Shri Rameshchand Kotumal Issrani, GANDHIDHAM V. The Income Tax Officer, Ward-1, GANDHIDHAM

ITA 11/RJT/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2936 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-12-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 07-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI RAJ KUMAR
• Keywords: Reopening of assessment; Income from undisclosed sources; Valuation report; Reason to believe; Set aside
• Section: 271(1)(c); 143(3); 153A; 143(1); 69B; 69A; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT, A.M. AND SHRI D.T. GARASIA , J.M. ITA NOS. 11 & 12/RJT/2009 (ASSESSMENT YEARS: 2000-01 & 2001-02) SHREE RAMCHAND KOTUMAL ISRANI, GANDHIDHAM PAN : AADPI1255N V/S THE INCOME TAX OFFICER, WARD- 1, GANDHIDHAM (APPELLANT) (RESPONDENT) ITA NO. 88/RJT/2009 (ASSESSMENT YEARS: 2000-01 THE INCOME TAX OFFICER, WARD- 1, GANDHIDHAM V/S SHREE RAMCHAND KOTUMAL ISRANI, GANDHIDHAM PAN : AADPI1255N (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI VIMAL DESAI, C.A. REVENUE BY SHRI JAI RAJ KUMAR, D.R. O R D E R A.L. GEHLOT : THESE ARE CROSS APPEALS AGAINST ORDE R OF THE CIT(A)-II, RAJKOT, DATED. 15/12/2008 FOR A.Y. 2000-01 AND APPEAL BY TH E ASSESSEE FOR AY 2001-02 AGAINST THE ORDER OF CIT(A)-II, RAJKOT ALSO DATED 15-12-2008. 2. THE GROUNDS RAISED BY ASSESSEE FOR A.Y. 2000-01 ARE AS UNDER. 1. THE ASSESSMENT ORDER PASSED U/S. 143(3) R.W.S. 1 47 IS BAD IN LAW AS WELL AS ON FACTS. ITA NO.11, 12 & 88/RJT/2009 2 2. THE RE-OPENING OF ASSESSMENT IS BAD IN LAW. THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN HOLDING RE-OPENING OF ASSESS MENT AS VALID. 3. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING THE ADDITION OF RS. 16,23,690/- ON ACCOUNT OF DIFFERENC E IN COST OF CONSTRUCTION AS PER VALUERS REPORT AND AS PER BOOKS OF ACCOUNT. THE CIT(A) HAS ERRED ON FACTS IN LAW IN CONFIRMING THE ADDITION TO THE T UNE OF RS. 5,85,872/-. 4. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW A ND ON FACTS IN ENHANCING THE COST OF CONSTRUCTION AS ESTIMATED BY THE DVO BY RS. 5,00,000/-. 3. THE GROUNDS RAISED BY ASSESSEE FOR A.Y. 2001-02 ARE AS UNDER. 1. THE ASSESSMENT ORDER PASSED U/S. 143(3) R.W.S. 1 47 IS BAD IN LAW AS WELL AS ON FACTS. 2. THE RE-OPENING OF ASSESSMENT IS BAD IN LAW. THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN HOLDING RE-OPENING OF ASSESS MENT AS VALID. 3. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING THE ADDITION OF RS. 7,41,222/- ON ACCOUNT OF DIFFERENCE IN COST OF CONSTRUCTION AS PER VALUERS REPORT AND AS PER BOOKS OF ACCOUNT. THE CIT(A) HAS ERRED ON FACTS IN LAW IN CONFIRMING THE ADDITION TO THE T UNE OF RS. 3,90,440/-. 4. THE GROUNDS OF REVENUES APPEAL FOR A.Y. 2000-01 ARE AS UNDER. 1. 1.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN DIRECTING TO REPLACE THE FIGURES OF ADDITION MADE ON ACCOUNT OF UNDISCLOSED INVESTMENT IN PROPERTY OF RS. 16,23,690/- BY RS. 5,85,872/-. 2. ON THE FACTS THE CASE, THE LD. CIT(A), OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. BRIEF FACTS ARE THAT THE ASSESSEES FILE RETURN O F INCOME ON 31/10/2000. A SURVEY WAS CARRIED OUT ON 05/12/2003. AT THE TIME O F SURVEY A VALUATION REPORT OF REGISTERED VALUER OF CONSTRUCTION ON PLOT NO. 15 WA S FOUND. THE CONSTRUCTION COST ITA NO.11, 12 & 88/RJT/2009 3 AS PER THE SAID VALUATION REPORT DTD.22/10/2003 RS. 38,69,885/- WHERE AS THE ASSESSEE SHOWN RS. 13,80,088/- IN THE BOOKS OF ACCO UNT. ASSESSMENTS FOR A.Y. 2000-01 & 2001-02 WERE RE-OPENED U/S. 147 BY ISSUIN G NOTICE U/S. 148 DTD. 08/03/2007 AFTER RECORDING REASONS DATED2.3.2007. D URING THE ASSESSMENT PROCEEDINGS ON VERIFICATION OF CONSTRUCTION DISCREP ANCIES WERE NOTICED WHICH HAVE BEEN DISCUSSED BY THE AO AT PAGE 2 TO 6 OF HIS ORDER. AFTER CONSIDERING SUBMISSION OF ASSESSEE, THE AO BIFURCATED COST OF C ONSTRUCTION COST IN TO YEARS ON THE BASIS OF VALUATION REPORT AS UNDER. IN THE CASE OF ASSESSEE ALSO, THERE IS A DISCREPAN CY BETWEEN VALUE OF THE PROPERTY AS PER THE VALUATION REPORT, WHICH IS OBTAINED FROM THE VALUER TO SUBMIT THE SAME TO THE BANK FOR LOAN PURPOSE AND THE VALUE SHOWN IN THE BOOKS OF ACCOUNT AND NO SATISFAC TORY EXPLANATION REGARDING SUCH DISCREPANCY HAS BEEN SUB MITTED BY THE ASESSEE. THUS, IT IS CRYSTAL CLEAR THAT THE ASSESSE E HAS MADE UNDISCLOSED INVESTMENT IN PROPERTYTO THE TUNE OF RS . 16,23,690/- [COST OF CONSTRUCTION IS TAKEN ATRS. 37,45,000/-. T HE ASSESSEE HAS CARRIED OUT THE CONSTRUCTION IN TWO YEARS I.E. A.Y. 1999-2000 (A.Y. 2000-01) AND F.Y. 2000-01 (A.Y. 2001-02). THEREFORE , COST OF CONSTRUCTION FOR THE YEAR UNDER CONSIDERATION IS TA KEN AT RS. 18,72,500/- (37,45,000 /2). THE ASSESSEE HAS SHOWN IN HIS BOOKS OF ACCOUNTS COST OF CONSTRUCTION AT RS. 2,48,810/-. THEREFORE, RS. 16,23,690/- (18,72,500 2,48,810)] AND SAME IS ADD ED TO HIS TOTAL INCOME OF THE ASSESEE. SINCE, THE ASSESSEE HAS MADE UNDISCLOSED INVESTMENT IN PROPERTY OUT OF UNACCOUNTED INCOME, P ENALTY PROCEEDINGS U/S. 271(1)(C) ARE INITIATED SEPARATELY . 6. THE ASSESSEE CHALLENGED AOS ORDER ON LEGAL AS W ELL AS ON MERIT. ON LEGAL GROUND THE ASSESSEE SUBMITTED BEFORE CIT(A) T HAT THERE WERE NO PENDING PROCEEDINGS FOR THESE TWO YEARS BEFORE AO THEREFORE REFERRED TO THE DVO IS NOT IN ACCORDANCE WITH LAW. IT WAS ALSO SUBMITTED THAT NO NEW MATERIAL WAS FOUND BASIS ON WHICH RE-OPENING CAN BE MADE U/S. 147 OF T HE ACT. THE CIT(A) REJECTED ITA NO.11, 12 & 88/RJT/2009 4 THE ASSESSEES CONTENTION OBSERVING THAT THERE WAS A SURVEY IN THE PROCESS WHICH THE DEPARTMENT CAUGHT HOLD OF A DOCUMENT INDI CATING THAT THE ASSESSEE HAS ALSO SUPPRESSED SOME INCOME. THE CIT(A) HAS ALS O OBSERVED THAT MERE DISCLOSURE IN BOOKS OF ACCOUNT DOES NOT NECESSARILY MEAN THAT AN ASSESSEE HAS DISCLOSED FULLY AND TRULY NECESSARY FACT FOR HIS AS SESSMENT. THE CIT(A) IN SUPPORT OF HIS VIEW RELIED UPON THE JUDGMENT OF APEX COURT IN CASE OF INDO-ADEN SALT MANUFACTURING & TRADING CO. P. LTD. VS. CIT (1986) 159 ITR 624 (SUPREME COURT). AS REGARDS ASSESSEES CONTENTION IN RESPECT OF SECTION 142A, THE CIT(A) OBSERVED THAT THIS SECTION HAS BEEN INSERTED WITH R ETROSPECTIVE EFFECT FROM 15/11/1972 WHICH EMPOWER THE ASSESSING OFFICER TO R EFER A MATTER TO THE VALUATION OFFICER TO MAKE AN ESTIMATE OF VALUE OF A NY INVESTMENT. THE CIT(A) FURTHER OBSERVED THAT PROVISO TO SECTION 142A EXCL UDES ITS APPLICABILITY ONLY IN RESPECT OF AN ASSESSMENT HAS BECOME FINAL AND CONCL USIVE ON OR BEFORE 30/09/2004. IN THIS INSTANT CASE THE ASSESSMENT ORD ER WAS PASSED ONLY AFTER 30/09/2004 AND SOME MATERIAL WAS FOUND IN SURVEY OP ERATIONS. IT IS FURTHER OBSERVED THAT THIS RESTRICTION OF ASSESSMENT ON OR BEFORE 30/09/2004 IS NOT APPLICABLE FOR THE CASES WHERE RE-ASSESSMENT WAS RE QUIRED TO BE MADE U/S. 153A OF THE ACT.THE CIT(A) HELD THAT THE ASSESSING OFFICER WAS CORRECT IN RE- OPENING THE ASSESSMENT U/S. 147 OF THE ACT. 7. THE CIT(A) WHILE DECIDING THE ISSUE ON MERIT. TH E CIT(A) HAS FOUND THAT THE ASSESSING OFFICER WAS NOT CORRECT IN COMPARING THE BOOK COST OF LAND IN QUESTION IN F.Y. 1999-2000 AND 2000-01 WITH THE MAR KET VALUE OF THE PROPERTY AS ON 27/10/2003 TO CONCLUDE UNDISCLOSED INVESTMENT IN THE PROPERTY THE CIT(A) HAS ALSO HELD THAT THE SAID VALUATION REPORT IS DTD. 22 /10/2003. THE ASSESSING OFFICER IS NOT CORRECT IN MAKING ADDITION ON THE BASIS OF S AID REPORT SUBSEQUENT TO THE DATE OF THE ASSESSMENT. THE CIT(A) WAS OF THE VIEW THAT THE ASSESSING OFFICER SHOULD HAVE ADOPTED THE VALUE BY THE DVO. THE CIT(A ) HAS ALSO OBSERVED THAT THE ASSESSING IS NOT CORRECT IN MAKING ADDITION ON THE BASIS OF SAID REPORT SUBSEQUENT TO THE DATE OF THE ASSESSMENT. THE CIT(A ) WAS OF THE VIEW THAT THE ASSESSING OFFICER SHOULD HAVE ADOPTED THE VALUE BY THE DVO WHICH WAS REFERRED ITA NO.11, 12 & 88/RJT/2009 5 ON 10.2.2006 AND REPORT WAS DATED10.4.2006. THE CIT (A) HAS ALSO OBSERVED THAT THE ASSESSING OFFICER WAS NOT SURE IN VALUATION MEN TIONED IN APPLICATION FOR HOUSING LOAN FROM CORPORATION BANK. HE CHOSE TO REF ER THE CASE TO THE DVO MOST PROBABLY THE ASSESSING OFFICER WOULD HAVE CHANGED H IS MIND WHEN THE DVO VALUED THE COST OF CONSTRUCTION LESSER THAN FIGURE SHOWN IN LOAN APPLICATION FORM. THIS STRATEGY OF THE ASSESSING OFFICER WAS NOT CORR ECT. THE CIT(A) FINALLY DIRECTED AS UNDER. FROM THE ABOVE, IT IS CLEAR THAT EVEN THE DIFFEREN CE FIGURES, WHICH DVO WORKED OUT, WERE NOT FULLY CORRECT, AS THE SAID DIF FERENCES DID NOT INCLUDE THE ABOVE TWELVE ITEMS. THE AO ADOPTED RS. 37.45 LA KH AS THE COST OF THE CONSTRUCTION IN TWO ASSESSMENT YEARS 2000-01 AND 20 01-02. HE AVERAGED THIS FIGURE FOR TWO YEARS, I.E. RS. 1872500/- FOR E ACH YEAR AND DEDUCTED THE COST OF CONSTRUCTION SHOWN IN THE BOOKS OF AND ASSE SSED THE DIFFERENCE. THUS, SUM OF RS. 1623690/- AND RS. 741222/- WERE AS SESSED AS UNDISCLOSED INVESTMENT IN THE FORM OF COST OF CONST RUCTION FOR THE A.YS. 2000-2001 & 2001-2002, RESPECTIVELY, WHEREAS BY DVO , THE SAME FIGURES WERE TAKEN AT RS. 85872/- AND RS. 390440/-, RESPECT IVELY. BUT, TO REMIND AGAIN, THE DIFFERENTIAL VALUES ARRIVED AT BY THE DV O DO NOT CONTAIN SEVERAL EXPENDITURES. SO, I OPINE, A SUM OF RS. 5 LAKH MAY COVER ALL THE DEFICIENCIES POINTED OUT BY THE DVO, AND THIS AMOUN T WILL BE ASSESSED IN THE A.Y. 2000-01. THE APPELLANTS REQUEST FOR THE A PPLICATION OF STATE PWD RATES FOR VALUING THE COST OF CONSTRUCTION IS NOT A CCEDED TO, AS THE DVO CORRECTLY APPLIED THE PLINTH AREA RATES APPROVED BY CBDT BY ITS INSTRUCTION NO. 1671 FOR SIMILAR STRUCTURE DULY ADJUSTED SPECIF ICATIONS ADOPTED IN THE PROPERTY AND ENHANCED BY THE WEIGHTED COST INDEX FO R THE PERIOD OF CONSTRUCTION OF GANDHIDHAM. IT IS ALSO TO BE STATED THAT THE DVO DID NOT ANALYZE THE EXTRA ADDITIONAL ITEMS AND ADDED THE VA LUE SEPARATELY. IN THE RESULT, THE UNDISCLOSED COST OF CONSTRUCTION TO BE ASSESSED WOULD BE AS FOLLOWS:- PERIOD OF CONSTRUCTION VALUE AS PER BOOKS VALUE AS PER DVO VALUE NOW ADDED DIFFERNCE A.Y. 2000-01 248810 334682 500000 585872 A.Y. 2001-02 1131278 1521718 -- 390440 THE AO IS THEREFORE DIRECTED TO REPLACE THE FIGURE ADOPTED FOR A.Y. 2000-01 OF RS. 1623690/- BY RS. 585872/- AND A.Y. 2001-02 OF R S. 741222/- BY RS. 390440/- ITA NO.11, 12 & 88/RJT/2009 6 7. LD. AR SUBMITTED THAT RE-ASSESSMENT WAS NOT VALI D ON ACCOUNT OF FOLLOWING REASONS. 1. THE CHRONOLOGICAL FACTS OF THE CASE CLEARLY SHOW THAT REOPENING THE ASSESSMENT IS ABSOLUTELY ARBITRARY. SECTION 147 CO NFERS JUDICIAL POWERS FOR TAXING ESCAPED INCOME. THESE POWERS ARE NOT ARB ITRARY TO REOPEN ANY ASSESSMENT AT WHIMS AND FENCES. 2. REASSESSMENT IS BASED ON DVOS REPORT. IT IS WE LL SETTLED LEGAL POSITION THAT REOPENING ON THE BASIS OF DVOS REPORT IS NOT PERMISSIBLE. A. CIT VS DARSHAN SINGH 272 ITR 650 (PUNJAB & HAR YANA) B. AMALA DAS VS CIT 146 ITR 216 (PUNJAB & HARYANA ) C. CIT V. V.T. RAJENDRAN 288 ITR 312 (MAD) D. VIDYASAGAR V. CIT 277 ITR 120 (P&H) E. CIT V. SMT. MEENADEVI MANSINGHKA 303 ITR 351 ( RAJ) F. BISHNU TALKIES V. CIT 287 ITR 372 (GAU) G. UMIYA CO-OPERATIVE HOUSING SOCIETY V. ITO 94 T TJ 392 (AHD-B BENCH) H. ACIT V. PKAR HOTEL 101 TTJ 1042 (JD) 3. NO PROCEEDINGS WERE PENDING FOR THE YEARS UNDER CONSIDERATION WHEN REFERENCE U/S 142A WAS MADE. HENCE, REFERENCE U/S 1 42A IS ALSO BAD IN LAW. A. UMIYA CO-OPERATIVE HOUSING SOCIETY V. ITO-94 TTJ 392 (AHD-B BENCH) 4. THE JUDGMENT OF ROHTAS PROJECT (204 CTR 319) REL IED UPON BY LD.CIT(A) WAS NOT IN THE CONTEXT OF VALIDITY OF REASSESSMENT OR NECESSITY OF PENDING PROCEEDINGS. IT WAS IN THE CONTEXT OF REFERENCE U/ S 142A BEING PERMISSIBLE FOR ASSESSMENT WHICH HAS NOT BECOME FIN AL BEFORE 30.9.2004. 5. THE SMALL ISSUES POINTED OUT BY THE A.O. WERE CL ARIFIED VIDE SUBMISSION DATED 17.12.2007. THUS, THERE WAS N SIGNIFICANT DE FECT FOUND IN THE COST OF CONSTRUCTION SHOWN BY THE APPELLANT AND THEREFOR E, SUBSTITUTION F DVOS COST IN PLACE OF APPELLANTS COST WAS NOT PERMISSIB LE. LAVKUSH VATIKA PVT LTD V. ACIT 12 DTR 24 (LUCKNO W) RUBY BUILDERS V. ITO 63 TTJ 202 (AHD-A BENCH) DR.N GURUMEETSINGH V. ITO 89 TTJ 362 (JD) 6. THE LD.CIT(A) ACCEPTED THAT ADDITION CANNOT BE M ADE N THE BASIS OF REGISTERED VALUERS REPORT AFTER 2.5 YEARS FROM THE YEAR OF CONSTRUCTION. HOWEVER, LD.CIT(A) RELIED ON VALUATION REPORT AND E NHANCED THE DIFFERENCE (BETWEEN BOOK COST AND DVOS COST) BY RS.5 LACK FOR 12 ITEMS EXCLUDED IN DVOS REPORT BY A GENERAL NOTE. THIS ENHANCEMENT W AS WITHOUT ANY ITA NO.11, 12 & 88/RJT/2009 7 OPPORTUNITY TO THE APPELLANT, WITHOUT ANY BASIS AND WITHOUT VERIFYING THAT WHETHER THEY WERE PART OF APPELLANTS COST OR NOT. LD.CIT(A) FAILED T UNDERSTAND THAT SUCH GENERAL NOTES PERTAINING TO IN CLUSION / EXCLUSION ARE FOUND IN EVERY REPORT OF COST OF CONSTRUCTION. THE LD. AR HAS ALSO RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF MANJUSHA ESTATE PVT. LTD. VS. INCOME TAX OFFICER 314 ITR 26 3 (GUJ.) (2009). 7. LD DR SUBMITTED THAT THE ASSESSING OFFICER HAS R EOPENED THE ASSESSMENT IN ACCORDANCE WITH LAW AND CIT(A) HAS RIGHTLY CONFI RMED THE ORDER OF THE ASSESSING OFFICER. IN THIS REGARD CIT(A) HAS GIVEN DETAILED FINDING. THE LD. DR RELIED UPON THE FINDING OF THE CIT(A) . ON MERIT TH E LD. DR SUBMITTED THAT THE ASSESSING OFFICER MADE THE ADDITION ON THE BASIS OF VALUATION FOUND DURING THE COURSE OF SURVEY THEREFORE THE ADDITION MADE BY THE MAY BE CONFIRMED.. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. WE FIRST TAKE UP THE LEGAL ISSUE RAISED BY THE ASSE SSEE WHICH IS IN RESPECT OF REOPENING OF ASSESSMENT .THE COMMON REASONS RECORD ED IN BOTH THE YEARS, ARE REPRODUCED BELOW FROM ASSESSMENT YEAR 2001-02, WHIC H IS PLACED AT PAGE BOOK PAGE 6: AS PER THE VALUATION REPORT OF THE D.V.O., THE DI FFERENCE IN VALUE OF THE PROPERTY IS WORKED UT AT RS.4,76,312/- . HOWEVER, THE LAND OF THE PROPERTY IN QUESTION WAS PURCHASED IN F .Y. 1999-2000 AND CONSTRUCTION OF BUILDING WAS MADE DURING F.Y. 2 000-01. IN VIEW FO THE ABOVE FACTS, I HAVE REASONS TO BELI EVE THAT INCOME CHARGEABLE TO TAX HAS BEEN UNDERSTATED AND T HE SAME HAS ESCAPED THE ASSESSMENT AND THEREFORE, THIS IS A FIT CASE FOR REOPENING OF THE ASSESSMENT. 9. THE ADMITTED FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED RETURN OF INCOME FOR A.Y. 2000-01 ON 31-10-2000 AND RETURN FOR AY 20 01-02 WAS FILED ON 13-07- 2001. THE RETURN FOR AY 2000-01 WAS PROCESSED ON 23 -03-2001. THE NOTICES U/S 148 WERE ISSUED ON 08-03-2007. WE FIND THAT ON IDE NTICAL SET OF FACTS, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MA NJUSHA ESTATE PVT LTD VS ITO 314 ITR 263 (GUJ), THE JUDGMENT CITED BY THE LD.AR IS APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. THE FACTS OF THAT CA SE WHICH WAS BEFORE THE ITA NO.11, 12 & 88/RJT/2009 8 HONBLE JURISDICTIONAL HIGH COURT THE ASSESSEE FILE D RETURN OF INCOME FOR AY 2000- 01 ON 30-11-2000. THE ACKNOWLEDGEMENT RECEIPT DATE D 30-11-2000 WAS THE ONLY COMMUNICATION FOR SHOWING THAT ASSESSMENT HAD BEEN COMPLETED U/S 143(1) OF THE ACT. THE ASSESSMENT FOR ASSESSMENT Y EARS 2001-02 AND 2002-03 WERE COMPLETED AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREAFTER NOTICES U/S 148 WAS ISSUED ON 21-02-2007 WHICH WERE CHALLENGED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. THE COMMON REAS ONS RECORDED FOR ASSESSMENT YEAR 2000-01 IN THAT CASE, WHICH HAS BEE N REPRODUCED BY THE HONBLE COURT IN THEIR JUDGMENT IS REPRODUCED AT PA GE 266 OF THE JUDGMENT, WHICH IS AS UNDER: ASSESSMENT YEAR 2000-2001 THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPING LAND AND CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL BUILDING. IT WAS NOTED THAT THE ASSESSEE COMPANY HAS TRANSFERRED THE ENTIRE PROJECT OF SHANTAM PARK ON MARCH 16, 2002, TO ITS ASSOCIATED C ONCERN M/S. J. UPEN- DRA CONSTRUCTION PVT. LTD. FOR A TOTAL CONSIDERATIO N OF RS. 75,60,240. SINCE THE ASSESSEE HAS NOT DISCLOSED FULLY AND TRUL Y ALL THE MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT ESPECIALLY WITH RESPECT TO COST OF CONSTRUCTION, THE MATTER WAS REFERRED TO THE DEPART MENTAL VALUATION OFFICER FOR VALUATION OF THE PROJECT. THE DISTRICT VALUATION OFFICER, AHMEDABAD, HAS SUBMITTED HIS REPORT, VIDE LETTER NO . 2(9)/DVO/ 2004-05/469, DATED JANUARY 23, 2006. AS PER THE VAL UATION REPORT, THE EXPENDITURE INCURRED ON CONSTRUCTION OF THE PROJECT UP TO THE DATE OF TRANSFER AS DETERMINED BY THE DVO AND AS SHOWN BY T HE ASSESSEE IN ITS BOOKS ARE AS FOLLOWS : PAGE NO: 0267 S NO .PERIOD OF CONSTRUCTION/ EXPENDITURE AS STATED BY ASSESSEE /ASSESSED COST OF CONSTRUCTION / DIFFE RENCE 1 1999-2000 50,14,080 75,37,620 25,23,540 2 2000-01 86,64,747 1,30,10,430 43,45,683 3 2001-02 1,17,75,535 1,74,27,860 56,52,325 TOTAL 2,54,54,362 3,79,75,910 1,25,21,548 ITA NO.11, 12 & 88/RJT/2009 9 THUS, THE ASSESSEE-COMPANY HAS UNDERSTATED THE COST OF CONSTRUCTION INCURRED DURING THE YEAR UNDER CONSIDE RATION TO THE EXTENT OF RS. 25.23 LAKHS AND THE SOURCE THEREOF HA S ALSO NOT BEEN PROVED. THEREFORE, I HAVE REASON TO BELIEVE THAT TH E INCOME TO THE EXTENT OF RS. 25.23 LAKHS HAS ESCAPED ASSESSMENT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLO SE FULLY AND TRULY ALL MATE- RIAL FACTS NECESSARY FOR ITS ASSESSMENT. 10. BEFORE THE JURISDICTIONAL HIGH COURT IT WAS CON TENDED THAT PROVISIONS OF SECTION 142A OF THE ACT COULD NOT HAVE BEEN INVOKED BY THE ASSESSING OFFICER TO DISTURB AN ASSESSMENT COMPLETED PRIOR TO SEPTEMBER 30, 2004. THE PROVISIONS OF SECTION 142A OF THE ACT CANNOT BE INVOKED IN THE AB SENCE OF ANY PROCEEDINGS PENDING ASSESSMENT. THAT THE ASSESSMENT FOR ASSESS MENT YEAR 2000-01 WAS NOT PENDING ON THE DATE REFERENCE SO MADE TO THE DE PARTMENTAL VALUER OFFICER, VIZ. 02 DECEMBER, 2004 AND THEREFORE ON THIS ACCOUN T ALSO THE ASSESSMENT COULD NOT BE REOPENED. THE HONBLE JURISDICTIONAL HIGH C URT HELD AS UNDER: PAGE 268 IN SO FAR AS THE FIRST ASSESSMENT YEAR IS CONC ERNED, NAMELY, 2000-01, ADMITTEDLY THE RETURN OF INCOME WHICH WA S FILED ON NOVEMBER 30, 2000, WAS ACKNOWLEDGED ON THE SAME D AY AND WAS NOT FOLLOWED BY ANY ASSESS- MENT ORDER. THEREF ORE, APPLYING THE RATIO OF THE APEX COURT DECISION IN THE CASE OF ASST. CIT V. RAJESH JHAVERI STOCK BROKERS P. LTD. [2007] 291 ITR PAGE NO: 0269 500, IT CANNOT BE STATED THAT THERE WAS ANY ASSESSM ENT. HOWEVER, FOR INVOKING THE PROVISIONS OF SECTION 142A OF TH E ACT, THE FIRST REQUIREMENT OF THE PROVISION IS THAT WHERE AN EST IMATE OF THE VALUE OF ANY INVESTMENT REFERRED TO IN SECTION 69 OR SE CTION 69A OR SECTION 69B OF THE ACT IS REQUIRED TO BE MADE, TH E ASSESSING OFFICER MAY IN HIS DISCRETION, REQUIRE THE VALUAT ION OFFICER TO MAKE AN ESTIMATE OF SUCH VALUE, BUT THE OPENING PORTIO N OF SUB-SECTION (1) OF SECTION 142A OF THE ACT STIPULATES THAT THE ASSESSING OFFICER CAN UNDERTAKE SUCH AN EXERCISE ONLY FOR THE PURPOSE S FOR MAKING AN ASSESSMENT OR REASSESSMENT UNDER THE ACT. IT IS FURTHER SUBJECT ITA NO.11, 12 & 88/RJT/2009 10 TO THE PROVISO WHICH SAYS THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RESPECT OF AN ASSESSMENT MADE ON OR BEFO RE SEPTEMBER 30, 2004, AND WHERE SUCH ASSESSMENT HAS BECOME FI NAL AND CONCLUSIVE ON OR BEFORE SEPTEMBER 30, 2004. FOR T HE PRESENT IT IS NOT NECESSARY TO CONSIDER THE EXCEPTION LAID DOWN IN THE PROVISO. IN THE FACTS OF THE CASE, IT IS APPARENT THAT AS PE R THE SCHEME OF THE ACT, THE INCOME RETURNED BY THE ASSESSEE HAD BEEN ASSESSED AS SUCH WITHOUT ANY VARIATION ON NOVEMBER 30, 2000, NAMELY, BEFORE SEPTEMBER 30, 2004. THEREFORE, THE PROVISIONS OF SECTION 142A OF THE ACT COULD NOT HAVE BEEN INVOKED BY THE RESPON DENT AUTHORITY. HOWEVER, EVEN IF ONE EXAMINES THE MATTER FROM A SLI GHTLY DIFFERENT ANGLE, NAMELY, IF ONE PROCEEDS ON THE FOOTING THAT THERE WAS NO ASSESSMENT UNDER SECTION 143(1)(A) OF THE ACT, AN D IT WAS PERMISSIBLE TO THE ASSESSING OFFICER TO OBTAIN AN ESTIMATE OF THE VALUE OF INVESTMENTS FOR THE PURPOSES OF MAKING A N ASSESSMENT, YET THE REASONS RECORDED BY THE ASSESSING OFFICER WILL HAVE TO BE EXAMINED. THE REASONS RECORDED HEREINBEFORE CATE GORICALLY SHOW THAT THERE IS NOTH- ING TO INDICATE THEREIN TO EST ABLISH WHAT PART OF THE COST OF CONSTRUCTION HAS NOT BEEN DISCLOSED F ULLY OR TRULY, WHICH CONSTITUTES A MATERIAL FACT, NECES- SARY FOR THE A SSESSMENT. IN OTHER WORDS, EXCEPT FOR REPRODUCING THE LANGUAGE OF THE PROVISION, THE REASONS RECORDED DO NOT EVEN PRIMA FACIE INDI CATE AS TO WHAT WAS NOT DISCLOSED BY THE ASSESSEE, WHETHER A PARTIC ULAR ITEM WHICH WENT INTO THE CONSTRUCTION WAS NOT DISCLOSED, OR THE CORRECT QUANTITY OF MATERIAL CONSUMED WAS NOT DISCLOSED, OR THE QUALITY OF MATERIAL CONSUMED WAS NOT CORRECTLY DISCLOSED, OR THE AREA OF CONSTRUCTION WAS NOT DISCLOSED, ETC., NOTHING IS AVAILABLE IN THE REASONS RECORDED. IN FACT, WHEN ONE READS THE ENT IRE SENTENCE REGARDING THE SO-CALLED FAILURE, IT BECOMES CLEAR THAT AFTER STATING THAT THERE IS NON-DISCLOSURE, THE MATTER WAS REFERR ED TO THE DEPARTMENTAL VALUATION OFFICER FOR VALUATION OF THE PROJECT. THERE- AFTER, THE REASONS RECORDED REFER TO THE REPORT OF THE DISTRICT VALUATION OFFICER DATED JANUARY 23, 2006, AND REP RODUCE THE DIFFERENCE BETWEEN PAGE NO: 0270 EXPENDITURE RECORDED IN THE BOOKS OF ACCOUNT AND CO ST OF CONSTRUCTION ESTI- MATED BY THE DEPARTMENTAL VALUA TION OFFICER ; AND THEN THE REASONS GO ON TO STATE THAT BECAUSE OF SUCH DIFFERENCE THE ASSESSEE-COMPANY HAS UNDER- STATED THE COST OF CONSTRUCTION. IN OTHER WORDS, IT INDICATES THAT IN FACT THE ASSESSING OFFICER HAD MERELY MADE REFERENCE TO THE VALUATION CELL ONLY ON THE BASIS OF A GENERALIZED VAGUE STATEMENT, WHICH I S THEN SOUGHT TO BE REIN- FORCED BY THE DIFFERENCE WORKED OUT BY TH E DEPARTMENTAL VALUATION OFFICER, WITHOUT THE FACTS IN FACT INDI CATING, IN THE ITA NO.11, 12 & 88/RJT/2009 11 REASONS RECORDED, AS TO WHAT WAS THE FAILURE ON T HE PART OF THE ASSESSEE. THEREFORE, FOR THE SECOND YEAR IN QUES TION, NAMELY, THE ASSESSMENT YEAR 2001-02, THE PROPOSED REASSESSMEN T CANNOT BE SUSTAINED. THERE IS NO FAILURE ON THE PART OF THE ASSESSEE WHICH WOULD PERMIT THE ASSESSING OFFICER TO ASSUME JURI SDICTION BEYOND A PERIOD OF FOUR YEARS FROM THE LAST DAY OF THE A SSESSMENT YEAR, NAMELY, MARCH 31, 2006, THE RELEVANT ASSESS- MENT YEAR BEING THE ASSESSMENT YEAR 2001-02. AS NOTED, THE REASONS R ECORDED FOR ALL THE THREE YEARS ARE COMMON AND NO INDEPENDENT REA SONS ARE RECORDED FOR THE THIRD ASSESSMENT YEAR. EVEN THE REFERENCE MADE TO THE VALUATION CELL IS COMMON, HAVING BEEN MADE O N DECEMBER 2, 2004, AND THE REPORT OF THE VALUATION CELL ALSO IS COMMON. BUT IN FACT, THE REASONS RECORDED SHOW THAT THE REFEREN CE TO THE VALUATION CELL WAS MADE FOR ESTIMATING THE COST O F PROJECT, WHICH WAS SPREAD OVER A PERIOD OF THREE YEARS. THEREFOR E, IN SO FAR AS THE THIRD YEAR IS CONCERNED, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE AND IN THE ABSENCE OF ANY FRESH MATERIAL ON RECORD, THE PROPOSED REOPENING WOULD AMOUNT TO CHANGE OF OPIN ION CONSIDERING THE REASONS RECORDED. THE PROPOSED REAS SESSMENT FOR THE ASSESSMENT YEAR 2002-03 ALSO CANNOT BE SUST AINED. THUS, FOR ALL THE THREE YEARS IN QUESTION THE REASO NS RECORDED DO NOT INDICATE THAT THE RESPONDENT AUTHORITY WAS IN POSSESSION OF ANY MATERIAL WHICH WOULD PERMIT THE RESPONDENT TO HOLD A BELIEF SO AS TO FORM AN OPINION, OR HAVE REASON TO BELIEVE THAT ANY INCOME HAS ESCAPED ASSESS- MENT. THE RELEVANT TESTS FOR T HIS EXAMINATION IN THE WORDS OF THE SUPREME COURT AS STATED IN TH E CASE OF ASST. CIT V. RAJESH JHAVERI STOCK BROKERS P. LTD. [2007 ] 291 ITR 500 ARE (PAGE 511) : THE WORD REASON IN THE PHRA SE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF T HE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUP POSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE RE ASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESS- MENT. THE EXPRE SSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUS ION . . . PAGE NO: 0271 IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS RE QUIRED IS REASON TO BELIEVE, BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHET HER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COUL D HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIAL WOULD CONCLU SIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS I S SO BECAUSE THE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WIT HIN THE REALM OF ITA NO.11, 12 & 88/RJT/2009 12 SUBJECTIVE SATISFACTION (SEE ITO V. SELECTED DALURB AND COAL CO. P. LTD. [1996] 217 ITR 597 (SC) AND RAYMOND WOOLLEN MI LLS LTD. V. ITO [1999] 236 ITR 34 (SC).' THE PRESENT REASONS RECORDED DO NOT SATISFY EVEN TH ESE TESTS. THE COURT HAS TAKEN NOTE OF THE ORDER DATED JULY 12 , 2006, RENDERED BY THIS COURT IN TAX APPEAL NO. 1496 OF 2005 WITH TAX APPEAL NO. 1497 OF 2005 TO TAX APPEAL NO. 1498 OF 2005 IN CASE OF CIT V. UMIYA CO- OP. HOUSING SOCIETY LTD. (TAX APPEALS NOS. 1496, 1497 A ND 1498 OF 2005 DATED 12-7-2006) [2009] 314 ITR 272 (GUJ) (APPX) WHEREIN, IT HAS BEEN HELD BY THIS COURT AS UNDER : ' WHETHER ANY INCOME CAN BE TAXED BY DEEMING THE VA LUE OF INVEST- MENT NOT DISCLOSED, OR NOT FULLY DISCLOSED, ARE ISS UES WHERE SUCH TYPES OF QUESTIONS ARISE WHILE SOME PROCEEDINGS ARE PENDI NG FOR ASSESS- MENT. IN THE ABSENCE OF SUCH PROCEEDINGS THE ASSESS ING OFFICER CAN- NOT REFER ANY PROPERTY FOR VALUATION TO THE VALUATI ON OFFICER. IN THE OPENING PART OF SECTION 142A THE WORDS USED ARE ` FOR THE PURPOSES OF MAKING AN ASSESSMENT OR REASSESSMENT UN DER THE ACT' . THE INTENT OF THE LEGISLATION IS THAT THE MATTER CA N BE REFERRED TO THE VALUATION OFFICER ONLY WHEN THE PROCEEDINGS OF ASSE SSMENT OR REASSESSMENT ARE PENDING BEFORE THE ASSESSING OFFIC ER. WHEN NO SUCH PROCEEDINGS ARE PENDING, THE ASSESSING OFFICER HAS NO JURISDIC- TION TO REFER ANY PROPERTY FOR ASSESSMENT.' IN THE CIRCUMSTANCES, THE IMPUGNED NOTICES ISSUED U NDER SECTION 148 OF THE ACT DATED FEBRUARY 21, 2007, FOR ALL THE THREE YEARS IN QUESTION ARE QUASHED AND SET ASIDE. THE PETITIONS ARE ALLOWED AC CORDINGLY. IN EACH MATTER RULE IS MADE ABSOLUTE TO THE AFORESAID EXTEN T WITH NO ORDER AS TO COSTS. ITA NO.11, 12 & 88/RJT/2009 13 11. IF WE APPLY THE RATIO OF THE ABOVE JUDGMENT TO THE FACTS OF THE CASE UNDER CONSIDERATION WE FIND THAT IN THE CASE UNDER CONSID ERATION ASSESSMENTS WERE COMPLETED BEFORE 30 TH SEPTEMBER, 2004. THEREFORE, SECTION 142A OF THE A CT CANNOT BE INVOKED. WE HAVE ALSO FOUND THAT WHEN TH E ASSESSING OFFICER REFERRED THE MATTER TO THE VALUATION OFFICER U/S 142A DATED 10-02-2006 AT THAT TIME ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 2000-01 AND 2001-02 WERE NOT PENDING. THEREFORE, THE ASSESSING OFFICER COULD NOT REOPEN THE ASSESSMENT U/S 147 OF THE ACT. FROM THE REASONS RECORDED WE FIND THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENTS ON THE BASIS OF VALUATION REPORT WHICH HE COULD NOT DO IN THE LIGHT OR VARIOUS JUDGMENTS CITED BY THE LD.A R AND THE SAME ARE REPRODUCED ELSEWHERE IN THIS ORDER. THEREFORE, FOLLOWING THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT WE FIND THAT REOPENING OF ASSESSMENT U/S 147 FOR ASSESSMENT YEARS 2000-01 AND 2001-02 ARE NOT IN ACC ORDANCE WITH LAW. ACCORDINGLY WE QUASH THE ASSESSMENT ORDERS FOR ASSE SSMENT YEARS 2000-01 AND 2001-02. THE JUDGMENTS RELIED UPON BY THE CIT(A) D OES NOT HELP TO REVENUE AS DISTINGUISHABLE ON FACTS 12. SINCE WE DECIDED THE LEGAL ISSUE, WE DO NOT THI NK NECESSARY TO GO INTO THE MERIT OF THE CASE. WE ACCORDINGLY DO NOT EXPRESS A NY OPINION ON MERIT. 13. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AR E ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31-12-2010. SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 31 ST DECEMBER, 2010 PK/- ITA NO.11, 12 & 88/RJT/2009 14 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-II, RAJKOT 4. THE CIT-I, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT