2013 (11) TMI 531 - HC - Income Tax

Inadequate reasons for re-opening of assessment u/s 147 of the Income Tax Act Held that - Reliance has been placed on the Apex court judgment in the case of ACIT v. Dhariya Construction Co. 2010 (2) TMI 612 - Supreme Court of India , in which the Supreme Court held that the opinion of the DVO per se is not an information for the purpose of reopening of assessment u/s 147 of the Act. The AO has to apply his mind to the information, if any, collected and must form a belief thereon. In the present case, there is nothing to show that there was any material other than DVO s report, which is only an estimation to issue notice under Section 148 of the Act. The A.O. may be justified in assessment proceedings to obtain report of DVO to meet the estimation of the cost of construction made by the assessee. Having completed assessment it was not open for the AO, in the absence of any material, which includes information, to doubt on the completed assessment and to reassess the assessee on the basis of the report of DVO.

Summary

Issues:
1. Invocation of decision of Hon'ble Apex Court in Sargam Cinema Vs. CIT without production of books of account.
2. Justification of reopening of assessment under Section 147 based on DVO's report without maintaining books of account.

Issue 1:
The appeal raised questions regarding the correctness of invoking the decision of the Hon'ble Apex Court in Sargam Cinema Vs. CIT without the production of books of account before the Assessing Officer (AO). The AO did not have the opportunity to examine the books of account. The Income Tax Appellate Tribunal (ITAT) relied on the judgment of the Supreme Court in ACIT v. Dhariya Construction Co., emphasizing that the opinion of the Departmental Valuation Officer (DVO) alone is not sufficient for reopening assessments under Section 147 of the Income Tax Act. The ITAT found no error in this approach, stating that the AO must have material other than the DVO's report to justify reassessment.

Issue 2:
The second issue revolved around the justification for reopening the assessment under Section 147 based on the DVO's report when the assessee did not maintain books of account. The AO initiated proceedings under Section 147 after receiving the DVO's report following a reference made under Section 142A of the Income Tax Act. The AO estimated differences in construction costs for various assessment years. The CIT (A) upheld the reopening, noting that the assessee failed to produce books of account and relevant valuation reports. The ITAT, following legal precedents, held that the DVO's opinion alone is not sufficient to reopen assessments. The AO's reliance solely on the DVO's report without additional material was deemed unjustified, leading to the dismissal of the appeals.

In conclusion, the High Court dismissed all income tax appeals, emphasizing that the AO cannot reassess an assessee solely based on the DVO's report without any positive material indicating concealment or escapement of income. The court reiterated that in the absence of concrete evidence, such reassessment actions are unwarranted. The judgments of the Supreme Court and previous High Court decisions were cited to support the dismissal of the appeals, highlighting the necessity for substantial grounds beyond the DVO's estimation for initiating reassessment proceedings under Section 147.