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Subhash Sharma, New Delhi v. DCIT, New Delhi

Income Tax Appellate Tribunal

Nov 22, 2012

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Opinion: ITA No. referenced in text (Order dated 22.11.2012)

Factual and Procedural Background

This is an appeal by the assessee against assessment proceedings and related orders arising from a search and subsequent assessment under section 153A of the Income-tax Act. The material facts, as recorded in the opinion, are:

During a search, purchase deeds for two built-up house properties were found and seized (annexure material referenced at pages 103 to 136, A-1).
An assessment under section 153A was framed on 31.12.2008, wherein total income was assessed at Rs. 8,57,235/- and an excess exemption claimed under section 54F of Rs. 6,76,364/- was disallowed.
The Assessing Officer (AO) discovered an apparent mistake in the computation of exemption under section 54F and issued a notice under sections 154/155 dated 10.3.2010. The assessee admitted the mistake and deposited an amount recorded in the order (text records deposit of Rs. 21,520/- towards the excessive allowance of exemption of Rs. 1,86,052/-).
Before concluding the rectification proceedings under section 154, the AO issued a notice under section 148 dated 30.3.2010 proposing reopening of assessment. Reasons recorded (dated 30.3.2010 and supplied by letter dated 20.5.2010) relied on District Valuation Officer (DVO) valuation reports and a claimed excess allowance under section 54F.
The assessee filed a return under section 147 on 10.5.2010 declaring total income of Rs. 10,43,288/-. The AO supplied copies of the DVO report after rejecting objections (order dated 30.11.2010) and proceeded with reassessment.
Reassessment was completed by the AO on 16.12.2010 under sections 147/143(3)/153A, assessing total income at Rs. 40,87,787/-. The assessee appealed to the CIT(A) and then to the Tribunal (order under summary).

Legal Issues Presented

Whether the initiation of reassessment proceedings by issuing notice under section 148/147 of the Income-tax Act, 1961 was valid when based on the District Valuation Officer (DVO) valuation report supplied after completion of assessment under section 153A?
Whether a reassessment framed under sections 147/143(3)/153A could be sustained where the reasons to believe were recorded solely on the basis of the DVO valuation reports for two built-up houses and where no incriminating documentary evidence for alleged payments was found or seized during the search?
Whether additions made under section 69 (unexplained investments) on the basis of DVO valuations and alleged non-submission of objections/valuation reports/bills were justified?
Whether amounts that (if accepted as undervaluation) could at best be characterized as gifts in the hands of sellers (and thus not relevant to section 69 additions) should nonetheless have been treated differently?
Whether issuing a notice under section 148 while rectification proceedings under section 154 were pending (to rectify the section 54F computation) was valid?
Whether the assessee was entitled to exemption under section 54F based on the enhanced acquisition cost as accepted by the AO for a newly acquired property (East Model Town), despite an addition under section 69 being made?
Whether the CIT(A) should have directed the Assessing Officer to grant a tax rebate under the relevant provisions if gross total income finally assessed fell below Rs. 5 lakhs.

Arguments of the Parties

Appellant's Arguments (Ld. AR)

The reassessment was invalid because the notice under section 148/147 was based solely on the DVO valuation reports which were furnished after the section 153A assessment — this is merely a change of opinion and not new information.
There was no incriminating documentary material seized during the search to justify an addition under section 69 for unexplained investment of Rs. 30,44,500/-, and consequently the addition made was not justified.
The differential sums, if any undervaluation is assumed, could at best be assessed as gifts in the hands of the sellers under the Gift Tax Act, not as unexplained investments of the assessee.
Reliance was placed on several precedents including the Hon'ble Supreme Court decision in ACIT vs. Dhariya Construction Company (2010) 328 ITR 515 (SC) and decisions of specialized benches (All Cargo Global Logistics Ltd. vs. DCIT) to support the proposition that DVO opinion is not per se information for reopening.
The facts in the case relied upon by the Revenue (e.g., CIT vs. Anil Kumar Bhatia) are distinguishable and therefore not helpful to sustain reopening.

Respondent's Arguments (Ld. DR)

The Revenue defended the validity of the AO's invocation of sections 148/147 read with section 143(3) and maintained that the reassessment was properly initiated.
Reliance was placed on precedents including CIT vs. Anil Kumar Bhatia (Delhi High Court, 2012), Harvey Heart Hospitals Ltd. vs. ACIT (130 TTJ (Chennai) 700) and Shivanath Rai Harnarain (India) Ltd. vs. DCIT (117 ITD 74 (Delhi)) to justify reopening and the approach taken by the AO.

Rejoinder / Reply by the Appellant

The appellant's rejoinder emphasized that the decisions relied upon by the Revenue (such as CIT vs. Anil Kumar Bhatia) were distinguishable on facts.
The appellant also pointed out that Harvey Heart Hospitals Ltd. and Shivanath Rai Harnarain decisions had been distinguished by the Special Bench in All Cargo Global Logistics Ltd. vs. DCIT (Special Bench order dated 6.7.2012), reinforcing the submission that DVO reports alone cannot justify reopening.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
ACIT vs. Dhariya Construction Company (2010) 328 ITR 515 (SC)	Held that the opinion of the District Valuation Officer (DVO) is not per se information for the purpose of reopening under section 147; AO must apply independent mind to any information collected.	The Tribunal found this decision fully applicable and dispositive on the core issue. The court followed this precedent and held that reopening based on the DVO report was not justified.
CIT vs. V.T. Rajendran (Madras High Court, cited)	Held that a DVO valuation report cannot be made the sole basis for reopening assessments.	The Tribunal referred to and followed this authority alongside Dhariya Construction to conclude that initiation of reopening on the basis of DVO valuation reports was unjustified.
All Cargo Global Logistics Ltd. vs. DCIT (Special Bench, order dated 6.7.2012)	Explains that assessments under section 153A should be made on the basis of incriminating material (books/documents found during search and undisclosed income/property discovered in the course of search).	Cited by the appellant to support the proposition that reassessment under section 153A must be based on incriminating material and to distinguish other authorities relied upon by Revenue. The Tribunal noted this reliance but based its conclusion primarily on the Supreme Court and Madras High Court authorities.
Bharati Vidyapeeth vs. ACIT (ITA Nos. 916 & 1037 Pune, 23.1.2012)	Used by the appellant in support of the challenge to additions under section 69.	Referenced by the appellant; the Tribunal recorded the reliance but did not base the final decision on this authority since the primary ground disposed of the appeal.
CIT vs. Kelvinator of India Ltd. 320 ITR 561 (SC)	Principle that if change of opinion were allowed as a basis for reopening, it would enable reopening in the garb of reassessment — caution against allowing reopening on mere change of opinion.	Cited by the appellant to support the objection that the DVO-based reopening amounted to an impermissible change of opinion. The Tribunal accepted the underlying cautionary principle when rejecting reopening based on DVO opinion.
CIT vs. Anil Kumar Bhatia (Delhi High Court, 2012 - 2012-TIOL-641-HC-DEL-IT)	Relied upon by Revenue to support validity of reopening in the facts before it.	The Tribunal recorded that the Revenue relied on this decision but the appellant contended it was distinguishable. The Tribunal did not adopt this decision as its primary basis and found the issues covered by Dhariya Construction.
Harvey Heart Hospitals Ltd. vs. ACIT (130 TTJ (Chennai) 700)	Relied upon by Revenue to justify reopening or assessments in certain circumstances.	Noted by the Tribunal as relied upon by Revenue; the appellant pointed out that this decision had been distinguished by a Special Bench (All Cargo). The Tribunal did not rely on it in reaching the final conclusion.
Shivanath Rai Harnarain (India) Ltd. vs. DCIT (117 ITD 74 (Delhi))	Relied upon by Revenue in support of reopening or valuation issues.	The Tribunal noted Revenue's reliance and the appellant's contention that the Special Bench in All Cargo had distinguished this authority. The Tribunal did not base its decision on this case.

Court's Reasoning and Analysis

The Tribunal's step-by-step reasoning, strictly following the content of the opinion, is summarized below:

The Tribunal examined the chronology: a section 153A assessment was completed on 31.12.2008; subsequently the AO identified an apparent mistake in the section 54F exemption computation and issued notice under section 154 on 10.3.2010. The assessee admitted the mistake and deposited an amount in response.
Before finalizing the rectification under section 154, the AO issued a notice under section 148 dated 30.3.2010 proposing reassessment. The reasons recorded on 30.3.2010 (supplied on 20.5.2010) relied on DVO valuation reports which were obtained after the section 153A assessment had been framed.
The three reasons recorded for reopening were (i) DVO value of property R-12/9-C, Raj Nagar greater than declared cost, (ii) DVO value of property 35-36, East Model Town significantly greater than declared cost, and (iii) alleged excess allowance of exemption under section 54F.
The Tribunal focused on the legal proposition established by the Supreme Court in ACIT vs. Dhariya Construction Company and the Madras High Court in CIT vs. V.T. Rajendran: a DVO opinion, by itself, does not constitute information sufficient to reopen an assessment under section 147; the AO must apply independent mind to any information and cannot treat a DVO report as an automatic trigger for reopening.
Applying these precedents to the facts, the Tribunal concluded that reasons (i) and (ii) (which depended on the DVO valuations supplied after the section 153A assessment) did not constitute valid grounds for reopening. The Tribunal held that basing reopening solely on those DVO reports amounted to an impermissible change of opinion.
As regards reason (iii) (the excess allowance under section 54F), the Tribunal noted that the assessee had already acceded to the rectification and had deposited tax in respect of the admitted excess allowance before the section 148 notice was issued. Thus reason (iii) did not justify reopening either.
Because the initiation of reopening (and consequently the reassessment order dated 16.12.2010 under sections 147/143(3)/153A) was founded on invalid initiation, the Tribunal held the assessment null and void.
Given this dispositive finding on the validity of reopening and the resulting assessment, the Tribunal considered the remaining grounds raised by the assessee to be infructuous and did not adjudicate them further.

Holding and Implications

Holding:

The Tribunal allowed the appeal and held that the reassessment framed on 16.12.2010 under sections 147/143(3)/153A of the Income-tax Act, which was initiated vide notice under section 148 dated 30.3.2010, is null and void because the reopening was improperly based on the DVO valuation reports supplied after completion of the section 153A assessment.

Immediate implications (direct effect on the parties):

The assessment order dated 16.12.2010 under sections 147/143(3)/153A is set aside as void.
Issues raised in the other grounds of appeal were rendered infructuous by this finding and therefore were not decided on merits by the Tribunal.
The appeal was allowed by order pronounced in open court on 22.11.2012.

The opinion does not purport to create a new binding precedent; it applies existing higher-court authorities (notably the Supreme Court in Dhariya Construction and the Madras High Court in V.T. Rajendran) to the facts before the Tribunal.

Administrative details recorded in the opinion: Bench members included I.C. Sudhir (Judicial Member) and T.S. Kapoor (Accountant Member); copies of the order were directed to the appellant, respondent, CIT(A), CIT and the Departmental Representative. Order dated and pronounced: 22.11.2012.

Show all summary ...

PER I.C. SUDHIR, JUDICIAL MEMBER The assessee has preferred present appeal on the following grounds

1. The CIT (Appeals) erred in law and on facts in confirming the validity of notice U/S 148/147 of the Act to reassess income already assessed U/S 153A. Thus, the reassessment order so framed U/S 147/143(3)/153A is bad in law and should be annulled.

2. The CIT (Appeals) erred in law and on facts in confirming the validity of notice U/S 148 of the Act despite that the reasons to believe were recorded solely on the basis of the DVO valuation reports estimating higher valuation of two built-up house properties; even when

a) no documentary evidence for making alleged underhand ITA No. 353/Del/2012 payment(s) was found or seized during the search,

b) without examining the sellers of the impugned properties, and

c) merely on suspicion of escapement of income solely on the basis of the DVO valuation report, which is only a change in opinion since the assessment u/s 153A stood completed and cost of acquisition declared by the appellant had been accepted. Thus, the initiation of reassessment proceedings is bad in law and the reassessment order so framed should be annulled.

3. The CIT (Appeals) erred in law and on facts in rejecting the plea of the appellant on conjectures and surmises, which was taken without prejudice to the grounds above that even if the impugned properties are held as undervalued, then also the differential sums could at best be assessed as gifts under the provisions of the Gift Tax Act in the hands of the sellers. Thus, the addition for unexplained investment u/s 69 must be deleted.

4. The CIT (Appeals) erred in law and on facts in confirming the addition of Rs. 30,44,5001-u/s 69 simply on the following counts:

a) that no objections were filed before the DVO,

b) that own valuation reports were not submitted, and

c) that the bills for construction were not submitted; while ignoring that DVO never called for any objections and the impugned properties were bought as built-up houses; and also even when the DVO valuation reports suffered from glaring defects. Thus, the addition so made should be deleted.

5. The CIT (Appeals) erred in law and on facts in confirming the validity of notice u/s 148 of the Act despite that the proceedings u/s 154 were already in process for rectification of the third reason to believe on exemption ITA No. 353/Del/2012 allowed u/s 54F and the appellant not only had agreed to the same but had also deposited the resultant tax due. Thus, initiation of reassessment proceedings for rectifying a mistake apparent on record is bad in law and the reassessment order so framed should be annulled.

6. The CIT (Appeals) erred in law and on facts in not granting the exemption u/s 54F equivalent to the net consideration on sale of shares held as long term capital assets despite confirming the enhancement made in the acquisition cost of the new house bought in East Model Town by asserting that since section 69 is a deeming provision an addition made under that section cannot be imposed for claiming exemption u/s 54F. Thus, without prejudice to the above grounds if in case the addition made for acquisition of the said property is upheld, additional exemption u/s 54F should also be allowed as per the assessed acquisition cost.

7. Without prejudice to the above grounds, the CIT (Appeals) (Appeals) erred in law and on facts in not issuing directions to the AO regarding granting of tax rebate of Rs. 7,461/- u/s

88 as per law, Le., if the gross total income is finally assessed below Rs. 5 lacs.

2. In the grounds the assessee has questioned the validity of assessment order on several grounds. One of the grounds i.e. ground No.

2 is against the initiation of reopening of the assessment on the basis of valuation report of the DVO which was referred to him during the pendency of the assessment u/s 153A but was furnished after framing of the assessment.

3. Ld. AR has addressed the bench on all the grounds raised and in support of ground No. 2 he has cited decisions, one of which is of Honble Supreme Court in the case of ACIT vs. Dhariya Construction Company (2010) 328 ITR 515 (SC). His contention also remains that in absence of ITA No. 353/Del/2012 incriminating material found during the course of search, the addition made u/s 69 of the Act on account of unexplained investment at Rs. 30,44,500/- was not justified. In support he placed reliance on the decision of the Special Bench of the Tribunal in the case of All Cargo Global Logistics Ltd. vs. DCIT, ITA Nos. 5018 to 5022 and 5059/Mum/2010 order dated 6.7.2012 and the decision of Pune Bench of Tribunal in the case of Bharati Vidyapeeth vs. ACIT ITA Nos. 916 & 1037 Pune 2010 dated 23.1.2012. He has also placed reliance on the decision of Honble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. 320 ITR 561 (SC) holding that if the concept of change of opinion is removed, revenue would take place in the garb of reopening of assessment.

4. Ld. DR on the other hand tried to justify the orders of the authority below on the issue of the validity of the assessment framed u/s 147 read with section 143(3) of the Act and on the validity of initiation of reopening proceedings u/s 148 of the Act. The Ld. DR also placed reliance on the decision of Honble Delhi High Court in the case of CIT vs. Anil Kumar Bhatia 2012-TIOL-641-HC-DEL-IT. The Ld. DR also placed reliance on the following decisions :- Harvey Heart Hospitals Ltd. vs. ACIT 130TTJ (Chennai) 700, Shivanath Rai Harnarain (India) Ltd. vs. DCIT 117 ITD 74(Delhi).

5. In rejoinder Ld. AR submitted that facts in the case of CIT vs. Anil Kumar Bhatia (supra) relied upon by the Ld. DR are distinguishable. Hence ITA No. 353/Del/2012 it is not helpful to the revenue. He submitted that the decision in the case of Harvey Heart Hospitals Ltd. vs. ACIT (supra) and Shivanath Rai Harnarain (India) Ltd. vs. DCIT (supra) relied upon by the Ld. DR have been distinguished by the Special Bench of the Tribunal in the case of All Cargo Global Logistics Ltd. vs. DCIT (Supra) holding that in all cases where assessments have not been awarded, the assessment u/s 153A will be made on the basis of incriminating material, which means (i) books of account, other documents found in the course of search but not produced in the course of original assessment and (ii) undisclosed income or property discovered in the course of search.

6. Considering the above submissions and having gone through the orders of the authorities below, material available on record and decisions relied upon we find that the issue raised in ground No. 2 is fully covered by the decision of Honble Supreme Court in the case of ACIT vs. Dhariya Construction Company (supra) relied upon by the Ld. AR. The relevant facts of the present case before us are that during the course of search purchased deed of two built-up house properties were found and seized vide page Nos. 103 to 136 annexure A 1 (Party H-4). The assessment was framed u/s 153A vide order dated 31.12.2008 assessing total income of Rs. 8,57,235/- by disallowing excess exemption of Rs. 6,76,364/- claimed u/s 54F. Subsequently the AO found that exemption allowable u/s 54F which was wrongly computed in the assessment order and was allowed in excess ITA No. 353/Del/2012 by Rs. 1,86,052/-. Notice u/s 154/155 was issued on 10.3.2010 to rectify the said mistake. The said mistake was admitted on record by the assessee. Rs. 21,520/- was deposited by the assessee towards the excessive allowance of exemption u/s 54F of Rs. 1,86,052/-. Before concluding the proceedings u/s 154, the AO issued another notice u/s 148 dated 30.3.2010. The assessee filed return of income u/s 147 on 10.5.2010 declaring total income of Rs. 10,43,288/-. Reasons to believe recorded on 30.03.2010 were supplied on request to the assessee vide letter dated 20.5.2010 by the AO. Following three reasons were recorded for initiation of reassessment proceedings :-

(i) that whereas the assessee had declared the cost of acquisition of house property no. R-12/9-C, Raj Nagar, Ghaziabad (UP) at Rs. 24,00,000/- ( excluding stamp duty, etc.) it was valued at Rs. 30,71,200/- by the D.V.O. vide letter dated 03/02/10;

(ii) that whereas the assesee had declared the cost of acquisition of house property no. 35-36, East Model Town, Ghaziabad (U) at Rs. 29,00,000/- (excluding stamp duty, etc.), it was valued at Rs. 52,73,300/- by the D.V.O. vide letter dated 03/02/10 ; and

(iii) that the AO had allowed exemption of Rs. 32,00,020/- u/s 54F(b) instead of Rs. 30,13,947/- in the assessment order framed u/s 153A.

7. The assessee raised objections against notice u/s 148 and requested for supply of the relevant DVO (Valuation Report). The AO vide his order dated 30.11.2010 rejected the objections raised by the assessee and copies of the DVO was supplied to the assessee. The assessee participated in the reassessment proceedings subject to the objections raised by him in this regard vide order dated 2.6.2010 before the AO. The AO reassessed the ITA No. 353/Del/2012 income of the assessee at Rs. 40,87,787/- vide order dated 16.12.2010 u/s 147/143(3)/153A of the Act. The assessee questioned the said assessment framed on 16.12.2010 before the Ld. CIT(A) but could not succeed in its appeal.

8. It is very much apparent from the reasons recorded that reopening has been initiated on the basis of DVO report filed before the AO after the completion of assessment u/s 153A of the Act. The Honble Supreme Court in the case of ACIT vs. Dhariya Construction Company (supra) relied upon by the Ld. AR has been pleased to hold that the opinion given by the District Valuation Officer is not per se information for the purpose of reopening and assessment u/s 147 of the I.T. Act 1961. In that case before the Honble Supreme Court the department had sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). Honble Supreme Court held further that the AO has to apply his mind to the information, if any, collected and must form a belief thereon. The appeal preferred by the department was accordingly dismissed by the Honble Supreme Court with this finding that the department is not entitled to reopen the assessment. Likewise in the case of CIT vs. V.T. Rajendran (supra) the assessee had constructed a Kalyan Mandapam declaring total investment at Rs. 90,17,190/- in different assessment years. The AO referred the matter to the DVO. However before receiving the valuation report he framed the assessment. Thereafter the DVO estimated the cost of ITA No. 353/Del/2012 construction at Rs. 1,23,96,000/-. After allowing certain deduction from the estimate made by the DVO, the AO reduced the cost of construction at Rs. 1,08,51,700/-. Accordingly based upon the above difference in the cost of construction of the Kalyan Mandapam, the AO reopened the assessment for the assessment years under section 143(3) r/w s. 147 of the Act on the ground that he had reason to believe that there was escaped assessment due to the failure of the assesee to declare the investment made by him in the construction of Kalyan Mandapam. Hence a notice u/s 148 was issued and thereafter, the AO assessed the value to the effect that there is difference in the cost of construction as shown in the respective assessment orders. The Honble Madras High Court was pleased to hold that valuation report of DVO can not be made the basis for reopening the assessment. We thus respectfully following the decision of Honble Supreme Court in the case CIT vs Dhariya Construction (Supra) hold that the initiation of reopening proceedings on the basis of DVO report as stated in the reason Nos. (i) (ii) reproduced herein above was not justified hence the assessment framed on 16.12.2010 in furtherance thereto was also not justified. So far as reason No. (iii) is concerned the assessee had acceded thereto and had deposited tax at Rs. 1,86,052/- on account of excessive allowance of exemption u/s 54F of the Act in response to the notice issued u/s 154 of the Act on 10.3.2010 i.e. well before the issuance of notice u/s

148 of the Act on 30.3.2010. We thus hold that the assessment framed u/s ITA No. 353/Del/2012

147 / 143(3)/153A of the Act on 16.12.2010 based on invalid initiation of reopening of the proceedings is null and void. It is ordered accordingly. In view of this finding on the validity of the assessment in question issues raised in the remaining grounds have become infructuous and thus these grounds does not need adjudication.

9. Consequently the appeal is allowed. Order is pronounced in the open court on 22.11.2012. sd/- sd/- (T.S. KAPOOR) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 22.11.2012 *Veena Copy of order forwarded to:

1. Appellant

2. Respondent

3. CIT(A)

4. CIT

5. DR By Order Deputy Registrar, ITAT