Income Tax Appellate Tribunal - Hyderabad
Sundaramma vs Income-Tax Officer on 31 January, 1992
Equivalent citations: [1992]42ITD521(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. This is an assessee's appeal for assessment year 1985-86 which arose out of the revisionary order of the Commissioner of Income-tax, Visakhapatnam dated 1-8-1988. Few facts leading to the appeal are the following.
2. The assessee is a firm of four partners. The assessee purchased 1.36 acres of land situated in survey No. 104/1 in Srikakulam town under sale deed dated 24-1-1980 for Rs. 13,400. The said site is situated at G.N.T. Road junction in Srikakulam. The assessee constructed a cinema theatre called 'Ramalakshmana Theatre'. The construction went on from 1981 to 1984. It is the case of the assessee that major portion of construction was carried out in 1981 to 1983. Plant, machinery and furniture were fitted into it and the assessee has been carrying on the business of exhibiting cinematograph films in the said theatre.
3. For assessment year 1985-86 for which the accounting year is the financial year ending with 31-3-1985 while filing the income-tax statement, the assessee admitted the value of the cinema theatre (building as well as fixtures, furniture and machinery fitted therein) at Rs. 18,05,401. The Income-tax Officer referred the question of valuation of the said cinema theatre to the Valuation Cell, Kakinada by his requisition dated 21-1-1988. The Valuation Cell estimated the cost of construction at Rs. 16,89,000. The cost of machinery and furniture was admitted by the assessee itself at Rs. 4,23,407. Hence the total cost of the cinema hall was worked out at Rs. 21,12,407. The valuation report was signed by the Executive Engineer, Valuation Cell on 22-3-1988. The Valuation Cell furnished the report to the Income-tax Officer on 28-3-1988. However, even before the receipt of the valuation report, the ITO completed the assessment under Section 143(1) accepting the total income of Rs. 1,360 returned by the assessee by his assessment order dated 9-2-1988.
4. The Commissioner of Income-tax, Visakhapatnam while making a check of impugned assessment, felt that the difference between Rs. 21,12,407 which was estimated as cost of the cinema hall by the Valuation Cell and its admitted value at Rs. 18,05,401 which comes to Rs. 3,07,006, is to be treated as unexplained investment, while completing the assessment under Section 143. However, inasmuch as the ITO having failed to take this aspect of the matter, went erroneous in passing his assessment dated 9-2-1988 and the said assessment was prejudicial to the interest of the revenue. Since he proposed to set aside the assessment for being redone in accordance with law, the learned CIT, issued notice under Section 263 to the assessee dated 10-6-1988, calling upon the assessee to be present either in person or through the authorised representative and also to send its written explanation for the proposed action of the learned CIT. The assessee filed its petition dated 23-6-1988 before the learned CIT, Visakhapatnam. Copies of the petitions were now furnished at pages 2 and 3 of the paper book filed before me. So also another letter dated 3-10-1988 was filed by the assessee before the ITO, Srikakulam before completing his fresh assessment order, following the 263 orders dated 1-8-1988. It was contended in the reply to the 263 notice, that the assessment order passed under Section 143(1) was not either erroneous or prejudicial to the interest of the revenue. A ground is taken that the provisions of Section 263( 1) were not complied with and the revisionary proceedings were started with all preconceived notions and the necessary inquiries contemplated under Section 263(1) were not carried out by the CIT. Before passing the assessment order dated 9-2-1988 under Section 143(1), the assessee placed before the ITO, the valuation report obtained by the assessee wherein the approved valuer estimated the value of the cinema hall at Rs. 15,35,449. The cost of the construction estimated by the Executive Engineer, Valuation Cell, Kakinada, was Rs. 16,89,000 and the excess cost worked out only to Rs. 1,53,000 but not to Rs. 3,07,000 as stated in the show-cause notice. The valuation made by the Executive Engineer, Valuation Cell, Kakinada was not put before the assessee so as to enable him to know the reason as to how the higher valuation could be arrived at or as to how the valuation made by the approved valuer, is less on comparative basis. It is neither just nor fair to come to any conclusion that the order of assessment is erroneous insofar as it is prejudicial to the interest of the revenue. The show-cause notice under Section 263 was issued without any proper enquiry or without affording an adequate opportunity to the assessee. The contentions raised in the reply of the assessee, were rejected. The learned CIT held that the assessment completed by the ITO prior to the receipt of the valuation report sought for by him from the Valuation Cell, had resulted in an underassessment to the tune of Rs. 3,07,006, being the difference in cost of construction which was assessable as unexplained investment under Section 69 of the IT Act. He rejected the tenability of the contention raised in the assessee's petition that the difference in cost of construction would work out to only Rs. 1,53,000. The learned CIT held that the assessee itself admitted the value of the cinema hall building at Rs. 18,05,401 in its income-tax statement as against the approved valuer's report of Rs. 15,35,449 to be the estimated cost of construction. Ultimately, the learned CIT held that he will set aside the assessment and direct the ITO to make a fresh assessment after affording to the assessee an adequate opportunity and after placing the Divisional Valuation Cell's valuation report to the assessee for its objections. The learned CIT also held that the ITO may seek the assistance from the Valuation Cell while dealing with the objections of the assessee.
5. Against 263 orders of the CIT dated 1-8-1988, the assessee filed the second appeal before this Tribunal and thus, the matter stands for my consideration. It is the contention of the assessee in this second appeal, that having admitted that the valuation report of the Departmental Valuation Officer was received subsequent to the completion of the assessment. The report would not have been taken to be forming in part of record, had it stood when the assessment was made, that Departmental Valuation Officer's report should not have been taken as part of the assessment proceedings while invoking revisionary powers under Section 263, since the report itself was not received before the assessment was made, but it was received much later to the assessment. The assessment was made on 9-2-1988 whereas the report of the DVO was received on 28-3-1988 when the assessment was over. Since the assessment was over by the date the report was sent to the ITO, it should not be taken to be part of the assessment record and, therefore, it should not form the basis to find out whether there is an error or prejudice to the interest of the revenue while making the assessment under Section 143(1). The learned advocates for the assessee Sri M.J. Swamy and Sri D. Manmohan relied on the following decisions:
A.S. Suresh Shenoy v. WTO [1984] 149 ITR 65 (Ker.), J. K.K. Natarajah v. WTO [1983] 142 ITR 804 (Mad.), Sri Hari Shankar Casheumut Mfg. Co.v. ITO [1991] 41 TTJ (Hyd.-Trib.) 149.
On the basis of those decisions, it was argued that when the Valuation Officer had not made known to the assessee, the material or other statistical data which he is going to take into consideration while preparing his valuation report. The said valuer would violate the principles of natural justice and his report itself would become null and void. If a reference is made to the Valuation Officer under Section 16A of the W.T. Act, he had to follow a set procedure and then draw up his valuation report in the form of an order in writing. Under Sub-section 4 of Section 16A, the Valuation Officer should serve notice on the assessee informing him of the higher figure on which the value of the asset is proposed to be estimated in place of the returned figure. The notice must fix the date of hearing, giving a reasonable opportunity to the assessee to put forth his objections orally or in writing in respect of the estimated figure proposed by the Valuation Officer.
The notice must call upon the assessee to produce at the hearing, his evidence in support of the returned valuation. Sub-section 5 sets down the requisites of the hearing before the Valuation Officer. The Valuation Officer should then, taking into consideration all the materials on record, proceed to determine in an order in writing, his valuation of the assets in question. The Valuation Officer, cannot dispense with the statutory requirements as to giving notice to the assessee and hearing him and finalise his orders and report. The Valuation Officer cannot skip the statutory requirements in order to hustle the hearing unfairly, just to make the ITO's position safe with regard to the assessment. Since no preliminary report under Section 16(4) was given to the assessee and since his objections were not called and he was heard, before passing an order under Sub-section 5 of Section 16A, the whole of the Valuation Report is vitiated. Further, it was contended that a valuation report obtained after the completion of assessment, did not form part of any proceeding before the ITO. So also it cannot form part of record which the Commissioner is entitled to examine while invoking his reversionary powers. It is submitted that the ITO furnished a copy of the report of the Departmental Valuation Officer after the learned CIT passed his impugned orders under Section 263. The orders under Section 263 were passed on 1-8-1988. On 3-10-1988 by means of a letter a copy of which furnished at pages 4 and 5 of the paper book filed on behalf of the assessee, request was made to the ITO to furnish a copy of the Departmental Valuation Officer's report to submit its objections to the said report. The assessee went on with the construction of the cinema theatre in the years 1981 to 1983. In those circumstances, the addition towards undisclosed investment made in one year 1984-85 would show that the whole of the undisclosed investment was made only in one year. There is a categorical decision of the Cochin Bench of the Tribunal in ITO v. Dr. R.P. Patel. In that case also without waiting for the receipt of the valuation report, the assessment was completed. The Valuation Officer in his report mentioned that the period of construction was from 1974 to 1977 and the likely cost of construction was estimated at Rs. 2,52,000. However, the valuation report does not give any details of the year-wise cost of construction. In that connection, Cochin Tribunal held the following at p. 107 :
If the ITO wants to make an addition under Section 69B, in the assessment year under consideration in respect of the amount invested by the assessee, in the cost of construction of the building in question, he has to first pin-point the investment made by the assessee, in respect of the building in the accounting year relevant for this assessment year and compare the investment accounted for by the assessee in the books for this year alone. If the ITO finds that there is any excess investment not recorded in the books of account of this year, then he has to add only that excess amount. Section 69B does not permit the ITO to consider the excess amounts likely to have been invested by the assessee in any period prior to the accounting year relevant to the assessment year under consideration.
Since the DVO had not mentioned in his report as to what was the investment made by the assessee in the relevant accounting year, the undisclosed investment in the accounting year in question, cannot be known and for this reason also the direction to add Rs. 4,23,407 is illegal and unjustified and for that reason 263 orders of the CIT, cannot be sustained.
6. As against these submissions advanced by the learned counsels for the assessees, the learned D.R. submitted that the arguments advanced for the assessee are neither tenable nor relevant. Firstly the reference to the Valuation Cell was not made either under Section 16A of the W.T. Act for purpose of ascertaining the value of the asset or under Section 55A of the I.T. Act for purposes of determining the capital gains arising out of the transfer of a capital asset in which case also the whole of the procedure contemplated under Section 16A of the W.T. Act, should be gone through. In this case, the ITO wanted to know the actual cost of construction in order to determine whether there was any undisclosed investment. A copy of the report of the Valuation Cell was provided at pages 32 to 50 of the paper book. In page 34 itself, the Valuation Cell stated as part of their report the following :
Valuation as an Advisory capacity of the property under Income-tax Act, 1961.
It is also stated in the same page, the following :
But on a telephonic talk with him and in this office letter No. 481, dated 29-1-1988 it has been confirmed by him that the cost of the construction of the property is only required.
Thus, it is clear that the Departmental Valuation Officer or the report of the Valuation Cell, was being used by the ITO only as a current year's report under Section 131 of the IT Act. Under the provisions of said section, inter alia the ITO for the purposes of administering the provisions of this Act have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, while trying a suit in respect of, inter alia while issuing commissions also. Thus, the Departmental Valuation Cell is not determining the value of the asset in this case as a quasi-judicial authority under Section 16A of the WT Act while administering which only he had to comply with the procedure under Section 16A(4) and (5). While giving its opinion with regard to the valuation of this asset under Section 131, the procedure under Section 16A of the WT Act, need not be followed since in that case the Valuation Cell is not acting as quasi-judicial authority while determining the value of the asset and for that reason in A.S. Suresh Shenoy's case [supra) as well as in J.K.K. Natarajah's case (supra) cited for the assessee, would not be of help and would not be relevant for our present purpose. The alternative argument advanced on behalf of the assessee, cannot also be of any avail. For the present the learned CIT merely set aside the assessment and directed the ITO to make a de novo assessment after giving a copy of the Departmental Valuation Officer's report to the assessee and after affording him an opportunity to file its objections if any about it. The Commissioner did not order any particular sum to be adopted as the unexplained investment in the hands of the assessee. Therefore, it is too premature for the assessee to advance the alternative argument which it got advanced through its counsels based upon the Cochin Tribunal's decision in Dr. R.P. Patel's case (supra).
7. Now the question remains that when the valuation report was received subsequent to the assessment order was passed, whether such a report can form part of basis of the reversionary order passed by the CIT and whether any reversionary order passed on the basis of it, can be valid. The learned Departmental Representative relied upon the latest Calcutta High Court decision in CIT v. S.M. Oil Extraction (P.) Ltd. [1991] 190 ITR 404. In the facts of that case also the Commission sought to base his reversionary order on the valuation report received subsequent to the passing of the assessment order. The question ultimately came up before the Calcutta High Court was, whether such a reversionary order is valid. Upholding the validity of the said reversionary order, the Calcutta High Court held the following :
The expression 'record' as used in sect ion 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. All proceedings which constitute evidence on which the assessment order is based must normally be regarded as part of the record. So long as the revisional authority does not rely on any extraneous matter, his jurisdiction cannot be questioned. The assessment order which on the face of it was a good order at the time when it was passed may in the light of information which although asked for but received subsequent to the completion of the assessment appear to be erroneous. The Commissioner has the jurisdiction to rectify the order in such a case so as to eliminate the error. It is no doubt true that the Commissioner of Income-tax has to confine himself to the assessment records of the assessee. He does not have to shut his eyes completely to the valuation report which formed part of the assessment in question was completed on February 1, 1983. The Income-tax Officer, before he completed the assessment, had referred the matter of valuation of the plant and machinery and electrical installation to the Valuation Officer (P&M), New Delhi. His report was not received by the Inpome-tax Officer when the assessment was completed. The valuation proceeding is a part of the assessment proceeding. But once the valuation report was received by the Income-tax Officer although subsequent to the completion of the assessment, it forms part of the records of the assessment year in question. The Commissioner of Income-tax, in the light of the said valuation report, found the assessment order erroneous. The revising authority, is therefore, entitled to scrutinise the entire records for ascertaining any illegality of impropriety of an order. The assessment order appeared to the Commissioner of Income-tax erroneous insofar as it was prejudicial to the interests of the Revenue as it was incomplete without the valuation report which came to the records subsequent to the assessment.
In our view, only those materials which form part of the records of the particular assessment year can be looked into by the Commissioner of Income-tax. Section 263 says that the Commissioner of Income-tax may call for the record of any proceeding and such record is not confined only to the assessment order.
Where any proceeding is initiated in the course of the assessment proceeding having a relevant and material bearing on the assessment to be made and the result of such proceeding was not available with the Income-tax Officer before the completion of the assessment, but the result came subsequently, the revising authority is entitled to look into such material as it forms part of the assessment records of the particular assessment year. An assessment made without considering the valuation report for which proceeding had already been initiated in the course of an assessment proceeding is not a proper assessment and such assessment is erroneous insofar as it is prejudicial to the interests of the Revenue.
Thus on the basis of the above ratio of the Calcutta High Court, it was argued that the provisionary order passed by the CIT, is perfectly justified within his rights and cannot be questioned by the assessee.
8. I have heard the arguments on both sides. I have already extracted the ratio of the Calcutta High Court decision in S.M. Oil Extaction (P.) Ltd. 's case (supra). It is no doubt true that the said decision supports the view canvassed by the revenue. However, it may be mentioned that the earlier decisions of the Calcutta High Court itself were differently decided holding that the valuation report received subsequently to the closing of assessment proceedings, cannot be made use of by the CIT, for purposes of exercising reversionary jurisdiction. Reference may be made in this connection to Calcutta High Court decision in Reliance Jute & Industries Ltd. v. FIX) [1984] 150 ITR 643 and also in Smt. Uma Debi Jhawar v. WTO [1982] 136 ITR 662. In those two cases it was held that when the assessment was once completed, the valuation obtained subsequent to the assessment, would not be valid. However, as the matter stands now, the CIT while exercising reversionary jurisdiction, is entitled to look into every record forming part of the assessment proceeding. The word 'record' is defined in Section 263 as "including and shall be deemed always to have included" all records relating to any proceeding under Income-tax Act available at the time of examination by the Commissioner. It is easy to be seen that the definition is retrospective in operation. A proceeding under Section 131 of the Income-tax Act is certainly a proceeding under the Income-tax Act. Though it culminates in the report of the Valuation Cell and though such a report of the Valuation Cell, was not available at the time of passing of assessment order, yet it cannot be denied that the said proceeding was available at the time of examination by the CIT for purposes of exercising reversionary jurisdiction. Therefore, it would appear to me that the report of the Departmental Valuation Cell can be lawfully looked into by the learned CIT and he will also make it basis for passing his reversionary orders. It is no doubt true that the definition of 'record' was inserted from 1-4-1988 and the case before me deals with assessment year 1985-86, but at the same time the definition of record has retrospective effect which governs all pending proceedings, even though of an earlier assessment year earlier to 1-4-1988. Therefore, the definition of the word 'record' should be deemed to be retrospective and governs all the pending assessment years even though then pertain to earlier assessment years like assessment year 1985-86. But for the definition of the word 'record', the Calcutta High Court itself would not have deviated from its own decisions laid down in Smt. Uma Debi Jhawar's case (supra) and in Reliance Jute & Industries Ltd. 's case (supra) and would not have decided its latest decision in S.M. Oil Extraction (P.) Ltd. 's case (supra) differently. I have already quoted from the decision in S.M. Oil Extraction (P.) Ltd. 's case [supra). Under the circumstances, it is not possible to hold that the CIT has no jurisdiction to invoke powers under Section 263 for exercising his reversionary powers. The order of the CIT appears to be quite justified. Under the circumstances and the appeal of the assessee does not bear any merit and hence it is dismissed.