HIGH COURT OF ALLAHABAD
Commissioner of Income-tax
Vrindaban Real Estate (P.) Ltd.
IT Appeal NOS. 486 OF 2008
AND 344, 347 & 609 of 2011
JULY 24, 2012
1. We have heard Shri Dhananjai Awasthi, learned counsel appearing for the department. Shri Ashish Bansal appears for the assessee-company.
2. These Income Tax Appeals filed by the Commissioner of Income Tax-I, Agra arise out of a common judgment and order of Income Tax Appellate Tribunal, Agra Bench, Agra dated 30.5.2008 in ITA Nos. 307, 308, 309 & 310/Agr/2007 relating to assessment years 1997-98, 1998-99, 1999-2000 and 2001-02.
3. The department has raised following two questions of law for consideration of this Court:-
“(1) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the action u/s 147 of IT Act, 1961 by issuance of notices u/s 148 of the Act on the basis of DVO’s report is invalid, illegal and void ab-initio and that the jurisdiction assumed u/s 148 of IT Act, 1961 is therefore illegal and invalid?
(2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the addition u/s 69 of the IT Act, 1961 simply following its order in the A/Y 2001-02 which has not been accepted by the department and an appeal u/s 260-A of the Act has been filed before Hon’ble High Court and the matter is sub-judice?”
4. We have gone through the orders of AO, CIT and ITAT made after reopening the assessment under Section 147 of the Act. The ITAT, allowed the appeals setting aside the orders, based on reports of D.V.O.
5. In Asstt. CIT v. Dhariya Construction Co.  328 ITR 515 the Supreme Court, in its short order dated 16.2.2010, held as follows:-
“Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion 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.
Civil appeal is, accordingly, dismissed. No order as to costs.”
6. The Tribunal relied upon the judgment of Punjab & Haryana High Court in the case of CIT v. Darsan Singh  272 ITR 650, the judgment of Madras High Court in CIT v. V.T. Rajenderan  288 ITR 312 (Mad) and the judgment of Madhya Pradesh High Court in Prakash Chand v. Dy. CIT  269 ITR 260 in which it was held that the notice of re-assessment on the basis of report of the Valuation Officer is not valid. It was held that DVO’s report is only an information and not the material on the basis of which the assessment may be reopened. Such a report cannot be an arithmetic appreciation of the materials used for constructions nor the expenses incurred by the assessee in that regard. The observations made by the DVO do not amount to material warranting satisfaction on the part of the Assessing Officer for reason to believe that the income had escaped assessment.
7. In Shamsuddin Ansari v. Union of India [Civil Misc. writ Petition No. 1603 (Tax) of 2006 decided on 27.8.2010] this Court held that Assessing Authority had not adjudicated the issue in the assessment order under Section 145 (3) relating to investment in the constructions. He made a query from the petitioner asking him to explain the source of investment in constructions. The valuation officer’s report was received after the assessment order. The Court found that the petitioner had not challenged the reference to the Valuation Officer and had participated in the proceedings. The Court distinguished the judgments in Ram Swarup Cold Storage & Allied Industries v. Asstt. CIT  192 ITR 537 and in Britannia Industries Ltd. v. Dy. CIT  238 ITR 57on the grounds that the word ‘reason to believe’, is not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether such material would conclusively prove escapement of income is not the concern at that stage. The formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer.
8. In CIT v. Kelvinator of India Ltd.  187 Taxman 312 (SC) the Supreme Court held that the assessing officer has no power to review his order. He has the power to re-assess. But re-assessment has to be based on fulfilment of certain pre-conditions and if the concept of “change of opinion” is removed, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. The Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.
9. In the present case the Tribunal found that the DVO’s report is based on his opinion, and not on any material, which could form the basis of reopening of the cases, and thus it can at best be treated as an information, which will not be sufficient material for recording ‘reason to believe’ to proceed in the matter. The opinion of the DVO, as to what would be reasonable percentage of architects fees and the supervision charges by the Directors, would not constitute tangible material for exercising powers of reopening the assessment.
10. We do not find that the questions of law raised by the appellant arise for consideration of the Court. There is a pre-dominant opinion of the Supreme Court, and of the High Courts including this Court that the DVO’s report 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 on the information, if any, collected and must form a belief thereon on reopening the assessment.
11. In all these cases, the assessment was reopened and that the Tribunal found that the additions were made only on the basis of the opinion of DVO and not on any material collected. The Tribunal also found that there was no good reason to escalate the value of constructions to reduce the fee paid to architect, and the cost of supervision.
12. The judgment of Apex Court in Dhariya Construction Co. (supra) was rendered after the judgment in Kelvinator of India Ltd (supra). The Bench, hearing Shamsuddin Ansari’s case, did not have the benefit of the judgment in Dhariya Constructions Co. (supra) rendered on February 16, 2010 and which clearly lays down that 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 material, if any, collected and must form a belief thereon. There has to be something more than the report of DVO for the belief of the Assessing Officer. The Assessing Officer cannot, merely on the basis of DVO’s report, reopen the assessment. The DVO’s report may be based only on his opinion or on some tangible material. In the former case it would be only estimation or guesswork. In this case the ITAT found that AO had found in paragraph-13 of the judgment:-“…We may mention that the A.O. has relied mainly on the report of the DVO without pointing out any defect or discrepancy much less any material defect in the books of account of the assessee, and the expenditure incurred by the assessee in construction and shown in the books of account are duly supported by bills and vouchers.” This fact has also been confirmed by the Tribunal in the assessee’s own case for A.Y. 2000-2001, which is the base year.
13. The Income Tax Appeals are consequently dismissed.