Section 147 – Reassessment – Natural justice – Order passed without disposing of objections raised by assessee to the report of DVO – reopening was improper and null and void

6. Pr
CIT-17 vs. Urmila Construction Company [ITA No. 1726 of 2016, Dated 18^th
March, 2019 (Bombay High Court)]

[Urmila
Construction Company vs. ITO-12(3)(4); dated 06/11/2009; ITA. No.
2115/Mum/2009, A.Y. 2005-06 Mum. ITAT]

Section
147 – Reassessment – Natural justice – Order passed without disposing of
objections raised by assessee to the report of DVO – reopening was improper and
null and void

The assessee was engaged in
the business of building development. During such proceedings, the A.O. had
disputed the valuation of the work in progress in relation to the incomplete
construction work on a certain site. The A.O., therefore, referred the
valuation to the Departmental Valuation Officer (DVO) on 30.12.2007. The report
of the DVO did not come for some time. In the meantime, the assessment was
getting barred by limitation on 31.12.2007. The A.O., therefore, on 27.12.2007
passed an order of assessment u/s. 143(3) of the Act. This assessment was
subject to receiving the report of the DVO. The DVO report was received on
3.12.2009. Thereupon, the A.O. reopened the assessee’s return for the said assessment year, relying upon the report of the DVO.

Being aggrieved with the
A.O order, the assessee filed an appeal to the CIT(A). The CIT(A) upheld the
action of the A.O.

Being aggrieved with the
CIT(A) order, the assessee filed an appeal to the ITAT. The Tribunal held that
the report of the DVO cannot be the basis for reopening the assessment. The
Tribunal relied upon the decision of the Supreme Court in the case of Asst.
CIT vs. Dhairya Construction (2010) 328 ITR 515 and other decisions of High
Courts.

Being aggrieved with the
ITAT order, the Revenue filed an appeal to the High Court. The Court held that
the notice of reopening of assessment was issued within a period of four years
from the end of the relevant assessment year. The original assessment was
completed, awaiting the report of the DVO. Under such circumstances, whether,
upon receipt of such report of DVO, reopening of the assessment can be validly
made or not, is the question.The court observed that it was not inclined to
decide this question. This was so because of the reason that once the A.O.
reopened the assessment, the assessee had strongly disputed the contents of the
DVO report. Before the A.O. the assessee had highlighted various factors as to
why the report of the DVO was not valid. The A.O., instead of deciding such
objections, once again called for the remarks of the DVO. The response of the
DVO did not come and in the meantime, the re-assessment proceedings were
getting time-barred. The A.O., therefore, passed an order of assessment under
section 143(3) r.w.s. 147 of the Act on the basis of the report of the DVO,
without dealing with the objections of the assessee to such a report.

The methodology adopted by
the A.O. in such an order of reassessment was wholly incorrect. Even if the notice
of reassessment was valid, the A.O. was to pass an order of reassessment in
accordance with the law. He could not have passed a fresh order without dealing
with and disposing of the objections raised by the assessee to the report of
the DVO. On this ground, the Revenue’s appeal was dismissed.