2006 (9) TMI 130 - HC - Income Tax

Reopening of assessment - Construction of a cinema house and valuation thereof assessee submitted that the Assessment Officer could not reopen the assessment on the basis of the report of the Valuation Officer for initiation of proceedings under section 147. The opinion of the Departmental Valuer cannot be treated as a reason conclusive to form the belief as contemplated in section 147 - report of the Valuation Officer is an opinion and it may create suspicion and doubt. Suspicion and doubt, in the opinion of this court, cannot be treated as opinion capable of forming reason to believe within the meaning of section 147. Since there is nothing on record to show that the provision of sub-section (2) of section 148 has been complied with, the taxing authorities were not eligible to reopen the assessment under section 147.

Summary

Issues:
1. Interpretation of the binding nature of Departmental Valuer's report on cost of construction.
2. Assessment of cost of construction based on Departmental Valuer's report versus assessee's maintained books of account.
3. Legality of reopening assessment based on Departmental Valuer's report under section 147.

Analysis:

Issue 1:
The primary issue in this case revolves around the authority and binding nature of the Departmental Valuer's report on the cost of construction. The Tribunal upheld the Valuer's report, rejecting the contention that the assessee's maintained books of account should take precedence. The Valuer's report was deemed reasonable, leading to a dispute on the binding effect of such a report.

Issue 2:
Another critical aspect of the case was the comparison between the cost of construction determined by the Departmental Valuer and the assessee's maintained books of account. The assessee argued that the actual expenses reflected in their books were accurate, especially considering lower costs in the town of construction. However, the Tribunal and lower authorities accepted the Valuer's report as reasonable, leading to a discrepancy in assessment methods.

Issue 3:
The legality of reopening the assessment based on the Departmental Valuer's report under section 147 was a significant point of contention. The assessee challenged the reopening, arguing that the Valuer's opinion alone cannot justify initiating proceedings under section 147. The court emphasized the necessity of proper reasoning and compliance with procedural requirements before reopening assessments under section 147.

The court ultimately held that the Valuer's report, being an opinion, cannot serve as conclusive grounds for initiating proceedings under section 147. The court highlighted the importance of proper procedure and reasoning before reopening assessments. As the authorities failed to comply with the necessary steps under sections 147 and 148, the assessment reopening was deemed invalid. Consequently, the reference was disposed of in favor of the Revenue, answering the formulated questions against the assessee.