Section 142A, read with section 143, of the Income-tax Act,

[2009] 118 ITD 382 (LUCK.)

IN THE ITAT LUCKNOW BENCH ‘B’

Income-tax Officer, V(1), Lucknow

v.

Vijeta Educational Society

D.C. AGRAWAL, ACCOUNTANT MEMBER

AND DR. O.P. SHUKLA, JUDICIAL MEMBER

IT APPEAL NOS. 282 TO 287 (LUCK.) OF 2007

[ASSESSMENT YEARS 1998-99 TO 2001-02 AND 2003-04 TO 2004-05]

SEPTEMBER 28, 2007

Section 142A, read with section 143, of the Income-tax Act, 1961 - Estimate by valuation officer in certain cases - Assessment years 1998-99 to 2001-02 and 2003-04 to 2004-05 - Whether reference to valuation cell under section 142A can be made during course of assessment and reassessment and not for purpose of initiating reassessment - Held, yes - Whether where Assessing Officer had not rejected books of account by pointing out any defect, reference to DVO for valuation of cost of construction of building incurred by assessee was not valid and, therefore, DVO’s report could not be utilised for framing assessment/reassessment even if such a report was considered to be obtained under section 142A - Held, yes

FACTS

The assessee-society was granted registration under section 12A. During the course of assessment, the Assessing Officer referred the building constructed by the assessee to the valuation cell. Since the DVO’s report was not received in time, the Assessing Officer completed the assessment. Subsequently, the Assessing Officer received report from the DVO wherein it was shown that the assessee had made additional investment of Rs. 46.87 lakhs in the building. On the basis of the said report, the Assessing Officer initiated the reassessment proceedings and treated the difference arising on account of cost of construction as stated by the Assessing Officer and the one declared by the assessee, as assessee’s income from undisclosed sources.

On appeal, the Commissioner (Appeals) held that even if the difference was to be added as the assessee’s income, same would be exempt under section 11 as it was to be applied for the charitable purpose. Accordingly, the Commissioner (Appeals) deleted the addition. On revenue’s appeal :

HELD

The basic question to be considered was whether reference to the valuation officer could be made without finding any defect in the books of account and rejecting the books under section 145. [Para9]

The reassessment order passed by the Assessing Officer did not say anything about nature of books of account which were claimed to be audited. Thus, it was apparent that the Assessing Officer did not find any defect in the books of account which were required to be rejected by invoking section 145.

Then the question arose whether reference to the DVO was valid without finding any defect in the books of account. [Para 10]

In view of various decided cases on similar issue, it can be said that if the assessee has maintained proper books of account and all details are mentioned in such books of account which are duly supported by vouchers and no defects are pointed out and the books are not rejected, then the figures shown therein have to be followed. The valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the ITO is of the opinion that no reliance can be placed on such books of account. [Para 12]

There cannot be any reference under section 142A when there is no process of assessment which is initiated after filing of the return of income or issuance of notice under section 142(1). Similarly, the process of reassessment can be initiated only after issuance of notice under section 148(1) after duly fulfilling the formalities mentioned therein. It clearly shows that the invoking of section 142A is a process after the reopening of the assessment. Further, it is mentioned in this section that ‘where an estimate of the value of any investment referred to in section 69 . . . . .is required to be made. . . . . .’, this also shows that a reference to the valuation officer under section 142A can be made only when a requirement is felt by the Assessing Officer for making such reference. Requirement would arise or could be felt only when there is some material with the Assessing Officer to show that whatever estimate the assessee has shown is not correct or not reliable. The use of word ‘require’ is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the Assessing Officer is necessary which requires him to make a reference to the DVO under section 142A. In other words, it is only during the course of pendency of the assessment or the reassessment that the Assessing Officer can frame his mind to refer the property to the valuation cell of the Department. Such mind can be framed if there is a basis to think that the assessee may have understated the cost of construction or whatever is declared by him in this regard is not believable. Therefore, it is quite apparent that reference to the valuation cell under section 142A can be made during the course of the assessment and the reassessment and not for the purpose for initiating the reassessment. [Para 14]

Notwithstanding, even if a reference under section 142A is made by the Assessing Officer on certain considerations such as anything found during the course of survey under section 133A or on the basis of a tax evasion petition or a reference is required to be made during the course of other proceedings or a report of the DVO is available to the Assessing Officer before making an assessment or reassessment then the same can be utilized only in accordance with sub-section (3) of section 142A, i.e., the assessee has to be given an opportunity of being heard before such a report is utilized and in accordance with section 145 where books of account are required to be rejected by pointing out some apparent defects. The provisions of section 142A cannot be read in isolation to section 145. In other words, if books of account are found to be correct and complete in all respects and no defect is pointed out therein and cost of construction of building is recorded therein, then the addition on account of difference in cost of construction cannot be made even if a report is obtained within the meaning of section 142A from the DVO. It is because the use of the report of the DVO obtained under section 142A is not mandatory but is discretionary as the word used is ‘may’ therein. Accordingly, in the instant case when the Assessing Officer had not rejected the books of account by pointing out any defect, reference to the DVO was not valid and, therefore, the DVO’s report could not be utilized for framing the assessment even if such a report was considered to be obtained under section 142A. Since the reference to the DVO being held as invalid, the assessment/ reassessment framed thereafter would also be invalid. As a result, the order of the Commissioner (Appeals) was to be upheld, though on different grounds.  [Para 15]

CASES REFERRED TO

Ess Ess Kay Engg. Co. (P.) Ltd. v. CIT [2001] 247 ITR 818/[2002] 124 Taxman 491 (SC) (para 4), Safdarjung Enclave Education Society  v. Municipal Corpn. of Delhi AIR 1992 SC 1456 (para 4), S.V. Vijayalakshmi v. ITO [2003] 260 ITR 138/127 Taxman 408 (Ker.) (para 7), Action for Welfare & Awakening in Rural Environment (Aware) v. Dy. CIT [2003] 263 ITR 13/130 Taxman 82 (AP) (para 7), Agappa Child Centre v. CIT [1997] 226 ITR 211/92 Taxman 327 (Ker.) (para 7), Umiya Co-operative Housing Society Ltd. v. ITO [2005] 94 TTJ (Ahd.) 392 (para 8), Modem Construction Development & Project Promotion v. Asstt. CIT [1997] 63 ITD 235 (Cal.) (para 8), Reliance Jute Industries Ltd. v. ITO [1984] 150 ITR 643 (Cal.) (para 8), CIT v. Sheikhar Chand & Sons [1990] 186 ITR 269 (All.) (para 12), CIT v. Vindraban Chitra Mandir [1994] 209 ITR 520/73 Taxman 673 (All.) (para 12) and CIT v.Pratapsingh Amrosingh Rajendra Singh & Deepak Kumar [1993] 200 ITR 788/[1992] 64 Taxman 585 (Raj.) (para 12).

Anadi Verma for the Appellant.