Income Tax Officer-I, Faizabad V. Shri Mahendra Kumar Nanwani, Faizabad

ITA 500/LKW/2012

• Counselvise Citation: 50023714 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 17-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O N PATHAK
• Assessee Lawyers: P K KAPOOR
• Keywords: Reopening of assessment; Unexplained investment; Valuation report; Reason to believe
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.500/LKW/2012 ASSESSMENT YEAR:2004-05 INCOME TAX OFFICER-1 FAIZABAD V. SHRI. MAHENDRA KUMAR NANWANI KASHI BHAWAN RAM NAGAR, FAIZABAD TAN/PAN:ADJPK7502M (APPELLANT) (RESPONDENT) C. O. NO.84/LKW/2012 [IN ITA NO.500/LKW/2012] ASSESSMENT YEAR:2004-05 SHRI. MAHENDRA KUMAR NANWANI KASHI BHAWAN RAM NAGAR, FAIZABAD V. INCOME TAX OFFICER-1 FAIZABAD TAN/PAN:ADJPK7502M (CROSS-OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI. O. N. PATHAK, D.R. RESPONDENT BY: SHRI. P. K. KAPOOR, C.A. DATE OF HEARING: 21 10 2014 DATE OF PRONOUNCEMENT: 08 01 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) ON A SOLITARY GROUND, WHICH IS AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.14,92,815/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CONSTRUCTION OF GUEST HOUSE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAS FAILED TO EXPLAIN WITH EVIDENCE THE SOURCE :- 2 -: OF INVESTMENT AT RS.11,87,215/- BEING THE DIFFERENCE BETWEEN DECLARED COST OF INVESTMENT AND THAT OF ESTIMATED COST OF INVESTMENT BY THE DEPARTMENTAL VALUER MADE IN CONSTRUCTION OF GUEST HOUSE EVEN RS.3,05,600/- BEING THE AMOUNT OF INVESTMENT OUT OF DECLARED COST OF INVESTMENT BY THE ASSESSEE AT RS.10,03,000/- ALSO REMAINED UNEXPLAINED DURING THE YEAR UNDER CONSIDERATION. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN SUPPORT OF THE ORDER OF THE LD. CIT(A). BESIDES, REFERENCE MADE TO THE DVO WAS ALSO CHALLENGED. 3. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE LD. CIT(A) HAS NOT ONLY DELETED THE ADDITION MADE ON MERIT ON ACCOUNT OF UNEXPLAINED INVESTMENT, BUT ALSO KNOCKED DOWN THE REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') AFTER HOLDING THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE INPUTS AVAILABLE WHILE REOPENING THE ASSESSMENT BY FORMING A BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, EXCEPT RELYING UPON THE DVOS REPORT. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED THAT THE REVENUE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ONLY ON MERIT AND ON THE POINT OF VALIDITY OF REOPENING THE ASSESSMENT, THE ORDER OF THE LD. CIT(A) IS NOT CHALLENGED BY THE REVENUE. THEREFORE, EVEN ON MERIT THE REVENUE SUCCEEDS, THE ASSESSMENT CANNOT BE HELD TO BE VALID IN THE LIGHT OF THE FINDINGS OF THE LD. CIT(A) THAT REOPENING IS NOT VALID AS IT ATTAINED THE FINALITY. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED ON MERIT THAT THE ASSESSMENT WAS REOPENED BY THE ASSESSING OFFICER ON THE BASIS OF THE DVOS REPORT WITHOUT APPLYING HIS OWN MIND TO THE FACTS OF THE CASE AND MADE ADDITION OF RS.14,92,815/- ON ACCOUNT OF UNEXPLAINED INVESTMENT. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPENING OF :- 3 -: THE ASSESSMENT, WHICH ARE AVAILABLE AT PAGE 5 OF THE COMPILATION OF THE ASSESSEE. IT WAS FURTHER CONTENDED THAT SINCE REOPENING WAS DONE ON THE BASIS OF DVOS REPORT, THE REOPENING IS BAD AND THE LD. CIT(A) HAS RIGHTLY ANNULLED THE ASSESSMENT FRAMED CONSEQUENT THERETO AFTER HOLDING THE REOPENING TO BE BAD IN LAW IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF ACIT VS. DHARIYA CONSTRUCTION COMPANY, 328 ITR 515 (SC). ON MERIT, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 4. THE LD. D.R. HAS SIMPLY PLACED RELIANCE UPON THE ASSESSMENT ORDER WITH THE SUBMISSION THAT THE LD. CIT(A) HAS NOT APPRECIATED THE FACTS PROPERLY AND HAD DELETED THE ADDITION; WHEREAS THE ASSESSING OFFICER HAS FORMED A BELIEF ON THE BASIS OF THE VALUATION REPORT THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND THERE IS NO ILLEGALITY OR IRREGULARITY THEREIN. ON MERIT, HE HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. 5. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND THAT THE LD. CIT(A) HAS HELD THE REOPENING TO BE BAD IN LAW AND ANNULLED THE ASSESSMENT. BESIDES, HE HAS ALSO EXAMINED THE ISSUE ON MERIT AND BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, HE DELETED THE ADDITIONS. THE REVENUE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ONLY ON MERIT I.E. DELETION OF ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT. THE REVENUE HAS NOT ASSAILED THE ORDER OF THE LD. CIT(A) ON THE POINT OF VALIDITY OF REOPENING OF THE ASSESSMENT. IN THE ABSENCE OF SPECIFIC GROUND WITH REGARD TO THE VALIDITY OF REOPENING OF THE ASSESSMENT, THE FINDINGS OF THE LD. CIT(A) ATTAINED FINALITY. THEREFORE, EVEN ON MERIT IF THE ORDER OF THE LD. CIT(A) IS REVERSED AND THE ORDER OF THE ASSESSING OFFICER IS RESTORED, NO ADDITION CAN BE UPHELD, AS THE ENTIRE ASSESSMENT HAS BEEN HELD TO BE VOID AB INITIO IN THE LIGHT OF THE FINDINGS OF THE LD. CIT(A) THAT REOPENING IS BAD IN LAW. WE, :- 4 -: HOWEVER, HAVE CAREFULLY EXAMINED THE FINDINGS OF THE LD. CIT(A) WITH REGARD TO THE REOPENING OF ASSESSMENT AND WE FIND THAT ON RECEIPT OF THE DVOS REPORT, THE ASSESSING OFFICER HAS FORMED A BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPENING OF ASSESSMENT IS PLACED AT PAGE 5 OF THE COMPILATION OF THE ASSESSEE, WHEREFROM IT IS QUITE EVIDENT THAT EXCEPT THE DVOS REPORT, THE ASSESSING OFFICER HAS NO OTHER MATERIAL TO FORM A BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THEREFORE, IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF ACIT VS. DHARIYA CONSTRUCTION COMPANY (SUPRA) AND OTHER JUDGMENTS OF DIFFERENT HIGH COURTS AS REFERRED TO BY THE LD. CIT(A), THE REOPENING OF THE ASSESSMENT CANNOT BE HELD TO BE VALID. FOR THE SAKE OF REFERENCE, WE EXTRACT THE ORDER OF THE LD. CIT(A) IN THIS REGARD AS UNDER:- 4. AS REGARDS THE PROCEEDINGS U/S 147 OF THE ACT, IT IS SEEN THAT THE AO INITIATED THE ACTION ON THE BASIS OF THE VALUATION REPORT OF THE DVO, WHICH THE AO HAD OBTAINED IN THE CASE OF THE FIRM, NAMELY M/S TRIMURTI GUEST HOUSE. THUS, THERE WAS NO REFERENCE AS SUCH TO THE VALUATION OFFICER IN THE CASE OF THE APPELLANT. THE APPELLANT IN HIS GROUNDS OF APPEAL NO. 1 AND 2 DISPUTES THE VALIDITY OF PROCEEDINGS U/S 147 CONTENDING THAT THE REPORT OBTAINED IN THE CASE OF THE FIRM COULD NOT BE THE BASIS TO HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX IN THE CASE OF THE APPELLANT HAD ESCAPED ASSESSMENT. THE APPELLANT IN HIS WRITTEN SUBMISSIONS FURTHER CONTENDED THAT SINCE NO PROCEEDINGS IN HIS CASE WERE PENDING, THERE COULD NOT HAVE BEEN ANY REFERENCE U/S 142A FOR VALUATION AND THE REPORT IN THE CASE OF THE FIRM COULD NOT HAVE BEEN USED IN HIS CASE TO INITIATE ACTION UNDER SECTION 147. 4.1 THE APPELLANT HAS THUS CHALLENGED THE VALIDITY OF SECTION U/S 147 IN HIS CASE AND HAS RELIED UPON VARIOUS JUDICIAL DECISIONS IN SUPPORT OF HIS CONTENTIONS. RELYING ON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SURESH KUMAR :- 5 -: (275 ITR 253) THE APPELLANT CONTENDS THAT INITIATION OF PROCEEDINGS U/S 147 SOLELY ON THE BASIS OF DEPARTMENTAL VALUER'S REPORT WAS NOT VALID. THE APPELLANT FURTHER RELIES ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. V.T. RAJENDRAN (288 ITR 312) TO CONTEND THAT THE DIFFERENCE BETWEEN THE COST SHOWN BY THE ASSESSEE AND ESTIMATE BY THE DVO COULD NOT BE A BASIS FOR REASSESSMENT BECAUSE THE VALUATION COULD NOT BE AN ARITHMETICAL APPRECIATION OF THE MATERIALS USED FOR CONSTRUCTION OR EXPENSES INCURRED BY THE ASSESSEE IN THAT REGARD. THE APPELLANT PLACED FURTHER RELIANCE ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. K. RAJAPANDIAN (311 ITR 477). THE APPELLANT ALSO DREW THE ATTENTION OF THIS APPELLATE AUTHORITY TO THE DECISION OF HON'BLE HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH IN THE WRIT PETITION NO. 11055 OF 2009 (IN THE CASE OF M/S FUSION ELECTRONICS PVT. LTD.) WHEREIN THE HON'LE HIGH COURT SET ASIDE THE NOTICE ISSUED U/S 148 AS IT WAS ISSUED SOLELY BASED ON THE DVO'S REPORT. 4.2 A PERUSAL OF THE REASONS RECORDED BY THE AO SHOWS THAT THE SOLE BASIS FOR INITIATION OF THE PROCEEDINGS U/S 147 WAS THE 'BIG DIFFERENCE BETWEEN THE DECLARED COST BY THE ASSESSEE AND THE COST OF INVESTMENT ESTIMATED BY THE DVO ALLAHABAD.' THE AO HAD NOT APPLIED HIS MIND TO THE INPUTS AVAILABLE IN THE FORM OF OPINION OF THE DVO, ACTION INITIATED BY THE AO WAS, THEREFORE, NOT BASED ON THE REASONS VALIDLY FORMED. IN THE CASE OF ACIT VS. DHARIYA CONSTRUCTION CO. (328 ITR 515) THE HON'BLE SUPREME COURT HELD THAT 'THE OPINION OF THE DVO IS NOT AN INFORMATION FOR THE PURPOSES OF REOPENING ASSESSMENT UNDER SECTION 147 OF THE I.T. ACT, 1961. THE ASSESSING OFFICER HAS TO APPLY HIS MIND TO THE INFORMATION, IF ANY, COLLECTED AND MUST FORM A BELIEF THEREON. THE ASSESSING OFFICER, IN THE PRESENT CASE, IS SEEN TO HAVE REOPENED THE ASSESSMENT MERELY BY NOTICING A DIFFERENCE BETWEEN THE DECLARED COST OF INVESTMENT AND THE INVESTMENT ESTIMATED BY THE DVO. 4.3 HAVING REGARD TO THE LEGAL AND FACTUAL POSITION DISCUSSED ABOVE, THIS APPELLATE AUTHORITY IS OF THE CONSIDERED VIEW THAT THE PROCEEDINGS INITIATED U/S 147 OF THE ACT BY THE AO WERE NOT LEGALLY :- 6 -: TENABLE AND THEREFORE, THE ASSESSMENT MADE IN CULMINATION OF THESE PROCEEDINGS IS NOT LEGALLY SUSTAINABLE. GROUNDS NO. 1 AND 2 ARE, THEREFORE, DECIDED IN FAVOUR OF THE APPELLANT. 6. SINCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), WE CONFIRM HIS ORDER HOLDING THAT THE PROCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT BY THE ASSESSING OFFICER ARE NOT LEGALLY TENABLE, THEREFORE, THE ASSESSMENT MADE IN CONTRAVENTION OF THESE PROCEEDINGS IS NOT LEGALLY SUSTAINABLE. IN THE LIGHT OF THESE FACTS, WE FIND NO JUSTIFICATION TO DEAL WITH THE ISSUES ON MERIT. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A). 7. THE ASSESSEE HAS FILED CROSS OBJECTION. ONCE THE REVENUES APPEAL IS DISMISSED, THE CROSS OBJECTION DOES NOT SURVIVE. ACCORDINGLY, WE DISMISS THE SAME. 8. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:8 TH JANUARY, 2015 JJ:1512 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR