2009 (2) TMI 98 - HC - Income Tax

Reopening of assessment matter referred to the Departmental Valuation Officer for valuation of cost of construction matter can be referred to DVO only when the proceedings of assessment/reassessment are pending before the AO - when no such proceedings are pending AO has no jurisdiction to refer to DVO - reasons recorded do not indicate that AO was in possession of any material which would permit him to form an opinion or have reason to believe that any income has escaped assessment

Issues Involved:
1. Legality of invoking Section 142A of the Income Tax Act for Assessment Year 2000-2001.
2. Validity of reopening assessments for Assessment Years 2001-2002 and 2002-2003 under Section 148 of the Income Tax Act.
3. Adequacy of reasons recorded for reopening assessments.

Detailed Analysis:

1. Legality of invoking Section 142A of the Income Tax Act for Assessment Year 2000-2001:

The court examined whether the provisions of Section 142A of the Income Tax Act could be invoked to disturb an assessment completed prior to 30.09.2004. The petitioner argued that the assessment for the year 2000-2001 was not pending on the date the reference was made to the Departmental Valuation Officer (DVO) on 02.12.2004. The court noted that the return of income filed on 30.11.2000 was acknowledged without any assessment order. Applying the Supreme Court's decision in Assistant Commissioner of Income-Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd., it was held that there was no assessment under Section 143(1)(a) of the Act. Consequently, the court determined that the provisions of Section 142A could not be invoked as the assessment had become final and conclusive before 30.09.2004.

2. Validity of reopening assessments for Assessment Years 2001-2002 and 2002-2003 under Section 148 of the Income Tax Act:

For Assessment Year 2001-2002, the court found that the Assessing Officer (AO) had made detailed inquiries and arrived at a conscious decision regarding the cost of construction. Since the impugned notice under Section 148 was issued beyond four years from the last day of the assessment year (31.03.2002), the court held that there was no failure or omission on the part of the petitioner to disclose fully or truly all material facts. Thus, the reopening of the assessment was not justified.

For Assessment Year 2002-2003, the court observed that detailed inquiries were made by the AO, who had formed an opinion. In the absence of any fresh material, the AO could not resort to reopening the completed assessment based on a change of opinion. Therefore, the court concluded that the reopening of the assessment for this year was also not justified.

3. Adequacy of reasons recorded for reopening assessments:

The court scrutinized the reasons recorded for issuing the notices under Section 148 for all three assessment years. The recorded reasons indicated that the assessee had not disclosed fully and truly all material facts necessary for assessment, particularly concerning the cost of construction. However, the court found that the reasons lacked specific details indicating what part of the cost of construction was not disclosed. The reasons merely stated a generalized vague statement, supported by the difference worked out by the DVO, without specifying the failure on the part of the assessee.

The court emphasized that the reasons recorded did not satisfy the tests laid down by the Supreme Court in Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers P. Ltd., which require the AO to have "reason to believe" based on relevant material. The reasons recorded did not provide a cause or justification to form such a belief.

Conclusion:

The court concluded that the impugned notices issued under Section 148 for all three assessment years did not indicate that the respondent authority possessed any material justifying the belief that income had escaped assessment. The court quashed and set aside the notices dated 21.02.2007 for all three years. The petitions were allowed, and the rule was made absolute with no order as to costs.

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