2013 (1) TMI 564 - HC - Income Tax

Undisclosed investment - Construction of property - Escaped assessment - Whether reopening of assessment on the basis of report from District Valuation Officer u/s 147 as valid, whereas books of account produced by the assessee were never rejected - Unexplained cost of construction Held that - Following the decision in case of Sargam Cinema (2009 (10) TMI 569 - SUPREME COURT OF INDIA) that the assessing authority could not have referred the matter to the DVO when there was no rejection of books of account maintained by the assessee. In favour of assessee

Summary

Issues:
1. Validity of reopening assessment based on District Valuation Officer's report under Section 147.
2. Consideration of DVO's report as the sole basis for reopening assessment.
3. Rejection of books of account by the assessing authority.
4. Applicability of legal precedents regarding reopening assessments based on valuation reports.

Analysis:
1. The judgment pertains to ITA Nos.80 and 81 of 2008 concerning the validity of reopening assessments under Section 147 of the Income Tax Act, 1961 based on a report from the District Valuation Officer (DVO). The key issue was whether the Income Tax Appellate Tribunal was justified in treating the reopening of assessment on the basis of the DVO's report as invalid.

2. The case involved an assessee, a company, filing its return of income for the assessment year 1993-94, which was later reopened by the Assessing Officer due to undisclosed investment in property construction. The DVO's report highlighted a variance in the cost of construction declared by the assessee and the actual cost, leading to additions in the assessment. However, the CIT(A) deleted the addition based on the DVO's report, but upheld the validity of reopening the assessment. The Tribunal, in its order, deemed the reopening invalid and dismissed the revenue's appeal.

3. The Tribunal's decision was based on the fact that the Assessing Officer solely relied on the DVO's report for reopening the assessment, without any additional evidence to substantiate the claim of unexplained investment. The judgment cited legal precedents emphasizing the need for corroborative evidence when relying on valuation reports to initiate reassessment proceedings. Furthermore, the rejection of books of account by the assessing authority was a crucial factor in determining the validity of the reassessment.

4. Legal principles from various High Court judgments were invoked to support the Tribunal's decision, highlighting the importance of not reopening assessments solely based on valuation reports without rejecting the books of account. The judgment emphasized that the DVO's report should not be considered conclusive evidence for reopening assessments, especially when the books of account have not been rejected. The Supreme Court's ruling in a similar context reinforced the requirement for rejecting books of account before referring to valuation reports.

In conclusion, the High Court dismissed both appeals, upholding the Tribunal's decision that the reassessment proceedings based solely on the DVO's report were not valid. The judgment underscored the necessity of corroborative evidence and the rejection of books of account before relying on external valuation reports for reassessment under the Income Tax Act.