2018 (1) TMI 1728 - HC - Income Tax

Validity of reassessment after a period of four years - reasons to believe - reliance on statement recorded in the course of survey u/s 133A of a partner as stated that there is an understatement of the cost of construction of a commercial building - power to examine a person on oath - HELD THAT - As decided in S.Khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT the statement recorded during the course of survey action u/s 133A of the Act shall not have any evidentiary value and solely based on the said statement given by one of the partners of the firm, the question of reopening cannot be done. Further, after taking note of the decision in the case of Dr.S.C.Gupta 1999 (11) TMI 9 - ALLAHABAD HIGH COURT the Court held that the power to examine a person on oath is specifically conferred on the authorities only under Section 132(4) of the Act in the course of any search or seizure and Section 133A does not empower any income-tax officer to examine any person on oath. Thus here is absolutely no basis for reopening of the assessment. That apart, though the second respondent seeks to bring out a case of underestimation in the cost of construction by referring to the statement of the partner, the second respondent himself called for a valuation report from the Public Works Department and find that the cost of the construction as disclosed in the return for the assessment year 1999-2000 and the valuation, which was done by the Public Works Department officials in the year 2003 has only marginal difference and the variation appears to be around Rs.1,00,000/-. Thus, on his own showing, the second respondent was not able to bring out a case of underestimation of the cost of construction. Thus, impugned reopening proceedings are wholly without jurisdiction and illegal. Thus the impugned reopening proceedings are quashed. Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment for the assessment year 1999-2000 under Section 147 of the Income Tax Act, 1961.
2. Reliance on a statement recorded during a survey under Section 133A of the Act.
3. Justification of reopening based on partner's statement and lack of tangible material.
4. Legal validity of the reopening proceedings and the need for prior sanction under Section 151 of the Act.

Analysis:
1. The petitioner, a partnership firm, challenged the order rejecting their objections for reopening the assessment for the assessment year 1999-2000 under Section 147 of the Income Tax Act. The basis for reopening was a statement recorded from a partner during a survey, alleging an understatement of construction costs. The court noted that reopening after four years required tangible new material, not previously considered. The petitioner disputed the partner's statement, questioning its reliability for reopening proceedings.

2. The court considered the evidentiary value of statements recorded during a survey under Section 133A of the Act. Citing precedents, the court held that such statements may lack evidentiary value. The court emphasized that reopening based solely on a partner's statement from a survey was insufficient. The petitioner's denial of the statement raised doubts about the validity of the reopening.

3. The petitioner argued that prior sanction under Section 151 of the Act was not obtained for reopening. The court examined the issuance of the notice and the approval process, finding that necessary sanction was obtained before issuing the notice. The court accepted the revenue's explanation regarding an inadvertent error in the reasons for reopening.

4. Ultimately, the court found no basis for reopening the assessment. Despite attempts to show underestimation in construction costs, the court noted that the valuation report from the Public Works Department revealed only a marginal difference from the petitioner's disclosed cost. The lack of substantial variation undermined the second respondent's case for underestimation. Consequently, the court deemed the reopening proceedings as without jurisdiction and illegal, quashing them in favor of the petitioner.