THE COMMISSIONER OF INCOME TAX vs. MEDICAL TRUST HOSPITAL, NEDUMKANDAM,

We have heard the Senior Standing Counsel appearing for the appellant and Sri Harishankar V.Menon appearing for the respondent.

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 assessee was engaged in the construction of a hospital building. While completing the original assessment, the Assessing Officer accepted the accounts pertaining to investments in the construction of the building. However, after completion of original assessment, based on returns filed, the assessing officer referred the building for valuation by the approved valuer. When valuation report came, the difference in construction cost over what is accounted by the respondent was Rs.12,02,795/-. Based on the valuation report, the assessing officer reopened the assessment by issuing notice under section 148. Even though the assessee objected the reopening, the objections were overruled and assessments were completed under section 147 of the IT Act. Even though validity of the reassessments are questioned in first appeal, the first appellate authority turned down the same but granted certain quantum relief. The assessee approached the Tribunal with second appeals questioning the validity of reopening of the assessment as well as against additions sustained. The Tribunal accepted the challenge against the validity of assessments and declared that reassessments are invalid against which department has filed these appeals.

Senior Counsel appearing for the appellant relied on the decision of the Supreme Court in Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers P.Ltd {2007)291 ITR 500} wherein the Supreme Court has explained the scope of “reasons to believe” contained in the section as follows: “ The expression “reason to believe” in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is “reason to believe” but 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 material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer”.

Based on the above finding the Senior counsel contended that valuation report constitutes the basis for reopening because Assessing officer has examined valuation report and he was satisfied that assessee had made investment over the accounted expenditure justifying reopening of reassessment for making addition of unexplained investment. Counsel for the assessee on the other hand submitted that the assessing officer had no independent material for reopening the assessment and valuation by another person is only an opinion which would not constitute basis for reopening the assessment. The counsel has also relied on various decisions of the High Court particularly that of the Punjab and Haryana High Court in Commissioner of Income-Tax v. Darshan Singh (272 ITR 650) (P & H) and that of Madras High Court in CIT v. V.T.Rajendran (288 ITR 312 (Mad) and contended that reopening in this case is not justified. However, we are unable to accept this contention because, the law laid down by the Supreme Court, in our view, is squarely satisfied in this case. The Assessing Officer is not an expert for valuation of the building and therefore he has to necessarily go by the advice of a technical person. No one can dispute that an approved valuer is a qualified person appointed by the Department for the purpose of valuation of investment including building and other structures. At the time of regular assessment, the officer did not have any material to assume that the investment is over and above what is accounted by the assessee. However, officer is free to refer the building for valuation and valuation report is certainly a specialised information which can constitute the basis for reopening when investment valued by the approved valuer is over and above the cost declared by the assessee, the same constitutes the basis for reopening. Of course, when the variation is insignificant, there will be no justification for reopening the assessment. However, in this case, variation is substantial and difference is above Rs.12 lakhs. We are therefore of the view that the subsequent information received about higher investment made in the construction of the building by the assessee over the amount accounted by him constitute the basis for reassessment when the officer has reason to believe that income has escaped from assessment for all the years the assessing officer gets the right to reopen assessments. Therefore we are of the view that the Tribunal went wrong in cancelling the reassessment as beyond the powers of the officer under section 147 of the IT Act. We therefore, allow the appeals by setting aside the order of the Tribunal and by restoring the appeals to the Tribunal for decision on merits. The Tribunal will issue notice on both sides, hear them and dispose of the appeals within a period of three moths from the date of receipt of a copy of this judgment. C.N.RAMACHANDRAN NAIR JUDGE