2001 (4) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Legality of assuming jurisdiction u/s 147 for reopening assessments.
2. Validity of reopening assessments based on the Departmental Valuer's report.
3. Sufficiency and relevance of reasons for reopening assessments.

Summary:

Issue 1: Legality of assuming jurisdiction u/s 147 for reopening assessments

The Tribunal was directed by the Hon'ble Calcutta High Court to first adjudicate the legality of the Assessing Officer's (AO) jurisdiction to reopen the case u/s 147 of the IT Act, 1961. The appeals were fixed for hearing expeditiously due to the High Court's order. The Tribunal noted that the AO must have "reasons to believe" that income has escaped assessment to assume jurisdiction u/s 147. The Tribunal emphasized that the reasons must have a rational connection with the formation of belief, as stated by the Hon'ble Supreme Court in ITO vs. Lakhmani Mewel Das.

Issue 2: Validity of reopening assessments based on the Departmental Valuer's report

The assessments for the relevant years were reopened based on the Departmental Valuer's report, which indicated a higher fair market value (FMV) than the sales price disclosed by the assessee. The Tribunal referred to judicial precedents, including the Hon'ble Gauhati High Court's observation in Bhola Nath Majumdar vs. ITO, which stated that a valuation report is merely an opinion and cannot constitute "information" or "reason to believe" that income has escaped assessment. The Tribunal concluded that a completed assessment cannot be reopened solely on the basis of a DVO's report.

Issue 3: Sufficiency and relevance of reasons for reopening assessments

The Tribunal examined whether the reasons recorded by the AO for reopening the assessments were sufficient and relevant. The AO's belief that the sales consideration was suppressed was based on the DVO's report. The Tribunal held that merely because the DVO's report indicated a higher FMV, it could not be inferred that there was suppression of sales. The Hon'ble Supreme Court in K.P. Varghese vs. ITO had observed that the burden is on the Revenue to show understatement of consideration. The Tribunal found no direct nexus between the DVO's report and the alleged suppression of sales, rendering the reasons for reopening irrelevant and insufficient.

Conclusion:

The Tribunal allowed the assessee's appeals, concluding that the AO did not have prima facie material to reopen the assessments on the grounds of alleged suppression of sales. The reasons for reopening were not legally sustainable, and the appeals succeeded on the preliminary ground that the Revenue lacked material evidence to justify reopening the assessments.