Per Shri U. S. Dhusia, Judicial Member - The revenue is in appeal against the cancellation of assessee under section 148 of the Income-tax Act 1961 (the Act) for the assessment year 1971-72.
2. The ITO had made the assessment for the assessment year 1971-72 on 13-6-1973. Having found that the assessee had failed to disclose the primary facts regarding the construction of a house, he caused a notice under section 147(a) of the Act to be issued on 23-11-1976. In pursuit of this notice, he made the reassessment on 20-3-1981. The assessee impugned this assessment before the Commissioner (Appeals) on the ground that he had not failed to disclose the primary facts, regarding the construction of the house. The Commissioner (Appeals) was moved by this plea and annulled the assessment on the ground that the ITO had no justifications for his finding that the assessee had failed to disclose the primary facts regarding the assessment. It is against this order of the Commissioner (Appeals) that the revenue is in appeal.
3. The facts, which have given rise to this controversy, are that the assessee had constructed a house property at B-211, Greater Kailash, New Delhi. The cost of the plot was Rs. 40,000. Together with the incidentals, like the stamp duty, etc, total cost was Rs. 44,954. As he did not maintain a construction account, he submitted an estimate of cost prepared by the approved valuer, Rs. 1,01,000. He claimed before the ITO that his was the cost of construction. it was given out by him that the construction had started in April 1970 and was almost over by 31-3-1971. He had specified that the finishing touch was yet to be given to this house, but he occupied the same for his residence in the month of March 1971. The ITO who made the first assessment on 13-6-1973. did not accept the claim of the assessee in this respect regarding the cost incurred by him over the construction of the house.
He placed his reliance on a report by an Inspector, who had visited the site and surveyed the property on 27-12-1972. The Inspector had estimated the cost. He had estimated the cost on construction at Rs. 1,55,000 for a covered area of 4,000 sq. ft. According to the approved valuer, the built-in area was 3,750 sq. ft. The ITO, who proceeded with the assessment, confronted the assessee with the report of the Inspector. It was only after a consideration of the report of the Inspector that the ITO brought the assessee to agree for making an addition of Rs. 8,000 on account of the cost of construction of the house. This amount was added to the income of the assessee, as income from undisclosed sources. As the assessee had agreed to the inclusion of this sum, he did not seek to impugne the assessment on the ground of the addition made by the ITO. On 21-11-1975, the income-tax personnel, acting under section 133 of the Act searched the premises. Proceedings on the basis of the information gleaned from the papers, seized during the search, the ITO entertained an apprehension that, in making the assessment, a correct estimate of the investment in the house had not been arrived at. Accordingly, he caused the valuation to be made by the Valuation Officer. The Valuation Officer found the built-in area to be 4,832 sq. ft. According to him, the cost of construction was worked out at Rs. 2,17,900. Apart from the construction, already accounted for, there was an additional cost of Rs. 1,26,935 which the assessee had to explain. Since he could not explain the source, the amount had to be treated as the income from undisclosed sources and considered a part of the total income of the year.
4. It is against this reassessment that the assessee went in appeal before the Commissioner (Appeals) and impugned the basis of reassessment. According to him, the ITO had no basis or jurisdiction to reach a finding that the assessee had failed in any way, in disclosing the primary facts relating to the construction of the said property. He raised several pleas. Inter alia, he impugned the assessment on the ground that the ITO had no material which could lead him to hold that the income had escaped the assessment. As far as the assessee is concerned, he had disclosed the factum of the purchase of the plot and furnished all the details of the acquisition of the plot and registration, etc. Since he did not maintain a construction account. he had got prepared an estimate of the cost of the construction by an approved valuer and, on that basis, explained the source of the layout of the cost. The ITO had not accepted his claim that he had incurred over construction, a sum of Rs. 1,1,000 only. He relied upon the Inspectors report and his estimate of construction and it was only after a proper consideration of the Inspectors report, which he had made after a personal survey on 27-12-1972, that the ITO reached his own estimate of construction and, consequently, caused an addition of Rs. 8,000 to be made to the total income of the assessee, as unexplained, which had gone into the construction of the said property.
On these facts it was contended by the assessee that he had not failed to disclose the primary facts, which he was required to disclose at the time of the original assessment. The Commissioner (Appeals) was moved by this plea and held that the assessee had not failed to disclose the primary facts regarding the construction. Therefore, the ITO could not proceed under section 147(a) and reopen the assessment. He, accordingly, quashed the assessment, as we have already indicated in the first para of the order.
5. The learned departmental representative vehemently referred to the fact that the Inspector did not have the professional expertise and, therefore, his report should not be considered effective in enabling the ITO to reach a correct estimate of the construction of the property. Undue importance should not be attached, therefore, to the estimate of the Inspector, who may not have seen the property with minute care. He might have misused several important features of the house, which later on, were noticed by the Valuation Officer, who made a correct estimate of investment made by the assessee in the construction of the aforesaid property. He also laid strees on the fact that, in the year 1975, the search of the premises had yielded documents, which showed that far greater amount had gone into the construction of the said property. It was acting on the basis of this information that the ITO had caused the estimate to be made by the Valuation Officer. The report of the Valuation Officer will show that several features had not been considered by the Inspector at all. For example, the Inspector had not referred to the swimming [pool whose cost of construction was estimated by the Valuation Officer at Rs. 10,000. There were many other features which were referred to in the order, passed under section 132(5) of the Act, and which had also been mentioned in the reasons recorded by the ITO. The Commissioner (Appeals) did not reach his finding that the issue of notice under section 147 was uncalled for and unjustified, after making a proper appraisal of the facts and material brought on record. On the other hand, the learned counsel for the assessee referred to the facts that the property had been surveyed by the Inspector, as early as on 27-12-1972, who had prepared an estimate of the construction of the property. It was acting on the basis of this estimate, that the ITO is making the original assessment, had chosen not to rely on the estimate, made by the assessee. How could, on these facts, had not been disclosed to the ITO fully. Where was the material with the ITO to hold that any income had escaped. He, accordingly, supported the order passed by the (Appeals), quashing the assessment.
6. Having heard the rival submissions, it does not appear that we can agree with the revenue to find the finding of the Commissioner (Appeals) to be erroneous, in any way. before the ITO chose to act under the basis of the provision contained in section 147(a), he has to show that the assessee had failed to disclose the primary facts necessary for making the assessment. It is only after he had established that there was a failure, he has to further show that this failure has resulted in the escapement of tax. Only when these two material conditions are fulfilled, the ITO gets a right to reopen the assessment. On the facts of the case, it does not appear that the ITO has been able to establish that the assessee had failed to disclose the facts. The assessee had disclosed the purchase of the plot, full particulars of the purchase consideration during the original assessment. He had also disclosed that the construction had taken place during the accounting the year in issue and since he did not maintain any construction account, he had got an estimate of the cost of construction prepared by an approved valuer and submitted to the ITO and it was, on the basis of this estimate, he had explained the source of the amount. We are unable to appreciate, in this background, the charge of the ITO that the assessee had failed to disclose any material particular required for making the assessment. At least, this is not borne out from a perusal of the assessment order, which was completed on 13-6-1973. No doubt, the ITO did not choose to rely on the estimate of the approved valuer, but, placing his reliance on the report of the Inspector, who had visited the site and surveyed the property, he had caused an addition of Rs. 8,000 to be made to the total income of the assessee, shown for the year. We cannot accept the pleas of the revenue that the Inspector lacked professional expertise and, therefore, his estimate should not come in the way of consideration whether an assessee had disclosed or not disclosed the primary particulars regarding the construction. Having acted on the basis of the Inspectors report and making the addition in the original assessment, it does not appear reasonable on the part of the revenue to proceed to impugn the Inspectors report as the one emanating from a person, lacking professional expertise. If the Inspectors report had been acted upon by the ITO at the time of the original assessment, he cannot now turn back and claim that the Inspector did not have the professional expertise and, therefore, his report should not be given weightage for consideration of the issue, whether the assessee had failed to disclose the primary facts or not. Similarly, we reject the plea of the ITO that the Inspector had not been allowed to see or inspect the property minutely. If this had been a fact, this should have been referred to by the Inspector and made a bigger addition than he, ultimately, agreed to make. Therefore, the only way, which is left for us to proceed according to the dictates of the reason and fairness, that we have to accept that the Inspector made a proper inspection of the property and based his estimate on the inspection. We are unable to appreciate that in making the estimate of the property, he ignored to take into account the 16 items of construction, for which the ITO made estimate of the additional cost. If these items had been there, we have to hold that the Inspector had inspected them and considered their cost in his estimate. Another estimate made by the Government valuer would be only another view or opinion regarding the valuation of the cost of construction of these items. That would not, in our view, entitled the ITO to proceed under section 147(a) and reopen the assessment. It is the settled view that a change of opinion would not enable an ITO to proceed under section 147 and reopen the assessment. On the other hand, if these items which have not been referred to by the ITO in his order, had not been there when the Inspector had visited the site, there would be no cause for reopening the assessment for the year in issue. In either case, we are not able to appreciate the plea of the revenue that the Commissioner (Appeals) had erred in reaching a finding that the ITO had no locus standi to proceed under section 147(a) in respect of the assessment of the year in appeal.
7. We may look at the issue from a perusal of the reasons recorded by the ITO. The departmental representative, no doubt, has referred to the search of the premises on 12-11-1975 and the recovery of the incriminating papers, but a perusal of the reasons recorded. for reopening the assessment, as given below, would show that the ITO had not depended upon those documents supporting his charge that the assessee had failed in his obligation to disclose the primary and material facts for assessment : "The assessee constructed a house at B-211, Greater Kailash, New Delhi, in the previous year, relevant to the assessment year 1971-72. The approved valuer certified vide his certificate dated 12-10-1972 that the cost of construction of the said house would reasonably be at Rs. 1,01,000 on this basis, the assessee filed the return declaring the cost of construction at Rs. 1,01,000. The ITO did not inspect the house and accepted the cost of construction after making an addition of Rs. 8,000 on agreed basis. In the course of search of the residential premises of the assessee, it was noticed that the specifications of the house were different than given in the approved valuers report.
Therefore, the Assistant Valuation Officer, Unit-II, Income-tax Department, New Delhi, who was asked to determine the construction of the property, has reported that the cost of construction was Rs. 1,76,700. In the valuation report dated 12-10-1973, the area of the main building has been shown at 3400 sq. ft. Whereas the Government valuer has calculated it at 4,132 sq. ft., i.e., there is a difference of 732 sq. ft. in the covered area. Thus, it means that the assessee had deliberately given inaccurate particulars of the covered area of the building. The approved valuer had valued the main building by applying a rate of Rs. 28 per sq. ft. Thus, there is an undervaluation of Rs. 732 x 28 =Rs. 20,496. Apart from this, the original report by the approved valuer does not contain the valuation of the following items : From the above, it is clear that the assessee had failed to give full details of the construction, which was necessary for ascertaining the cost of the construction of the house. The assessee had made more investment in the construction of the house, than shown by him. Since the assessee had explained only the source of investment of Rs. 1,10,000 plus Rs. 8,000 (addition on agreed basis), therefore, the balance investment is to be treated as his income for the year 1971-72." 8. A perusal of this shows that the ITO did not depend upon those alleged documents found during the search in arriving at the proper evaluation about the cost of construction of the aforesaid property and in reaching a belief that the income has escaped assessment. In recording the reasons, he depended upon the evaluation by the Valuation Officer. As we have already indicated above, evaluation by the Valuation Officer, however, professionally competent, will only be considered and treated as an opinion on the valuation. It will not enable an ITO to reopen the assessment which does not permit him to proceed on the basis of a change of opinion.
9. In whatever way, we may look at, whether from a consideration of the failure of the assessee to disclose the material particulars or from the consideration of the Inspectors estimate after he had visited the site and surveyed the property in the year 1972, and which had been depended upon by the ITO in making the original assessment or from that of the estimate made by the Valuation Officer, we cannot accept the plea of the revenue that the Commissioner (Appeals) arrived at an incorrect finding that the ITO had no material to hold that the income had escaped when he proposed to reopen the assessment. Accordingly, we decline to interfere.