By TIOL News Service

AHEMDABAD, MAY 22, 2017: THE ISSUE BEFORE THE COURT IS - Whether reopening of assessment is valid if such reopening was done solely on the basis of DVO's report and without there being any further inquiry by the AO to form an opinion that income chargeable to tax has escaped assessment. NO is the verdict.

Facts of the case:

The assessee filed return for AY 2011-2012. The assessee showed the Long Term Capital Gain in regard to his share in the land, for consideration of Rs. 51,38,740/- by deducting therefrom, the indexed cost of that share at Rs. 49,19,189/- on the basis of 1st April, 1981 valuation cost of Rs. 6,91,869/- indexed by multiplying the same by the index of 711. That, at the time of original assessment, the assessee relied upon valuation made by the Government approved valuer, in support of his claim of fair market value as on 1st April, 1981 at Rs. 400/- per sqm. That, thereafter, the original return of income filed by the assessee came to be accepted by the Income-tax Department, accepting the fair market value of the land at Rs. 400/- per sqm. Thereafter, the petitioner was served with a notice u/s 148 of the Act alleging that the income chargeable to tax has escaped the assessment, asking the petitioner to file the return. In the reasons for reopening, it was stated that the assessee had not offered the aforesaid transaction in his return of income for taxation, and therefore, the assessee clarified that while filing the return of income, the assessee had shown the capital gain. The assessee also stated that the sale price was equivalent to jantri price. Considering the objections raised by the assessee, AO dropped the assessment proceedings. However immediately thereafter, AO issued second notice u/s 148 alleging inter alia that the income chargeable to tax has escaped assessment for AY 2011-2012. Assessee submitted his objections to the second SCN and stated that the reopening of the assessment cannot be done on the basis of Valuation Report [DVO's report]; that the reference cannot be done without pendency of assessment proceedings; that there is no valuation report, as the letter of the Valuer simply informs that the rate which has been adopted in other two properties in the same Town Planning Scheme. It was also submitted that prior to 1st July 2012, there was no justification to refer to valuation under Section 55A of the Act because the reference could be made only when the report of the registered valuer was less than the fair market value; and whereas, as per the valuation report, the fair market value is much less. AO disposed of the objections by not agreeing with the objections raised by the assessee.

On appeal, the HC held that,

++ the impugned notices u/s 148 are sought to be reopened solely on the basis of DVO's report. Nothing is on the record that thereafter, any further inquiry is held/conducted by the AO to form an opinion that the income chargeable to tax has escaped assessment with respect to the Capital gain. No further inquiry has been held/conducted to find out the fair market value as on 1st April 1981. It is required to be noted that at the time of filing of original return, the assessee concerned has relied upon the report of the approved Valuer, considering the fair market value of the land in question as on 1st April 1981 at Rs. 400/- per sqm. On the basis of information given by another officer AO made a reference to the DVO and thereafter, solely relying upon DVO's report, assessed the fair market value of the land at Rs. 65/- per sqm. In the case of Asstt. CIT v. Dhariya Construction it was held that solely on the basis of DVO's report and without there being any further inquiry by the AO 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 AO is not justified in reopening the assessment. From the material available on the record; except the report of DVO, there was no tangible material available with the AO to form a belief that the income chargeable to tax has escaped the assessment. Even otherwise, it appears from the DVO's report that the AO 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 Rs. 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. Thus, the impugned Notices deserve to be quashed and set-aside.

(See 2017-TIOL-959-HC-AHM-IT)