Gauhati High Court
Smt. Basana Rani Saha vs Income-Tax Officer. on 27 February, 1990
Equivalent citations: (1990)37TTJ(GAU)188
ORDER
Per Shri Egbert Singh, AM. - The appeals are by the assessee which involved common facts and interlinked materials. Accordingly, we consolidate the appeals for disposal by this common order.
2. From the assessment order for assessment year 1972-73, it is seen that the matter was restored to the file of the ITO by the Appellate Tribunal. Hence, fresh assessment was made. The Appellate Tribunal vide order dated 5-5-1977 mentioned that it was necessary that the matter should go back to the ITO for fresh disposal as there was some doubts expressed by the AAC regarding the area of construction of 337 sq. ft. The Appellate Tribunal observed that the ITO has also not given the basis for the estimated cost of construction per sq. ft. in respect of the building raised by the assessee. It was, therefore, necessary for the ITO to go into the question again and decide the matter afresh. Regarding the business income also, the assessee stated that the records of the earlier years need verification as to the income estimated and why the estimates of the years under appeal should be higher than the earlier years.
3. The ITO mentioned that the assessee constructed one two-storeyed RCC building used as hotel, viz., M/s. Gauri Hotel, Station Road, Karimganj. The investment was stated to be at Rs. 1,28,290 with plinth area of 5875 sq. ft. According to the ITO, the cost of the investment was low and, therefore, the case was refereed to the Departmental Valuation Officer, Gauhati, who estimated the cost of construction at Rs. 1,92,350 up to the end of 31-3-1973. There was, therefore, a difference of Rs. 54,160 which the ITO spread over at the ratio of 50 : 50 for these two assessment years. Hence, the addition of Rs. 27,000 each for both the years.
4. The assessee took up the matter before the AAC. The AAC in his consolidated order mentioned that the appeals were fixed for hearing but there was no compliance, Adjournment applied for by the assessee was not allowed. The AAC observed that he cannot, therefore, help the assessee. He pointed out that the ITO has written a detailed order and the AAC had no material to controvert the findings of the ITO. Hence, the appeals were dismissed.
5. The assessee, therefore, brought these appeals before us contending amongst other thins that the AAC erred in not giving the assessee proper opportunity of being heard and filed to take into account the directions given by the Appellate Tribunal earlier. According to the assessee, the investment in the building had been explained and in fact there was a difference, which was in doubt in respect of 337 sq. ft. only. It is also the appeal by the assessee that the ITO has simply acted on report of the Valuation Officer under the Wealth-tax Act, which was not applicable under the Income-tax Act for valuation of the cost of construction and, therefore, the addition was illegal and should be deleted. According to the assessees learned counsel there was no question of addition under section 69 on the basis of the Valuers report. It is pointed out that the ITO has simply brushed aside the investment shown by the assessee on the plea that it was very low without assigning any reason at all and has straightway without dealing with the merits of the case, adopted the valuation taken by the DVO. It is argued at length that the report of the Valuation Officer was itself defective on many points, particularly, when he assessed the cost of construction as at the time of the assessment which took place at a much later date. It is also argued that the cost of construction shown by the assessee was as per prevailing rates and actual expenditure incurred; whereas the Valuation Officer adopted higher rate per sq. ft. for different areas without any justification. It is repeatedly submitted that the Valuation Officers report under the Wealth-tax Act cannot be adopted for income-tax purposes as in the present case. It is pointed out by the Bench that the order of the AAC has not touched the points raised by the assessee now. It is submitted by the assessees learned counsel that it would not serve any useful purpose to restore back the matter to the AAC as he would repeat the same approach in dealing with the problems. It is pointed out that the matter related to old assessment years and the matter has been hanging at different stages without the fault of the assessee. It is suggested by the assessees learned counsel that the matter should be restored back to the file of the ITO for his fresh consideration without considering the illegal valuation as determined by the Valuation Officer which is not an admissible material in matters like this. The Bench then asked the learned Departmental Representative to give his say on the points raised by the assessee, vis-a-vis, the grounds of appeal. It is submitted the by the learned Departmental Representative that if the Bench is taking the side of the assessee, then he has noting more to add. But there is no question of taking the side of the assessee or of the revenue when the matter has to be approached with certain objectives so that there would be proper disposal of the appeal and to minimise the litigation. The assessee had expressed his apprehension about the fate of his appeal if the matter is restored back to the file of the AAC. Be as it may, the assessee amongst other things, submits that the valuation report under the Wealth-tax Act cannot form the basis for making the addition under section 68 or section 69 of the Income-tax Act, as the Valuation Officer has to determine the fair market value of the property at a particular time and not the cost of the construction. There are some forces in the submissions of the assessees learned counsel as the cost of construction cannot invariably be indicative of the market value of a property, that is to say, at what price such asset would fetch, if sold in the open market even hypothetically, for example, a castle my be built in the forest at a huge cost, but the market value of such a castle in the forest would hardly match the cot of construction. Therefore, there is a patent difference between the cost of construction of a particular item and the value it would fetch if sold in the open market. A contrary position would also be true in the case of a particular thing having little cost of production, but market value is very high.
6. It may be stated that the ITO adopted the valuation as determined by the Valuation Officer, which according to the revenue was quite proper as the cost shown by the assessee was low. In this context, we may usefully refer to a decision of the Honble Andhra Pradesh High Court in the case of Daulatram v. ITO 1988 Tax LR 1755. In that Andhra Pradesh High Court decision, the matter was regarding valuation of capital asset, which value was referred to the Valuation Officer. It was held that the ITO was competent to make a reference for the purpose of ascertaining the cost of construction of building in order to ascertain the capital gains as provided under section 55A. The Honble High Court observed that mere residence of section 55A within the sub-chapter "Capital gains" could not be a guidance to hold that it pertained to that sub-chapter alone inasmuch as the word "Chapter" occurring in the section was crucial in coming to this conclusion as the word employed was "Chapter" and not "Capital gains", which demonstrated the intention of the Legislature. It was also observed amongst other things that the above power of the ITO to refer the matter to the valuation cell could be traceable to the provisions of section 142(2) under which the ITO can make enquiry before making the assessment.
7. As a result of the above decision, it can be said that the ITO can make enquiry through the media of the Valuation Officer as contemplated under section 55A and to utilise such information in finalising the assessment. As pointed out by the Honble High Court such power can be traced out to the provisions of section 142(2) but in such a situation the assessee would be entitled to specific opportunity to rebut the same under section 142(3) although there is no specific provision under the Income-tax Act. But it has been the practice of the department to employ the Inspector for making local inquires and such Inspectors report could very well form the basis for assessment to be made by the ITO, provided the ITO gave the assessee opportunity to rebut such findings or information obtained by the ITO through the different sources of inquiry. This point is lacking in the present case, as the ITO has himself adopted straightway the expenditure on the investment as determined by the Valuation Officer while concluding that the investments shown by the assessee was very low. But the ITO did not mention on what basis such conclusion was drawn.
8. The matter does not end here. It is seen that the Honble Punjab & Haryana High Court in the case of CIT v. Roshan Lal Seth [1989] 77 CTR (Punjab & Har.) 222, has on the similar circumstances, taken a different view in which it was held that there could not be any addition on the basis of the valuation adopted by the Valuation Officer under section 16A of the W. T. Act. In that Punjab case, similar issue came up before the Appellate Tribunal and the Tribunal held that the estimate adopted by the ITO was not validly taken as section 16A of the W. T. Act could not be availed of for the purposes of the income-tax assessment proceedings. The Honble High Court, on the facts of that case, held that the Tribunal was correct in its view that the determination of fair market value under sec. 16A of the W. T. Act cannot be appropriately be used in estimating the value of the cost of construction of the house property. Thus, there are two possible judicial views on the point, whether the valuation report of the DVO can be used for income-tax assessment proceedings. In such a situation, the view which would favour the assessee would have to be adopted which is a settled principle of law. It is true that section 55A of the Income-tax Act was introduced in the Income-tax Act with effect from 1-1-1973 by which reference to a Valuation Officer can be made by the ITO with a view to ascertain the fair market value of a capital asset for the purpose of that Chapter, i. e., Chapter IV, which relates to the computation of total income and head of income including capital gains and computation of capital gains tax thereon. There is no indication that for the purpose of other chapter also, the ITO may refer the matter for valuation to a Valuation Officer, under section 55A. But as pointed out above, the Honble Andhra Pradesh High Court has observed that while computing the income, various factors might fall for determination and as such whenever such contingency arose, the Income-tax Officer who was invested with the power could as well ascertain facts through the agency of a Valuation Officer. Again the Honble Andhra Pradesh High Court has observed that such power was traceable to the provisions of section 142(2). No other decision or authority on this point has come to our notice. It may again be mentioned that section 55A can be invoked by the ITO for the purpose of that Chapter, i. e., Chapter IV; Whereas the addition made by the ITO in the present case was done under section 69 of the I. T. Act, which falls under another Chapter VI of the Income Tax Act 1961. Besides, in the present case, the ITO did not refer the matter for valuation to the valuation officer under section 55A of the Income-tax Act, as there was no capital gains involved in the present case. Apparently, the ITO in the same capacity as WTO might have referred the point of valuation of the same property for wealth tax purposes under section 16A of the W. T. Act, as could be apparent from the copy of the report of the Departmental Valuation Officer, as appearing at page 76 of the paper book, in which it has been noted that the Officer from whom the reference was made under sec. 16A of the W. T. Act 1957, and the valuation was required for the dates as on 31st Chaitra of 1390 B. S. to 31st Chaitra, 1383 B. S. Thus, it could be seen that the ratio of the decision in the case of Daulatram (supra) which facts are identical with those of the present case as the facts are basically distinguishable. We are now left for consideration in respect of the applicability or otherwise of the decision of another High court in the case of Roshan Lal Seth (supra) which facts are identical with those of the present assessee before us. As stated before, the Tribunal in that Punjab & Haryana case has held that the estimate was not validly taken by the ITO as Section 16A of the W. T. Act could not be availed for the purpose of income-tax proceedings. It was observed by the concerned Bench of the Tribunal that determination of fair market value under the W T Act was not determination of investment actually spent by the assessee in a particular year for construction of a house; whereas the fair market value was what the house or building would fetch if sold in the open market. The concerned Tribunal held, accordingly that wholly irrelevant evidence has been considered by the ITO for ascertaining the investment made by the assessee. As stated before Honble High court in that case held that the Tribunal was correct in taking the above view. We have also mentioned that no other decision or authority has come to our notice regarding the present dispute before us. In the circumstances of the case, we hold that in the present assessment, the ITO had considered wholly irrelevant evidence to ascertain the extent of the investment made by the assessee during these two years under appeal.
9. In the assessment order, the ITO has observed that the cost shown by the assessee at Rs. 1,28,290 was very low. But there was no further discussion as to what was the basis or inferences to say that the cost shown by the assessee was very low. Apparently, it was on the basis of the report of the DVO as the building was of RCC structure with plinth area of 5,875 sq. ft. The ITO has not challenged or objected to the extent of the cost shown by the assessee nor doubted the expenditure or the genuineness of the expenditure. In fact, no items of expenditure was found to have been suppressed. Possibly, the ITO who might have the same function as WTO, obtained the information regarding the valuation report as determined by the DVO dated 13-3-1980. The assessment years involved on the contrary are for the assessment years 1972-73 and 1973-74 i. e. a number of years before. That apart, as pointed out by the assessees learned counsel that before the Valuation officer in connection with the wealth tax valuation matters, the assessee did raise various objections which were commented upon by the Valuation Officer appearing at item-10 of the report which is at page 79 of the paper-book. The assessee raised objections before the Valuation Officer that the valuation of the RCC building and verandah was made at a higher rate than that of the rate prevailing in the area in the years of construction, and that there was no data on the basis of which the Valuation Officer had arrived at these rates. The Valuation Officer noted on that objection of the assessee and stated that under the Wealth-tax Act the fair market value is to be assessed on the basis of the plinth area rates prevailing on the date of assessment and not on the basis of rates prevailing in the year of construction. The Valuation Officer further commented that the standard plinth area rates prevailing in the area for such construction have been adopted for determining the value of the building which have been verified and found correct. This point is highlighted by the assessees learned counsel that amongst other things, such flaw is there in the report of the Valuation Officer which cannot legally be accepted in any case. There is merit in this contention of the assessee. The cost of construction would have to be ascertained on the basis of the rates prevailing in the area during the period of construction and not the rates prevailing on the date of assessment as the assessment would naturally take place at a much later years as in the present case, as indicated above. Thus, even otherwise, on the context of the present case before us, the information contained in the Valuation Report cannot, therefore, be held to be conclusive or binding and it cannot at all be adopted by the ITO dealing with income-tax assessment proceedings under the Income-tax Act.
10. In the circumstances of the case and in view of what we have discussed above, we conclude that the estimate was invalidly taken by the ITO on the basis of the report of the Valuation Officer rendered under section 16A of the W. T. Act, which could not be availed of for the purpose of income-tax proceedings, apart from the defects etc. as observed above. As indicated earlier, there is no other basis for the ITO to infer that the cost of investment shown by the assessee was low. The cost shown by the assessee has not been challenged except that it was too low. In the circumstances of the case, we find that the additions made by the ITO was wrongly made and incorrectly sustained by the AAC. The additions made for both the years are deleted.
11. In the result, the appeals are allowed.