DARSHAN BUILDCON V. INCOME TAX OFFICER WARD 3(3)(6)

SCA/16246/2018

AI Insights

The case involves Darshan Buildcon, a partnership firm engaged in construction, which challenged a notice issued by the Income Tax Officer under section 148 of the Income Tax Act, 1961, seeking to reopen its assessment for the year 2011-12. The original assessment had been completed after a detailed scrutiny, including a reference to the DVO for cost of construction. The DVO's report, which estimated a higher construction cost, was received after the original assessment was finalized. The court examined whether the reopening of the assessment was justified based on the DVO's report and found that it was not, as it amounted to a mere change of opinion without any new material facts.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 770440 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-12-2018
• Assessment Year: misc
• Other Referred Cases: Assistant CIT v. Dhariya Construction Co., Kisan Proteins (P) Ltd. v. Assistant Commissioner of Income-tax, Goodluck Automobiles (P) Ltd. Vs. Assistant CIT, Indo-Aden Salt Manufacturing and Trading Co. Pvt. Ltd. Vs. Commissioner of Income-Tax, Bombay, Sunder Carpet Industries v. Income-Tax Officer and Another, ACC Ltd. v. District Valuation Officer and Others, Grover Nursing Home v. Income Tax Officer and Other
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S N DIVATIA
• Keywords: Construction cost; Deduction under Section 80IB(10); Income Tax; Reopening of assessment; Valuation Officer
• Section: 148; 143(3); 142(1); 80IB(10)

Judgement Text

"C/SCA/16246/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16246 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment? YES 2 To be referred to the Reporter or not? YES 3 Whether their Lordships wish to see the fair copy of the judgment? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder? NO ====================================== DARSHAN BUILDCON Versus INCOME TAX OFFICER WARD 3(3)(6) ====================================== Appearance: MR SN DIVATIA (1378) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT (174) for the RESPONDENT(s) No. 1 ====================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Date: 19/12/2018 ORAL JUDGMENT (PER: HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this petition under Article 226 of the Constitution of Page 1 of 22 C/SCA/16246/2018 JUDGMENT India, the petitioner has challenged the notice dated 30.03.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) proposing to reopen the assessment of the petitioner for the assessment year 2011-12. 2. The petitioner is a partnership firm engaged in the business of building construction and developer. The petitioner is regularly assessed to tax and its books of account are subject to tax audit. For assessment year 2011-12, the petitioner has filed its original return of income on 21.09.2011 declaring total income at Rs.NIL after claiming deduction of Rs.12,75,91,278/- under section 80IB(10). The return of income was selected for scrutiny and regular assessment was completed under section 143(3) of the Act on 31.03.2014 after detailed scrutiny of documents, audit reports, audited books of account etc. During the course of regular assessment proceedings, the respondent issued a notice dated 11.06.2013 under section 142(1) of the Act calling upon the petitioner to furnish the details/documents as enumerated therein, which included details regarding the claim of deduction under section 80IB(10) of the Act. Subsequently, fresh notice under section 142(1) was issued on 30.07.2013, calling upon the petitioner to furnish further details including the details relating to the cost of construction etc. concerning the project for which deduction under section 80IB(10) of the Act was claimed. It appears that, subsequently, further notice came to be issued on 23.12.2013 proposing to reject the entire claim of deduction under section 80IB(10) of the Act, in response to which, the petitioner furnished written submissions as well as various details such as ledger accounts, bank statements, creditors confirmation, Page 2 of 22 C/SCA/16246/2018 JUDGMENT expenses account etc., from time to time. After considering the entire material, the Assessing Officer completed regular assessment under section 143(3) of the Act on 31.03.2014 on a total income of Rs.NIL after allowing the deduction of Rs.12,75,91,278/- under section 80IB(10) of the Act. 2.1 Thereafter, by the impugned notice dated 30.03.2018 issued under section 148 of the Act, the Assessing Officer seeks to reopen the assessment of the petitioner for assessment year 2011-12. In response to the notice, the petitioner filed e-return of income on 30.06.2018 declaring total income at Rs.NIL after claiming deduction under section 80IB(10) of the Act. The petitioner also called upon the respondent to provide a copy of reasons recorded for reopening the assessment. Vide letter dated 30.07.2018, a copy of reasons recorded came to be furnished by the respondent, upon receipt whereof, the petitioner submitted objections dated 18.09.2018. By a letter dated 25.09.2018, the respondent rejected the objections raised by the petitioner to the reopening of the assessment. Being aggrieved, the petitioner has filed the present petition. 3. Mr. S. N. Divatia, learned advocate for the petitioner, submitted that, in this case, the impugned notice is dated 30.03.2018 whereby, the Assessing Officer seeks to reopen the assessment for assessment year 2011-12, which is clearly beyond a period of four years from the end of relevant assessment year and that, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, the assumption of jurisdiction by the Assessing Officer under section 147 of the Page 3 of 22 C/SCA/16246/2018 JUDGMENT Act is without authority of law. 3.1 The attention of the court was invited to the reasons recorded, to submit that the Assessing Officer seeks to reopen the assessment on the basis of the report dated 31.03.2014 furnished by the District Valuation Officer estimating the cost of construction at Rs.8,99,96,351/- Reference was made to the assessment order dated 31.03.2014 made under section 143(3) of the Act to point out that the Assessing Officer, during the course of regular assessment, has examined this very issue. It was contended that therefore, the reopening is based upon a mere change of opinion which is not permissible in law. 3.2 It was emphatically argued that the sole reason for reopening the assessment is that the District Valuation Officer has estimated the cost of construction at Rs.8,99,96,351/- as against the cost of construction shown by the assessee at Rs.5,94,52,001/-. It was submitted that it is settled legal position that the DVO's Report cannot be the sole ground for reopening the assessment. In support of such submission, the learned advocate placed reliance upon a decision of the Supreme Court in the case of Assistant CIT v. Dhariya Construction Co., [2010] 328 ITR 515, for the proposition that the opinion given by the District Valuation Officer is not per se information for the purpose of reopening an assessment under section 147 of the Act. It was submitted that during the original assessment proceedings, the petitioner had produced the entire construction details along with bills etc. and it was only after examining the same, that assessment under section 143(3) of the Act was finalized, and, therefore, the said valuation report cannot be construed as sufficient and tangible Page 4 of 22 C/SCA/16246/2018 JUDGMENT material which may permit the respondent to reopen the assessment. 3.3 It was further submitted that original assessment under section 143(3) of the Act was completed on 31.03.2014 and the District Valuation Officer prepared the report later on, whereas, the proceeding for reopening of assessment has been initiated after a gap of four years. According to the learned advocate, the inaction on the part of the respondent for such a long period amounts to tacit acceptance of the cost of construction as declared by the petitioner in its books of account. It was further contended that in the facts of the present case, there is no escapement of income. 3.4 Next, it was contended that the Assessing Officer, during the course of assessment proceedings, has made a reference to the District Valuation Officer to determine the cost of construction, which was not permissible in law, inasmuch as the Assessing Officer could not have referred the matter to the District Valuation Officer without first rejecting the books of account. In respect of such submission, the learned advocate placed reliance upon a decision of this court in the case of Kisan Proteins (P) Ltd. v. Assistant Commissioner of Income-tax, [2016] 243 Taxman 11 (Gujarat), wherein, reliance has been placed on an earlier decision in the case of Goodluck Automobiles (P) Ltd. Vs. Assistant CIT, [2013] 359 ITR 306 (Guj), wherein, the court had held thus: “On a conjoint reading of the provisions of section 69 and section 142A of the Act, it appears that for the purpose of resorting to the provisions of section 142A of the Act, the Assessing Officer would first be required to record a Page 5 of 22 C/SCA/16246/2018 JUDGMENT satisfaction that the assessee has made investments which are not recorded in the books of account. As a necessary corollary, he would then reject the books of account as not reflecting the correct position and then proceed to make the assessment on the basis of estimation, for which purpose he can resort to the provisions of section 142A of the Act and make a reference to the Valuation Officer for estimating the value of such investment. Thus, on a plain reading of section 142A of the Act, it is apparent that the question of estimating the value of any investment would arise only when the books of account are not reliable. Accordingly, the Assessing Officer would first be required to reject the books of account before making a reference to the Valuation Officer. The rejection of books of account should precede the reference to the Valuation Officer.” Referring to the assessment order dated 31.03.2014, it was pointed out that the Assessing Officer had made the reference to the District Valuation Officer without rejecting the books of account and that during the course of regular assessment, the assessment was made by accepting the cost of construction as given by the assessee. 3.5 It was, accordingly, urged that on the reasons recorded, the Assessing Officer was not justified in reopening the assessment of the petitioner and that the impugned notice, therefore, deserves to be quashed and set aside. 4. Vehemently opposing the petition, Mrs. Mauna M. Bhatt, learned Senior Standing Counsel for the respondent, referred to the reasons recorded to submit that the Assessing Officer has recorded therein that the Assessing Officer, on finalizing Page 6 of 22 C/SCA/16246/2018 JUDGMENT the assessment, found that the assessee has understated the cost of construction and accordingly, referred the matter to the District Valuation Officer for ascertaining the correct cost of construction of the property. The District Valuation Officer furnished the cost of construction at Rs.8,99,96,351/- whereas, the assessee, in the books of account, has shown the cost of construction at Rs.5,94,52,001/- which clearly shows that the assessee has not correctly and truly disclosed the expenses incurred for the construction. Thus, there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. 4.1 Referring to the assessment order under section 143(3) of the Act, it was pointed out that the Assessing Officer has passed the order as the assessment was getting time-barred and that in the assessment order itself, he has recorded that since report was not received from the DVO till date, the assessment was finalized accepting the cost of construction and on receipt of the valuation report, action will be taken if found necessary. It was submitted that, therefore, reference to District Valuation Officer was made under section 142A of the Act at the time of regular assessment proceedings; however, the petitioner had not challenged the same at the relevant time. In the Assessment Order itself, the Assessing Officer has stated that on receipt of the valuation report, action will be taken if found necessary; despite which, the same has not been called in question by the petitioner and, therefore, it is now not open for the petitioner to challenge the reference made to the District Valuation Officer under section 142A of the Act. Reliance was place on the decision of this court in the case of Kanaiyalal Dhansukhlal Sopariwala, [2017] 391 Page 7 of 22 C/SCA/16246/2018 JUDGMENT ITR 56 (Guj), for the proposition that section 142A of the Act provides that such valuation may be summoned even when the Assessing Officer may not have questioned the accounts of the assessee. The court observed thus: “In sub-section (1) of section 142A of the Act itself, the Assessing Officer has the power, for the purposes of assessment or reassessment, to make a reference to the Valuation Officer to estimate the value, including fair market value, of any asset, property or investment, who would submit such a report to him. Sub-section (2) of section 142A of the Act further clarifies that the Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.” 4.2 Reliance was placed upon the decision of the Supreme Court in the case of Indo-Aden Salt Manufacturing and Trading Co. Pvt. Ltd. Vs. Commissioner of Income-Tax, Bombay, [1986] 159 ITR 624, wherein it was contended on behalf of the assessee that the Assessing Officer could have found out the position by probing further. The court held that that, however, does not exonerate the assessee to make disclosure fully. The court observed that the principles have been well settled that mere production of evidence before the Income Tax Officer is not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing Page 8 of 22 C/SCA/16246/2018 JUDGMENT authority. It was submitted that the Assessing Officer has sought to reopen the assessment based upon tangible material namely valuation report submitted by the District Valuation Officer which shows that the cost of construction is much higher than that is shown by the petitioner. 4.3 Reliance was also placed on the decision of Allahabad High Court in the case of Sunder Carpet Industries v. Income-Tax Officer and Another, [2010] 324 ITR 417, wherein, the court has held thus: “[10] xxxxxx. Under section 142A of the Act, a reference can be made for the purposes of section 69. Section 69 says about the unexplained investment. We are of the view that investment made in the construction of the building, if not recorded in the books of account falls under Section 69 of the Act. With due respect, we are not able to subscribe to the view taken by the Delhi High Court in the case of CIT v. Aar Pee Apartments P.Ltd., 2009 319 ITR 276 wherein the Delhi High Court has held that investment made in the construction of building falls under expenditure incurred by the assessee and is covered under Section 69C of the Act and not under Section 69 and since Section 69 C is not covered under Section 142A of the Act, the reference to the Valuation Cell cannot be made for the purposes of determination of the investment made in construction of the building. [11] In this view of the matter, we are of the opinion that the reference made to the Departmental Valuation Cell for the purposes of determination of the investment in the construction of building cannot be said to be without the authority of law. The valuation report disclosed the higher investments in the constructions which have not been disclosed in the books of account. Thus, there was escaped assessment. We are of the view that the Departmental valuer’s report constitutes material for entertaining a belief of escaped income in the years under consideration.” It was submitted that the above decision would be squarely Page 9 of 22 C/SCA/16246/2018 JUDGMENT applicable to the facts of the present case. 4.4 The decision of the Delhi High Court in the case of ACC Ltd. v. District Valuation Officer and Others, [2013] 357 ITR 160, was cited, wherein the contention raised was that once the assessment under section 143(3) of the Act was completed, pending reference to the DVO became invalid and was of no effect. The court held that, there is no provision in the Act which deals with the situation as to what would happen to a reference made to the DVO under section 55A which is pending completion at the time of passing the assessment order and that obviously, the assessment order cannot be deferred in view of the limitation prescribed for passing the same. The report of the DVO, as and when, received by the Assessing Officer, may be acted upon by the income tax authorities and if they do so, the validity of that action can be questioned by the assessee on the grounds which he may be advised to take. The court observed that, this was not of any concern to it in those proceedings and further held that section 55A does not in terms create any bar on the DVO proceeding to value the property on the basis of a valid reference made by the Assessing Officer. 4.5 Ms. Bhatt submitted that at the time of the original assessment, the Assessing Officer had formed the belief that the assessee had not disclosed the correct facts and, therefore, he had made a reference to the District Valuation Officer. Once a valid reference under section 142A of the Act is made, the Assessing Officer can rely upon such a report. In support of such submission, reliance was placed on a decision of the Punjab and Haryana High Court in the case of Grover Page 10 of 22 C/SCA/16246/2018 JUDGMENT Nursing Home v. Income Tax Officer and Other, [2001] 248 ITR 493, wherein the court opined that even though the report of the Departmental Valuation Office cannot be made the sole basis for initiating action under section 147 read with section 148 of the Act, it can certainly be considered with other facts for forming the belief that the income of the assessee had escaped assessment. 5. Before adverting to the merits of the rival contentions, reference may be made to the reasons recorded for reopening the assessment, which read thus: “REASONS FOR REOPENING OF THE ASSESSMENT IN CASE OF M/S. DARSHAN BUILDCON FOR AY. 2011-12 U/S. 147 OF THE INCOME -TAX ACT. 1 Brief details of the assessee The assessee carries on the business of construction and filed its return of income for A.Y. 2011-12 on 21/09/2011 declaring income of Rs.Nil after claiming deduction of Rs.12,75,91,278/- u/s. 80IB(10) of the Act. The return filed by the assess was taken up for scrutiny and the assessment was completed u/s. 143(3) of the Act on 31/03/2014 determining total income at Rs.Nil after allowing deduction u/s. 80IB(10) of the Act as claimed by the assessee. As the issue of determining the cost of construction was referred to the DVO. 2 Brief details of information collected / received by the AO: The AO on finalizing the assessment found that the assessee has understated the cost of construction and accordingly referred the matter to the DVO for ascertaining the correct cost of construction of the property. The DVO furnished its report vide order dated 31/03/2014 estimating the cost of construction at Rs.8,99,96,351/-. 3 Analysis of information collected / received The DVO has estimated the cost of construction of the property sold by the assessee at Rs.8,99,96,351/- as against the assessee has shown cost of construction at Rs.5,94,52,001/-. From the report of the DVO it is very clear that the assessee has understated the cost of construction to the tune of Page 11 of 22 C/SCA/16246/2018 JUDGMENT Rs.3,05,44,350/- [89996351-59452001]. Such cost of construction the assessee must have met the same out of undisclosed sources. 4 Enquiries made by the AO as sequel to information collected / received: The case was referred to the DVO for determination of correct cost of construction. 5 Finding of the AO: During the course of assessment proceedings, the AO noticed that the assessee has drastically understated the cost of construction and thereby inflated the profit from construction business and claimed the same u/s. 80IB(10) of the Act. The estimation of cost of construction of Rs.8,99,96,351/- shows that the assessee has understated the cost of construction which has been met by the assessee out of the undisclosed sources. 6 Basis of forming reason to believe and details of escapement of income: Considering the fact that the assessee has incurred expenditure for construction of property which has been met out of undisclosed sources. The DVO estimated the cost of construction at Rs.8,99,96,351/- whereas the assessee in the books of account shown cost of construction at Rs.5,94,52,001/-. This clearly shows that the assessee has not correctly and truly disclosed the expenditure incurred for the construction. The excess cost of construction would be met by the assessee out of the undisclosed source of income. Failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment, the income of the assessee to the extent of Rs.3,05,44,350/- has escaped assessment within the meaning of Section 147 of the Act. 7 Seventh paragraph will include escapement of income chargeable to tax in relation to any assets (including financial interest I any entity) located outside India: N.A. 8 Applicability of the provisions of section 147/151 to the facts of the case: In this case a return of income was filed for the year under consideration and regular assessment u/s. 143(3) or reassessment u/s. 147 was made on 31/03/2014. Since, 4 years from the end of the relevant year has expire in this case, the requirements to initiate proceedings u/s. 147 of the Act are reason believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his Page 12 of 22 C/SCA/16246/2018 JUDGMENT assessment for the assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above Para-6. I have carefully considered the assessment records containing the submission made by the assessee in response to various notices issued during the assessment / reassessment proceedings and have noted that the assessee has not fully and truly disclosed that cost of construction incurred during the year and part of such expenditure has been incurred out of undisclosed sources. It is evident from the above facts that the assessee has not truly and fully disclosed material facts necessary for its/his assessment for the year under consideration thereby necessitating reopening u/s. 147 of the Act. It is true that the assessee has filed a cop of annual report and audited P&L A/c. and balance sheet alongwith return of income where various information / material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has produced books of accounts, annual report, audited P&L A/c. and balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provision of Explanation 1 of Section 147 of the Act. It is evident from the above discussion that in this case, the issue(s) under consideration was examined by the AO and the assessee did not furnish the correct cost of construction, the case was referred to the DVO for estimation of correct cost of construction of the property sold. The assessment order was passed u/s. 143(3) of the Act on 31/03/2014 keeping in view the provisions of Section 153 of the Act which has clearly been mentioned in the order of assessment, as the report of the DVO was not received before 31/03/2014. Page 13 of 22 C/SCA/16246/2018 JUDGMENT In this case more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from Pr. CIT as per the provisions of Section 151 of the Act. 6. From the reasons recorded, it is manifest that the Assessing Officer seeks to reopen the assessment of the petitioner on the basis of the report dated 31.03.2014 furnished by the DVO estimating the cost of construction at Rs.8,99,96,351/-. In the backdrop of the facts and the contentions noted herein above, the question that arises for consideration is whether the reopening of assessment for assessment year 2011-12 in case of the petitioner solely based upon the report of the District Valuation Officer is valid? 7. On behalf of the petitioner, it has been contended that sole reliance cannot be placed upon the report of the District Valuation Officer without ascertaining or coming to the conclusion that the books of account of the petitioner company are not correct and without rejecting the same, reopening of assessment cannot be resorted to. It was pointed out that during the assessment proceedings, relevant bills pertaining to the construction had been produced and after considering the same, the assessment had been finalized. It was contended that to allow the authority to reopen the assessment would, therefore, amount to reopening a concluded assessment on a mere change of opinion. It was pointed out that the assessment order under section 143(3) of the Act has been passed on 31.03.2014 and the report of the District Valuation Officer is also dated 31.03.2014, which must have been received soon thereafter; whereas, the assessment is sought Page 14 of 22 C/SCA/16246/2018 JUDGMENT to be reopened after a period of almost four years thereafter and beyond four years from end of the relevant assessment year and, therefore, in the absence of any failure on the part of the petitioner to disclose all material relevant for its assessment, the assumption of jurisdiction on the part of the Assessing Officer is without authority of law. Since, in this case, the Assessing Officer has referred the matter to the District Valuation Officer during the course of assessment proceedings under section 143(3) of the Act, reference may be made to section 142A of the Act, which as it stood at the relevant time, reads as under: “Estimate by Valuation Officer in certain cases. 142A. (1) For the purpose of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub- section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of Page 15 of 22 C/SCA/16246/2018 JUDGMENT section 153A. Explanation. - In this section, “Valuation Officer” has the same meaning as in clause (r) of section 2 of the Wealth- tax Act, 1957 (27 of 1957).” 8. Thus, section 142A of the Act as it stood at the relevant time provided that where an estimate of the value of any investment referred to in section 69 or section 69B of the Act is required to be made for the purpose of making assessment or reassessment under the Act, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. Section 69 of the Act refers to unexplained investments and provides that where, in the financial year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Therefore, for the purpose of invoking section 142A of the Act, the Assessing Officer has to first come to the conclusion that the assessee has made investments which are not recorded in the books of account, in which case, he would reject the books of account under sub-section (3) of section 145 of the Act and make an assessment in the manner provided in section 144. 9. As can be seen from the assessment order dated 31.03.2014 made under section 143(3) of the Act, the Page 16 of 22 C/SCA/16246/2018 JUDGMENT Assessing Officer has recorded thus: “The assessee has shown profit from construction at very higher scale by showing lower cost of construction to take benefit of exempted income U/s. 80IB(10) of the Income Tax Act. Hence, a reference it made to District Valuation Officer to determine the cost of construction. Since, report have not been received from the District Valuation Officer till date, the assessment is finalized accepting the cost of construction. On receipt of the valuation report action will be taken if found necessary”. In the opinion of this court, the Income Tax Act does not contemplate an incomplete assessment as has been sought to be done in this case, namely the Assessing Officer firstly forms an opinion that the construction is unvalued and, therefore, refers the value to the District Valuation Officer, but, in view of the fact that the assessment was getting time-barred, proceeds to make the assessment on the basis of available material, without rejecting the books of account, reserving a right to take further action upon receipt of the report. Not only that, despite forming the opinion that lower cost of construction has been shown to get the benefit of exempted income, the Assessing Officer does not make the assessment in the manner provided in section 144 of the Act, but accepts the return of income as filed by the assessee. 10. Thus, in effect and substance, the Assessing Officer sought to provisionally assess the petitioner which is not contemplated under the Income Tax Act, 1961. The Assessing Officer, while framing the assessment, may either accept the cost as given by the assessee or reject the same and make a best judgment assessment, but, there is no provision under the Act which permits the Assessing Officer to make a provisional assessment subject to the report of the District Valuation Page 17 of 22 C/SCA/16246/2018 JUDGMENT Officer. Once the Assessing Officer accepts the books of account and frames assessment, reopening the assessment solely on the basis of the report of the District Valuation Officer without any other material coming to his notice, would amount to mere change of opinion. Moreover, as held by this court in Kisan Proteins (P.) Ltd. (supra), without rejecting the books of account, it is not permissible for the Assessing Officer to make a reference under section 142A of the Act. 11. The learned advocate for the respondent has drawn the attention of the court to the existing provisions of sub-section (2) of section 142A of the Act, which provide that the Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. In the opinion of this court, since sub-section (2) of section 142A of the Act in its existing form has been brought on the statute book by substituting the earlier provision with effect from 01.10.2014, viz., subsequent to the reference made by the Assessing Officer, such provision would not be applicable to the facts of the present case which would be governed by section 142A as subsisting on the date when the order of reference was made. 12. In Sargam Cinema, Haldwani V. Commissioner of Income Tax, Haldwani, (2010) 15 SCC 546, the Supreme Court has held thus: “2. In the present case, we find that the Tribunal had decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority (AO) could not have referred the Page 18 of 22 C/SCA/16246/2018 JUDGMENT matter to the Departmental Valuation Officer (DVO) without books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived.” 13. In the facts of the present case, it is an admitted position that before making the reference to the District Valuation Officer, the Assessing Officer did not reject the books of account and on the contrary, framed the assessment on the basis of the cost of construction as reflected in the books of account. Under the circumstances, in the first place, no reference under section 142A of the Act as it stood at the relevant time could have been made without rejecting the books of account. Moreover, merely on the basis of the DVO's report, without any other material indicating escapement of income for the year under consideration, the Assessing Officer was not justified in reopening the assessment for the year under consideration. The Supreme Court, in the case of Dhariya Construction Co. (supra) has held that, opinion given by the DVO is not per se information for the purpose of the reopening an assessment under section 147 of the Act. Moreover, as the Assessing Officer, has framed the assessment based upon the books of account produced by the petitioner without rejecting the same, reopening the assessment by merely placing reliance upon the DVO's report without any other material, would amount to mere change of opinion and, therefore, also, the invocation of the provisions of section 147 of the Act is not justified. Page 19 of 22 C/SCA/16246/2018 JUDGMENT 14. Insofar as the decision of the Delhi High Court in the case of ACC Ltd. v. District Valuation Officer (supra) is concerned, the court has specifically observed that, the report of the DVO, as and when received by the Assessing Officer, may be acted upon by the Income Tax authorities and if they do so, the validity of that action can be questioned by the assessee on grounds which he may be advised to take. The court has also observed that it was not concerned with the said aspect of the matter. Under the circumstances, the said decision does not lay down any proposition of law to the effect that the report of the DVO made during the pendency of the assessment can be relied for the purpose of reopening the assessment. 15. The decision of the Supreme Court, in the case of Indo- Aden Salt Manufacturing and Trading Co. Pvt. Ltd. (supra) also does not come to the aid of the respondent inasmuch as, except for the report of the District Valuation Officer, there is no other material to show that the petitioner had not shown fully and truly all material facts relevant for the assessment. 16. The decision of the Allahabad High Court in the case of Sunder Carpet Industries (supra) would also not carry the case of the respondent any further, inasmuch as, in the facts of the case, the returns for all the assessment years had been processed and accepted summarily under section 143(1)(a) and there was no scrutiny assessment under section 143(3) of the Act. Page 20 of 22 C/SCA/16246/2018 JUDGMENT 17. The decision of the Punjab and Haryana High Court in the case of Grover Nursing Home (supra), on the contrary supports the case of the petitioner inasmuch as the court has opined that, even though the report of the Departmental Valuation Officer cannot be made the sole basis for initiating action under section 147 read with section 148 of the Act, it can certainly be considered with other facts for forming the belief that the income of the assessee had escaped assessment. Thus what is held is that the report of the Departmental Valuation officer cannot be made the sole basis for initiating action under section 147 of the Act, but such report can be considered along with other facts for forming the requisite belief that income chargeable to tax has escaped assessment. In the facts of the present case, it is an admitted position that the sole basis for initiating action under section 147 of the Act is the report of the District Valuation Officer, and there is no other material in support of the same. Under the circumstances, the above decision also does not support the case of the respondent. 18. In the light of the above discussion, this court is of the view that having regard to the facts and circumstances of this case, the reopening of assessment based solely upon the report of the District Valuation Officer, is impermissible in law. The impugned notice dated 30.03.2018, issued under section 148 of the Act, therefore, cannot be sustained. 19. The petition, therefore, succeeds and is, accordingly, allowed. The impugned notice dated 30.03.2018 issued under section 148 of the Income Tax Act, 1961 (Annexure 'A' to the Page 21 of 22 C/SCA/16246/2018 JUDGMENT petition) is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. [ Harsha Devani, J. ] [ A. P. Thaker, J. ] hiren Page 22 of 22 "