2014 (12) TMI 303 - HC - Income Tax

Validity of reopening of assessment u/s 147(b) Report of DVO regarding the value of the cost of the construction in progress can be treated as information or not for the income tax purpose Held that - Wealth Tax Act is concerned with the valuation of properties and contains provision for referring the matter of valuation to the DVO - However, under the Income Tax Act, the income has to be determined as per the books of accounts maintained by the assessee and there is no provision to refer the matter to the Departmental Valuation Officer - the assessee had placed all the materials before the AO at the time of original assessment, which the AO had examined - the report of the DVO would not constitute any additional information but, would merely be an opinion about the cost of construction since reopening of assessment is not contemplated under the Income Tax Act in LB. Kharawala Versus Income-Tax Officer, Company Circle-V, Ahmedabad 1983 (1) TMI 23 - GUJARAT High Court it has been held that initiation of proceedings on the basis of the report of Valuation Officer under the Wealth Tax Act is not permissible the AO was not confronted with any defects in the books of accounts maintained by the assessee - AO has not given any valid reasons for not accepting the cost shown by the assessee though he accepts that the method of accounting was mercantile - thus, the reassessment was invalid Decided against revenue. Addition made towards the value of cost of construction u/s 69B Held that - Following the decision in Goodluck Automobiles (P) Ltd. v. Assistant Comm. Of Income Tax 2012 (9) TMI 157 - Gujarat High Court - wherein, it has been held that reference made by the AO to the Valuation Officer for estimating the cost of construction is invalid Decided against revenue.

Summary

Issues:
1. Validity of reopening of assessment under section 147(b) of the Income Tax Act based on Valuation Officer's report.
2. Addition made by Assessing Officer towards the value of construction based on Valuation Officer's report and seized materials under Section 69B of the Income Tax Act.

Analysis:

Issue 1:
The appeals questioned the validity of the Income Tax Appellate Tribunal's decision regarding the reopening of assessment for the Assessment Year 1983-84 under section 147(b) of the Income Tax Act. The Tribunal had dismissed the Revenue's appeal, leading to further legal scrutiny. The assessee, a partnership firm in building construction, had initially shown the cost of construction at a certain value in the return of income. However, discrepancies were discovered during a search operation, prompting the Assessing Officer to reassess the income. The CIT(A) later reversed the Assessing Officer's decision, emphasizing the acceptance of the cost of construction as per the books of account. The Appellate Tribunal's dismissal of the Revenue's appeal was challenged. The Revenue contended that the Tribunal erred by relying on decisions related to the Wealth Tax Act, arguing that income determination under the Income Tax Act is based on the books of accounts. On the other hand, the assessee's counsel cited relevant court cases to support the dismissal of the appeals. The High Court analyzed the situation, emphasizing that the Income Tax Act does not provide for referral to the Departmental Valuation Officer for income determination, unlike the Wealth Tax Act. The Court ruled that the Valuation Officer's report did not offer new information, and the reassessment based on it was deemed invalid, citing precedents. Consequently, the first issue was decided in favor of the assessee.

Issue 2:
The second issue revolved around the addition made by the Assessing Officer towards the value of construction based on the Valuation Officer's report and seized materials under Section 69B of the Income Tax Act. The Assessing Officer's decision was challenged, arguing that no valid reasons were provided for rejecting the cost shown by the assessee, despite accepting the accounting method used. The High Court found that the deletion of the addition was justified, as no defects in the assessee's books of accounts were highlighted by the Assessing Officer. Additionally, the Court referred to a previous decision by a coordinate Bench, which deemed the reference to the Valuation Officer for estimating construction costs as invalid. Consequently, the Court ruled in favor of the assessee on this issue as well. As a result, all the appeals were dismissed based on the detailed analysis and conclusions drawn for each issue presented before the Court.