Estimation Report By DVO Alone Can't Form Basis For Reopening Completed Assessment: Delhi High Court
The Delhi High Court held that the sole ground for re-opening of assessment u/s 148 by AO being the report/estimate of the Valuation Officer is unsustainable. Proximity of the reasons with the belief of escapement of income is the determinative factor for re-opening of the assessment, as absence of reasons would obviate the possibility of a belief and would bring the case in the realm...
The Delhi High Court held that the sole ground for re-opening of assessment u/s 148 by AO being the report/estimate of the Valuation Officer is unsustainable.
Proximity of the reasons with the belief of escapement of income is the determinative factor for re-opening of the assessment, as absence of reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion which cannot be a ground for reopening of assessment. added the Court.
The Division Bench comprising Justice Ravinder Dudeja and Justice Yashwant Varma observed that “There is no statement or discussion by the AO as to what was the basis and why he should proceed on the valuation report, its contents and why he should rely on the same. The reasons do not reflect that AO has applied his mind to the facts of the case to ascertain as to whether in fact the assessee had already declared the value of the aforesaid property under “Fixed Assets and Capital WIP” or whether such valuation is correct and proper and not”. (Para 21)
Facts of the case:
The AO re-opened the assessment for impugned AYs based on the valuation report issued by DVO estimating the value of investment made by Assessee at Rs. 211.99 Crore. The AO stated that since the valuation report was not available at the time of original assessment, therefore the amount of Rs. 211.99 represents income of the assessee chargeable to tax which has escaped assessment even though the Assessee had declared the cost of property under the head “Fixed Assets and Capital WIP” at Rs. 592.13 Core.
Observations of the High Court:
The Bench observed that the power of Income Tax Officer to reopen assessment though vide are not plenary, as the words of statute are “reason to believe” and not “reason to suspect”.
The Bench further observed that the expression “reasons to believe” does not mean a purely subjective satisfaction on the part of the AO, the reason must be held in good faith and cannot be merely a pretence.
Expounds on the Apex Court judgment in Bawa Abhai Singh, the Bench reiterated that valuation report received after assessment can constitute a valid basis for initiation of reassessment proceedings provided the information is more than mere rumour, gossip or a hunch and there is some justified material for initiating action u/s 147.
Only if the information or the reason has no nexus with the belief or there is no material or tangible information for forming of requisite belief, then only the Court can interfere, otherwise not, added the Bench.
The Bench remarked that the reasons do not reflect that AO has applied his mind to the facts of the case to ascertain as to whether in fact the Assessee had already declared the value of the aforesaid property under “Fixed Assets and Capital WIP” or whether such valuation is correct and proper and not.
Thus, while allowing Assessee's petition, the High Court quashed the notice issued u/s 148 and set aside along with the proceedings initiated consequent to issuance of such notices.
Counsel for Petitioner/ Assessee: Senior Advocate Salil Aggarwal along with Advocates Madhur Aggarwal and Uma Shankar
Counsel for Respondent/ Revenuer: Advocates Vipul Agrawal, Gibran Naushad and Sakashi Shairwal
Case Title: Divine Infracon Private Limited Vs DCIT
Citation: 2024 LiveLaw (Del) 997
Case Number: W.P.(C) 2516/2016