2014 (2) TMI 950 - HC - Income Tax

Re-opening of assessment of income u/s 148 of the Act Held that - The reassessment proceedings initiated by the revenue are nor sustainable - The Assessing Officer has to apply his mind to any information in form of the valuation report and must form a belief thereon that there is escapement of income - The opinion of the DVO is per se not an information for the purpose of reopening of an assessment - The Assessing Officer has to apply his mind to the report of the DVO and only if on application of mind, if he forms a belief that there is escapement of income, he can seek to reopen the assessment under section 147 of the Act. Relying upon Assistant Commissioner of Income-tax Versus. Dhariya Construction Co. 2010 (2) TMI 612 - Supreme Court of India - For the report of the Valuation Officer to become a basis for the reopening, the Assessing Officer should have applied his mind to the report of the Valuation Officer - The Assessing officer has clearly not applied his mind to the report of the Valuation Officer - Perusal of the Balance Sheet of the Assessee for the year ending 31.03.2005 shows that the Assessee has shown an amount as an expenditure of capital nature on the Bayadgi Unit towards the School building - The Assessing Officer has taken the amount shown as nil - For the year ending 31.03.2006 the Assessee has shown an investment as expenditure of capital nature on the Bayadgi unit and the value of the school building as on 31.03.2006 thus, the assessing officer has merely intended to revisit the concluded assessment and it is a clear case of change of opinion which is not permissible in law Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of reassessment under Section 147/148 for assessments framed under Section 153A.
2. Use of Valuation Officer's report as the basis for reassessment.
3. Allegation of change of opinion by the Assessing Officer.
4. Exemption of income applied towards charitable purposes under Section 11.

Detailed Analysis:

1. Validity of Reassessment under Section 147/148 for Assessments Framed under Section 153A:
The petitioner argued that reassessment under Section 147/148 is not permissible for assessments framed under Section 153A, which is conducted pursuant to a search. The petitioner contended that Section 147 pertains to assessments under Section 143(3) and does not apply to assessments under Section 153A. The court, however, did not delve deeply into this issue as it quashed the reassessment on other grounds.

2. Use of Valuation Officer's Report as the Basis for Reassessment:
The court scrutinized the reliance on the Valuation Officer's report for initiating reassessment. The court referred to precedents, including the Supreme Court's judgment in Dhariya Construction Co., which held that a Valuation Officer's report alone cannot justify reassessment. The Assessing Officer must apply his mind to the report and form a belief that income has escaped assessment. In this case, the court found that the Assessing Officer did not demonstrate application of mind and merely accepted the report, which was not permissible.

3. Allegation of Change of Opinion by the Assessing Officer:
The petitioner contended that the reassessment was a mere change of opinion, which is not allowed under the law. The court agreed, noting that the Assessing Officer had all the relevant information during the original assessment and had consciously decided not to make any additions based on the construction expenditure. The subsequent valuation report was used as a pretext to revisit the concluded assessment, amounting to a change of opinion.

4. Exemption of Income Applied Towards Charitable Purposes under Section 11:
The petitioner argued that any income applied towards the construction of the school building should be exempt under Section 11 as it was for charitable purposes. The court did not need to address this argument in detail since it quashed the reassessment on other grounds.

Conclusion:
The court found merit in the petition and quashed the reassessment proceedings. It held that the reassessment was not sustainable as it was based on the Valuation Officer's report without proper application of mind by the Assessing Officer, constituting a change of opinion. The court set aside the impugned order and notices, allowing the writ petition with no orders as to costs. The question of whether assessments under Section 153A can be reassessed under Section 147/148 was left open.