2016 (12) TMI 1587 - AT - Income Tax

Tribunal Invalidates Assessment Reopening

Rajinder Kaur Versus ACIT, Panchkula Circle, Panchkula

The Tribunal quashed the reopening of the assessment under sections 147/148 of the Income Tax Act, finding it invalid due to lack of tangible material. ... Reopening of assessment - report of the District Valuation Officer relied upon - calculation on valuation of land - Held that:- It is clear that there was no basis or material on record to calculate the value of land @ ₹ 1000/- per sq.yd. and of the cost of construction at ₹ 100/- per sq.ft. as is noted in the reasons. There is no material, what to say of tangible material available on record to justify re-opening of the assessment. The Assessing Officer merely on assumption, presumption, recording vague and nonexisting reasons, recorded the reasons for re-opening of the assessment which are not sufficient to validate the re-opening of the assessment in the matter. Thus, there is no reason to believe with the Assessing Officer to assume the jurisdiction under section 148 of the Income Tax Act. Considering the above discussion, we are of the view that reasons recorded under section 148 of the Act reflect an arbitrary use of power conferred under section 147 of the Act. In this view of the matter, we set aside the orders of authorities below and quash the reopening of the assessment under section 147/148 of the Income Tax Act. - Decided in favour of assessee. Issues Involved:1. Reopening of the case under section 148 of the Income Tax Act.2. Validity of reopening based on the District Valuation Officer's (DVO) report.3. Reference to the Valuation Cell by the Assessing Officer.4. Independent satisfaction of the Assessing Officer for forming a reason to believe about the escapement of income.Issue-wise Detailed Analysis:1. Reopening of the Case under Section 148 of the Income Tax Act:The primary issue was whether the reopening of the assessment under section 148 was valid. The assessee argued that the reopening was based on the DVO's report without any independent material, making it legally untenable. The Tribunal noted that the validity of a notice under section 148 must be determined with reference to the reasons recorded for reopening the assessment. The Tribunal admitted the additional grounds of appeal, citing the Supreme Court's decision in National Thermal Power Co. Ltd., which allows legal grounds to be admitted if no new facts are to be investigated.2. Validity of Reopening Based on the DVO's Report:The assessee contended that reopening based solely on the DVO's report is invalid, referencing the Supreme Court's decision in M/s Dhariya Construction Company, which held that reopening cannot be based merely on a valuation report. The Tribunal found that the Assessing Officer (AO) had no cogent material to form a reason to believe that income had escaped assessment. The AO's assumption of the land and building values was arbitrary and lacked a basis, thus invalidating the reopening.3. Reference to the Valuation Cell by the Assessing Officer:The Tribunal examined whether the AO's reference to the Valuation Cell was lawful. The AO had adopted certain rates for the land and building without any supporting material or inquiry. The Tribunal noted that the AO is not a technical expert and had no basis for his valuations. The Tribunal cited various judicial precedents, including decisions from the Gujarat High Court and the Punjab & Haryana High Court, emphasizing that tangible material is required for reopening an assessment.4. Independent Satisfaction of the Assessing Officer:The Tribunal scrutinized whether the AO had an independent satisfaction for forming a reason to believe that income had escaped assessment. The reasons recorded by the AO were found to be vague and based on assumptions without any tangible material. The Tribunal cited the Delhi High Court's decision in Signature Hotels P. Ltd., which held that reasons must show a tangible nexus with the formation of belief. The Tribunal concluded that the AO acted on suspicion rather than belief, making the reopening invalid.Conclusion:The Tribunal set aside the orders of the lower authorities and quashed the reopening of the assessment under sections 147/148 of the Income Tax Act. The Tribunal found that there was no material, let alone tangible material, to justify the reopening. Consequently, all additions made by the AO were deleted, and the appeal of the assessee was allowed. The Tribunal emphasized that arbitrary use of power under section 147 is not permissible and reaffirmed the necessity of tangible material for reopening assessments.