2006 (7) TMI 157 - HC - Income Tax

Reopening of the assessment u/s 147 - difference in cost of construction disclosed and the cost determined by the Valuation Officer - Whether the Tribunal is right in holding that the reopening of the assessment u/s 147 on the basis of the valuation report is not proper? - HELD THTA - A single judge Court in Tara Chand Mundhra v. UOI 1998 (10) TMI 18 - RAJASTHAN HIGH COURT has held that once the books of account were held to be reliable as in the instant case where the Assessing Officer already accepted vide in his assessment orders the value of the construction of the kalyana mandapam as disclosed by the assessee the valuation report could not be made the basis for reopening the assessment and therefore the only ground available for the Department for reopening the assessment was the report of the official valuer for issuing notice u/s 148 which is bad and without foundation and therefore liable to be quashed. A Division Bench in CIT v. Vinod Danchand Ghodawat 2000 (6) TMI 13 - BOMBAY HIGH COURT where during the search it was found that the assessee had constructed a bungalow and had incurred an expense of Rs. 4.16 lakhs for the same and the Assessing Officer thereafter referred the matter to the Departmental Valuer who valued the property at Rs. 6.66 lakhs and the difference between the said valuation was added as an undisclosed income it was held that no addition could be made on the basis of the report of the Departmental Valuer which was obtained subsequent to the order of the regular assessment. In view of the above settled proposition of law we do not find any force in the contention of the Revenue for raising the first question of law. In view of our conclusion with regard to the first question of law we also do not find any force in the second question of law. That apart we do not hesitate to hold that the report of the Departmental Valuation Officer cannot be a basis because the valuation cannot be an arithmetical appreciation of the materials used for the construction nor the expenses incurred by the assessee in that regard as variations are bound to be there as fairly conceded by learned counsel appearing for the Revenue that there is variation in the value of the construction between the Central PWD rates and the State PWD rates themselves. Hence finding no merit in these appeals the same are dismissed. Consequently connected T.C.M. Ps. are also dismissed.

Summary

Issues:
Reopening of assessment based on valuation report
Addition of cost of construction as per valuation report

Reopening of assessment based on valuation report:
The case involved appeals against the Income-tax Appellate Tribunal's order for assessment years 1996-97, 1997-98, and 1998-99. The Assessing Officer reopened the assessment due to a variance in the cost of construction of a kalyana mandapam. The Departmental Valuation Officer estimated the cost higher than declared by the assessee. The Tribunal allowed the appeals, leading to the Revenue raising questions on the validity of the reopening based on the valuation report. The High Court cited precedents to establish that relying solely on valuation reports for reassessment is not proper when the assessee's declared value was accepted in the original assessment. The Court dismissed the Revenue's contentions, emphasizing that the valuation report cannot be the sole basis for reopening assessments.

Addition of cost of construction as per valuation report:
The second issue involved the addition of the cost of construction based on the valuation report. The Revenue questioned the Tribunal's decision to reject this addition despite a significant difference in costs. The High Court referred to judgments from different High Courts to support its stance. It highlighted that adding amounts based solely on valuation reports obtained after the original assessment is not justified. The Court emphasized that discrepancies in valuation are expected due to variations in rates. Consequently, the Court found no merit in the Revenue's arguments and dismissed the appeals, along with connected petitions. The judgment emphasized the importance of not solely relying on valuation reports for reassessment purposes, especially when the original assessment accepted the assessee's declared values.