2019 (3) TMI 1752 - AT - Income Tax

Invalidation of Reassessments Based on DVO Report: Requirements Emphasized

The ITAT Pune allowed the appeal for the assessment year 2004-05 regarding the addition of unexplained investment in land. The reassessment under section ... Reopening of assessment u/s 147 - addition in the hands of assessee for 50% share in investments - acquisition of land by HUF OR individual members - whether owners of land in question were two HUFs and not the assessee in his individual capacity - HELD THAT:- The assessee has time and again stressed that the said property does not belong to him but is the asset of HUF and other 50% is owned by Jugalkishore Kundanmal Rathi (HUF). The assessee has filed on record sufficient evidence to establish its case in this regard. Merely because the document was recorded in the individual names does not change the status of its holding by HUF. This aspect of acquisition of land by HUF and thereafter on completion of construction on the aforesaid land, the profits being offered by respective HUFs needs deliberation by the Assessing Officer. Accordingly, we remit this issue back to the file of Assessing Officer, who shall decide the issue after affording reasonable opportunity of hearing to the assessee. Even the assessee is directed to co-operate and furnish the complete information before the Assessing Officer with supporting evidence in order to establish its case. AO shall decide the issue in accordance with law. Hence, the grounds of appeal raised by assessee are allowed for statistical purposes. Re-assessment u/s 147/148 - reasons recorded for reopening of assessment are on the basis of opinion of the DVO, which could not be constituted sufficient material to reopen the assessment in the hands of assessee - assessment years 2008-09, 2009-10 and 2011-12 - HELD THAT:- Assessment has been reopened in the hands of assessee on the basis of DVO report vis-à-vis unexplained investment into construction of apartment building and hospital building by the assessee, can the reopening be sustained. The answer to the said is ‘No’. In ACIT Vs. Dhariya Construction Company [2010 (2) TMI 612 - SC ORDER]has laid down the proposition that where the Department had sought reopening of assessment based on the opinion given by the DVO; the opinion of DVO perse was not information for the purpose of reopening the assessment under section 147 of the Act. AO had to apply his mind to the information, if any, collected and must form a belief thereon. Department was not entitled to reopen the assessment. In the facts of present case before us, the issue is identical where the basis for reopening the assessment by the Assessing Officer is opinion of the DVO i.e. valuation report of the DVO estimating cost of construction of the property by the assessee in the respective years. AO on the basis of such report of the DVO has reopened the assessment and has proceeded to complete assessment proceedings against the assessee. Where the basis for reopening is report of the DVO, then applying the ratio laid down by the Hon’ble Apex Court in ACIT Vs. Dhariya Construction Company (supra), we hold that the AO is not entitled to reopen the assessment on the basis of such opinion of the DVO.- Decided in favour of assessee. Issues:1. Addition of Rs. 10,50,000 as unexplained investment in land in assessment year 2004-05.2. Validity of reassessment under section 147/148 of the Act based on DVO's report for assessment years 2008-09, 2009-10, and 2011-12.Issue 1: Addition of Rs. 10,50,000 as unexplained investment in land in assessment year 2004-05:The appellant contested the addition of Rs. 10,50,000 as unexplained investment in land. The Assessing Officer reopened the assessment under section 147 of the Income-tax Act, 1961, based on a land transaction deed. The appellant argued that the property belonged to two HUFs and not the individual assessee. Despite providing evidence of the source of investment, the CIT(A) confirmed the addition. The ITAT Pune remitted the issue back to the Assessing Officer, emphasizing the need to consider the acquisition of land by HUFs and the profits offered by them. The ITAT directed the assessee to cooperate and provide complete information to establish their case, allowing the appeal for statistical purposes.Issue 2: Validity of reassessment under section 147/148 of the Act based on DVO's report for assessment years 2008-09, 2009-10, and 2011-12:The appellant challenged the reassessment under section 147/148 of the Act for these years, citing the reliance on the DVO's report as the reason for reopening. The Assessing Officer noted undisclosed construction activities by the assessee and referred the matter to the DVO for valuation. Despite the assessee's non-response to notices and inspection requests, the Assessing Officer proceeded with the reassessment. The ITAT Pune referred to the Supreme Court's decision in ACIT Vs. Dhariya Construction Company, holding that reopening based solely on the DVO's opinion is impermissible. Consequently, the ITAT deemed the reassessment invalid and bad in law for all three years, allowing the appeals.In conclusion, the ITAT Pune allowed the appeal for the assessment year 2004-05 on the unexplained investment issue and invalidated the reassessment for the years 2008-09, 2009-10, and 2011-12 based on the DVO's report, emphasizing the necessity for the Assessing Officer to independently apply their mind before reopening assessments.