2009 (11) TMI 397 - HC - Income Tax

Reassessment- whether the Income-tax Appellate Tribunal was justified in cancelling the reassessment proceedings completed against the assessee under section 147 for the reason that the officer had no justification to reopen the original assessment. Held that-at the time of regular assessment the officer did not have any material to assume that the investment was over and above what was accounted by the assessee. However the officer was free to refer the building for valuation and the valuation and the valuation report was certainly a specified information which could constitute the basis for reopening the assessment. The reassessment proceeding were valid.

Summary

Issues:
Validity of reassessment proceedings under section 147 based on the justification to reopen the original assessment.

Analysis:
The judgment concerns the validity of reassessment proceedings under section 147 of the Income-tax Act based on the justification to reopen the original assessment. The Assessing Officer had reopened the assessment for the years 1996-97, 1998-99, 1999-2000, and 2000-2001 after a valuation report revealed a significant difference in construction cost compared to what was accounted by the assessee. The Assessing Officer referred the building for valuation by an approved valuer, leading to the discovery of Rs. 12,02,795 additional construction cost. The appellant challenged the reassessments, but the first appellate authority upheld them with some quantum relief. Subsequently, the Tribunal accepted the challenge against the validity of the assessments, declaring them invalid, prompting the Department to file appeals.

The appellant relied on the Supreme Court decision in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, which clarified the scope of "reasons to believe" under section 147. The Supreme Court emphasized that the Assessing Officer must have a cause or justification to believe that income had escaped assessment, and the formation of this belief is subjective and not required to be based on established facts at the notice issuance stage. The senior counsel argued that the valuation report justified the reassessment as the Assessing Officer, after examining it, was satisfied that the assessee had made unaccounted investments. Conversely, the respondent's counsel contended that the Assessing Officer lacked independent material for reopening the assessment and that the valuation report was merely an opinion, not a valid basis for reassessment.

The court rejected the respondent's contention, citing Supreme Court precedent and emphasizing that the Assessing Officer, not an expert in valuation, relied on the approved valuer's specialized information. The court held that the significant variation in investment amount, exceeding Rs. 12 lakhs, justified the reassessment based on the higher investment in building construction. The court concluded that the subsequent information about the additional investment constituted a valid basis for reassessment under section 147, allowing the appeals and remanding the case to the Tribunal for further proceedings within three months.