2015 (6) TMI 963 - AT - Income Tax

Reopening of assessment - difference of cost of construction shown by the appellant and cost of construction estimated by the Departmental Valuer by way of unexplained investment - Held that - Re-opening in this case has been done on the basis of DVO s report only. The report of the DVO is an estimate of the amount spent in the cost of construction of building, and it could not be said that it is an information to justify the reopening of the assessment. This issue is covered in favour of the assessee with the series of decisions of the Hon ble Courts including that of Assistant Commissioner of Income-tax v. Dhariya Construction Co. ( 2010 (2) TMI 612 - Supreme Court of India). It is well settled that the valuation is matter of estimate only and two valuers would not arrive at the same figure of value of the property, and therefore, any estimate made by a valuer could not be said to be information to justify the reopening of the assessment under section 147 of the Act - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening the assessment under section 147 of the IT Act, 1961.
2. Addition of unexplained investment based on cost of construction difference.
3. Deletion of penalty under section 271(1)(c) for furnishing inaccurate particulars of income.

Issue 1: Validity of Reopening Assessment:
The appeals involved challenges to the reopening of assessments under section 147 of the IT Act. The assessee contended that the reopening was invalid, citing a valuation report by the District Valuation Officer (DVO) in another case. The assessee argued that the DVO's report was not valid information for reopening. The Tribunal agreed, emphasizing that a valuation is an estimate and not conclusive evidence. The Tribunal held that the AO could not base the belief of income escapement solely on the DVO's report from another case. Consequently, the Tribunal canceled the notices issued under section 148 for all relevant assessment years.

Issue 2: Addition of Unexplained Investment:
The second issue revolved around the addition of amounts based on the difference between the cost of construction shown by the assessee and the DVO's estimated cost. The assessee challenged the additions, arguing against the validity of the reopening itself. Since the Tribunal found the reopening invalid, it did not delve into this issue, as the primary issue of reopening rendered further discussion unnecessary.

Issue 3: Deletion of Penalty under Section 271(1)(c):
Regarding the Revenue's appeal for the assessment year 2003-04, the Revenue contested the deletion of a penalty under section 271(1)(c). However, as the Tribunal had already deemed the reopening for that year invalid, it held that no penalty could be validly levied. Consequently, the Tribunal confirmed the order of the CIT(A) in deleting the penalty and dismissed the Revenue's appeal on this issue.

In conclusion, the Tribunal allowed the appeals of the assessee for the assessment years 2002-2003, 2003-04, and 2004-05, while dismissing the Revenue's appeal for the assessment year 2003-04. The Tribunal's decision primarily focused on the validity of the reopening of assessments under section 147 and its implications on subsequent issues raised in the appeals.