2017 (6) TMI 1126 - HC - Income Tax

Reopening of assessment - reason to believe - reliance upon the Assistant Valuation Officer s report - Held that - In view of the principle of law laid down in Kelvinator of India Ltd. s case (2010 (1) TMI 11 - SUPREME COURT OF INDIA) a wrong or erroneous opinion is not a good ground for reopening the assessment, this would be contrary to the jurisdictional requirement and mandatory pre-conditions which should be satisfied. Erroneous decision can be corrected by resort to exercise of power under Section 263 of the Act, 1961 which is the most appropriate remedy. The said power can also be exercised if the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. Thus, in the present case, if the order passed by the Revenue is perused, recourse to Section 263 of the Act, 1961 can certainly be made which the Assessing Officer did not do and proceeded to reopen the assessment under Section 147 of the Act, 1961 by issuing notice under Section 148 of the Act which does not satisfy the jurisdictional pre-requirement for exercise of jurisdiction under Section 147. Therefore, unreservedly and unhesitatingly of the opinion for the reasons mentioned herein-above that the order passed by the Assessing Officer under Section 147 of the Act, 1961 seeking to reopen the assessment already made is without jurisdiction and without authority of law and the order disposing of the preliminary objections is also not in accordance with law. Consequently, the order finally passed making reassessment is also contrary to law. Proceeding for reassessment under Section 147-148 cannot be initiated on the basis of report of the Assistant Valuation Officer - Decided in favour of assessee.

Issues Involved:
1. Maintainability of the writ petition challenging the show cause notice under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Validity of the reassessment proceedings initiated based on the report of the Assistant Valuation Officer.
3. Whether the order disposing of preliminary objections was a reasoned and speaking order.
4. Appropriateness of the reassessment proceedings versus recourse to Section 263 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The court examined whether the writ petition challenging the show cause notice issued under Section 147 read with Section 148 of the Income Tax Act, 1961 is maintainable. The petitioner relied on the Supreme Court's judgments in Calcutta Discount Co. Ltd. v. Income-Tax Officer and The Commissioner of Income-tax, Gujarat v. M/s. A. Raman and Co. which held that the High Court has the power to issue orders prohibiting the Income Tax Officer from reassessing income when the conditions precedent do not exist. The court concluded that the writ petition is maintainable to challenge the notice for reassessment issued under Section 147 read with Section 148 of the Act, 1961.

2. Validity of the Reassessment Proceedings:
The court scrutinized the reassessment proceedings initiated based on the Assistant Valuation Officer's report. The petitioner argued that the opinion of the Assistant Valuation Officer is not a valid basis for reopening the assessment under Section 147 of the Act. The court referred to the Supreme Court's ruling in Dhariya Construction Company, which held that the opinion of a valuation officer per se is not information for reopening assessment under Section 147 of the Act. The court found that the reassessment was initiated solely based on the valuation report without independent application of mind by the Assessing Officer, rendering the proceedings invalid.

3. Order Disposing of Preliminary Objections:
The petitioner contended that the order disposing of the preliminary objections was not a reasoned and speaking order. The court referred to the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. Income Tax Officer, which mandates that preliminary objections must be decided by a reasoned and speaking order. The court found that the order rejecting the preliminary objections did not provide reasons for the rejection and thus was not in compliance with the legal requirement for a reasoned and speaking order.

4. Appropriateness of Reassessment Proceedings versus Section 263:
The petitioner argued that if the assessment was erroneous, the proper recourse for the Revenue was to invoke Section 263 of the Act, 1961, which allows for revision of orders prejudicial to the interests of the Revenue. The court agreed, citing the Supreme Court's decision in Commissioner of Income-Tax v. Kelvinator of India Ltd., which held that erroneous decisions can be corrected under Section 263 rather than through reassessment under Section 147. The court concluded that the Assessing Officer should have taken recourse to Section 263 instead of reopening the assessment under Section 147.

Conclusion:
The court quashed the proceedings initiated under Section 147 of the Act, 1961, the order deciding preliminary objections, and the final order of reassessment. The petitioner was awarded costs of ?15,000 from the respondents.

Head Note:
Proceeding for reassessment under Section 147-148 of the Income Tax Act, 1961 cannot be initiated on the basis of the report of the Assistant Valuation Officer (proceedings quashed).

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