2015 (11) TMI 1313 - HC - Income Tax

Reopening of assessment - Held that - Considering the material before the Assessing Officer and the nature of inquiry made by him, except for the report of the DVO, there was no tangible material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. As held by the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co. (2010 (2) TMI 612 - Supreme Court of India), the opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Act. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the light of the above discussion, this court is of the view that on the reasons recorded by the Assessing Officer, he could not have formed the belief that the income chargeable to tax has escaped assessment. Under the circumstances, the very assumption of jurisdiction under section 147 of the Act on the part of the Assessing Officer by issuing the impugned notice under section 148 of the Act is without authority of law, and hence, the impugned notice cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening the assessment based on the Departmental Valuation Officer's (DVO) report.
3. Application of mind by the Assessing Officer in forming the belief of escaped income.

Detailed Analysis:

1. Legality of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 28th March 2014, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 2007-08. The petitioner argued that the reopening was solely based on the DVO's report, which is not a valid ground for reopening an assessment. The court noted that the petitioner had filed its return for the assessment year 2007-08 on 17.10.2007, processed under Section 143(1) of the Act. The petitioner requested the reasons for reopening, which were provided on 28.07.2014, and subsequently filed objections on 19.08.2014, which were rejected by the first respondent on 25.08.2014.

2. Validity of Reopening the Assessment Based on the DVO's Report:
The petitioner contended that the sole basis for reopening the assessment was the DVO's report, without the Assessing Officer applying his mind to the facts. The court referred to the case of *Vinayak Builders v. BD Garsar* and *Assistant Commissioner of Income Tax v. Dhariya Construction Co.*, where it was held that the opinion of the DVO per se is not information for reopening an assessment under Section 147 of the Act. The court emphasized that the Assessing Officer must apply his mind to the information and form a belief thereon. In this case, the court found that the Assessing Officer did not independently verify the facts and solely relied on the DVO's report, which is insufficient for reopening the assessment.

3. Application of Mind by the Assessing Officer in Forming the Belief of Escaped Income:
The respondent argued that the reopening was not merely based on the DVO's report and that the Assessing Officer had applied his mind. The court examined the reasons recorded by the Assessing Officer, which indicated that the cost of construction claimed by the petitioner appeared low compared to similar projects, leading to a reference to the DVO. The DVO's report showed a higher cost of construction, forming the basis for the belief that income had escaped assessment. However, the court noted that the petitioner had not claimed any deduction under Section 80IB(10) for the year in question, and the Assessing Officer did not independently verify the under-reporting of the cost of construction. The court concluded that the Assessing Officer did not have tangible material to form the belief that income had escaped assessment, thus invalidating the assumption of jurisdiction under Section 147 of the Act.

Conclusion:
The court held that the Assessing Officer could not have formed the belief that income chargeable to tax had escaped assessment based on the reasons recorded. Therefore, the assumption of jurisdiction under Section 147 of the Act by issuing the impugned notice under Section 148 was without authority of law. Consequently, the petition was allowed, and the impugned notice dated 28th March 2014, was quashed and set aside. The rule was made absolute with no order as to costs.

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