ITR No. 119 of 1999 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No. 119 of 1999 Date of Decision: 1.9.2010 The Commissioner of Income Tax, Patiala ....Petitioner. Versus Sukhdev Kumar & Co. Rice Sheller, Sirhind ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the petitioner. AJAY KUMAR MITTAL, J. In this reference filed under Section 256(1) of the Income Tax Act, 1961 (in short “the Act”), the Income-Tax Appellate Tribunal Chandigarh Bench, Chandigarh (in short “the Tribunal”) has referred the following question of law for the opinion of this Court:- “Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that reopening of assessment was invalid, as the primary facts were disclosed by the assessee before AO with reference to cost of construction of the sheller building?” Briefly, the facts of the case are that during the period, October, 1980 to September, 1983, the assessee-firm, i.e. Sukhdev Kumar & Co. Rice Sheller, Sirhind constructed a building for purpose of ITR No. 119 of 1999 -2- sheller. The assessee declared the cost of construction at Rs.3,56,500/- whereas the Departmental Valuation Officer(DVO) assessed it at Rs.8,93,200/-. The assessing officer observed that the cost of construction of the building, during assessment year 1983-84, worked out to Rs.4,87,940/-. It was further observed that since the assessee had failed to disclose full and true material facts necessary for assessment and had also not disclosed correct amount of construction of the building during the year under reference, the case was required to be re-opened under Section 147(a) of the Act. A notice under Section 148 of the Act was issued to the assessee that was served on it on 14.3.1990. The assessing officer, thereafter complying with the necessary formalities as enshrined in the relevant provisions including issuance of notice to the assessee and no response from the assessee on the issue, adopted the unexplained investment in the building at Rs.4,87,940/-. The assessee preferred appeal before the Commissioner of Income-tax (Appeals) {in short “CIT(A)”} inter alia, on the ground that the notice issued under Section 148 of the Act was illegal, invalid and without jurisdiction. It was stated that assessment was completed under Section 143(3) vide order dated 24.3.1986 at net income of Rs.2,35,182/-. The assessee pointed out that an order under Section 154 was passed owing to some mistake in the record. The income was determined at Rs.2,42,182/- against which an appeal was preferred. The CIT(A) set aside the assessment on 20.1.1989 for framing de novo assessment which came to be completed vide order dated 07.02.1989 at an income of Rs.2,82,682/-. The matter was taken in appeal which ITR No. 119 of 1999 -3- was disposed by the CIT(A) vide order dated 9.6.1989 against which the Revenue preferred appeal. But in the meantime, the assessing officer issued notice under Section 148 on 7.3.1990 to the assessee wherein it was indicated that the assessee had shown cost of construction at Rs.3,56,500/- whereas according to the Valuation Officer the cost of construction was Rs.8,93,200/- and thus, the difference between the two amounts was the undisclosed income of the assessee for the assessment year 1983-84. Since no return was filed by the assessee in response to the notice under Section 148, the assessing officer completed the assessment under Section 143(3) instead of Section 144. It was asserted on behalf of the assessee that the assessment was completed on 24.3.1986 under Section 143(3) and at that time the fact regarding construction of the building for the rice sheller was very much in the knowledge of the assessing officer. Emphasizing that in view of the aforesaid facts the assessee could not be blamed of any omission or failure on its part to disclose material facts and, thus, the provisions under Section 147(a) of the Act could not have been resorted to and assessment re-opened. The assessee, thus, submitted that re-opening of the assessment in the aforesaid facts and circumstances of the case was without jurisdiction. The CIT(A) vide order dated 27.5.1991 (Annexure B), after critically examining all relevant aspects held that re-opening of assessment under Section 147 (a) was illegal and issue of notice under Section 148 was invalid and also that the assessment framed pursuant to an illegal notice was void ab initio. The assessment was consequently annulled by the CIT(A). In further appeal carried before the Tribunal at the instance ITR No. 119 of 1999 -4- of the Revenue, the order of the CIT(A) was affirmed. It is how the question as noticed above has come to be referred by the Tribunal for determination by this Court. We have heard learned counsel for the appellant and have gone through the record. The issue, whether the assessing officer could have re- opened an assessment on the report of the DVO was considered by this Court in I.T. Appeal No. 71 of 2003 decided on 14.7.2010 Commissioner of Income Tax vs. Devki Devi widow of late Kasturi Lal wherein it was held as under:- “6. The apex Court in Smt. Amiya Bala Paul v. Commissioner of Income-Tax, (2003) 262 ITR 407 (SC) had held that in an assessment of the assessee to income tax, the reference by the assessing officer to the DVO regarding question of cost of construction of a property built by the assessee cannot be made. Once that is so, the reliance on the report of the DVO by the assessing officer for reopening the assessment was not justified. 7. Even after insertion of Section 142A of the Act by Finance (No. 2) Act, 2004, w.e.f. 15.11.1972, this Court while considering the scope of its applicability to proceedings under the Act, in Income-tax Reference No. 48 of 1994, Commissioner of Income Tax (Central), Ludhiana v. Nabha Solvex (P) Ltd. decided on 7.7.2010, has held as under: “11. The question regarding the applicability of Section ITR No. 119 of 1999 -5- 142A of the Act was subject matter of consideration before this Court in Krishan Lal Dua's case (supra) wherein the assessment had become final on 31.3.1995 and the same was not liable to reassessment under Section 153A of the Act, it was held that Section 142A of the Act would not be applicable as the proviso was attracted. The Allahabad High Court in Smt. Shashi Agarwal's case (supra) had held that where the Tribunal had passed the order before the cutoff date prescribed under the proviso to Section 142A of the Act and the appeal under Section 260A of the Act being maintainable before the High Court only on substantial question of law, therefore, it could not be said to be continuation of the assessment proceedings within the meaning of proviso to Section 142A of the Act. The Assessing Officer,thus, had no power to refer the matter to the DVO. Similar view has been taken by Delhi and Calcutta High Courts. 8. In view of the above, we hold that Section 142A of the Act is not attracted to the facts of the present case and, thus, no reliance can be placed upon that. Consequently, the initiation of reassessment proceedings on the basis of report of the DVO cannot legally be sustained. In view of the above, the Department could not legally take recourse to the issue of notice under Section 148 of the Act once the ITR No. 119 of 1999 -6- report of the DVO was taken out of consideration as held above. The question of law referred to above for opinion of this Court, is, thus, answered against the Revenue and in favour of the assessee. (AJAY KUMAR MITTAL) JUDGE September 01, 2010 (ADARSH KUMAR GOEL) rkmalik/gbs JUDGE