1. A short question arises in this petition, viz., whether the ITO had exceeded his jurisdiction in issuing notice for reassessment, vide his notice of March 10, 1980, for reopening the assessment for the assessment year 1973-74, in exercise of his powers under s. 147(a) of the I.T. Act, 1961. A few facts need be noticed in order to appreciate the question which has been raised in this petition.
2. S.Y. 2029 corresponding to the period from November 7, 1972, to October 26, 1973, was the previous year to the assessment year 1974-75. Similarly, S.Y. 2028 corresponding to the period from October 20, 1971, to November 6, 1972, was the previous year to the assessment year 1973-74. The petitioner-assessee had derived income by way of share income from a partnership firm under the name and style of M/s. Tolaram Brothers. The assessee was one of five owners having 1/5th share each in the property known as 'Mira Palace' situate at Maninagar, Ahmedabad. It is common ground that the construction of the said property was completed somewhere in December, 1972. The total cost of construction of the said building was shown in the return filed for the assessment year 1974-75 at Rs. 1,64,991 on the basis of the valuation report which the assessee had obtained. The ITO concerned was of the opinion that the cost of construction as arrived at was not proper inasmuch as it was not only not stated but did not include the cost of electrification of the said property. He, therefore, called upon the assessee to show cause why 30% of the total cost should not be added and accordingly apportioned between the owners. The assessee by his letter of March 26, 1977, pointed out that the statement of cost did include the cost of electrification and the particulars furnished were true and complete. In spite of the assessee being able to show successfully that the cost did include the cost of electrification, the ITO decided to add Rs. 55,000 being 30% of the total cost and accordingly added Rs. 11,000 as the income of the assessee. The said amount reflected the assessee's 1/5th share.
3. The assessee being aggrieved by this order carried the matter in appeal to the AAC who allowed it and remanded the matter for estimating the cost afresh.
4. Being aggrieved by the order of the AAC, the assessee carried the matter in further appeal to the Tribunal. The Tribunal noted that it was the common case of the parties that the construction of the building in question was completed in December, 1972, that is, prior to the commencement of the financial year 1973-74, which fact was clear from the period of construction as shown in the valuer's report compiled and filed by the assessee. The Tribunal, therefore, held that the inclusion of the impugned amount in the assessee's total income could not, therefore, be sustained since it has to be considered as income of the financial year, that is, 1972-73, and could be treated, if at all, as undisclosed investment under s. 69 and, therefore, could not have been brought to tax in assessment year 1974-75. The Tribunal, therefore, allowed the appeal. It is this order which has prompted the ITO to issue notice for reassessment for reopening assessment for assessment year 1973-74, because, according to the Tribunal the impugned amount was the income of the financial year 1972-73, and, therefore, consequently liable to be taxed if at all in the assessment year 1973-74. The petitioner has, therefore, moved this court for appropriate writs, orders or directions to quash and set aside the impugned notice and for restraining the ITO from holding reassessment proceedings.
5. In response to the rule nisi issued by this court, reply affidavit of one Shri B.H. Kanuga, Income-tax Officer, Circle-II, Ward-M (SIC), Ahmedabad, has been filed on behalf of the respondent. Shortly stated, the case of the respondent is that since the construction of the bungalow was completed admittedly in December, 1972, the petitioner ought to have disclosed selfoccupied property income for assessment year 1973-74. However, the same was shown for the first time in the assessment year 1974-75. No valuation report was filed according to the deponent of the reply affidavit along with the return of income for assessment year 1973-74, nor was it filed at the time of assessment proceedings of the said year and the same was filed during the course of assessment proceedings for assessment year 1974-75, in response to a letter of the ITO addressed to the petitioner-assessee. The ITO, therefore, came to know of the completion of the construction of the bungalow in the course of the assessment proceedings for assessment year 1974-75. In the assessment for assessment year 1974-75, the ITO estimated the cost of construction at Rs. 2,20,805 as against Rs. 1,64,991 as declared by the assessee. The AAC in appeal, however, set aside that order and remanded that matter for fresh valuation which was called for from the valuation cell, and according to the report it has been now valued at Rs. 3,34,000. Meanwhile the Appellate Tribunal by its order of August 29, 1979, held that the addition could not be sustained for assessment year 1974-75 as the same was purported to have been made under s. 69.
6. It is in the context of these rival contentions that we have to consider as to whether the ITO was within his jurisdiction to initiate reassessment proceedings in exercise of his powers under s. 147(a) of the I.T. Act, 1961.
7. We are of the opinion that this petition must be allowed obviously for the following reason : It is difficult to agree, on the facts and in the circumstances of the case, that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year 1973-74 in connection with the house property in question, namely, Mira Palace. As a matter of fact, it has been noted by the ITO in his assessment order for assessment year 1974-75 as under :
'It is seen that the assessee is having 1/5th share in the house property named as Mira Palace situated at Maninagar, Ahmedabad, the construction of which has been completed during the year. A separate construction account has been maintained. It is seen that the total cost of construction of the said building has been shown at Rs. 1,64,991 (total cost of the building Rs. 1,90,159 minus cost of the land Rs. 25,168). In support of the said cost of the construction, the assessee has filed a valuation report by Shri L. D. Asarporta, Chartered Architect and registered valuer of M/s. Asarporta and Asarporta, Ahmedabad, bearing No. 872/75A/15439 dt. February 9, 1977, showing the cost of construction of the said building at Rs. 1,69,850. As the said report of Shri L. D. Asarporta, registered valuer, appeared to be low and also did not include the electrical fittings installed in the building, the assessee was required to explain why the cost of construction of the said building should not be increased by 30% which comes to Rs. 50,955 resulting in the total estimated cost of construction at Rs. 2,20,805 (Rs. 1,69,850, the estimated cost of the construction, and as per the valuer's report, Rs. 50,955) for which the assessee was required to show cause why the difference between the estimated value of the cost of construction of the said building of Rs. 2,20,805 minus cost of construction of the said building of Rs. 1,64,906 which comes to Rs. 55,899 which may be rounded to Rs. 55,000 should not be considered to have been spent jointly by him with other co-owners in which 1/5th share of the assessee comes to Rs. 11,000 to have been spent from some income from some undisclosed sources and added in his income.'
8. The ITO had two documents with him. Firstly, the ITO had a statement of construction before him and, secondly, the report of the registered valuer, M/s. L. D. Asarporta and Asarporta, Ahmedabad. The said report of the valuer, as has been clearly recorded in the order of the Tribunal, had shown the period of construction. It is common ground, as noted by the Tribunal, that the construction was completed in December, 1972. This fact has been noted by the Tribunal that the valuer's report clearly revealed the period of construction. It is, therefore, difficult for us to agree that there is any concealment in the first instance. Not only the assessee disclosed by two documents, viz., statement of construction and valuer's report, the necessary facts about the period of construction including the completion thereof but also the cost of construction of the entire building. The ITO,after going through this statement of account as well as the valuer's report, was of the opinion that there was an understatement of the cost which he has, after hearing the assessee, thought fit to increase by about Rs. 55,000, and consequently decided to add Rs. 11,000 being the 1/5th share of the assessee in the property. In other words, he was not of the opinion at that time that the petitioner-assessee was duty bound under the law to disclose fully and truly all material facts pertaining to the property income of the said property, Mira place, for the assessment of the assessment year 1973-74. It is only on account of his erroneous view in law that he brought that income to tax in assessment year 1974-75. The contention of the Revenue is very limited. It is urged that it was on account of the order of the Tribunal that if at all this impugned addition can be made, it can be made only under s. 69 in which case it should be treated as an income of financial year 1972-73, and by necessary implication, therefore, could be brought to tax in assessment year 1973-74. It is in the light of this order that the ITO had reason to believe that it escaped assessment in assessment year 1973-74 since the assessee had failed to disclose truly and completely all the material facts necessary for assessment of the house property, Mira palace.
9. Though this contention appears to be attractive on the face of it, on close scrutiny, with respect to the Revenue, it is fallacious. We should again remind ourselves that the construction was completed in December, 1972, that is, in the course of the period corresponding to S.Y. 2029 which is the previous year relevant to the assessment year 1974-75. It is only because the ITO decided to add to the total cost, as in his opinion there was an understatement of cost, that the impugned amount came to be added to the total cost and correspondingly to the income of the assessee in the assessment year 1973-74. This could have been done only under s. 69 which the Tribunal found could be done in the assessment year relevant to the financial year of which it should be an income and which in the present case would be of financial year 1972-73. It is, thus, clear that the assessee could not be blamed for not disclosing the true and complete materials for assessing the property income in 1973-74. It is only on account of the addition made by the ITO that this situation had arisen. It is entirely a fortuitous circumstance and, therefore, we cannot agree with the submission made on behalf of the Revenue that the assessee was under duty in law to disclose these facts for the assessment of 1973-74. It is only on account of the addition made by the ITO that this situation had arisen. In that view of the matter, therefore, we are of the opinion that the ITO was not justified in invoking his jurisdiction under s. 147(a) of the I.T. Act, 1961, and, therefore, the impugned notice is beyond his jurisdiction, power and authority.
10. The result is that this petition is allowed. The impugned notice is quashed and set aside by appropriate writ and the ITO is restrained from continuing reassessment proceedings in pursuance thereof. Rule is made absolute accordingly. However, having regard to the facts of this case, there should be no order as to costs.