Judgment:
1. These appeals of the assessee are directed against a consolidated order dated September 6, 2000, passed by the learned Commissioner of Income-tax (Appeals) for the assessment years 1995-96 and 1996-97 and since a common issue is involved therein, we find it convenient to dispose of the same by this consolidated order.
2. The facts of the case giving rise to these appeals are that the assessee, a doctor by profession, filed his returns of income for the assessment years 1995-96 and 1996-97 on August 18, 1995 and July 17, 1996, declaring a total income of Rs. 67,510 and Rs. 99,770, respectively. The said returns were processed by the Assessing Officer under Section 143(1)(a) on June 17, 1997 and November 13, 1996, respectively. Subsequently, a reference was made by the Assessing Officer under Section 131(1)(d) to the Valuation Officer for ascertaining the value of house property constructed by the assessee for hospital and residential premises during the years under consideration. The Valuation Officer, Nag-pur, vide letter No.VD/NGP/IT/97-98/318 dated February 25, 1998, furnished his valuation report of the property in question showing the valuation at Rs. 23,88,722, as against the cost of construction shown by the assessee at Rs. 12,44,546 in his books of account for the assessment years 1995-96 and 1996-97. On the basis of the District Valuation Officer's report, the Assessing Officer formed a belief that there was an escapement of income in the form of undervaluation of the cost of construction. He, therefore, reopened the assessments for both the years, i.e., the assessment years 1995-96 and 1996-97, by issuing notices under Section 148. In response to the said notices, the assessee filed returns of income for both the years under consideration declaring the same income as was declared in the returns filed originally. Thereafter, notices under Sections 143(2) and 142(1) are issued by the Assessing Officer and the same were duly served on the assessee. During the course of assessment proceedings, the assessee relied on the valuation report of registered valuer furnished by him in support of the investment in the said property disclosed by him in his books of account. Subsequently, the Departmental Valuation Officer also furnished a modified valuation report showing the cost of construction at Rs. 24,29,765. Both these valuation reports, original as well as modified, were made available to the assessees by the Assessing Officer and his explanation/comments were sought. The assessee vide his letter dated June 19, 1999, furnished his objections to the modified valuation report prepared by the District Valuation Officer. The said objections raised by the assessee were forwarded by the Assessing Officer to the Departmental Valuer and in turn the Departmental Valuer also gave his comments on the said objections vide letter No. VO/NGP/IT/7/97-98/480, dated March 3, 2000. The said comments of the District Valuation Officer were again communicated to the assessee by the Assessing Officer vide letter No.411431/DV/1157/9900, dated March 9, 2000, and the assessee was called upon to file his final objections in the matter. The assessee filed his submissions on March 27, 2000, stating that the expenditure incurred on construction is supported by vouchers. He also furnished the comments/objections compiled by the registered valuer. After considering this material available on record in the form of valuation reports and comments/objections pertaining to the same, the Assessing Officer was of the opinion that the objections raised on behalf of the assessee are without any concrete information. He, therefore, came to the conclusion that the Departmental Valuer has correctly adopted the rates for construction of building for residential as well as hospital use and relying on the same, proceeded to treat the difference between the valuation made by the District Valuation Officer and the valuation shown by the assessee in his books of account as unexplained investment made by the assessee in the cost of construction. Accordingly, he added this difference amount to the income of the assessee for both the years under consideration as given below : 3. During the assessment proceedings, the Assessing Officer also examined the books of account and other record maintained by the assessee in respect of construction work and pointed out some defects in the same as mentioned in his order before arriving at a conclusion that the said defects clearly revealed incorrectness of account maintained by the assessee in respect of construction of building account. The Assessing Officer also examined the books of account maintained by the assessee in respect of his medical profession and found that the professional fees disclosed by the assessee from his OPD and indoor patients is not fully vouched. He, therefore, was of the opinion that the assessee might have earned some professional income out of books and utilised the same for making investments in the building construction. Although he did not make any separate additions on this count, he tried to support the addition made by him on account of unexplained investment in the construction of building.
4. Aggrieved by the orders of the Assessing Officer, the assessee preferred appeals before the learned Commissioner of Income-tax (Appeals) in which the additions made by the Assessing Officer on account of unexplained investment in the construction of building was challenged on legal issues also. It was contended on behalf of the assessee before the learned Commissioner of Income-tax (Appeals) that on the date of reference to the Valuation Officer, i.e., September 12, 1997, the assessment proceedings were not pending before the Assessing Officer and, therefore, the reference made by him under Section 131(1)(d) was without jurisdiction. It was also contended on behalf of the assessee that the report of the District Valuation Officer being merely an opinion about the cost of construction, was not sufficient to form a reasonable belief about the escapement of income. Reliance was placed on the decision of the Gauhati High Court in the case of Bhola Nath Majumdar v. ITO [1996] 221 ITR 608 in support of the said contention. The learned Commissioner of Income-tax (Appeals) found no merits in the contentions raised by the asses-see challenging the validity of the reference made by the Assessing Officer under Section 131(1)(d). He also distinguished the decision cited on behalf of the assessee in support of the said contention and relying on the decision of the Calcutta High Court in the case of New Central Jute Mills Co.
Ltd. v. Dwijendralal Brahmachari [1973] 90 ITR 467 and that of the Delhi High Court in the case of Apogee International Ltd. v. Union of India [1996] 220 ITR 248, he held that the commission under Section 131(1)(d) was validly issued by the Assessing Officer. Further relying on the decision of the Gujarat High Court in the case of Praful Chunilal Patel v. M.J. Makwana/Asst. CIT [1999] 236 ITR 832, dealing with the amended provisions of Section 147 applicable from April 1, 1989, he upheld the validity of reopening of assessments observing that the Assessing Officer had reason to believe on the basis of the District Valuation Officer's report that the income chargeable to tax had escaped assessment for the years under consideration. He also upheld the action of the Assessing Officer in rejecting the books of account maintained by the assessee in respect of construction expenses keeping in view the defects pointed out by him. He also referred to the mistakes pointed out by the Assessing Officer in the books of account maintained by the assessee in respect of his professional income which according to him were indicative of the facts that the books of account are not fully reliable. As regards the merits of the case, it was mentioned by the learned Commissioner of Income-tax (Appeals) in his impugned order that the authorised representative of the assessee having not disputed the valuation report of the Departmental Valuation Officer on merits before him, the cost of construction of the property determined by the Departmental Valuation Officer stood accepted by the assessee. He, therefore, dismissed the appeals filed by the assessee and confirmed the additions made by the Assessing Officer. Aggrieved by the same, the assessee is in appeal before us.
5. The assessee has raised as many as nine grounds (as revised) each in these appeals out of which grounds Nos. 1 to 4 relate to the legal issues challenging the validity of the reference made by the Assessing Officer under Section 131(1)(d) to the District Valuation Officer whereas in the remaining grounds the assessee has disputed the additions made by the Assessing Officer on the merits of the case. In this regard we find it appropriate to consider and decide initially the preliminary grounds Nos. 1 to 4 relating to the legal issues which are as follows : 1. Under the facts and circumstances of the case the reference to the Valuation Officer under Section 131(d) when no proceedings were pending was bad in law.
2. Under the facts and circumstances of the case the reopening of assessment was bad in law as there did not exist any reason to believe that any income chargeable to tax had escaped assessment and consequently reassessment was bad in law.
3. Under the facts and circumstances of the case when the income of the assessee and cost of construction was duly supported by regularly maintained account books duly supported by vouchers and primary evidence the Assessing Officer had no jurisdiction to estimate cost of construction and on that basis make addition under Section 69 of the Income-tax Act, 1961.
4. Various observations by the learned lower authorities for rejecting the books of account were totally erroneous and were not sufficient to reject the books of account 6. As regards ground No. 1, learned counsel for the assessee submitted that the returns filed by the assessee were initially processed under Section 143(1)(a) by the Assessing Officer for the assessment years 1995-96 and 1996-97 on August 27, 1997 and November 23, 1996, respectively. He further submitted that a reference was actually made by the Assessing Officer under Section 131(1)(d) to the District Valuation Officer only on September 12, 1997, and thus at the time of making the said reference, there was no proceeding pending before the Assessing Officer. Relying on the decision of the Bombay High Court in the case of Jamnadas Madhavji and Co. v. J.B. Panchal, ITO [1986] 162 ITR 331, he contended that existence of a suit or a proceeding is a sine qua non for exercise of powers given to the Assessing Officer under Section 131(1) which are similar to the powers vested in a court under the Civil Procedure Code while trying a suit. He contended that the powers mentioned in Sub-section (1) of Section 131 can be exercised only if a proceeding is pending before the concerned officer and in the absence of the same in the present case on the date of making a reference to the District Valuation Officer, the reference made by the Assessing Officer was invalid. Relying on the decision of the Rajasthan High Court in the case of Brig. B. Lall v. WTO [1981] 127 ITR 308, he contended that reference made by the Assessing Officer to the District Valuation Officer in the absence of pendency of an assessment was invalid, non est and void ab initio and, therefore, the same cannot be made a basis for making additions on account of unexplained investment in the construction of property. He further contended that a reference to the District Valuation Officer could not be made by the Assessing Officer simply for reopening a completed assessment as held by the Gauhati High Court in the case of Bhola Nath Majumdar v. ITO [1996] 221 ITR 608. As regards ground No. 2, he contended that the valuation report obtained from the District Valuation Officer is merely an opinion and the same cannot be regarded as information under Section 147(b) nor can it constitute a ground to form a reasonable belief so as to confer jurisdiction to the Assessing Officer for reopening an assessment. As regards grounds Nos. 3 and 4, he contended that no defects in the books of account were pointed out by the Assessing Officer prior to the date of making a reference to the District Valuation Officer and in the absence of the same there was no case to make a reference by the Assessing Officer under Section 131(1)(d).
Referring to para. 10 of the Assessing Officer's order, he contended that the defects pointed out by the Assessing Officer much after the date of making reference to the District Valuation Officer during the assessment proceedings are not specific or material to justify the rejection of the book results. He also made an attempt to explain the defects pointed out by the Assessing Officer by making a detailed submission in the light of the relevant evidence placed in his paper book. He submitted that the assessee was not required to maintain the chits/bills in respect of all the small items of expenditure and when the regular books/registers were maintained by the assessee disclosing the complete cost of construction, the Assessing Officer was not justified in holding the same to be unreliable- Relying on the decision of the Delhi Bench of the Income-tax Appellate Tribunal in the case of ITO v. Pitamber Industries Pvt. Ltd. [1992] 42 ITD 373, he contended that the Assessing Officer has gone wrong in relying on the District Valuation Officer's report for estimating the cost of construction instead of what was declared by the assessee in the books of account without bringing on record the specific point for rejection of the said books. He, therefore, contended that no addition was called for on account of unexplained investment on the basis of the District Valuation Officer's report which was obtained by the Assessing Officer by making an invalid reference under Section 131(1)(d) and that too without pointing out the specific defects in the books of account.
7. The learned Departmental Representative, on the other hand, strongly supported the order of the learned Commissioner of Income-tax (Appeals) on the legal issues raised by the assessee. He contended that the learned Commissioner of Income-tax (Appeals) has dealt with all the contentions raised by the assessee before him challenging the validity of the reference made by the Assessing Officer under Section 131(1)(d).
Referring to the relevant portions of the learned Commissioner of Income-tax (Appeals) impugned order, he explained that the various decisions cited by the Authorised Representative of the assessee before him have been duly distinguished by the learned Commissioner of Income-tax (Appeals). He contended that the learned Commissioner of Income-tax (Appeals) has upheld the validity of a reference made by the Assessing Officer under Section 131(1)(d) as well as that of the reopening of assessment under Section 147 relying on the various decisions quoted and discussed by him in his impugned order. In this regard, he specifically drew our attention to the decision of the Calcutta High Court in the case of New Central Jute Mills Co. Ltd. v.Dwijendralal Brahmachari [1973] 90 ITR 467, wherein it was held that a reference under Section 131(1)(d) can be made for the purpose of Income-tax Act which not only includes making of assessment but also includes making investigations to find out whether reassessment should be initiated or not. He also referred to the decision of the Gujarat High Court in the case of Praful Chunilal Patel v. M.J. Makwana/Asst.
CIT [1999] 236 ITR 832, wherein the scope of reopening of assessment after the amendments made in Section 147 with effect from April 1, 1989, having been duly discussed before holding that the words "escaped assessment" are apt to cover the case of discovery of a mistake in assessment caused by either an erroneous construction of transaction or due to its non-consideration. He also invited our attention to the observations of their Lordships of the Gujarat High Court that if there is material placed on record which would show existence of income chargeable to tax and which ordinarily ought to have been included in the ascertainment of taxable income but not so included, that would itself provide a cause or justification for a belief to the Assessing Officer that such income had escaped assessment and the Assessing Officer in such cases would be ex facie justified in initiating the proceedings on such basis. The learned Departmental Representative also specifically drew our attention to the following observations given by the Gujarat High Court on page 841 of the Income-tax Report : "The function of the Assessing Officer is to administer the Act with solicitude for public treasury and with fairness to the taxpayers.
He is necessarily armed with great powers. Up to four years an assessment is open to his unreserved consideration on his formation of the requisite belief. If he has such reason, he has the power, and we may add that it is his duty, to reopen the door and demand the amount legally owing. His formation of belief is not a judicial decision, but an administrative decision. It does not determine anything at this initial stage, but the Assessing Officer has a duty to proceed so as to obtain what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a court by the standard of what the ideal man would think. He is the actual man trusted by the Legislature and charged with the duty of forming a belief, for the mere purposes of determining whether he should proceed to collect what is strictly due by law, and no other authority can substitute its standard of sufficient reason in the circumstances, or his opinion or belief for his. Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the Assessing Officer is invested so as to be really in disregard of the statutory condition." 8. Referring to the aforesaid observation, the learned Departmental Representative contended that the District Valuation Officer's report was a valid material to form a belief about the escapement of income and thus the Assessing Officer had valid jurisdiction to reopen the assessment by issuing notice under Section 148. Further, he submitted that the Assessing Officer had pointed out specific defects in the books of account maintained by the asses-see in respect of construction expenditure and certain instances in this regard were also given by him in para. 10 of his order for the assessment year 1995-96. He contended that the assessee did not raise any material arguments before the learned Commissioner of Income-tax (Appeals) to prove that the said defects pointed out by the Assessing Officer were not correct. He contended that the learned Commissioner of Income-tax (Appeals) has upheld the action of the Assessing Officer in rejecting the books of account and in adopting the construction cost valued by the District Valuation Officer as the asses-see did not dispute the issue on merits before him. In this regard, he drew our attention to last three lines on page 14 of the learned Commissioner of Income-tax (Appeals) impugned order wherein he has clearly observed that the mistakes pointed out by the Assessing Officer in the assessment order are indicative of the facts that the books of account were not fully reliable. He, therefore, contended that the Assessing Officer having rejected the books of account produced by the assessee before him, was within his own right to adopt the cost of construction shown by the District Valuation Officer, in his report after duly taking into consideration the objections raised by the assessee against the same. He, therefore, strongly supported the impugned order of the learned Commissioner of Income-tax (Appeals) stating that the same deserves to be upheld in law as well as on facts.
9. We have considered the rival submissions and also perused the relevant material on record to which our attention was drawn during the course of the hearing. We have also deliberated upon the various decisions cited at the Bar. It is observed that the assessee has challenged the powers/jurisdiction of the Assessing Officer to make a reference under Section 131(1)(d) mainly on two counts. Firstly, the plea of the assessee is that no proceedings were pending at the relevant time when the reference was made by the Assessing Officer to the District Valuation Officer and the pendency of a proceeding being a sine qua non for the exercise of powers under Section 131(1), there was no occasion for the Assessing Officer to exercise the said powers.
Secondly, learned counsel for the assessee has contended that the assessee had maintained books of account in which the cost of construction was duly recorded and it was not open to the Assessing Officer to ignore this evidence provided by the entries in the books of account and adopt the valuation made by the District Valuation Officer.
In this regard it is relevant to refer to the provisions of Section 131(1) as well as that of Section 131(1A) which are reproduced below : "131. (1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely :-- (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath ; (c) compelling the production of books of account and other documents ; and (1A) If the Director General or Director or Joint Director or Assistant Director or Deputy Director, or the authorised officer referred to in Sub-section (1) of Section 132 before he takes action under Clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under Sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other Income-tax authority." 10. From the perusal of the above provisions, it is evident that Sub-section (1) of Section 131 invest certain income-tax authorities with specific powers available to a civil court under the Code of Civil Procedure, 1908. As far as the issue of commission is concerned which is relevant in the present context, the provisions are contained in Order 26 of the Civil Procedure Code, 1908. It is also evident that the fields in which the powers under Section 131(1) and Section 131(1A) operate are different. Powers under Section 131(1A) are the powers for making enquiry or investigation under the circumstances mentioned therein while the powers under Section 131(1) are the powers which are akin to the powers of civil court while trying a suit. Use of the words "for the purpose of this Act" in Section 131(1) have to be read in conjunction with the further words "have the same powers, as are vested in a civil court under the Code of Civil Procedure, 1908, when trying a suit". Thus, for the purpose of the Act means for the purpose of making an assessment or trying a suit when it comes to the exercise of powers conferred on the Assessing Officer under Section 131(1). On the other hand, the powers exercisable while making an enquiry or investigation have been classified separately in Section 131(1A). 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 concerned authorities for making an assessment. The Code of Civil Procedure confers upon the court the power to issue commission while trying a suit and the pendency of a suit or proceeding before the court is a sine qua non for exercising the said powers. Similarly, when it comes to income-tax proceedings, the powers under Section 131(1) can be exercised by the concerned officer only if a proceeding is pending before it and not otherwise. In the case of Jamnadas Mad-havji and Co. v. J.B. Panchal, ITO [1986] 162 ITR 331, the Bombay High Court has held that the powers in respect of the matters mentioned in Sub-section (1) of Section 131 can be exercised only if a proceeding is pending before the concerned officer and not otherwise. In the case of Brig. B. Lall v. WTO [1981] 127 ITR 308, the Rajasthan High Court has held that pendency of an assessment including reassessment is sine qua non for giving jurisdiction to the Wealth-tax Officer to make a reference to the Valuation Officer under Section 16A which is analogous to Section 131(1)(d) of the Income-tax Act and the said provisions cannot be made an instrument for reopening a completed assessment. Their Lordships, therefore, held the reference made by the Assessing Officer to the District Valuation Officer after completion of assessment as invalid, non est, and void ab initio. The Patna High Court also had an occasion to consider a similar issue in the case of Rina Sen v. CIT [1999] 235 ITR 219 and after taking into consideration the powers conferred under Section 131(1) and 131(1A), their Lordships observed that the authorities specified in Section 131(1) can exercise the powers only if a proceeding is pending before them. The Patna High Court has also observed that the proceedings within the meaning of Section 131(1) must be an independent proceeding pending from before and it is only in connection with that proceeding the commission can be issued.
11. It is observed that the Revenue has mainly relied on the decision of the Calcutta High Court in the case of New Central Jute Mills Co, Ltd. v. Dwijendralal Brahmachari [1973] 90 ITR 467 wherein it was held that the purpose of the Income-tax Act is not only to make the assessment but all proceedings incidental thereto including the proceeding for investigation relating to reopening of the assessment.
In this regard, we have already discussed the various decisions rendered by the different High Courts (supra) wherein a different view contrary to the one taken by the Calcutta High Court in the case of New Central Jute Mills Co. Ltd. v. Dwijendralal Brahmachari [1973] 90 ITR 467 has been taken and the same being favourable to the assessee, we opt to adopt the same. Nevertheless, the Calcutta High Court in the case of ITO v. James Joseph O'Gorman [1993] 204 ITR 454 has deviated from its earlier view taken in the case of New Central Jute Mills Co.
Ltd. [1973] 90 ITR 467, while holding that the power in respect of matters mentioned in Section 131(1) including that of issuance of commission could be exercised only if a proceeding is pending before the concerned officer and not otherwise. It is thus clear that the pendency of proceeding is sine qua non for giving jurisdiction to the concerned authority to make a reference to the District Valuation Officer and the Assessing Officer can exercise the powers conferred on him under Section 131(1)(d) only if an independent proceeding is pending with him from before.
12. In the present case the returns filed by the assessee for the years under consideration were processed under Section 143(1)(a) prior to the date of making a reference to the District Valuation Officer, i.e., on September 12, 1997, and it is relevant to find out as to whether the proceedings could be said to have been pending with the Assessing Officer on September 12, 1997, when the powers to issue commission to the District Valuation Officer were exercised by him. In this regard, the Revenue has mainly relied on the decision of the Delhi High Court in the case of Apogee International Ltd. v. Union of India [1996] 220 ITR 248, wherein it was held that intimation under Section 143(1)(a) cannot be treated as a conclusion of the assessment process. The Revenue has, therefore, taken a stand that the assessment proceedings had not been concluded on September 12, 1997, when the reference was made by the Assessing Officer to the District Valuation Officer since only the intimations under Section 143(1)(a) were issued till that time. In this regard it is observed that the issue before the Delhi High Court in the case of Apogee International Ltd. [1996] 220 ITR 248, was whether the Assessing Officer can issue a notice under Section 143(2) after the issuance of an intimation under Section 143(1)(a) which is deemed to be a notice of demand under Section 156 and their Lordships rendered the verdict in favour of the Revenue upholding the powers of the Assessing Officer to issue a notice under Section 143(2) even after the issuance of an intimation under Section 143(1)(a) on the basis of the phraseology used in Section 143(1)(a) observing that by force of the expression "without prejudice", the jurisdiction of the assessing authority to proceed under Sub-section (2) of Section 143 is preserved despite intimation under Sub-section (1). It is pertinent to note here that in para. 7 of its judgment, the Delhi High Court has, however, observed that a notice under Section 143(2) puts into motion a normal procedure of assessment. It is true that issuance of notice under Section 143(1)(a) does not amount to conclusion of the assessment process mainly because the issuance of such intimation does not preclude the operation of the provisions of Section 143(2) as the same is expressly provided in Section 143(1)(a) itself. At the same time, it is also to be noted that if the intimation issued under Section 143(1)(a) is not followed by the issue of notice under Section 143(2) as a matter remedy available to the Assessing Officer, within the time limit prescribed in the statute, the assessment process is deemed to have completed on the issuance of intimation under Section 143(1)(a) itself.
13. Thus, the issuance of notice under Section 143(1)(a) operates as a completion or conclusion of assessment although without prejudice to the powers of the Assessing Officer to issue notice under Section 143(2) and, in our opinion, the normal procedure of assessment cannot be said to have commenced unless and until a notice under Section 143(2) is issued by the Assessing Officer. This view also gets support from the recent judgment of the Punjab and Haryana High Court in the case of Punjab Tractors Ltd. v. Jt. CIT [2002] 254 ITR 242, wherein it has been held that the intimation under Section 143(1) operates as an order of assessment unless the authority proceeds to give notice under Section 143(2) and passes an order under Section 143(3). In the present case, admittedly, notices under Section 143(2) were not issued by the Assessing Officer prior to the date of making a reference to the District Valuation Officer on September 12, 1997, and this being the position, we are of the considered opinion that the Assessing Officer had no jurisdiction to make such reference. As a matter of fact, the notices under Section 143(2) were never issued in the original proceedings for both the assessment years under consideration and the same were subsequently issued only during the course of reassessment proceedings when the assessee filed fresh returns in response to the notices issued under Section 148. Thus, the regular assessment on the original returns filed by the assessee stood completed with the issuance of intimation under Section 143(1)(a) and from this angle also the proceedings were not pending before the Assessing Officer at the time of making a reference to the District Valuation Officer under Section 131(1)(d).
14. In grounds Nos. 3 and 4, the assessee has challenged the action of the Assessing Officer in assuming jurisdiction to make a reference under Section 131(1)(d) to the District Valuation Officer without rejecting the books of account maintained in respect of construction expenditure. It is pertinent to note in this regard that even if the proceedings are pending before the Assessing Officer, he must apply his judicial mind and derive a satisfaction that such a commission is requisite or proper before invoking the power conferred on him under Section 131(1)(d). Before doing so, he is required to ascertain the correctness or otherwise of the cost of construction shown by the assessee in the books of account and for this purpose a reasonable opportunity should be given to the assessee to substantiate the same by producing the relevant evidence in the form of books of account as well as other supporting documents. If the evidence produced by the assessee to support and substantiate the construction cost is found fault with by the Assessing Officer by pointing out specific defects, he can proceed to issue a commission to the District Valuation Officer seeking his valuation report for the cost of construction incurred by the assessee. Thus only when in the course of assessment proceedings, the Assessing Officer, after applying his judicial mind, is of the opinion that the cost of construction disclosed by the assessee is not reliable, he may issue a commission for ascertaining the correct cost of construction of a building under consideration. It is, therefore, clear that no commission can be issued arbitrarily without applying a judicial mind simply because the proceedings are pending before the Assessing Officer. As already observed, the powers given to the Assessing Officer under Section 131(1) are akin to the powers given to the court under the Civil Procedure Code under Section 75 and as per the provisions of Section 75, the court may issue a commission, inter alia, to make a local investigation or to hold scientific, technical or expert investigation subject to such conditions and limits as may be prescribed. Rules 9 and 10A of Order 26 of the Civil Procedure Code are relevant in this regard. Rule 9 clearly mentions that local investigation is to be made for the purpose of elucidating any matter in dispute or for ascertaining the market value of any property whereas as per Rule 10A, the court is empowered to issue a commission to resolve a question involving such investigation which in the opinion of the court cannot be conveniently conducted before it. It is thus evident that the existence of a dispute or an issue in question before the court is the pre-requisite for issue of commission and such issue or dispute relating thereto arises before the court when material proposition of fact or law is affirmed by one party and denied by the other. In the income-tax proceedings the assessee is one party whereas the Revenue Department represented by the Assessing Officer is another party. The Assessing Officer, therefore, has a dual role to play one as a party to the dispute and the other as an adjudicating authority. If the regular accounts in respect of cost of construction are maintained by the assessee and the same are produced before the Assessing Officer during the course of assessment proceedings along with the relevant vouchers as an evidence to support and substantiate the said construction cost disclosed in the books of account, the Assessing Officer either has to accept the same as correct and complete or reject the same as unreliable. If he accepts the same as correct and complete, there is no issue or question in dispute about the construction cost disclosed by the assessee and, therefore, the question of making a reference to the District Valuation Officer does not arise at all. On the other hand, if the books of account are rejected by the Assessing Officer after pointing out specific defects therein, the issue relating to the quantification of actual investment made by the assessee in the construction cost arises so as to ascertain the quantum of undisclosed investment. Thus, when the books of account are accepted as correct and complete, there is no case to issue commission to the Valuation Officer under Section 131(1)(d) to find out the actual cost of construction so as to determine the quantum of undisclosed investment. This is so also because if the cost of construction disclosed by the assessee in the books of account is not disputed by the Assessing Officer, there is no issue of contest between the assessee and the Department and if there is no issue of contest then there is no question of issue of commission to the District Valuation Officer to find out the actual cost of construction. It is a settled position of law that the powers under Section 131(1) are to be exercised by the concerned authorities for deciding the suit and not for fishing out any enquiry. In the case of ITO v. Pitamber Industries Pvt. Ltd. [1992] 42 ITD 373, the Delhi Bench of the Income-tax Appellate Tribunal has held that when the assessee maintained books of account, it becomes compulsory as per legislative mandate that the Income-tax Officer should point out the defects in the maintenance of those books of account and it is not open to him to ignore the evidence provided by these entries in the books of account and go only by the valuation report given by the Valuation Officer. In the case of Assistant CIT v. Radhey Shyam Bansal [2000] 68 TTJ 136, the Rajkot Bench of the Income-tax Appellate Tribunal has held that when the Assessing Officer has not been able to find out any defects in the books of account or is any other evidence to justify the plea that the cost of construction of the property was understated, he is not entitled to refer the case to the Valuation Officer to determine the cost of construction and make any addition on the basis of cost determined by the Valuation Officer. In the case of CIT v. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar [1993] 200 ITR 788, the Rajasthan High Court has held that 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 Income-tax Officer is of the opinion that no reliance can be placed on such books of account. In the case of CIT v. Hotel Joshi [2000] 242 ITR 478, the Rajasthan High Court has held that in a case where value of asset is claimed by the assessee on the basis of regular books of account maintained for the construction of the asset and not on the basis of valuation of the registered valuer, it will not be open for the Assessing Officer to make a reference to the District Valuation Officer unless the Assessing Officer forms an opinion having regard to the nature of the asset and other relevant circumstances that it is necessary to do so. Explaining further, their Lordships of the Rajasthan High Court have observed that it is unfair and against the public policy to proceed on the presumption that the assessee is dishonest and he must have submitted an incorrect account of expenses. The Rajasthan High Court further held that a reference to the District Valuation Officer would arise only in a case where the Assessing Officer is not satisfied with the account of construction produced by the assessee. In the case of K.K. Seshaiyer v.CIT [2000] 246 ITR 351, the Madras High Court has held that the opinion of the District Valuation Officer cannot be straightaway substituted for the actual cost recorded in the assessee's books unless the credibility of books of account maintained by the assessee is doubted.
15. In view of the discussion made in the preceding paras of this order in the light of legal position emanating from the various judicial pronouncements, we find that the basic conditions precedent for issue of commission under Section 131(1)(d) are that there must be a proceeding pending before the Assessing Officer and that the Assessing Officer must form a judicial opinion having regard to the relevant material/evidence produced by the assessee in support of the construction cost disclosed in the books of account that the cost of construction disclosed by the assessee is understated. If these conditions are not satisfied, we are of the view that the commission issued by the Assessing Officer without satisfying the said conditions cannot be considered as valid. In the present case, when a reference was made by the Assessing Officer to the Valuation Officer under Section 131(1)(d) on September 12, 1997, neither the proceedings were pending before him nor did he derive any satisfaction applying his judicial mind that such a commission was requisite or proper having regard to the books of account and other evidence maintained by the assessee in support of the construction cost As a matter of fact he had not even given an opportunity to the assessee to support and substantiate the cost of construction shown in the returns filed by him for the years under consideration before making a reference to the District Valuation Officer. Thus, the conditions precedent for making such a reference were not satisfied and this being the position, we are of the opinion that the Assessing Officer has no jurisdiction to make a reference to the District Valuation Officer under Section 131(1)(d).
16. In ground No. 2 the assessee has challenged the validity of the Assessing Officer's jurisdiction in making the reassessment when the reason to believe did not survive as a result of the foundation/basis of such belief, i.e., the District Valuation Officer's report becoming non est in the eye of law. In this regard, we have already arrived at a conclusion while deciding grounds Nos. 1, 3 and 4 in the preceding paras that the reference made by the Assessing Officer to the District Valuation Officer was without jurisdiction and, therefore was invalid.
In the case of Brig. B. Lull v. WTO [1981] 127 ITR 308 cited by learned counsel for the assessee, the Rajasthan High Court on page 329 of the Income-tax Reports held that a report submitted by the Valuation Officer in an invalid reference must be treated as a nullity in the eye of law, non est and void ab initio. Explaining further, the High Court also observed that the assessments were reopened wholly and solely on the basis of the valuation report received from the District Valuation Officer which is non est as being without jurisdiction, illegal, null and void and, therefore, the entire fabric for reopening the proceedings falls flat. In the present case, it is observed that the assessments were reopened by the Assessing Officer solely on the basis of the D. V. O.'s report giving rise to a belief or reason to believe that income had escaped assessment as contemplated by Section 147 and the same being non est having obtained in an invalid reference, we hold, respectfully following the aforesaid decision of the Rajasthan High Court in the case of Brig. B. Lall [1981] 127 ITR 308, that the reassessment proceedings were not validly initiated and thus are liable to be quashed.
17. In the other grounds raised in these appeals, the assessee has disputed the additions made by the Assessing Officer in the reassessments on merits.
18. After considering the rival submissions and perusing the relevant material on record, it is observed that the learned Commissioner of Income-tax (Appeals) has not decided the issue of unexplained investment in the construction cost on merits observing that the authorised representative of the assessee has not disputed the merits of the report furnished by the District Valuation Officer and thereby the cost of construction of the property as determined by him was not challenged by the assessee. Before us learned counsel for the assessee has contended that the entire dispute centered around the investment in construction and, therefore, the learned Commissioner of Income-tax (Appeals) was not correct in making the said observation which was based on misconception. He has contended that the authorised representative never meant that he did not dispute the cost of construction determined by the District Valuation Officer and as a matter of fact, specific grounds were raised before the learned Commissioner of Income-tax (Appeals) disputing the same. In support of this contention, he has also filed the affidavit of Shri S. B. Bafna, chartered accountant who appeared as authorised representative of the assessee before the learned Commissioner of Income-tax (Appeals).
Keeping in view this submission made by learned counsel for the assessee and the affidavit produced by him before us, it appears that there is a prima facie case for setting aside these issues to the learned Commissioner of Income-tax (Appeals) for deciding the same afresh on merits. However, considering that we have already quashed the reassessments made by the Assessing Officer for both the years under consideration on the preliminary legal issues raised in grounds Nos. 1 to 4 in the preceding paras of this order, the exercise of setting aside will be rendered only academic. We, therefore, do not deem it necessary to render any decision on these grounds in view of our decision on the preliminary legal grounds holding the entire reassessments made for the assessment years 1995-96 and 1996-97 as invalid and quashing the same.