2012 (10) TMI 619 - HC - Income Tax

Re opening of assessment - non disclosure of expenditure of earthwork - Re assessment notice based on DVO report - Held that - Firstly the AO could not have referred the matter to DVO unless he had any doubts over the expenditure after examining the account books of the assessee, and on which he had rejected the accounts. The reference to DVO under Section 142-A is not to make a fishing and roving enquiry into the expenditure in constructions. The AO is not authorised to call for the report of DVO unless he forms an opinion that he cannot rely on the assessee s accounts and rejects the accounts books. In the present case, the accounts book were not rejected. The reference was made to DVO only for the purposes of ascertaining the expenditure on the earth work. The enormity of the earth work, by itself, without any other material on record, could not be a ground to make a reference to DVO The incomplete report of the DVO on the basis of which the assessment was reopened and for which the reasons were recorded on could not be accepted as the material on the basis of which the AO could have formed belief that the assessee-company had not truly disclosed the expenditure of earthwork. The DVO had only raised doubts on the methodology adopted by the assessee for valuation of the earth work. The AO acted casually in discharging his functions. AO did not call the assessee-company to explain the difference as up-front fees to IDBI for sanction of loan & the difference only in the share application money, thus the issuance of notice under Section 148 without calling for the explanation of the assessee on these grounds, and on the material could not be the grounds for reopening the assessment - in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment framed under Section 147 of the Income Tax Act, 1961.
2. Whether the opinion given by the District Valuation Officer (DVO) can be considered as information for reopening an assessment.
3. Whether the Assessing Officer (AO) can refer the matter to the DVO without rejecting the books of accounts.

Issue-wise Detailed Analysis:

1. Validity of the assessment framed under Section 147 of the Income Tax Act, 1961:
The appeals concern the reopening of assessments for the assessment years 1998-99 and 1999-2000. The primary contention was that the assessment was reopened without satisfying the preconditions for invoking Section 147 and without complying with Section 148 of the Income Tax Act, 1961. The court scrutinized the reasons recorded by the AO for reopening the assessment, which included doubts about the expenditure on land development, discrepancies in the share application money, and the payment of excess up-front fees to IDBI. The court found that the AO acted on incomplete information and did not provide the assessee an opportunity to explain these discrepancies before reopening the assessment. Consequently, the court held that the reopening of the assessment under Section 147 was untenable and unsustainable in law.

2. Whether the opinion given by the District Valuation Officer (DVO) can be considered as information for reopening an assessment:
The court examined whether the DVO's report could be used as a basis for reopening the assessment. The DVO had raised doubts about the expenditure on land development, but his report did not provide any concrete figures or estimates. The court referred to the Supreme Court judgment in Assistant Commissioner of Income Tax, Gujarat v. M/s Dhariya Construction Company, which held that the DVO's opinion per se is not information for reopening an assessment. The AO must apply his mind to the information and form a belief based on it. In this case, the AO relied solely on the DVO's incomplete report, which was insufficient to form a belief that income had escaped assessment.

3. Whether the Assessing Officer (AO) can refer the matter to the DVO without rejecting the books of accounts:
The court referred to the Supreme Court judgment in Sargam Cinema vs. Commissioner of Income Tax, which established that the AO cannot refer a matter to the DVO without first rejecting the books of accounts. In the present case, the AO referred the matter to the DVO without rejecting the assessee's books of accounts. The court found that the AO's reference to the DVO was based on doubts about the expenditure on land development, which alone was not sufficient grounds for such a referral. The court concluded that the AO acted casually and without proper justification in referring the matter to the DVO.

Conclusion:
The court allowed both the Income Tax Appeals, deciding the questions of law in favor of the assessee-appellant and against the revenue. The court held that the AO committed a gross error of law in reopening the assessment under Section 147 of the Income Tax Act, 1961, based on the incomplete report of the DVO and without rejecting the books of accounts. The department was directed to proceed accordingly.