2013 (12) TMI 1252 - HC - Income Tax

Court emphasizes tangible material required for income tax reassessment under .

The High Court upheld the Tribunal's decision, emphasizing that the District Valuation Officer's (DVO) report alone is insufficient to justify reopening ... Whether reopening of assessment u/s 147 based on DVO's report constitute reason to believe - Held that:- The Tribunal found that the DVO's report is based on his opinion, and not on any material, which could form the basis of reopening of the cases, and thus it can at best be treated as an information, which will not be sufficient material for recording 'reason to believe' to proceed in the matter - The opinion of the DVO, as to what would be reasonable percentage of architects fees and the supervision charges by the Directors, would not constitute tangible material for exercising powers of reopening the assessment - Following Assistant Commissioner of Income-Tax v. Dhariya Construction Co. [2010 (2) TMI 612 - Supreme Court of India] - The DVO's report per se is not an information for the purposes of reopening assessment under Section 147 of the Act - The Assessing Officer has to apply his mind on the information, if any, collected and must form a belief thereon on reopening the assessment - There has to be something more than the report of DVO for the belief of the Assessing Officer - Decided against Revenue. Issues:1. Validity of reopening assessment based on DVO's report2. Deletion of addition under section 69 of the IT Act based on previous orderIssue 1: Validity of reopening assessment based on DVO's reportThe High Court considered whether the Tribunal was justified in holding that the action under section 147 of the IT Act, based on the District Valuation Officer's (DVO) report, was invalid. The Court referred to the Supreme Court's decision in Assistant Commissioner of Income-Tax v. Dhariya Construction Co., where it was emphasized that the DVO's opinion alone does not constitute valid grounds for reopening an assessment. The Court cited judgments from various High Courts, including Punjab & Haryana, Madras, and Madhya Pradesh, which highlighted that a notice of reassessment solely based on the DVO's report is not considered valid. It was clarified that the DVO's report should not be the sole basis for reopening an assessment as it does not provide sufficient material to establish a reason to believe that income had escaped assessment.Issue 2: Deletion of addition under section 69 of the IT Act based on previous orderThe High Court examined whether the Tribunal was justified in deleting the addition under section 69 of the IT Act by following its previous order. The Court referred to the Supreme Court's decision in CIT, Delhi v. M/s Kelvinator of India Ltd, which emphasized that the assessing officer cannot review an order but can only reassess based on tangible material indicating income escapement. In the present case, the Tribunal found that the DVO's report was opinion-based and did not provide sufficient material to reopen the assessment. The Court reiterated that the DVO's opinion alone cannot be the basis for reopening an assessment. The Tribunal also noted that the additions were made solely on the DVO's opinion without substantial material collected to support the reassessment. Consequently, the Court dismissed the Income Tax Appeals, affirming that the DVO's report alone cannot serve as a valid reason to reopen assessments.In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the DVO's report alone is insufficient to justify reopening assessments under section 147 of the IT Act. The Court reiterated the importance of tangible material and a valid reason to believe that income had escaped assessment before initiating reassessment proceedings. The judgments cited from various High Courts and the Supreme Court provided a legal framework for assessing the validity of reopening assessments based on the DVO's report, ensuring adherence to legal standards and due process in income tax matters.