Reassessment Based Solely on DVO Report Without AO's Independent Inquiry is Invalid.

Reassessment Based Solely on DVO Report Without AO’s Independent Inquiry is Invalid.

Issue

Whether an Assessing Officer (AO) can validly assume jurisdiction to reopen an assessment under Section 147/148, based solely on a Departmental Valuation Officer’s (DVO) report, without conducting any independent inquiry or recording their own satisfaction with that report?

Facts

The assessee-firm filed a ‘nil’ income tax return for the Assessment Year 2018-19.
The AO received information regarding investments made by the assessee in its two projects.
The AO referred the valuation of these investments to the DVO.
The DVO submitted a report valuing the investment at a higher figure than what was shown by the assessee, resulting in a difference of ₹35.28 lakhs.
Based only on this DVO report, the AO treated the difference as unexplained investment.
The AO then issued a show-cause notice under Section 148A(b), passed an order under Section 148A(d), and issued a reassessment notice under Section 148.
It was noted that the AO conducted no further inquiry after receiving the DVO report and did not record any independent satisfaction with its findings before initiating the proceedings.

Decision

The High Court quashed and set aside the entire reassessment proceedings, including the order under Section 148A(d), the notice under Section 148, and the final assessment order.
It was held that the AO cannot assume jurisdiction to reopen an assessment based solely on a DVO report.
The court clarified that a DVO report is an opinion; it is not, by itself, “information” that can form the sole basis for reopening. The AO must apply their own mind to the report and form an independent “reason to believe” that income has escaped assessment.
The AO’s failure to conduct any further inquiry or even record satisfaction with the DVO’s report meant the assumption of jurisdiction was without authority of law.

Key Takeaways

DVO Report is Not “Information”: A report from a DVO is an expert opinion and a piece of evidence. It is not, in itself, “information” that automatically triggers a reassessment.
Independent Application of Mind is Mandatory: The Assessing Officer must apply their own mind to the contents of the DVO report and any other available material. They cannot mechanically rely on the DVO’s conclusion to form a “reason to believe.”
Inquiry is a Prerequisite: The AO is required to conduct their own inquiry, especially under the new reassessment regime (Section 148A), to verify the facts and support the conclusion derived from the DVO’s report.
Jurisdictional Flaw: Relying solely on a DVO’s report without any independent inquiry or satisfaction is a fundamental jurisdictional flaw that invalidates the entire reassessment proceeding from the start.

HIGH COURT OF GUJARAT

Sahyog Corporation

Assistant Commissioner of Income-tax

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 15245 of 2022

JULY 14, 2025

Tushar Hemani, Sr. Adv. and Ms. Vaibhavi K. Parikh for the Petitioner. Karan G. Sanghani for the Respondent.

JUDGMENT

Pranav Trivedi, J.- Heard learned Senior Counsel Mr. Tushar Hemani for Ms. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for the respondent.

2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Karan Sanghani waives service of notice of rule on behalf of the respondent.

3. Having regard to the controversy arising in this petition which is in a narrow compass, with the consent of the learned advocates for the parties, the same is taken up for hearing.

4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the Assessment Order dated 18.3.2023 passed under Section 147 read with Section 144B of the Income Tax Act, 1961 and Order dated 29.03.2022 passed under Section 148A(d) of the Income Tax Act, 1961 (For short “the Act”) as well as Notice of even date issued under Section 148 of the Act for the Assessment Year 2018-19.

5. The brief facts of the case are as under :-

5.1. The petitioner is a partnership firm. The petitioner has submitted its Return of Income for Assessment Year 2018-19 on 26.10.2018 declaring total income at Rs. NIL. It is the case of the department that information in case of M/s. Sahyog Construction having PAN: ACKFS9276Q has been flagged for the AY 2018-19 in accordance with the risk management strategy formulated by the Board from time to time. As per the information, the petitioner had shown investment of Rs.8,78,68,203/- from A.Y. 2015-16 to 2019-20 in its two projects “Sahyog Atrium” and “Sahyog Plaza”. The assessment proceeding for A.Y. 2016-17 qua the petitioner was referred to the District Valuation Order, Ahmedabad (for short ‘DVO’), who vide his report dated 13.8.2019 valued the investment in tow Projects to the tune of Rs.9,85,15,020/- from F.Y. 2015-16 to 2019-20. Even in the Assessment Year 2018-19, there was a difference of Rs.35,28,650/- in the investment shown by the petitioner and the investment assessed by the DVO. Therefore, as per the respondent a sum of Rs.35,28,650/- had remained unexplained for the Assessment Year 2018-19 and, therefore, a show-cause notice under Clause (b) of Section 148A of the Act was issued on 9.3.2022 whereby the petitioner was called upon to show cause as to why, in view of the details contained in the annexure attached to the show-cause notice, notice under Section 148 of the Act should not be issued for the Assessment Year 2018-19.

5.2 The petitioner furnished reply to the show-cause notice vide communication dated 19.3.2022. It was explained by the petitioner that the re-assessment had been initiated solely upon the DVO’s report. It was further alleged that there is no independent application of mind at the end of the respondent prior to initiating re-assessment proceedings in the case of the petitioner for the year under consideration, rather the respondent has solely relied upon DVO’s report. In view of such fact given by DVO in his report, the petitioner alleged that the information based on which the case of the petitioner has been reopened, do not fall within the ambit of information, as defined in the Scheme of the Act.

5.3 The respondent, after taking into consideration the objection raised by the petitioner, concluded that there is escapement of income chargeable to the tax to the tune of Rs.35,28,650/- in the hands of the petitioner for the A.Y 2018-19 and, therefore, an order under clause (d) of Section 148A of the Act was passed on 29.3.2022. Thereafter, the respondent issued notice of even date under the provision of Section 148 of the Act.

5.4 Being aggrieved by the order passed under clause (d) of Section 148A of the Act on 29.3.2022 as well as notice of even date issued under Section 148 of the Act, the petitioner preferred present writ petition before this Court being SCA No. 15245 of 2022 wherein this Court by way of order dated 5.9.2022 granted interim relief to the petitioner and directed that the Assessing Officer shall proceed with the Assessment process, however, shall not pass final order without permission of the Court.

5.5. It is the case of the petitioner that despite such direction given by this Court, the respondent proceeded to pass Assessment Order under Section 147 read with Section 144B of the Act on 18.3.2023. Being aggrieved by the order dated 18.3.2023 as well as aggrieved by the action of the respondent contrary to the order passed by this Court dated 5.9.2022, the petitioner preferred a draft amendment in the present writ petition challenging order dated 18.3.2023. The draft amendment came to be allowed by this Court by way of order dated 25.4.2023 and the Assessment Order dated 18.3.2023 along with the order dated 29.3.2022 passed under Section 148(d) of the Act and notice of even date under Section 148 of the Act are under challenge in the present petition.

6. Learned Senior Counsel Mr. Tushar Hemani for the petitioner submitted that the respondent could not have referred the matter to the DVO and the respondent could not have assumed the jurisdiction only on the ground of report of the DVO as the respondent Assessing Officer has referred and relied upon the DVO Report and dismissed the objections raised by the Assessor.

7. In support of his submissions reliance was placed on the decisions of the Hon’ble Apex Court in the case of Asstt. CIT v. Dhariya Construction Company (SC)/[2010] 328 ITR 515 (SC) and the decision of this Court in case of Aavkar Infrastructure Company v. Dy. CIT (Gujarat). It was, therefore, submitted that the respondent Assessing Officer could not have assumed the jurisdiction to reopen the assessment and the notices are liable to be quashed and set aside.

8. On the other hand, learned Senior Standing Counsel Mr. Karan Sanghani for the respondent submitted that the contention that the assessment has been reopened on the basis of valuation report of the DVO and such report is not an information, is baseless contention. Reference was made to explanation 1(i) to Section 148 of the Act which defines the term ‘information’ to include any information flagged in accordance with the risk management strategy formulated by the Board. Accordingly, it was submitted by Mr. Sanghani that the information has been flagged for the A.Y. 2018-19 in accordance with the risk management strategy formulated by the Board from time to time. For the A.Y 2018-19, a sum of Rs. 35, 28,650/-remains unexplained in the case of assessee due to suppression of closing stock figure. In view of the above fact, it is evident that there is information with regard to escapement of income and, therefore, the petition is devoid of any merit.

9. Considering the above submissions made by both the learned advocates and on perusal of the notice issued under Section 148A(b) of the Act, together with the reply filed by the petitioner and the order disposing of the objections dated 29.03.2022 passed under Section 148A(d) of the Act, it emerges that during course of Assessment proceedings, the matter was referred to the DVO, who vide his report valued the investment of Projects to the tune of Rs.9,85,15,020/- from A.Y. 2015-16 to A.Y. 2019-20. Therefore, the sum of Rs.35,28,650/- remains unexplained in the A.Y. 2018-19 in case of assessee due to suppression of closing stock figure, considering the report Assessing Officer concluded that income to the extent of Rs.35,28,650/- has escaped assessment and issued notice for reopening by rejecting the objections raised by the petitioner.

10. The Hon’ble Apex Court in the case of Dhariya Construction Company (supra) has held that the opinion of DVO per se is not an information for the purposes of reopening of an assessment under section 147 of the Act and the Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon.

11. In the facts of the present case the respondent Assessing Officer has for the purpose of referring the matter to the DVO has relied upon the survey proceedings, but after the receipt of report of DVO, therein, the DVO has formed an opinion of excess investment made by the petitioner for the year under consideration, the Assessing Officer has not made any further inquiry which is contemplated under Section 148A(a) of the Act to verify any fact to support such conclusion arrived at by the DVO. The Assessing Officer has also not recorded any satisfaction about the correctness or otherwise of the contents of the report of the DVO. In such circumstances, and in view of the aforesaid decision of the Hon’ble Apex Court, the Assessing Officer could not have assumed the jurisdiction only on the basis of the report of DVO as the same cannot be considered as per se information for the purpose of reopening of the assessment.

12. This Court in similar facts in case of Aavkar Infrastructure Company (supra) has held as under :-

“9. This court in the case of Vinayak Builders v. BD Garsar (or) Successor (supra) had in the facts of that case observed that the sole ground for reopening the assessment was that the Valuation Officer had determined the cost of construction at a higher rate than that shown by the assessee in its books of account. The reasons recorded did not reflect that the Assessing Officer had applied his mind to the facts of the case to ascertain as to whether in fact the assessee had expended more amount towards construction as stated in the valuation report. Reverting to the facts of the present case, the Assessing Officer, except for referring to the profit and loss account, which as noted hereinabove, would not reflect any profit as the assessee had not claimed any profit, and to the balance sheet part of the return of income, the Assessing Officer has made no effort to ascertain as to whether, in fact, the assessee has expended more amount than disclosed in the return of income. In the opinion of this court, while the report of the DVO may form the foundation for reopening the assessment, there must still be some reasons which warrant holding the belief that income chargeable to tax has escaped assessment so as to necessitate issuance of a notice under section 148 of the Act. The facts reveal that the entire basis for reopening the assessment of the petitioner for the year under consideration is the report of the DVO without verification of any facts to support such conclusion. The Assessing Officer has not recorded any satisfaction about the correctness or otherwise of the contents of the report of the DVO.

10. In the aforesaid premises, the court is of the view that considering the material before the Assessing Officer and the nature of inquiry made by him, except for the report of the DVO, there was no tangible material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. As held by the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co. (supra), the opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Act. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon.”

13. In light of the above discussion, we are of the opinion that in the impugned order passed under Section 148A(d) of the Act, the respondent Assessing Officer could not come to a conclusion that it is fit case to reopen the assessment on the ground that the income chargeable to tax has escaped the assessment. Under the circumstance, the very assumption of jurisdiction under Section 147 of the Act on the part of the Assessing Officer while issuing the impugned notice under Section 148 of the Act is without authority of law and hence the same cannot be sustained.

14. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The Order dated 29.03.2022 passed under Section 148A(d) of the Act as well as Notice dated 29.3.2022 issued under Section 148 of the Act for the Assessment Year 2018-19 and also the assessment order dated 18.3.2023 under Section 147 read with Section 144B of the Act are hereby quashed and set aside. Rule is made absolute to the aforesaid extent with no order as to costs.