2015 (8) TMI 472 - HC - Income Tax

Validity of reopening of assessment - Held that - Observations in Bawa Abhai Singh Versus Deputy Commissioner of Income-Tax 2001 (3) TMI 14 - DELHI High Court the expression information in the context in which it appears in the pre-amended section 147(b) was held to be instruction or knowledge derived from an external source concerning facts or particulars, or as to the law relating to a matter having a bearing on the assessment have to be read in the light of the ratio decidendi as expounded by the Supreme Court in the case of Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ), the decisions of the Full Benches of the Delhi High Court in Kelvinator of India Ltd. (2002 (4) TMI 37 - DELHI High Court ) and Usha International (2012 (9) TMI 767 - DELHI HIGH COURT), which prohibit and bar change of opinion as a ground for reopening. It is noteworthy that the Full Bench of this court in Kelvinator of India Ltd. (supra) referred to the aforementioned extract from Bawa Abhai Singh (supra) but distinguished the quote, asserting that it was not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate proceeding under section 147 of the Act. The present case would fall in the category of change of opinion as the reasons to believe proceed on the premise that the opinion formed in the original assessment orders was wrong or erroneous. A wrong or erroneous opinion is not a good ground for reopening. This would be contrary to the jurisdictional requirements and the mandatory pre-conditions which should be satisfied. - Decided in favour of assessee. Computation of capital gains - determination of cost of acquisition as on April 1, 1974 - Held that - The valuation report relied upon by the assessee referred to two instances in the form of agreements between the builder and the third parties in October and November, 1981, for purchase of commercial space in the commercial building for which construction was yet to begin. By 1981, requisite permissions, etc., were granted. It had taken almost 7-8 years for permissions/conversion. The said valuation proceeded backwards and computed or estimated the fair market value as on April 1, 1974, on plinth area method by discounting or reducing the per square feet price mentioned in the two agreements. Thus, the valuation report relied upon by the appellant-assessee proceeded on the assumption that as on April 1, 1974, there was an agreement with the builder for construction of a commercial building and necessary permission, conversion costs, etc., had been granted and paid. Further, the construction was to commence shortly. As per the agreement dated March 7, 1973, enclosed as annexure P-1, the property was to be vacated by the tenants at the cost of the owners. The fact that the property was occupied by the tenants as on April 1, 1974, would be a relevant factor which would depreciate the value. Thus, we agree with the Revenue that the valuation report relied upon by the assessee did not give fair and correct market value of the property as on April 1, 1974. The computation made by the valuer, relied upon by the assessee at ₹ 356.15 per square feet cannot be accepted as correct. Assessing Officer had no jurisdiction to place reliance on the valuation report obtained subsequently and that too when not obtained in exercise of powers under section 55A of the Act. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings for the assessment year 1989-90.
2. Correctness of the cost of acquisition as on April 1, 1974, as adopted by the Assessing Officer for the assessment years 1989-90 and 1990-91.

Detailed Analysis:

Issue 1: Validity of Reassessment Proceedings for the Assessment Year 1989-90
The court first dealt with the question of whether the reassessment proceedings for the assessment year 1989-90 were validly initiated. The appellants argued that the reopening was based on a "change of opinion," which is not a valid ground for reassessment under Section 147 of the Income-tax Act. The court cited the Full Bench decision in CIT v. Kelvinator of India Ltd., which held that reopening on a mere change of opinion is impermissible. The court emphasized that the Assessing Officer must have "reason to believe" that income has escaped assessment, which must be based on "tangible material." The court found that the reasons recorded for reopening were simply that the cost of acquisition shown by the assessee was wrong based on the assessment order for the assessment year 1990-91. This constituted a change of opinion, making the reassessment proceedings invalid. Therefore, the court ruled in favor of the appellants, stating that the jurisdictional pre-conditions for reopening the assessment were not satisfied.

Issue 2: Correctness of the Cost of Acquisition as on April 1, 1974, for the Assessment Years 1989-90 and 1990-91
The second issue was whether the cost of acquisition as on April 1, 1974, as adopted by the Assessing Officer, was correct. The appellants had relied on a valuation report from a Government-approved valuer, which estimated the fair market value at Rs. 356 per square foot. However, the Assessing Officer preferred the valuation made by the District Valuation Officer (DVO) at Rs. 222.96 per square foot. The court noted that the property was a residential house as of April 1, 1974, and the valuation report relied upon by the appellants was based on commercial rates, which was incorrect. The court agreed with the Tribunal's finding that the DVO's report, which was based on a sale instance of a similar property, was a more accurate reflection of the fair market value. The court also noted that the DVO's report was used as relevant evidence and not as a binding report under Section 55A of the Act. Therefore, the court upheld the cost of acquisition as adopted by the Assessing Officer for the assessment year 1990-91 and ruled against the appellants.

Conclusion
The court ruled in favor of the appellants regarding the validity of reassessment proceedings for the assessment year 1989-90, stating that the reopening was based on a change of opinion, which is not permissible. However, the court ruled against the appellants regarding the correctness of the cost of acquisition as on April 1, 1974, for the assessment year 1990-91, upholding the valuation made by the DVO. The appeals were disposed of with no order as to costs.