By Adv. Sri.harisankar v. Menon

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 10TH NOVEMBER 2009 / 19TH KARTHIKA 1931 ITA.No. 626 of 2009() ---------------------------- ITA.308/COCH/2003 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT ------------------- MEDICAL TRUST HOSPITAL, NEDUMKANDAM, IDUKKI. BY ADV. SRI.HARISANKAR V. MENON & SMT.MEERA V.MENON THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10.11.2009, ALONG WITH ITA NO 663 OF 2009, ITA NO. 676 OF 2009 & ITA NO. 1050 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N. RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. ---------------------------------------- ITA. Nos.626, 663,676 & 1050 of 2009 ---------------------------------------- Dated, the 10[th] November, 2009 JUDGMENT Ramachandran Nair, J. The question raised in the connected appeals is whether the Income Tax Appellate Tribunal was justified incancelling the reassessment proceedings completedagainst the assessee under section 147 for the reason thatthe officer had no justification to reopen the originalassessment. 2. We have heard the Senior Standing Counselappearing for the appellant and Sri Harishankar V.Menonappearing for the respondent. 3. The assessment involved are for the years 1996-97, 1998-99, 1999-2000 and 2000-2001. In the course of the relevant four previous assessment years, the assesseewas engaged in the construction of a hospital building.While completing the original assessment, the Assessing Officer accepted the accounts pertaining to investments inthe construction of the building. However, after completion oforiginal assessment, based on returns filed, the assessingofficer referred the building for valuation by the approvedvaluer. When valuation report came, the difference inconstruction cost over what is accounted by the respondentwas Rs.12,02,795/-. Based on the valuation report, theassessing officer reopened the assessment by issuing noticeunder section 148. Even though the assessee objected thereopening, the objections were overruled and assessmentswere completed under section 147 of the IT Act. Even thoughvalidity of the reassessments are questioned in first appeal,the first appellate authority turned down the same but grantedcertain quantum relief. The assessee approached theTribunal with second appeals questioning the validity ofreopening of the assessment as well as against additionssustained. The Tribunal accepted the challenge against thevalidity of assessments and declared that reassessmentsare invalid against which department has filed these appeals. 4. Senior Counsel appearing for the appellant relied onthe decision of the Supreme Court in AssistantCommissioner of Income-Tax v. Rajesh Jhaveri StockBrokers P.Ltd {2007)291 ITR 500} wherein the SupremeCourt has explained the scope of “reasons to believe”contained in the section as follows: 4. Senior Counsel appearing for the appellant relied onthe decision of the Supreme Court in AssistantCommissioner of Income-Tax v. Rajesh Jhaveri StockBrokers P.Ltd {2007)291 ITR 500} wherein the SupremeCourt has explained the scope of “reasons to believe”contained in the section as follows: “ The expression “reason to believe” insection 147 would mean cause or justification. Ifthe Assessing Officer has cause or justificationto know or suppose that income had escapedassessment, he can be said to have reason tobelieve that income had escaped assessment. Theexpression cannot be read to mean that theAssessing Officer should have finally ascertainedthe fact by legal evidence or conclusion. What isrequired is “reason to believe” but not theestablished fact of escapement of income. Atthe stage of issue of notice, the only question iswhether there was relevant material on which areasonable person could have formed therequisite belief. Whether material wouldconclusively prove escapement of income is notthe concern at that stage. This is so because theformation of the belief is within the realm of thesubjective satisfaction of the Assessing Officer”. 5. Based on the above finding the Senior counselcontended that valuation report constitutes the basis for -:4:- reopening because Assessing officer has examined valuationreport and he was satisfied that assessee had madeinvestment over the accounted expenditure justifyingreopening of reassessment for making addition ofunexplained investment. Counsel for the assessee on theother hand submitted that the assessing officer had noindependent material for reopening the assessment andvaluation by another person is only an opinion which wouldnot constitute basis for reopening the assessment. Thecounsel has also relied on various decisions of the HighCourt particularly that of the Punjab and Haryana High Courtin Commissioner of Income-Tax v. Darshan Singh (272ITR 650) (P & H) and that of Madras High Court in CIT v.V.T.Rajendran (288 ITR 312 (Mad) and contended thatreopening in this case is not justified. However, we areunable to accept this contention because, the law laid downby the Supreme Court, in our view, is squarely satisfied inthis case. The Assessing Officer is not an expert forvaluation of the building and therefore he has to necessarily go by the advice of a technical person. No one can disputethat an approved valuer is a qualified person appointed bythe Department for the purpose of valuation of investmentincluding building and other structures. At the time of regularassessment, the officer did not have any material to assumethat the investment is over and above what is accounted bythe assessee. However, officer is free to refer the buildingfor valuation and valuation report is certainly a specialisedinformation which can constitute the basis for reopeningwhen investment valued by the approved valuer is over andabove the cost declared by the assessee, the sameconstitutes the basis for reopening. Of course, when thevariation is insignificant, there will be no justification forreopening the assessment. However, in this case, variationis substantial and difference is above Rs.12 lakhs. We aretherefore of the view that the subsequent informationreceived about higher investment made in the construction ofthe building by the assessee over the amount accounted byhim constitute the basis for reassessment when the officer has reason to believe that income has escaped fromassessment for all the years the assessing officer gets theright to reopen assessments. Therefore we are of the viewthat the Tribunal went wrong in cancelling the reassessmentas beyond the powers of the officer under section 147 of theIT Act. We therefore, allow the appeals by setting aside theorder of the Tribunal and by restoring the appeals to theTribunal for decision on merits. The Tribunal will issue noticeon both sides, hear them and dispose of the appeals within aperiod of three moths from the date of receipt of a copy of thisjudgment. C.N.RAMACHANDRAN NAIR JUDGE V.K.MOHANAN, JUDGE kvm/- ITA 626/09 & CO.CASES. -:7:- V.K.MOHANAN, J. O.P.No. JUDGMENT Dated:..