1990 (3) TMI 25 - HC - Income Tax

Revision order under section 263 set aside; notice under section 148 quashed for lack of basis.

The Tribunal set aside the revision order under section 263, as it merged with the appellate order for the limited company's assessment year 1975-76. ... Reopening of assessment under section 147/148 - formation of belief that income has escaped assessment - Non-disclosure of full and material facts necessary for assessment - Distinction between reason to suspect and reason to believe - Valuation of property as opinion evidence - Liability of purchaser versus vendor for undisclosed considerationReopening of assessment under section 147/148 - formation of belief that income has escaped assessment - Non-disclosure of full and material facts necessary for assessment - Distinction between reason to suspect and reason to believe - Valuation of property as opinion evidence - Liability of purchaser versus vendor for undisclosed consideration - Validity of the notice issued under section 148 read with section 147(a) to reopen the assessment - HELD THAT: - The return was filed and the assessment for Assessment Year 1975-76 was completed after scrutiny under section 143(3) read with section 144B. Subsequent departmental valuation placed the market value of the purchased property substantially higher than the consideration shown in the sale deed, but a second departmental valuer gave a different lower figure. The petitioner produced the sale deed disclosing seller, purchaser, property particulars and consideration during original assessment; there is no suggestion that the return was not filed. Valuation of property on hypothetical bases is a matter of opinion and, where rival valuations exist, the mere availability of information that market value may be higher does not, without more, convert suspicion into a bona fide belief that income chargeable to tax has escaped assessment. The Income-tax Officer could have investigated this point during the original assessment, which had adequate time and scrutiny; failure to do so does not amount to non-disclosure by the petitioner. Where the taxpayer is the purchaser and the transaction is documented, the correct course, in the absence of material indicating payment over and above the deed consideration, is not to treat the difference between hypothetical market value and deed consideration as omitted income of the purchaser. The Court held that on these facts the condition precedent for assumption of jurisdiction under section 148/147(a) - formation of belief by reason of the assessee's omission to disclose full and material facts necessary for assessment - was not satisfied. The Court relied on the principles applied in ITO v. Madnani Engineering Works Ltd. and Tarawati Debi Agarwal v. ITO as applicable to negativing non-disclosure; K. P. Varghese v. ITO and CIT v. Kalappa were considered in submissions but the determinative reasoning was that mere disparity in valuation reports does not establish the requisite non-disclosure by the purchaser to justify reopening.The notice under section 148 read with section 147(a) was invalidly issued and is quashed; rule made absolute in terms of prayer (a).Final Conclusion: Reopening of the assessment for Assessment Year 1975-76 was quashed because the requisite formation of belief that income had escaped assessment by reason of the assessee's omission to disclose full and material facts was not established; mere difference between market valuation and deed consideration, particularly where rival valuations exist and the purchaser had produced the sale deed, did not justify reopening under section 148/147(a). Issues involved: Assessment under section 143(3) read with section 144B of the Income-tax Act, 1961, revision under section 263, notice under section 148 read with section 147(a), valuation of property, disclosure of full and relevant facts necessary for assessment.Assessment under section 143(3) read with section 144B:The petitioner, a limited company, was assessed for the assessment year 1975-76. The assessment was completed under section 143(3) read with section 144B. The petitioner had purchased a property known as New Excelsior Theatre Building for Rs. 61,00,000. The departmental valuer valued the property at Rs. 1,04,80,000 in the case of the seller, S. P. Builders. The petitioner's assessment was sought to be revised under section 263, treating the difference in property value as undisclosed income. The Tribunal set aside this order, stating it had merged with the appellate order.Revision under section 263:The Tribunal's order was dated January 30, 1984. Subsequently, a notice under section 148 read with section 147(a) was issued to the petitioner, requiring a return. Gift-tax proceedings were also initiated against S. P. Builders, with a different valuation of the property. The petitioner filed a petition challenging the notice, arguing that the valuation reports were opinions and not facts, and there was no failure to disclose material facts for assessment.Notice under section 148 read with section 147(a):The petitioner contended that the Income-tax Officer lacked sufficient basis to believe income had escaped assessment based solely on property valuation differences. The petitioner had disclosed the sale deed during the original assessment, and the new valuation did not indicate non-disclosure of relevant information. The Court held that the condition for assuming jurisdiction under section 148/147(a) was not satisfied, quashing the notice.This judgment highlights the importance of disclosing full and relevant facts for assessment, the distinction between opinions and facts in property valuation, and the conditions necessary for the reassessment under section 147(a).