objection would not be maintainable in the present form. However, we find from the grounds taken in the cross objection that the same grounds were taken up before the authorities below and even these grounds have been argued by the counsel for the assessee in the departmental appeal in order to support the finding of the CIT(A). Even if the assessee has taken up these grounds in the Cross Objection, but being a respondent in the departmental appeal, the assessee is within his right to argue on facts as well as on point of law in order to support the impugned order. As far as the decision of the Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul (supra) is concerned, the same binding upon the Tribunal. Article 141 of the Constitution of India provides that the law declared by the Hon'ble Supreme Court shall be binding on all the courts throughout the territory of India. Even if the assessee has placed reliance on the decision of the Hon'ble Supreme Court in the cross objection but the decision of the Hon'ble Supreme Court is binding upon this Tribunal and, therefore, we take into consideration the decision of the Hon'ble Supreme Court while deciding the matter in controversy.
19. We may also refer to the decision of the Hon'ble Supreme Court in the matter of C.I.T. v. Mahalakshmi Textile Mills Ltd., 66 ITR 710 (S.C.) in which the Hon'ble Supreme Court held-
"If for reasons recorded by the departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.
20. The Hon'ble Allahabad High Court in the matter of Dr. Avanish Kumar Agrawal, while relying upon the decision of Hon'ble Supreme Court in the matter of Smt. Amiya Bala 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 AO 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 AO in the present case.
21. Considering the above facts, we also propose to decide the second issue i.e. Whether the AO 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 A.O.?"
21.1 The AO 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 assessee to take a return under Section 139 for the assessment year or to disclose fully and truly material facts necessary for his assessment for that year.
If these two conditions are satisfied then it would give jurisdiction to the AO to initiate proceeding under Section 148 of the I.T.Act. The Hon'ble Supreme Court in the matter of I.T.O. v. Lakhmani Mewal Das, 103 ITR 437 (S.C.) while considering the matter under Section 148 of the I.T.Act held-
"Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of grounds which induce the Income-tax Officer is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law."
21.2 The Hon'ble Supreme Court in the matter of Sheo Nath Singh v. A.A.C., 82 ITR 147(S.C.) held-
"There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court."
22. The Hon'ble Allahabad High Court in the matter of Pradeep Kumar Har Saran Lal, 229 ITR 46 (All.) held that the only requirement of Section 147 is that the AO 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 sad 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 AO except the report of the D.V.O., 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 D.V.O. as is relied upon by the AO was irrelevant and as such the AO was not justified in relying upon the report of the D.V.O. 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, 252 ITR 230 (Ker.), 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. C.B.D.T., 107 ITR 570(All.), the Board's circular was considered for issue of notice under Section 147 of the Act.
24.2 In the case of Rakesh Aggarwal, 225 ITR 496 (Delhi), the conditions of Section 147 have been referred.
24.3. In the case of Elgin Mills Co. v. ITO, 111 ITR 287(All.), the audit objection was considered as information.
24.4 In the case of R.K. Malhotra v. Kasturbhai Lalbhai, 109 ITR 537(S.C.), information of audit department was considered for the purpose of re-assessment.
24.4a In the case of Claggett Brachi Co. Ltd., 177 ITR 409, Information acquired in subsequent year was held proper for proceeding under Section 147.
24.5 In the case of A.L.A. Firm v. CIT, 189 ITR 285 (S.C.), subsequent re-opening of the assessment on consideration of High Court's decision was held valid.
24.6 In the case of I.T.O. v. Purushottam Das Bangur and Anr., 224 ITR 362 (S.C.) subsequent letter of the D.D.I. was considered for the purpose of re-assessment.
24.7 In the case of New Light Trading Co. v. CIT, 256 ITR 391 (Del.), audit report, which was independently examined by the AO was held to be information for re-assessment.
24.8 In the case of C.I.T. v. First Leasing Co. of India Ltd., 241 ITR 248. The report of audit constituted information for the purpose of re-assessment.
24.9 In the case of Indra Devi, 210 ITR 537 (Mad.) the audit note overlooked by the AO at the time of original assessment constitutes information for re-assessment.
24.10 In the case of CIT v. Surendra Kumar Bhadani, 164 ITR 323 (Patna), it was held that no restriction of number of proceeding which can be taken for reassessment was considered.
25. All the above decisions referred by the ld. D.R. are, thus, clearly distinguishable on facts and are not applicable to the facts and circumstances of this case. Even the Hon'ble Supreme Court in the latest decision in the matter of C.I.T. v. Lucas T.V.S. Ltd., 249 ITR 306 (S.C.) (Head Note) (date of decision 5.12.2000) held that the opinion of the audit party is not information. Therefore, re-assessment based on the opinion of audit party was held not valid.
26. Therefore, all the case law referred to by the ld.D.R. are not applicable to this case. As per decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul, no reference could be made to D.V.O. for estimating 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 A.O. is not well founded. Considering the above discussion and the case law referred to above, we are of the considered view that the AO 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. Therefore 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 canceling the assessment order.
27. Apart from above discussion, we may mention that the first assessment proceedings were completed in the case of assessee under Section 143(3) of the I.T.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, upto the assessment year 1999-2000, then there would be no case of any addition. The CIT(A) in paragraph 9 of his order for the assessment year 1997-98 held as under:
"9. I have considered the above facts. The difference between the disclosed investment and the investment estimated by the D.V.O., has only arisen because the investment made during the assessment year 1999-2000 has not been considered. The A.O. has not taken any steps to verify from the account books of that period this investment of Rs. 76,15,028. He has only relied upon and followed the report given by the D.V.O. It may be pointed out that the details of these expenditure ha been filed alongwith the return for A.Y.1999-2000. This had been filed on November 2, 1999, - a date prior to the receipt of the D.V.O.'s report by the appellant. Most important, the appellant would have incurred expenditure for the period of relevant to assessment year 1999-2000 and these transactions can be very well verified by the A.O. In these circumstances, the A.O. is not justified in ignoring the account books for A.Y.1999-2000, as it was open to him to make an addition for period relating to the assessment year 1999-2000. If he felt that the source of the investment was not proved. Accordingly the addition of Rs. 3,10,000 made is deleted.
It is admitted fact that no departmental appeal is filed against the order of the CIT(A) dated 15.3.2001 for the assessment year 1997-98. The same facts and submissions were made before the AO in the assessment year under appeal in assessment year 1990-91 to 1996-97. The assessee has taken the similar plea before the AO and submitted that if the investment for the assessment year 1999-2000 upto 21.3.1999 is considered then there would be no addition. It was also pleaded before the AO that on the same set of facts, he CIT(A) deleted the addition in assessment year 1997-98, but the AO did not accept the order of the CIT(A) for the assessment year 1997-98 as the department has authorized second appeal but ultimately no second appeal is filed. Therefore, the whole case of the AO is demolished when no second appeal is filed before the Appellate Tribunal challenging the order of the CIT(A) dated 15.3.2001.
28. The Hon'ble Supreme Court in the matter of Union of India v. Kaumudini (SIC) Dalal and Anr., 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 assesses 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 specified 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.
30. Considering the above facts and circumstances 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 dismissed the departmental appeal, therefore, the Cross objection becomes infructuous and is accordingly dismissed.
I.T.A.Nos. 69 to 74(Alld.)/2003 and C.O.Nos. 40 to 45(Alld.)/2004
31. The facts and circumstances of all the departmental appeals are the same to that of in assessment year 1990-91 in I.T.A.No. 68(Alld.)/2003. Since we have dismissed the departmental appeal for the assessment year 1990-91, therefore, by following the same order we, dismiss all the departmental appeals and the Cross Objections being infructuous are accordingly dismissed.
C.O.No. 46(Alld.)/2004 (A.Y.:1997-98)
32. It is admitted before us that there is no departmental appeal filed in the assessment year 1997-98. Therefore, the Cross Objection independently would not be maintainable. The same is accordingly dismissed.
I.T.A.No. 52(Alld.)/2002 and C.O.No. 47(Alld.)/2004
33. The facts and circumstances and investment in the building in question are same. The CIT(A) considered the investment in the property upto the date of inspection i.e. 21.3.1999 and by following order of lis (SIC) for assessment year 1997-98, allowed the appeal of the assessee. Since there is no departmental appeal in assessment year 1997-98, therefore, present appeal is liable to be dismissed. We, therefore, following our order in departmental appeal in I.T.A.No. 68(Alld.)/2003 for the assessment year 1990-91 dismiss the present departmental appeal. The Cross objection becomes infrucutous and is accordingly dismissed.
34. As a result, all the departmental appeals and the Cross Objections are dismissed.