2001-VIL-353-MP-DT
Equivalent Citation: [2002] 257 ITR 502, 172 CTR 458, 123 TAXMANN 157
MADHYA PRADESH HIGH COURT
Date: 03.10.2001
COMMISSIONER OF INCOME-TAX
Vs
SR. CONSTRUCTION.
BENCH
Judge(s) : BHAWANI SINGH., ARUN MISHRA.
JUDGMENT
The judgment of the court was delivered by
ARUN MISHRA J.-The Commissioner of Income-tax seeks a reference under section 256(2) of the Income-tax Act, 1961. For the assessment years 1990-91, 1991-92 and 1992-93, the assessee filed its returns which were accepted. The assessee is a firm engaged in the business of building flats and selling them. The assessee filed the returns declaring an income of Rs.56,680, Rs.48,716 and Rs.84,168 for the assessment years 1990-91, 1991-92 and 1992-93. The assessee constructed 10 flats and 3 garages on a certain piece of land and declared the cost of construction at the rate of 138.80 per sq. ft.
The Assessing Officer later on issued a notice under section 148 for reopening the assessment. During the course of reopening of assessment, the Assessing Officer made reference to the Valuation Officer to determine the cost of construction, who submitted a report on cost of construction on November 19, 1993. The Assessing Officer on the basis of a subsequent report of the Valuation Officer, made certain additions, which on appeals being filed by the assessee, were upheld by the Commissioner of Income-tax (Appeals).
An appeal was filed aggrieved by the orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals), before the Income-tax Appellate Tribunal, by the assessee, which was allowed. The Tribunal opined that the Assessing Officer was not justified in issuing notice under section 148 of the Income-tax Act for reopening the assessment. Mainly on the said ground, the appeals were allowed.
The Revenue prayed for reference to be made by the Income-tax Appellate Tribunal to this court. The Tribunal had declined to make reference. Hence, the present appeal under section 256(2) of the Income-tax Act, 1961, being filed seeking a direction by this court for reference to be made by the Income-tax Appellate Tribunal. On the above facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that reopening of the assessment by the Assessing Officer was bad in law and consequently in deleting the additions made.
The question urged by learned counsel for the Revenue is that the Tribunal was not justified in setting aside the proceedings for reopening of assessment. He submits that sufficient grounds existed for reopening of assessment under section 148 of the Income-tax Act. He further submits that the cost of construction has been found by the Valuation Officer to be Rs.178.56, whereas the cost was shown by the assessee to be Rs.138.80 per sq. ft. which was on the lower side. He further submits that the area was also not correctly shown in the return. Hence, the Assessing Officer was justified in reopening the assessment. The assessee's stand was that the valuation mentioned by him was accepted and was the correct valuation, his account books were accepted and after the sale of flats certain fresh construction was raised by the purchaser such as kitchen flooring, furnishing, kota stones, etc. The built up area which was sold was disclosed and subsequent addition and alteration could not have been attributed to the assessee. It was also the case set up in the original return that the assessee disclosed the necessary facts truly and completely, therefore, reassessment proceedings are bad in law. The assessee had maintained regular books of account, wherein the cost of construction is duly reflected supported by vouchers and they were produced before the Assessing Officer on several occasions, but no defects were found in the books as maintained by the assessee. Thus, on a different view on the same facts reassessment proceedings could not be set in motion. The cost of construction estimated by the Valuation Officer is far more than the sale consideration received by the assessee from the sale of the buildings at the two sites and the subsequent report of the Valuation Officer could not be made a ground to reopen the assessment.
The Tribunal has found on the facts that for all the three assessment years, returns were filed on the basis of books so maintained. The assessee had filed trading account, profit and loss account, capital accounts of the partners and the balance-sheet. The Tribunal has found that the assessment was reopened on the ground that the cost of construction declared by the assessee as per his books of account appears to be low, as the flats constructed by the assessee happened to be situated in a posh colony. This could not be a ground adopted by the Assessing Officer to reopen the assessment as all material facts were disclosed in the return. The Tribunal on the facts has also found that there was no material with the Assessing Officer to come to a conclusion for reopening the purpose that value was kept low. Thus, there was no reason to believe that the assessee had declared low costs of construction. The Tribunal has opined that there must be material at the time or prior to the issue of a notice under section 148 of the Income-tax Act, 1961, for reopening of an assessment to indicate that there has been failure or omission on the part of the assessee to disclose fully and/or truly all relevant material facts at the time of assessment. Issuance of notice has to be justified on the reason which exists at the time of issue of notice and subsequent enquiry cannot be adopted to justify the issue of notice. The Tribunal further opined that once the assessee's accounts were accepted without pointing out any defect in the books, the valuation report could be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the Income-tax Officer is of the opinion that no reliance can be placed on such books of account.
The provision as contained under section 148 of the Income-tax Act, 1961, is not an unruly horse, but is guided on certain conditions. Sub-section (2) of section 148 mandates the Assessing Officer to record his reasons before issuing any notice to make a reassessment. Two conditions must exist: (1) that the Income-tax Officer has reason to believe that income chargeable to income-tax had been under assessed; and (2) that he has also reason to believe that such "under assessment" had occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. These conditions are cumulative and precedent to the exercise of jurisdiction to issue a notice of reassessment as held by the Supreme Court in Modi Spinning and Weaving Mills Co. Ltd. v. ITO [1970] 75 ITR 367 and in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191; AIR 1961 SC 372.
Valuation, which was put by the assessee was considered and was found acceptable on the basis of the account books and the other relevant documents produced by the assessee to the Assessing Officer. Thus, it was a case of change of opinion by the Assessing Officer which would not justify the action of reopening of the assessment. In Dr. H.K. Mahatab v. ITO [1978] 111 ITR 900 (Orissa), notice of reassessment issued on the basis of change of opinion was set aside as the material on the basis of which notice was issued was already before the Income-tax Officer at the time of original assessment and the assessment was completed on that material.
In the instant case, since the material was placed and was accepted and no defect was found, no further material was available, hence, it cannot be said that there was any reason to believe available to the Assessing Officer to reopen the assessment.
Sections 147 and 148 of the Income-tax Act, do not vest uncontrolled and arbitrary power in the Income-tax Officer. Sub-section (2) of section 148 contains built-in safeguard to disclose reason for reassessment to the assessee. The recording of reasons under section 148(2) is not an idle formality but is a mandatory requirement of the statute which casts a duty and obligation on the Income-tax Officer to record his reason for issuing a notice for reopening an assessment. Issue of notice has to be justified on the basis of reason recorded for reopening the assessment as held by this court in CIT v. Thakurlal [1981] 132 ITR 398, 400 (MP). The same is the view taken by the various other High Courts.
True it is that the existence of reason for belief that income escaped assessment, is certainly justiciable but not sufficiency of reasons. In the instant case there was no reason to reopen the assessment. No valid reason was recorded for reopening the assessment as none existed.
The reasons recorded must be valid and relevant, providing the foundation for assumption of jurisdiction by the Income-tax Officer, is the view taken in CIT v. Agarwalla Bros., [1991] 189 ITR 786 (Patna); Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714 (Cal) and Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. V. Raghavan, IAC of I.T. [1984] 150 ITR 12 (Bom), wherein it has been held that where reasons recorded for reassessment proceedings are improper and vague, reopening of the case is not permissible.
Reasons for reopening of assessment must be recorded by the Income-tax Officer before issuing notice. Only such recorded reasons can be looked into by the court for sustaining or setting aside notice, is the view taken in N.D. Bhatt, IAC of I.T. v. I.B.M. World Trade Corporation [1995] 216 ITR 811 (Bom).
Thus, the attempt of counsel for the Revenue in the instant case to justify reassessment on the basis of subsequent material collected by the Valuation Officer cannot justify the reopening of the assessment. The value which was accepted at Rs.138.80 per sq.ft. as cost of construction by the Income-tax Officer was reasonable one, based on documents. Learned counsel made an effort that certain construction was suppressed, but, it was explained that this construction was raised by the purchaser after sale by the assessee. He was not responsible for additional construction. No categorical finding was recorded by the Assessing Officer in this regard as to how much construction was suppressed. Even in the order of reassessment, no such finding has been recorded. Thus, all the attempts to justify subsequent assessment are unfounded and baseless in the absence of a finding how much construction was made by the assessee and how much was made by the purchaser. Additions made on reopening of assessment by the Income-tax Officer were not justified.
Thus, we are of the opinion that no question of law arises in the instant case requiring the Income-tax Appellate Tribunal to refer it to this court in the case.
The application seeking reference is dismissed.
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