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M/s AAVKAR INFRASTRUCTURE COMPANY Versus DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE-9 & 1

2015 (11) TMI 1313 - GUJARAT HIGH COURT

Reopening of assessment - Held that:- Considering the material before the Assessing Officer and the nature of inquiry made by him, except for the report of the DVO, there was no tangible material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. As held by the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co. (2010 (2) TMI 612 - Supreme Court of India), the opinion of the DVO per se is not an information .....

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on the part of the Assessing Officer by issuing the impugned notice under section 148 of the Act is without authority of law, and hence, the impugned notice cannot be sustained. - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 12303 of 2014 - Dated:- 4-11-2015 - MS. HARSHA DEVANI AND MR. A.G.URAIZEE, JJ. FOR THE PETITIONER : MR RK PATEL, ADVOCATE FOR THE RESPONDENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. This petition under Articl .....

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notice under section 148 of the Act seeking to reopen the assessment of the petitioner for assessment year 2007-08. In response to the notice, the petitioner requested the respondent Assessing Officer to furnish the reasons recorded for reopening the assessment. Such reasons came to be furnished along with a letter dated 28.07.2014. The petitioner filed its objections to the re-assessment proceedings by a communication dated 19.08.2014. By an order dated 25.08.2014, the first respondent has rej .....

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Builders v. BD Garsar (or) Successor, (2012) 346 ITR 39 (Guj.), wherein, the court in the facts of the said case had recorded that from the reasons recorded, it was apparent that the sole ground for reopening the assessment was that the Valuation Officer had determined the cost of construction at a higher rate than that shown by the assessee in its books of account. The court observed that the reasons recorded did not reflect that the Assessing Officer had applied his mind to the facts of the c .....

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uation Officer. The court observed that the opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Act. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. Adverting to the facts of this case it was submitted that apart from the DVO s report, there is no application of mind reflected in the reasons recorded by the Assessing Officer for reopening the assessment. It was, accordi .....

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that the Tribunal decided the matter rightly in favour of the assessee, inasmuch as, the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected. The court noted that in the facts of the said case, a categorical finding was recorded by the Tribunal that the books were never rejected. The court, accordingly, held that the reliance placed upon the report of the DVO was misconce .....

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at apart from the Departmental Valuation Officer s report which reveals that the assessee has suppressed the cost of construction for the year under consideration, the reasons recorded clearly reveal that the reopening is not based merely on the DVO s report and that there is an application of mind on the part of the Assessing Officer. It was further pointed out that this is not the assessment year in which the matter has been referred to the DVO and hence, there is no question of rejecting the .....

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.1 In support of his submissions, the learned counsel placed reliance upon the decision of the Allahabad High Court in the case of Sunder Carpet Industries v. Income Tax Officer and another, (2010) 324 ITR 417 (All.), wherein the court had held that it is a settled principle of law that under Article 226 of the Constitution of India, the High Court can only examine whether there was any material on the basis of which a belief of escaped assessment could be formed. The belief entertained by the A .....

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tched, which would warrant the formation of the belief relating to escapement of income. The belief must be formed on the basis of the material, which has a nexus to the escaped income. The High Court cannot examine the sufficiency of the material. On facts, the court was of the opinion that the reference made to the Departmental Valuation Cell for the purposes of determination of the investment in the construction of building cannot be said to be without the authority of law. The valuation repo .....

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the District Valuation Officer constitutes the reasons for entertaining a belief about escapement of an income. The court held that there was material on record to form the belief that there was escaped assessment for the assessment years under consideration. It was submitted that the above decision would be squarely applicable to the facts of the present case and therefore, the notice issued under section 148 of the Act cannot be said to be based on no material. It was submitted that as held in .....

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notice is very narrow. As held by the Supreme Court in Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Borkers P. Ltd., (2007) 291 ITR 500 (SC), to confer jurisdiction on the Assessing Officer under section 147 of the Act in a case wherein only an intimation under section 143(1) has been given, the only condition which is required to be satisfied is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment. The word reason in the phr .....

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, reference may be made to the reasons recorded by the Assessing Officer for reopening the assessment, which read thus : In this case, during the course of assessment proceedings u/s. 143(3) of the Act for A.Y. 2011-12, it was noticed that the assessee has shown very high net profit of 56% from the activity of developing and constructing residential housing scheme by name of Anand Vihar . It was seen that cost of construction claimed by assessee for the project was ₹ 4662/- per sq. yard, w .....

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in total cost of construction as claimed by assessee and as estimated by DVO. As per DVO s report yearwise cost of construction is as follows: Financial Year Cost of Investment (Rs.) 2006-07 Rs. 1,12,99,370/- ₹ 1,35,76,068.44 2007-08 ₹ 8,30,30,382/- ₹ 9,40,35,567.90 2008-09 Rs.14,89,87,108/- Rs.16,38,51,540.39 2009-10 ₹ 3,16,64,004/- ₹ 3,30,74,509.01 2010-11 ₹ 18,71,192/- ₹ 18,36,932.23 2011-12 ₹ 5,23,953/- ₹ 5,12,429.23 Total Rs.27,73,76,00 .....

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- in the on-going project and artificially inflated the profit from the project as it is getting benefit of deduction u/s. 80IB(10) of the Act. In view of the above, I have reason to believe that the income chargeable to tax of ₹ 22,76,698/- has escaped assessment within the meaning of proviso to section 147 of the I. T. Act in case of the assessee firm for A.Y. 2007-08 and this is fit case for issue of notice u/s 148 of the I. T. Act. 7. A perusal of the reasons recorded shows that the As .....

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tire project of the assessee at ₹ 30,68,87,047/- as against ₹ 27,73,76,009/- as declared by the assessee. On the basis of the aforesaid report of the DVO, the Assessing Officer has noticed that in the return of income filed by the assessee for assessment year 2007-08, no expenses had been debited to the profit and loss account of the assessee and also in the balance sheet part of the return of income, no inventory or stock in process was seen. Accordingly, the Assessing officer forme .....

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rt of the DVO, the Assessing Officer has sought to reopen the assessment for the year under consideration on the ground that the assessee has under reported the cost of investment to the tune of the difference between the cost of investment as declared by the assessee and as estimated by the DVO s office. It is the case of the learned counsel for the respondents that the Assessing Officer has duly applied his mind by referring to the return of income and noting that no expenses have been debited .....

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, the same was not indicated in the profit and loss account for the year under consideration. While the assessment is sought to be reopened on the ground that the petitioner has under reported the cost of construction, from the reasons recorded, there is nothing to indicate that the Assessing Officer has independently applied his mind to the record of the case to ascertain as to whether the cost of investment as declared by the assessee was in fact under reported as recorded therein. The entire .....

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books of account. The reasons recorded did not reflect that the Assessing Officer had applied his mind to the facts of the case to ascertain as to whether in fact the assessee had expended more amount towards construction as stated in the valuation report. Reverting to the facts of the present case, the Assessing Officer, except for referring to the profit and loss account, which as noted hereinabove, would not reflect any profit as the assessee had not claimed any profit, and to the balance she .....

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