2017 (2) TMI 1123 - HC - Income Tax

Validity of reopening of assessment - ingenuine loans - Held that - At the time of scrutiny assessment under Section 143 3 and at the time of filing the return of income, the assessee specifically claimed that he had taken loans from the family members during the year under consideration. Alongwith the return of income/computation of income, it appears that the assessee also placed reliance upon materials such as return filed by Dr. Rajivram R Choudhry HUF stating that the said HUF sold ancestral property at Panipat in the FY 2005-2006. That thereafter, the Assessing Officer framed scrutiny assessment under Section 143 3 of the Act and accepted the case of the assessee that he had taken loans from the aforesaid three persons and did not make any amount towards undisclosed cash investment. Thus the entire issue as such was gone into by the Assessing Officer while framing the scrutiny assessment under Section 143 3 and it cannot be said that there was any failure on the part of the assessee in not disclosing the true and correct facts necessary for the assessment. It is required to be noted that the case of the assessee from the very beginning was that the aforesaid HUF sold the ancestral property in F.Y 2005-2006. It was never the case of the assessee that the said HUF sold the property in F.Y2008-2009. Necessary documents of Shri Rajivram R Choudhry HUF to show that the ancestral properties were sold in F.Y 2005-2006 were already produced on record at the time of scrutiny assessment under Section 143 3 of the Act. Even a certificate issued by DDIT Inv. , Panipat was issued with respect to altogether another property for which the sale proceeds were not received in FY 2008-2009. That, the property which was sold in FY 2005-2006 by HUF and others were altogether different properties for which the sale deeds were produced on the record. Under the circumstances, formation of opinion by the Assessing Officer doubting genuineness of the claim of the assessee with respect to the loans taken from the aforesaid three persons is on the wrong premise and the facts. So far as the second reason to reopen the assessment which is based on the Valuation Report of D.V.O, it is required to be noted that on DVO s report, the Assessing Officer has formed a belief that the assessee had concealed the investment to the extent of ₹ 9,21,148/ during the year under consideration. However, it is required to be noted that at the time when scrutiny assessment was framed under Section 143 3 of the Act on 29th December 2011, there was no DVO s report. Even in the reasons recorded, it is specifically mentioned that the valuation report of DVO was received after completion of scrutiny assessment on 30th November 2012. The claim of the assessee with respect to the investment in construction of Hospital building of ₹ 2,74, 93,923/ came to be accepted by the Assessing Officer while framing the scrutiny assessment under Section 143 3 of the I.T Act. Even otherwise, it is required to be noted that there is hardly a difference of ₹ 9,21,148/ ie., approximately of 3% of the total investment in construction of hospital building. As per the catena of decisions, DVO s valuation report can be said to be its opinion and there might be some variation in the calculation. In any case, it cannot be said that there was any failure on the part of the assessee in not disclosing true and correct facts necessary for assessment which warrants reopening beyond the period of four years. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income-tax Act, 1961 beyond four years.
2. Examination of loans taken from family members.
3. Consideration of the Valuation Officer's report regarding the construction of the hospital building.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment Beyond Four Years:
The petitioner-assessee challenged the reopening of the assessment for the Assessment Year (A.Y.) 2009-2010 under Section 148 of the Income-tax Act, 1961, arguing that the conditions precedent for reopening beyond four years, as specified in the proviso to Section 147, were not satisfied. The court noted that the original assessment was completed under Section 143(3) of the Act, and all relevant facts were disclosed by the assessee during the original assessment. The court emphasized that unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the reopening beyond four years was not justified. The court found that there was no such failure by the assessee and thus held that the reopening was not valid.

2. Examination of Loans Taken from Family Members:
The assessee had disclosed loans taken from family members amounting to ?1,72,96,000 during the original assessment. The Assessing Officer (AO) had accepted these loans as genuine based on the confirmations and assessment details provided by the creditors. However, the reopening was based on a subsequent inquiry by the DDIT (Investigation) Panipat, which reported that no sale proceeds were received by the HUF during the Financial Year (F.Y.) 2008-09. The court noted that the assessee had consistently claimed that the loans were from the sale proceeds of ancestral property sold in F.Y. 2005-2006, not F.Y. 2008-09. Therefore, the court found the AO's doubts about the genuineness of the loans to be based on incorrect premises and facts.

3. Consideration of the Valuation Officer's Report:
The second reason for reopening was based on the Valuation Officer's (DVO) report, which indicated a discrepancy of ?9,21,148 in the investment in the construction of the hospital building. The court observed that the DVO's report was received after the completion of the original assessment and that the difference was only about 3% of the total investment. The court referred to established legal principles that a DVO's report is merely an opinion and minor variations in valuation do not justify reopening. The court concluded that there was no failure on the part of the assessee in disclosing true and correct facts necessary for the assessment.

Conclusion:
The court quashed and set aside the impugned notice dated 29th March 2016 for reopening the assessment for A.Y. 2009-2010, ruling that the reopening was not justified beyond the period of four years. The court made the rule absolute with no order as to costs.