Delhi High Court
M/S Mahashay Chunnilal vs Dy. Commissioner Of Income Tax & ... on 5 February, 2014
Author: Sanjeev Sachdeva
*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Order reserved on : 04th October, 2013
Order pronounced on: 05th February, 2014
+ WPC No. 7514 of 2010
M/S MAHASHAY CHUNNILAL .... Petitioner
Through Mr. Jainendra Maldahiyar
and Mr. Amit Bhanot,
Advocates
Versus
DY. COMMISSIONER OF INCOME TAX & ORS
...Respondents
Through Mr. Abhishek Maratha, Sr
Standing Counsel with Mr.
Anshul Sharma Advocates
for R - 1,
Mr. Ruchir Mishra and Mr.
Mukesh K. Tiwari,
Advocates for R - 2.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
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WP(C) 7514/2010 Page 1 of 25
SANJEEV SACHDEVA, J.
1. The petitioner has filed the present petition
challenging the order dated 23.08.2010 rejecting the
objections filed by the petitioner against two notices,
both dated 30.03.2010, under Section 148 of the
Income Tax Act, 1961 seeking to re-assess the
income of the petitioner for the assessment years
2005-06 and 2006-07.
2. The petitioner is a charitable trust and runs hospitals
and schools.
3. The assessment for the assessment years 2005-06
and 2006-07 was originally completed under Section
153A/143(3) of the Income Tax Act, 1961 (hereinafter
referred to, 'the Act').
4. For the assessment year 2005-06, the assessment
was framed on 31.12.2008 at a loss of
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Rs.1,77,03,110/- and for the assessment year 2006-07,
the assessment was framed on 31.12.2008 at a loss of
Rs.1,53,90,490/-.
5. On 30.03.2010, i.e., before expiry of four years of the
assessment year 2005-06 and 2006-07, notices were
issued to the petitioner under Section 148 of the Act
seeking to reassess the income of the Petitioner for
the said assessment years. In reply to the said
notices, the petitioner stated that the original return of
income may be treated as returns filed in response to
the notice under Section 148 of the Act. The Petitioner
further requested for the supply of reasons to believe
recorded for issuance of the said notices.
6. The following reasons were supplied for the respective
assessment years:
Assessment Year 2005 - 06
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"30.03.10. REASONS FOR ISSUANCE OF
NOTICE UNDER SECTION 148 OF THE INCOME
TAX ACT 1961 IN THE CASE OF M/s MAHASHAY
CHUNNILAL CHARITABLE TRUST FOR THE A.Y.
2005-06
The assessment under section 153(A)/143(3) of
the I.T. Act 1961 was completed in this case on
31.12.2008 at assessed loss of Rs.1,77,03,110/-.
The assessee had invested in Property "MDH
School Building", Byadgi, District Haveri,
Karnataka. The property was referred for
valuation u/s 142(A) to the Valuation Officer,
Bangalore.
The Valuation Report of the said property has
been received vide letter dt. 19.06.09 received
in this office on 29.06.09. The valuation officer
has worked out the value of the property at
Rs.75,86,800/- against the declared value of
Rs.24,41,776/- lakhs as shown in the balance
sheet as on 31.03.06. since the breakup of
expenditure year wise was not submitted by
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the assessee, the Valuation Officer estimated
the overall expenditure spent by the assessee
in the proportionate amount in the ratio of
47.8% i.e. Rs.36,26,490/- in the F.Y.2004-05
relevant to A.Y.2005-06 and 52.2.%, i.e.,
Rs.39,60,310/- in the F.Y.2005-06 relevant to
the A.Y.2006-07.
The assessee was asked the following details as
per questionnaire:
1. At Sl. No.3 of the questionnaire--Copy of
Return of Income for the A.Y.2005-06 with all
Annexures as was filed u/s 139(1) of the I.T.Act.
2. At Sl.No.17 of the questionnaire-- Please file
details of investments made and also confirm
that the investments have been made in the
specified assets mentioned in section 11(5) of
the I.T.Act.
On perusal of record it is seen that assessee
has not shown any amount of investments
made during the year in school at Byadgi. The
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valuation of school at Byadgi by Valuation
Officer in his report the property has been
shown at Rs.36,26,490/- as against NIL shown
by assessee. Therefore the investment of
Rs.36,26,490/- has escaped assessment.
In view of the above, I have reason to believe
that by reason of failure on the part of
assessee to fully disclose investment in
property No. "MDH School Building", Byadgi,
Distt. Haveri, Karnataka, income to the tune of
Rs.36,26,490/- has escaped assessment for the
assessment year 2005-06.
Assessment Year 2006 - 07
30.03.10. REASONS FOR ISSUANCE OF
NOTICE UNDER SECTION 148 OF THE INCOME
TAX ACT 1961 IN THE CASE OF M/s MAHASHAY
CHUNNILAL CHARITABLE TRUST FOR THE A.Y.
2006-07
The assessment under section 153(A)/143(3) of
the I.T.Act 1961 was completed in this case on
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31.12.2008 at assessed loss of Rs.1,77,03,110/-.
The assessee had invested in Property "MDH
School Building", Byadgi, District Haveri,
Karnataka. The property was referred for
valuation u/s 142(A) to the Valuation Officer,
Hubli.
The Valuation Report of the said property has
been received vide letter dt. 19.06.09 received
in this office on 29.06.09. The valuation officer
has worked out the value of the property at
Rs.75,86,800/- against the declared value of
Rs.24,41,776/- lakhs as shown in the balance
sheet as on 31.03.06. Since the breakup of
expenditure year wise was not submitted by
the assessee, the Valuation Officer estimated
the overall expenditure spent by the assessee
in the proportionate amount in the ratio of
47.8% i.e. Rs.36,26,490/- in the F.Y.2004-05
relevant to A.Y.2005-06 and 52.2.%, i.e.,
Rs.39,60,310/- in the F.Y.2005-06 relevant to
the A.Y.2006-07. On perusal of record the
assessee has shown an amount of
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Rs.24,41,776/- in the assets side of balance
sheet under the head 'School building' of
Byadgi unit. Hence, as per books of the
assessee and the information given by
Valuation Officer in his report the property has
been undervalued by the assessee by
Rs.51,45,024/- (75,86,800/- Minus 24,41,776/-)
in its return of income. The income of
Rs.36,26,490/- has been held, on the basis of
details filed by the assessee, to have escaped in
the A.Y.05-06. Thus, the balance amount of
Rs.15,18,534/- (51,45,024/- minus 36,26,490/-)
has escaped assessment in this year.
Therefore, in view of the above, I have reason
to believe that by reason of failure on the part
of assessee to fully disclose investment in
property No."MDH School Building", Byadgi,
Distt. Haveri, Karnataka, income to the tune of
Rs.15,18,534/- has escaped assessment for the
assessment year 2006-07. "
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7. The petitioner filed objections to the notices under
Section 148 of the Act vide objections dated
10.05.2010. The objections filed by the petitioner
were rejected vide impugned order dated 23.8.2010.
The initiation of the proceedings by issuances of
notices under Section 148 of the Act and the order
dated 23.08.2010 is challenged by the Petitioner.
8. The petitioner had objected to the proposed re-
assessment primarily on the ground that if an
assessment was framed under Section 153A pursuant
to search then the assessment so framed was not an
assessment under Section 143(3) and as such was
beyond the purview of re-assessment under Section
147/148. The contention of the petitioner is that
Section 147 refers to an assessment framed under
Section 143(3) and not an assessment framed under
Section 153A of the Act. The second objection raised
by the petitioner was that the basis or reason for
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issuance of notices, primarily was the report of the
Valuation Officer of the Income Tax Department and
the report of the Valuation Officer per se cannot be a
basis of issuance of notice under Section 148 of the
Act. Another ground raised by the petitioner was that
the entire material was before the assessing officer at
the time of original assessment and the assessing
officer had applied his mind to the same and hence
issuance of notice amounted to change of opinion
which was not permissible under law. The petitioner
had further raised the objection the petitioner Trust,
was registered under Section 12A of the Act and as
such any income that was applied towards
construction of the school building was an application
of income towards charitable object and would be
exempt from levy of income tax under Section 11 of
the Act so there was no question of any escapement
of income and even if the investment in the building
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were to be taken at a higher figure, it would amount to
an application of income and would in any case be
exempt from levy of tax.
9. Having heard learned counsels for the petitioner and
the respondent we are of the view that the Writ
Petition has merit and the reassessment proceedings
initiated by the respondent are nor sustainable, for the
reasons set out below.
10. The original assessment orders under Section 153A
for both the assessment years 2005 - 06 and 2006 -
07 are identical in their wording except for the amount
of loss assessed. For the purposes of record, we
would refer to one of the two assessment orders. The
assessment order framed under Section 153A for the
assessment year 2005 - 06 reads as under:
"ASSESSMENT ORDER
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A search & seizure action u/s 132 of the Income-tax
Act was conducted on the premises of the assessee
on 22.11.2006. Accordingly, notice u/s 153A was
issued and duly served upon the assessee requiring
him to file the return for the AY 2005-06.
The assessee filed return u/s 153A declaring loss of
Rs.1,77,03,110/- on 17.03.2008. Notice u/s 143(2) &
142(1) dated 24/09/08 were served upon the
assessee to file the requisite details. In response to
statutory notices Mr. Pradeep Dhingra CA and
Authorized representative of the assessee attended
the proceedings and filed details and documents
called for from time to time.
The assessee is a trust and the main objects are to
establish hospital, clinic, laboratories for providing
medical relief to needy and poor persons and also to
establish educational institutions and other related
objects. There is a hospital by the name of M/s.
Mata Channan Devi Hospital and four schools Mata
Dharam Pal Vidya Mandir, Shishu Vibhag, Mata Vidya
Mandir (Bal Vibhag), MDH International School
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(LKG/UKG), MDH International School (I/VIII).
Requisite documents were called for and produced
for verification. After discussion, assessed at a loss
of Rs.1,77,03,110/-. This order issues with the prior
approval of Addl. Commissioner of Income-tax,
Central Range-I, New Delhi."
11. The Deputy Commissioner of Income Tax while
rejecting the objections has recorded that the
documents relating to undisclosed income being
invested in construction of school at Byadgi were
found during the search and the assessing officer
came to the conclusion that the value of the school
declared by the assessee was less than the actual
value and, therefore, during the assessment
proceedings, the assessing officer referred the matter
of valuation of the school to the District Valuation
Officer (DVO).
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12. Perusal of the assessment order above shows that the
assessing officer while framing the said assessment at
a loss Rs.1,77,03,110/- had issued notice to the
assessee requiring the assessee to file the requisite
details and documents from time to time. The
assessing officer after perusal and verification of the
documents had passed the assessment order.
13. The Assessing Officer at the time of original
assessment was fully conscious and aware of the
construction undertaken, the extent of construction
and the expenditure declared/claimed. In case of
doubt, he should have obtained valuation report before
the assessment order was passed. He did not obtain
the valuation report and completed the assessment,
without making any addition on the said ground. The
valuation report was received subsequently and
became the sole ground for reopening.
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14. A Division Bench of DELHI HIGH C OURT IN SHRI BAWA
ABHAI SINGH VS . DY. C OMMISSIONER OF INCOME TAX
(2002) 253 ITR 83 (DEL) had observed that valuation
report received after assessment can constitute a valid
basis for initiation of reassessment proceedings after
1989 amendment. It was held that information,
however, must be more than mere rumour, gossip or a
hunch and there should be some material which may
be regarded as justification for action under Section
147. At this stage, meticulous examination is not
required as in-depth enquiry has to be made, post
issue of notice. The Assessing Officer must examine
the information and realise its implications to
determine whether the said facts or material can
constitute basis for initiation of proceedings.
Subsequent decision of the Supreme Court in Dhariya
Construction (supra) observes and holds that the
reasons to believe recorded by the Assessing Officer
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under Section 147 must disclose due application of
mind by the Assessing Officer after he receives the
valuation report and the valuation report should not
become an automated exercise or a blind and
undiscerning consequence. Application of mind by the
Assessing Officer, who records reasons, should be
demonstrable and satisfied. The valuation report is a
starting point for application of mind and one can
advert to the same, but the exercise and examination
of the relevant aspects by the Assessing Officer
should be palpable and perceivable.
15. In the present case, the valuation report is per se
tentative and vague. It stands observed that State
PWD plinth area rate after the year 1985 had not been
published. No cost index was worked out or approved
by the competent authority but cost indexes had been
approved by the competent authority, Central Board of
Direct Taxes (CBDT) every year for important places
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in the State of Karnataka. It is also stated that CBDT
approved plinth area and cost index method were
more authentic than PWD rates. At the same time, it
was observed that since the standard weightage for
labours and materials were given, the cost index at the
specific place of construction could be worked out, if
assessee produces bills and vouchers. In paragraph
8.0 it was mentioned that the assessee has not
submitted any details of expenditure vouchers for
purchased material, labour payment, transportation
charges. It was stated that the plinth area rate of
01.01.1992 as base 100 was approved by the CBDT
vide circular No. 1671 and as per instructions dated
13.12.1998 for working out basic cost of building. This
cost has to be enhanced on the basis of weighted
average cost index worked out of the locality based on
then prevailing rate of men and materials and also
bills/ vouchers produced by the assessee. On this
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basis, weighted average cost index was taken as 210
and by this method cost of construction of building on
local market rate was arrived. The period of
construction as per valuation report was between
May,2004 to March,2006 and as per the break-up
furnished, 47.8% of the construction cost was incurred
in the financial year 2004-2006 and 52.2% of the
expenditure was incurred in the financial year 2005 -06.
16. The valuation report of this nature requires some
statement or an averment by the Assessing Officer as
to what was the basis and why he should proceed on
the valuation report, its contents and why he should
rely on the same while recording reasons to believe.
This in the present case is lacking and absent.
17. The contention of the Revenue that the report
submitted by the District Valuation Officer was material
on the basis of which the reopening proceedings could
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be initiated in the facts of the present case is not
sustainable.
18. In the case of C OMMISSIONER OF INCOME TAX V. PUNEET
SABHARWAL; (2011) 338 ITR 485 (DELHI), a Division
Bench of this Court relying on the decision of
COMMISSIONER OF INCOME T AX VS . SMT. SURAJ DEVI;
(2010) 328 ITR 604 (DELHI) held that the primary
burden of proof to prove understatement or
concealment of income is on the revenue and it is only
when such burden is discharged that it would be
permissible to rely upon the valuation given by the
DVO. It was further held that the opinion of valuation
officer, per se, was not an information and could not
be relied upon without the books of accounts being
rejected which had not been done in that case. The
Division Bench also referred to the decision in CIT V.
NAVEEN GERA (2010) 328 ITR 516 (DEL) to hold that
opinion of the District Valuation Officer per se was
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not sufficient and other corroborated evidence was
required.
19. The Supreme Court in the case of A SSISTANT
COMMISSIONER OF INCOME T AX VS DHARIYA
CONSTRUCTION C O. 2010 (328) ITR 515 (SC)
observed:-
"Having examined the record, we f IND THAT IN
THIS CASE, THE D EPARTMENT SOUGHT REOPENING OF
THE ASSESSMENT BASED ON THE OP inion given by the
District Valuation Officer (DVO). The opinion of
the DVO per se is not an information for the
purposes of reopening assessment under
section 147 of the Income Tax act, 1961. The
Assessing Officer has to apply his mind to the
information, if any, collected and must form a
belief thereon. In the circumstances, there is
no merit in the civil appeal. The Department
was not entitled to reopen the assessment."
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20. The ratio discernible from the aforesaid decision is
that the Assessing Officer has to apply his mind to any
information in form of the valuation report and must
form a belief thereon that there is escapement of
income. The opinion of the DVO is per se not an
information for the purpose of reopening of an
assessment. The Assessing Officer has to apply his
mind to the report of the DVO and only if on
application of mind, if he forms a belief that there is
escapement of income, he can seek to reopen the
assessment under section 147 of the Act.
21. In the reasons recorded for the year 2005 - 06 the
Assessing Officer has recorded that the valuation
officer has worked out the value of the property at
Rs.75,86,800/- against the declared value of
Rs.24,41,776/- lakhs as shown in the balance sheet as
on 31.03.06. The A.O. has further recorded that on
perusal of record it is seen that assessee has not
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shown any amount of investments made during the
year in school at Byadgi and that the valuation of
school at Byadgi by Valuation Officer in his report the
property has been shown at Rs.36,26,490/- as against
NIL shown by assessee. The A.O. has thus recorded
that the investment of Rs.36,26,490/- has escaped
assessment.
22. In the reasons recorded for the year 2006 - 07 the
Assessing Officer has recorded that the valuation
officer has worked out the value of the property at
Rs.75,86,800/- against the declared value of
Rs.24,41,776/- lakhs as shown in the balance sheet as
on 31.03.06. The A.O. has further recorded that on
perusal of record the assessee has shown an amount
of Rs.24,41,776/- in the assets side of balance sheet
under the head 'School building' of Byadgi unit and
that as per books of the assessee and the information
given by Valuation Officer in his report the property
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has been undervalued by the assessee by
Rs.51,45,024/- (75,86,800/- Minus 24,41,776/-) in its
return of income. The A.O. has thus held that the
income of Rs.36,26,490/- has been held, on the basis
of details filed by the assessee, to have escaped in the
A.Y.05-06 and that the balance amount of
Rs.15,18,534/- (51,45,024/- minus 36,26,490/-) has
escaped assessment in this year.
23. For the report of the Valuation Officer to become a
basis for the reopening, the Assessing Officer should
have applied his mind to the report of the Valuation
Officer. The Assessing officer has clearly not applied
his mind to the report of the Valuation Officer. Perusal
of the Balance Sheet of the Assessee for the year
ending 31.03.2005 shows that the Assessee has
shown an amount of Rs. 21,95,849/- as an
expenditure of capital nature on the Bayadgi Unit
towards the School building. The Assessing Officer
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has taken the amount shown as nil. For the year
ending 31.03.2006 the Assessee has shown an
investment of Rs. 2,45,927/- as expenditure of capital
nature on the Bayadgi unit and the value of the school
building as on 31.03.2006 at Rs. 24,41,776/-. The
reasons recorded are contradictory to the record.
24. In view of the above we are of the considered opinion
that the assessing officer has merely intended to
revisit the said concluded assessment and it is a clear
case of change of opinion which is not permissible in
law. The Impugned order dated 23.08.2010 is hereby
set aside and the proceedings initiated pursuant to the
two impugned notices dated 30.03.2010 are hereby
quashed. The Writ Petition is allowed with no orders
as to costs.
25. Since we have held that the Assessing Officer has not
applied his mind to the valuation report and has simply
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accepted the same and made it the basis for
reopening which is not permissible in terms of the law
as laid down by the Supreme Court in D HARIYA
CONSTRUCTION C O. (SUPRA) and have quashed the
reassessment. We have not gone into the plea raised
by the Petitioner that as the assessment was framed
under Section 153A pursuant to search, the
assessment was beyond the purview of re-assessment
under Section 147/148. The said question is left open.
No Costs.
SANJEEV SACHDEVA, J.
FEBRUARY 05, 2014 SANJIV KHANNA, J.
SV
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