2005 (3) TMI 382 - AT - Income Tax

Reassessment Notices Quashed Due to Improper DVO References; ITAT Allows Assessee's Appeals, Dismisses Revenue's Claims.

The ITAT quashed the reassessment notices under s. 148, deeming them invalid due to improper DVO references without pending proceedings, as per s. 142A ... Validity of reopening of assessment u/s 148 and also the issue of commission to the DVO u/s 131(1)(a) - difference between the cost of construction disclosed in the books of account and the cost of construction estimated by the DVO - HELD THAT:- It is evident that s. 142A empowers the AO to require the Valuation Officer for making the estimate of the value of any asset provided the AO required the same for the purpose of making the assessment or reassessment. The above provision does not empower the AO to refer the matter to the DVO for gathering information for reopening of assessment. Making the reassessment and reopening of assessment are two different things. When the process of reopening of assessment ends and the assessment is validly reopened thereafter, the process of making reassessment starts. Therefore, even after the insertion of s. 142A, the AO should have reason to believe that any income chargeable to tax has escaped assessment as provided u/s 147 and thereafter only the notice for reassessment can be issued u/s 148. Even after the insertion of s. 142A, there is no amendment in the language of s. 147. Therefore, the condition prescribed u/s 147 for reopening of assessment still exists. The Hon'ble Gauhati High Court in the case of Bhola Nath Majumdar and the Tribunal, Jodhpur Bench, in the case of Vijay Kumar [2000 (8) TMI 259 - ITAT JODHPUR] have taken the view that the valuation report is only an opinion of the valuer and an opinion of a third party cannot be a reason to believe of the ITO. The Hon'ble Bombay High Court in the case of Jamnadas Madhavji & Co. [1986 (3) TMI 43 - BOMBAY HIGH COURT] has held that the AO cannot issue summons u/s 131 for the purpose of making investigation for reopening of the assessment. Thus, we are of the opinion that the issue of notices u/s 148 in all the three years under consideration was not in accordance with law. We therefore, quash the notices issued u/s 148 and consequently, the assessments completed in pursuance to notices u/s 148 are also quashed. Since the assessment itself has been quashed, the grounds raised by both the parties with regard to the merits of the additions for undisclosed investments in the house property need no adjudication at this stage because once the assessment is cancelled, the addition does not survive. In the result, the assessee's appeals are allowed while the Revenue's appeals are dismissed. Issues:Cross-appeals against CIT(A) orders for asst. yrs. 1997-98, 1998-99, and 1999-2000 involving common issues like cost of construction, reopening of assessment, and commission to DVO.Analysis:1. The assessee, a co-operative housing society, faced additions by AO for discrepancies in construction costs as per DVO report. CIT(A) partly reduced the additions, leading to cross-appeals. Assessee challenged reassessment under s. 148 and commission to DVO under s. 131(1)(a).2. During the hearing, assessee's counsel argued that AO lacked power to commission DVO without pending proceedings, citing relevant cases. Departmental Representative invoked s. 142A, asserting pre-142A decisions are outdated post-insertion.3. Tribunal cited precedents emphasizing the necessity of pending proceedings for DVO reference. The cases highlighted the distinction between valuation reports and reasons to believe for reassessment, supporting the assessee's stance.4. Departmental Representative contended that s. 142A empowered AO to seek valuation reports, implying the validity of reassessment based on DVO's findings. However, Tribunal emphasized that s. 142A doesn't authorize DVO references for reopening assessments.5. Despite s. 142A, the Tribunal held that s. 147's conditions for reopening assessments remain unchanged. Citing previous judgments, the Tribunal reiterated that third-party opinions, like valuation reports, cannot substitute the ITO's reasons to believe for reassessment.6. Consequently, the Tribunal concluded that the s. 148 notices were invalid, leading to the quashing of assessments. As a result, both parties' arguments on addition of undisclosed investments became moot due to the invalidated assessments.7. Ultimately, the Tribunal allowed the assessee's appeals, dismissing the Revenue's appeals in light of the improper s. 148 notices and subsequent quashing of assessments. The decision was based on the legal principles surrounding the reopening of assessments and the limitations of DVO references under the relevant provisions.This detailed analysis of the judgment highlights the legal intricacies surrounding the issues raised in the case, emphasizing the Tribunal's interpretation of the law and its application to the specific circumstances presented.