2025 (5) TMI 526 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons recorded in view of the report of the District Valuation Officer - writ appeal is presented against an order 2025 (2) TMI 1176 - CHHATTISGARH HIGH COURT HELD THAT - Admittedly a Survey was conducted u/s 133 wherein a report has been sought from the DEO with regard to construction of the Nursing Home as well as residential unit made by the assessee. From the report of the DEO it has been revealed that certain unexplained amount of investment has been made. It was further revealed that the expenditure incurred shown by the assessee was much below the assessed cost of the construction. So considering this clear difference in the cost of construction a reason to believe has been recorded by the AO in respect of the subject AYs and the case was reopened by exercising the powers vested in him u/s 147 of the Act. Even though the Assessee had raised objections for reopening however the same was turned down by a speaking order dated 12.12.2008. Thus it is explicit that the Assessing Officer has recorded the reasons in view of the report of the District Valuation Officer. Moreover the Survey conducted reveals that the assessee has not truly disclosed his income chargeable to tax which has escaped assessment for the relevant Financial Years. The learned Single Judge concluded that the AO has recorded his own valid and proper satisfaction for existence of reason to believe that the income of the relevant assessment years has escaped assessment. Thus the notice cannot be treated to have been passed without jurisdiction. Even otherwise the writ petitioner would get full opportunity to raise his defence in the appellate proceedings and accordingly dismissed the writ petition filed by the writ petitioner on merits. Considering the submissions advanced and the fact that the Assessing Authority has already passed its fresh order on 08.04.2025 against which the appellant herein has alternative remedy to raise all his grievance in the CIT appeal u/s 246A and the finding recorded by the learned Single Judge while dismissing the writ petition filed by the writ petitioner / appellant herein we notice that the same has been rendered with cogent and justifiable reasons. In an intra-court appeal no interference is usually warranted unless palpable infirmities are noticed on a plain reading of the impugned order. In the facts and circumstances of the instant case on a plain reading of order we do not notice any such palpable infirmity or perversity as such we are not inclined to interfere with the impugned order. Decided against assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this writ appeal include:

- Whether the Assessing Officer (AO) had valid jurisdiction and reason to believe under Section 147 of the Income Tax Act to initiate reassessment proceedings for the Assessment Years (AY) 2001-02 to 2003-04.

- Whether the issuance of reassessment notice under Section 148 and consequential notices were valid, given the absence or presence of jurisdictional facts and compliance with procedural requirements.

- Whether the District Valuation Officer's (DVO) report, obtained by the AO during assessment proceedings for AY 2004-05, could be validly relied upon for reopening earlier assessment years, particularly when the AO allegedly did not apply independent mind and acted mechanically.

- Whether the appellant's surrender of Rs. 5,00,000 during a survey under Section 133A could be retracted and the implications of such retraction on the reassessment proceedings.

- Whether the AO had the power to call for the DVO's report under Section 131(1)(d) of the Act in the circumstances of the case.

- Whether the appellant was denied due process or suffered from procedural irregularities in the reassessment proceedings.

- The availability and adequacy of alternative remedies, including appeal under Section 246A of the Income Tax Act, against the fresh assessment order passed post the writ petition dismissal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings and Jurisdictional Fact of "Reason to Believe" under Section 147

Legal Framework and Precedents: Section 147 mandates that reassessment proceedings can be initiated only if the AO has "reason to believe" that income chargeable to tax has escaped assessment. The Supreme Court has consistently held that this "reason to believe" must be based on tangible material and not mere suspicion or mechanical reliance on reports. The judgment in Amiya Bala Paul v. CIT (2003) 262 ITR 407 (SC) is particularly instructive, emphasizing that the AO must apply independent mind and cannot act solely on the basis of external reports without verification.

Court's Interpretation and Reasoning: The Court noted that the AO initiated reassessment based on the DVO's report which valued the nursing home construction at Rs. 32,59,004 against the appellant's declared investment of Rs. 16,45,000, showing a substantial unexplained difference. The AO's reason to believe was recorded after a survey under Section 133A revealed a surrender of Rs. 5,00,000, which the appellant later retracted. The Court found that the AO had recorded his own valid and proper satisfaction based on the DVO's report and survey findings, thus fulfilling the jurisdictional requirement under Section 147.

Key Evidence and Findings: The survey report, DVO's valuation, and the discrepancy in declared investment versus assessed cost formed the material basis for AO's reason to believe. The appellant's retraction of the surrendered amount was noted but did not negate the material on record.

Application of Law to Facts: The Court held that the AO's reliance on the DVO's report and survey findings was justified and constituted sufficient material to form reason to believe. The AO was not acting without jurisdiction.

Treatment of Competing Arguments: The appellant argued that the AO acted mechanically without independent application of mind and that the DVO's report was called without jurisdiction. The Court rejected this, holding that the AO had valid reasons and the report was legitimately obtained in the course of assessment proceedings.

Conclusion: The reassessment proceedings were validly initiated with proper jurisdictional foundation.

Issue 2: Legality of Obtaining and Reliance on DVO's Report under Section 131(1)(d)

Legal Framework and Precedents: Section 131(1)(d) empowers the AO to call for valuation reports to ascertain correct income. However, the Supreme Court in Amiya Bala Paul emphasized that such powers must be exercised judiciously and not without pending proceedings or valid reason.

Court's Interpretation and Reasoning: The appellant contended that the AO lacked power to call for the DVO's report as no pending proceedings existed for AY 2001-02 to 2003-04 when the report was sought during AY 2004-05 assessment. The Court observed that the survey under Section 133A and subsequent findings provided a valid basis for the AO to seek the report and that the AO acted within his powers.

Key Evidence and Findings: The timing of the DVO's report request (30.09.2006) post-survey and during assessment for AY 2004-05 was critical. The Court found that the AO's action was in accordance with procedural norms and not ultra vires.

Application of Law to Facts: The AO's power to call for the DVO's report was validly exercised in the context of ongoing assessment and survey findings.

Treatment of Competing Arguments: The appellant's reliance on judgments restricting AO's power to call DVO reports in absence of pending proceedings was distinguished on facts, as the survey and subsequent assessment proceedings were ongoing.

Conclusion: The DVO's report was lawfully obtained and could be relied upon by the AO.

Issue 3: Validity of Reassessment Notices under Section 148 and Compliance with Procedural Requirements

Legal Framework and Precedents: Section 148 requires issuance of notice after recording reasons for reassessment and obtaining approval. The Supreme Court and various High Courts have held that failure to provide reasons or approval renders reassessment notices invalid.

Court's Interpretation and Reasoning: The appellant argued that reasons were not furnished timely and approval was not shown before issuance of notices. The Court noted that though initial notices were issued without reasons, reasons were subsequently provided on 29.08.2008, and objections were heard with a speaking order rejecting them on 12.12.2008.

Key Evidence and Findings: The procedural compliance was completed prior to disposal of objections and reassessment proceedings. The Court found no fatal procedural irregularity justifying quashing of notices.

Application of Law to Facts: The AO complied with procedural requirements within reasonable time and provided opportunity to the appellant to respond.

Treatment of Competing Arguments: The appellant's contention of procedural lapse was rejected as the Court emphasized that mere delay in furnishing reasons does not invalidate proceedings, especially when objections are adjudicated.

Conclusion: The reassessment notices under Section 148 were valid and procedurally compliant.

Issue 4: Retraction of Surrendered Amount and Its Effect on Assessment

Legal Framework and Precedents: Admissions or surrenders made under survey can be retracted if shown to be under duress or coercion, but such retractions do not automatically negate other material indicating undisclosed income.

Court's Interpretation and Reasoning: The appellant retracted the surrender of Rs. 5,00,000 claiming pressure during survey. The Court acknowledged this but held that the reassessment was not solely based on the surrender but also on the DVO's report and other material.

Key Evidence and Findings: The DVO's valuation difference was substantial and independent of the surrendered amount. The Court found that the retraction did not vitiate the reassessment proceedings.

Application of Law to Facts: The retraction was considered but did not absolve the appellant from the discrepancies found in valuation and investment declarations.

Treatment of Competing Arguments: The appellant's argument that retraction should nullify reassessment was rejected as the Court emphasized the totality of material considered by AO.

Conclusion: Retraction did not invalidate reassessment proceedings.

Issue 5: Availability of Alternative Remedies and Scope of Judicial Interference

Legal Framework and Precedents: The Income Tax Act provides statutory appellate remedies under Section 246A against assessment and reassessment orders. Courts generally refrain from interfering in tax proceedings where alternate efficacious remedies exist.

Court's Interpretation and Reasoning: The Court noted that a fresh order was passed by the AO on 08.04.2025, post dismissal of the writ petition, and the appellant had the remedy of appeal before the Commissioner of Income Tax (Appeals). The Court emphasized that in absence of palpable infirmity or perversity in the impugned order, interference in intra-court appeal was unwarranted.

Key Evidence and Findings: The statutory appeal mechanism under Section 246A was available and the appellant was free to raise all grievances therein.

Application of Law to Facts: The Court declined to interfere with the impugned order, holding that the appellant's remedy lay in statutory appeals rather than writ jurisdiction.

Treatment of Competing Arguments: The appellant's plea for quashing reassessment notices was not accepted, given availability of alternate remedies and absence of jurisdictional defect.

Conclusion: The appellant's alternative remedy was adequate; no interference was warranted.

3. SIGNIFICANT HOLDINGS

- "It is explicit that the Assessing Officer has recorded his own valid and proper satisfaction for existence of reason to believe that the income of the relevant assessment years has escaped assessment. Thus, the notice cannot be treated to have been passed without jurisdiction."

- "The Survey conducted reveals that the assessee has not truly disclosed his income chargeable to tax which has escaped assessment for the relevant Financial Years."

- "Though the Assessee had raised objections for reopening, the same was turned down by a speaking order dated 12.12.2008."

- "The Assessing Authority has already passed its fresh order on 08.04.2025 against which, the appellant herein has alternative remedy to raise all his grievance in the CIT appeal under Section 246A of the Income Tax Act."

- "In an intra-court appeal, no interference is usually warranted unless palpable infirmities are noticed on a plain reading of the impugned order."

- The Court reaffirmed the principle that "where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate order or directions to prevent such consequences." However, in the instant case, no such jurisdictional defect was found.

- The Court held that the AO's power to call for the DVO's report under Section 131(1)(d) was validly exercised in the context of ongoing assessment and survey findings, notwithstanding the appellant's contention to the contrary.

- The Court emphasized the necessity of the AO applying independent mind and not acting mechanically, and found that the AO had done so by considering the survey report, DVO's valuation, and other material.