Facts of the Case

Divine Infracon Private Limited, the petitioner, is engaged in the business of real estate development and hospitality. A search and seizure operation under Section 132(1) of the Income-tax Act was conducted on 14 September 2010.

For AY 2010-11, the petitioner filed a return declaring Nil income, and for AY 2011-12, it declared income of ₹12,87,070. Assessments under Section 153A were completed on 28 March 2013, determining substantially higher incomes. Appeals against these assessments were pending before the Commissioner of Income Tax (Appeals).

Subsequently, the Assessing Officer issued notices under Section 148 dated 30 March 2015 for both assessment years, alleging escapement of income based solely on a District Valuation Officer (DVO) report dated 30 January 2015, which estimated renovation and reconstruction costs at ₹211.99 crore.

 

Issues Involved

Whether a DVO report, by itself, can constitute valid material for forming “reason to believe” under Section 147.

Whether reassessment proceedings can be initiated without independent application of mind by the Assessing Officer.

Whether reassessment based on assumptions and presumptions, ignoring disclosed books of account, is sustainable in law.

 

Petitioner’s Arguments

The petitioner contended that:

Reassessment under Section 147 requires tangible material and cannot be based on mere suspicion.

The DVO report incorrectly stated that investment was shown as “Nil”, whereas the petitioner had already disclosed the property value under Fixed Assets and Capital Work-in-Progress at over ₹592 crore.

The Assessing Officer failed to apply his mind to the books of account and blindly relied on the DVO report.

Sole reliance on a valuation report, without corroborative material, renders reassessment proceedings invalid.

 

Respondent’s Arguments

The Revenue argued that:

The scope of judicial review at the stage of reassessment is limited.

Sufficiency or correctness of material cannot be examined at this stage.

A valuation report can constitute information for reopening, relying on Bawa Abhai Singh v. DCIT.

Section 142A does not mandate rejection of books before making a reference to the DVO.

 

Court Order / Findings

The Delhi High Court allowed the writ petitions and held that:

The expression “reason to believe” cannot be equated with “reason to suspect”.

Reassessment must be founded on tangible material having a live nexus with the belief of escapement of income.

As held by the Supreme Court in ACIT v. Dhariya Construction Co., the opinion of the DVO per se is not information for reopening an assessment.

The Assessing Officer failed to demonstrate independent application of mind to the valuation report or the petitioner’s books of account.

Simply adopting the DVO’s estimate, despite the assessee having declared a higher value, amounts to arbitrary assumption of escapement.

The Court applied and reaffirmed the principles laid down in:

ACIT v. Dhariya Construction Company

Mahashay Chunnilal v. DCIT

CIT v. Puneet Sabharwal

CIT v. Suraj Devi

 

Important Clarification

The Court clarified that:

Courts do not examine the adequacy of reasons, but the existence of valid reasons is justiciable.

Valuation reports require corroboration and conscious evaluation by the Assessing Officer.

Absence of application of mind converts “reason to believe” into mere suspicion, which is impermissible.

 

Final Outcome

Writ Petitions Allowed
 Notices Issued Under Section 148 Dated 30.03.2015 Quashed
 All Reassessment Proceedings Set Aside
 Proceedings Held Unsustainable in Law

Link to download the order -https://www.mytaxexpert.co.in/uploads/1770192135_DIVINEINFRACONPRIVATELIMITEDVsDEPUTYCOMMISSIONEROFINCOMETAXCENTRALCIRCLE18NEWDELHI.pdf 

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