2012 (8) TMI 540 - HC - Income Tax

Reopening of assessment Held that - Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961 - Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon - Department was not entitled to reopen the assessment - notice under section 148 of the Income-tax Act is unsustainable and, therefore, the petition is allowed.

Summary

Issues:
Challenge to notice seeking to reopen assessment for assessment year 2000-01 under Article 226 of the Constitution of India. Validity of notice under section 148 of the Income-tax Act, 1961. Application of "reason to believe" principle for issuing notice under section 148. Reopening of assessment based on Valuation Officer's report. Compliance with legal requirements for reopening assessment. Applicability of precedent in Asst. CIT v. Dhariya Construction Co. [2010] 328 ITR 515 (SC).

Analysis:
The petitioner challenged a notice dated April 11, 2001, seeking to reopen their assessment for the assessment year 2000-01, claiming it was illegal and lacked jurisdiction. The petitioner, a registered firm, had filed its return of income for the said assessment year, which was accepted by the respondent under section 143(1) of the Income-tax Act, 1961. The respondent issued the impugned notice without providing reasons initially, leading the petitioner to request clarification. The reasons for reopening were related to a Valuation Officer's determination of construction costs, suggesting potential unexplained expenses/investment to be added back to the income. The petitioner contended that the reopening was not based on valid grounds as per section 147 of the Act, citing the requirement of a genuine "reason to believe" that income had escaped assessment.

The petitioner's argument emphasized the necessity for the Assessing Officer to have a valid basis, beyond mere opinion or suspicion, to reopen an assessment under section 148. The petitioner relied on the precedent set by the Supreme Court in Asst. CIT v. Dhariya Construction Co., asserting that the Valuation Officer's opinion alone does not constitute sufficient grounds for reopening an assessment. The court noted that the reasons recorded for reopening did not demonstrate a proper application of mind by the Assessing Officer to ascertain the actual construction expenses incurred by the petitioner. Consequently, the court found the case aligned with the principles established in the Dhariya Construction Co. case, leading to the invalidation of the notice under section 148.

In light of the legal precedent and the lack of substantial grounds for reopening the assessment, the court ruled in favor of the petitioner. The impugned notice issued by the Income-tax Officer was deemed unsustainable and quashed, setting aside the reopening of the assessment for the assessment year 2000-01. The court made the rule absolute with no order as to costs, concluding the judgment in favor of the petitioner based on the legal principles and precedents discussed during the proceedings.