2007 (8) TMI 324 - HC - Income Tax

Reassessment based on report of departmental valuation officer construction of building - hold that the report of the Departmental Valuation Officer cannot be a basis for reassessment because the valuation cannot be an arithmetical appreciation of the materials used for the construction nor the expenses incurred by the assessee in that regard, as variations are bound to be there - Tribunal was right in law in holding that the reopening of the assessment is bad in law and the reopened assessment is annulled

Summary

Issues:
Reopening of assessment under section 147 of the Income-tax Act based on Commissioner of Income-tax (Appeals) order for assessment years 1991-92 to 1994-95.

Analysis:
The appellant, an individual, filed the return of income for the assessment year 1993-94, admitting income from business and agriculture. The Assessing Officer reopened the assessment under section 147 of the Income-tax Act based on the Commissioner of Income-tax (Appeals) order for the assessment years 1991-92 to 1994-95. The appellant had constructed a shopping space-cum-kalyana mandapam during the relevant years. The Commissioner of Income-tax (Appeals) directed that the difference in the cost of construction, as per the Approved Valuer's Report and as admitted by the appellant, should be brought to tax for the relevant assessment years. The Assessing Officer made an addition during reassessment, leading to an appeal by the appellant to the Tribunal.

The Tribunal allowed the appeal, holding that the reopening of the assessment was bad in law. The Tribunal relied on a court judgment stating that the report of the Departmental Valuation Officer could not be the basis for valuation due to variations in construction costs. The Tribunal also noted that the tax effect arising from the addition made by the Assessing Officer was negligible. The Tribunal's decision was based on the principles enunciated in the court's judgment in a similar case.

The Revenue contended that the reopening of the assessment was valid as it was done in compliance with the Commissioner of Income-tax (Appeals) order. However, the court found that the cost of construction was fixed by the earlier Commissioner of Income-tax (Appeals) order based on the approved valuer's report. The court upheld the Tribunal's decision, stating that there was no error or legal infirmity in the Tribunal's order to warrant interference. Therefore, the court dismissed the tax case, concluding that no substantial question of law arose for consideration.