2017 (6) TMI 835 - HC - Income Tax

Reopening of assessment - determine the value of property - investment made by the partnership firm - DVO report relied upon - Held that - The fact that the assessee transferred the business to the partnership firm on 20.09.2005 is undisputed. In fact, in the reference order calling for the report of the DVO, the Assessing Officer has himself referred to this date when the firm came into existence. Thus, so far as the petitioner is concerned, he had no further relation with the hotel project after 20.09.2005. If the report of DVO is therefore called for cost of construction for the valuation required for the period between 20.09.2005 and 31.03.2006, the Assessing Officer clearly had the investment made by the partnership firm in mind. It is surprising that despite clear terms of the reference to the DVO calling for his estimate of cost of construction during the period of 20.09.2005 to 31.03.2006, the DVO appears to have given his estimate of cost of construction during the period between 01.04.2004 and 01.07.2005 and estimated such cost at ₹ 1.82 crores. If the reference of the DVO was for a specific period, he could not have given the report for the period completely unrelated to the reference period. On what basis the DVO was prompted to give such report for a period anterior to one for which his opinion was called for, we are not sure. In our opinion, therefore, a report of the DVO itself was invalid since it travelled beyond the reference period - Decided in favour of assessee.

Summary

Issues:
Challenging notice to reopen assessment for the assessment year 2005-06.

Analysis:
The petitioner commenced construction of a hotel during the financial year 2004-05 and later transferred the project to a partnership firm in 2005. The Assessing Officer had previously examined the cost of construction and made a reference to the Departmental Valuation Officer (DVO) in 2007. The DVO estimated the cost of construction at a significantly higher amount than what was shown by the petitioner in the books of accounts.

The Assessing Officer sought to reopen the assessment based on the DVO's report, claiming that income had escaped assessment due to the alleged discrepancy in the cost of construction. The petitioner objected to the reopening, arguing that the notice was issued beyond the statutory period and that there was no failure to disclose material facts. The petitioner also contended that the DVO's report should not be the basis for reopening, as it was merely an opinion.

The High Court noted discrepancies in the Assessing Officer's reference to the DVO, particularly in specifying the period for valuation and the grounds for seeking the opinion. The Court found that the DVO's report covered a period different from what was requested, rendering it invalid. As the report was based on a period unrelated to the reference, the Court held that the reasons for reopening lacked validity. The Court concluded that the notice to reopen the assessment was set aside due to the fundamental fallacy in the DVO's report and the Assessing Officer's reasoning.

In light of the above analysis, the High Court ruled in favor of the petitioner, setting aside the impugned notice dated 12.03.2012 to reopen the assessment for the assessment year 2005-06.