2009 (10) TMI 16 - HC - Income Tax

Validity of notice issued u/s 147 held that - The case on hand is indisputably not a case for computation of capital gains. The dispute relates with regard to the investment in the building made by the petitioner-company during the relevant assessment years. - no reference to the Valuation Cell could have been made for the purposes of determining the investment made by the petitioner in the building - report of D.V.O cannot form relevant material for the purposes of assessment of Income Tax of a assessee. If it cannot form basis for the purposes of determining the investment made by the assessee for the building, obviously it is not a relevant material so far as re-assessment proceedings are concerned notice u/s 147 scrapped.

Summary

Issues:
Challenging the validity of notice issued under section 147 of Income Tax Act for assessment years 1997-1998 and 1998-1999.

Analysis:
The petitioner, a company registered under the Indian Companies Act, filed income tax returns for the relevant assessment years, disclosing investments in a building at Village Akelwa. The assessments were completed under section 143(1) of the Income Tax Act. However, during the assessment proceedings for the subsequent year, the assessing officer referred the matter of investment in the building to the departmental Valuation Cell (D.V.O), which estimated the construction cost higher than what was disclosed by the petitioner. This led to the issuance of notices under section 147 of the Income Tax Act.

The reasons for issuing the notices included discrepancies in the investment amounts disclosed by the petitioner and the D.V.O's estimation. The D.V.O's report showed significant differences in the investment amounts for each financial year, leading to the conclusion of undisclosed investment by the petitioner. Consequently, the assessing officer believed that income had escaped assessment and issued notices under section 148.

The petitioner contended that the D.V.O's report should not be the basis for reassessment, citing a Supreme Court decision. On the other hand, the Department argued that there was sufficient material for the assessing officer to believe that income had escaped assessment, relying on a Division Bench decision of the Court.

A supplementary affidavit revealed that in a subsequent assessment year, an appeal by the petitioner was allowed based on a fresh report from the D.V.O, indicating a difference of less than 10% between the original return and the new report. The Tribunal confirmed this decision.

The Court referred to the Supreme Court's decision in a similar case, emphasizing that the reference to the Valuation Cell was not appropriate for determining the petitioner's investment in the building. As such, the D.V.O's report could not be considered relevant for reassessment proceedings, as it did not provide a valid basis for believing that income had escaped assessment.

Consequently, the Court ruled in favor of the petitioner, quashing the notices issued under section 147 of the Income Tax Act for the relevant assessment years.