2017 (5) TMI 684 - HC - Income Tax

Court quashes assessment reopening based on valuation officer's report, ruling in favor of petitioner.

Munir Ismail Voraji Versus Income Tax Officer

The court held that the notices under Section 148 and the reopening of the assessment for AY 2011-2012 were not justified and quashed them. It emphasized ... Reopening of the assessment - case reopened solely on the basis of DVO’s report - determination of FMV - Held that:- Supreme Court in the case of Asstt. CIT v. Dhariya Construction [2010 (2) TMI 612 - Supreme Court of India ] and held that solely on the basis of DVO’s report and without there being any further inquiry by the Assessing Officer to form an opinion that income chargeable to tax has escaped assessment and/or without applying mind to the information in the form of DVO’s report, the Assessing Officer is not justified in reopening the assessment. It appears from the DVO’s report that the Assessing Officer has erred in relying upon DVO’s report to form an opinion that the income chargeable to tax has escaped assessment. The DVO has mechanically and on the basis of rate in the case of other two properties situated in the same Town Planning Scheme has determined the fair market value of the land as on 1st April 1981 at ₹ 65/- per sqm. However, from the report, it does not appear that the DVO has applied his mind with respect to the location etc., of the land in question. As observed hereinabove, there is no further application of mind by the Assessing Officer on the basis of the information received by him in the form of DVO’s report and has mechanically and solely relied upon the DVO’s report, formed an opinion that the income chargeable to tax has escaped. Thus, there was no tangible material available with the assessing officer to form an opinion that the income chargeable to tax has escaped assessment. - Decided in favour of assessee. Issues Involved:1. Legality of the notice under Section 148 of the Income-tax Act, 1961.2. Validity of reopening the assessment based on the Departmental Valuation Officer (DVO) report.3. Applicability of Section 55A for referring the matter to the DVO.4. Adequacy of the Assessing Officer's (AO) independent satisfaction and inquiry.Detailed Analysis:1. Legality of the Notice under Section 148:The petitioner-assessee challenged the notice under Section 148 of the Income-tax Act, 1961, which sought to reopen the assessment for the Assessment Year (AY) 2011-2012. The petitioner argued that the reopening was based on 'borrowed satisfaction' from another Income-tax Officer (ITO) and was solely reliant on the DVO’s report. The court observed that the notice and reopening were solely based on the DVO’s report without any further inquiry by the AO, which is not permissible under the law.2. Validity of Reopening the Assessment Based on the DVO Report:The petitioner contended that reopening the assessment based solely on the DVO’s report is not permissible. The court referred to the Supreme Court's decision in ACIT v. Dhariya Construction Company, which held that the DVO’s opinion per se is not information for reopening the assessment under Section 147. The court noted that the AO did not conduct any further inquiry to form an independent opinion that income had escaped assessment. The DVO’s report was based on rates of other properties in the same Town Planning Scheme without considering the specific location and characteristics of the petitioner’s land.3. Applicability of Section 55A for Referring the Matter to the DVO:The petitioner argued that the reference to the DVO under Section 55A was not justified as it can only be made when the value reported by the assessee is less than the fair market value. In this case, the value reported by the assessee was higher. The court agreed, citing the Bombay High Court’s decision in Commissioner of Income-tax v. Puja Prints, which held that reference to the DVO is permissible only when the value shown by the assessee is less than the fair market value.4. Adequacy of the AO's Independent Satisfaction and Inquiry:The court emphasized that there was no independent application of mind by the AO. The AO relied solely on the DVO’s report without conducting any further inquiry to determine the fair market value of the land as of 1st April 1981. The court highlighted that the DVO’s valuation was mechanical and lacked consideration of the specific details of the petitioner’s land. The court concluded that there was no tangible material available with the AO to form a belief that income chargeable to tax had escaped assessment.Conclusion:The court held that the impugned notices under Section 148 and the reopening of the assessment for AY 2011-2012 were not justified and quashed them. The court emphasized that reopening based solely on the DVO’s report without further inquiry is not permissible. The court allowed the petitions and set aside the notices and reassessment proceedings, making the rule nisi absolute to the stated extent without any order as to costs.