Calcutta High Court
Principal Commissioner Of Income Tax vs M/S. Narula Educational Trust on 27 February, 2023
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam, Hiranmay Bhattacharyya
OD-5
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
ITAT/35/2023
IA No: GA/2/2023
PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-1, KOLKATA
VS.
M/S. NARULA EDUCATIONAL TRUST
BEFORE :
THE HON'BLE JUSTICE T.S. SIVAGNANAM
And
THE HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
Date : 27th February, 2023
Appearance :
Mr. Smarajit Roychowdhury, Adv.
Mr. Prithu Dudhoria, Adv.
....for appellant
Mr. J.P. Khaitan, Sr. Adv.
Ms. Swapna Das, Adv.
Mr. Siddharth Das, Adv.
... for respondent
The Court : This appeal by the revenue filed under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the common order dated 5th February, 2021, passed by the Income Tax Appellate Tribunal, 'A' Bench, Kolkata (Tribunal) in I.T(SS)A No. 42 to 47/Kol/2020 and Cross Appeal being IT(SS)A No. 07 to 12/Kol/2020 for the assessment years 2008-09 to 2013-14.
The revenue has raised the following substantial question of law for consideration :
"Whether on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is erred in deleting the additions made by in the 2 Assessment year 2008-09 to Assessment year 2013-14 on account of unexplained investment made u/s 69 on the basis of District Valuation Officer's valuation report ?"
We have heard Mr. Smarajit Roychowdhury, learned standing counsel appearing for the appellant and Mr. J.P. Khaitan, learned senior counsel for the respondent.
Though the order passed by the learned Tribunal is an elaborate order, the legal issue involved in the case lies in a very narrow compass. The issue was as to whether the addition made by the Assessing Officer in all the assessment years based on the initial valuation report submitted by the Valuation Officer pursuant to a reference made by the DDIT(Investigation), dated 11th July, 2014, was within jurisdiction.
The learned Tribunal, in our view, rightly took note of the decision of the Hon'ble Supreme Court in Smt. Amiya Bala Paul Vs. CIT 262 ITR 407 (SC) and held that the DDIT did not have the power to make the reference to the DVO, which power he acquired only on 1st April, 2017 by virtue of the Finance Act, 2017 under Section 132(9B) of the Act. Further, the learned Tribunal noted that neither the DVO filed the valuation report pursuant to the Assessing Officer's reference dated 22nd January, 2016 nor the DVO filed the valuation report pursuant to the reference by the CIT(A) through the Assessing Officer by letter dated 29th January, 2019.
Thus, the learned Tribunal noted that the addition has been made only on the basis of the initial valuation report dated 18th November, 2014, which was pursuant to the DDIT's reference and on the said date he had no power to call 3 for such report. At this juncture it would be relevant to take note of the following finding recorded by the learned Tribunal :-
"15. It is noted from the history of the enactment made by the Parliament conferring power to the AO to refer to the Valuation Officer was made from Finance Act, 2004 by the introduction of section 142A by Finance Act, 2004. Before that, the power of the AO to refer to Valuation Officer was confined to ascertain the fair market value of capital asset in respect of computation of capital gains under section 55A of the Act [which was inserted by the Taxation Laws (Amendment) Act, 1972 w.e.f. 01.01.1973]. It is noted that section 142A was brought in specifically to enable the AO to refer valuation to the DVO of assets, property etc. Since before that in the case of Smt. Amiya Bala Paul Vs. CIT 262 ITR 407 (SC), the Hon'ble Supreme Court held that AO did not had power to refer to DVO for valuation in respect of assets, properties etc other than for the specific purpose u/s55A of the Act (i.e. for ascertaining the fair market value of capital asset for computation of capital gain). In this context, it would be gainful to refer to the decision in Smt. Amiya Bala Paul Vs. CIT(supra) wherein the Hon'ble Supreme Court took note of the facts in that case which is re-produced as under:
"The assessee built a house in a suburb of Kolkata between the years 1981 to 1983. She filed a return in respect of the assessment year 1982 -1983 in which she disclosed that she had invested an amount of Rs.1,75,000 in the construction of the house. The return was accepted by the Income Tax Officer (now known as the Assessing Officer). In respect of the subsequent assessment year, namely 1983-84, the assessee disclosed that she had invested a further amount of Rs 1,70,000 in the construction of the house. This was not accepted by the Assessing Officer, who referred the question of the construction cost of the house to the Valuation Officer under Section 55(A) of the Income Tax Act, 1961 (hereinafter referred to as the Act). The Valuation Officer submitted a report to the Assessing Officer. On the basis of the report, the Assessing Officer re-opened the assessment in respect of the assessment year 1982-83. The Income Tax Officer then made an addition of Rs 2,79,000 in respect of the assessment year 1982 - 83 and Rs 1,77,000 in respect of the assessment year 1983- 84 as undisclosed investment in the construction of the house. The assessee's appeals from the assessment orders were turned down by the Commissioner of Income Tax (Appeals) Guahati.
The Income Tax Appellate Tribunal, however, following an earlier decision, allowed the assessee's appeal and held that the Assessing Officer could not have referred the question of the cost of construction of the assessee's house to the Valuation Officer. In this background the following question was referred to the High Court under Section 256 (2) of the Act.4
"Whether on the facts and in the circumstances of the case, the Tribunal erred in law by holding that the Assessing Officer cannot refer the matter to the Valuation Cell(sic) for estimating the cost of construction of the house property".
The Division Bench of the High Court held that although the Assessing Officer could not have referred the question of the cost of construction of the assessee's house to the Valuation Officer under Section 55 A of the Act, he had ample power under Sections 131 (1), 133 (6) and 142 (2) of the Act to ask for a Valuation Report from the Valuation Officer. It was held that each of these sections were "enabling machinery provisions which invested ample powers in the Assessing Authority", and that any wrong mention of the provision on the requisition memo would not be material. Accordingly the question referred was answered in the affirmative and against the assessee.
In the appeal before us, it was contended on behalf of the assessee that a reference to a Valuation Officer could only be made strictly in terms of section 55 A of the Act and that if the circumstances justifying the reference under that Section were not prevailing, the Assessing Officer did not have the jurisdiction to otherwise refer the matter to the Valuation Officer. It was further pointed out that Section 55 A of the Act only allows for reference to the Valuation Officer for the purposes of computing the market value of property in connection with the computation of capital gains. It was also submitted that reference to the Valuation Officer had been specifically provided for under Section 55A and that this implied that a reference to the Valuation Officer could not be made under any of the other provisions which generally empowered the Assessing Officer to ascertain the income of the assessee. The submission of the appellant was that if the power to refer the determination of the cost of construction to the Valuation Officer was otherwise available to the Assessing Officer under the other provisions of the Act, it was not necessary to specifically empower the Assessing Officer under Section 55A. Finally, it is submitted that the Valuation Officer is appointed under the Wealth Tax Act and that he could exercise the power only in the manner prescribed by that Act or by any other statutory provision like Section 55 A of the Act, and that he could not be called upon to discharge functions not statutorily prescribed, in his capacity as a Valuation Officer."
16. And thereafter, the Hon'ble Supreme Court after considering the contention of UOI/Revenue at length and after referring to the AO's power u/s. 131(1), 142(2), 133(6), 55A of the Act ; And provisions of Wealth Tax 1957 Act, Section 2, clause (r), 16A, 37(1) vis a vis power of Civil Court under the code of Civil Procedure, 1908, section 76 to 78 of Code of Civil Procedure held that -
"From this it is clear that whenever reference to a Valuation Officer appointed under the Wealth Tax Act is permissible under the Income Tax Act, it has been statutorily so provided.5
Apart from the aforesaid, a Valuation Officer is appointed under the Wealth Tax Act and can discharge functions within the statutory limits under which he is appointed. It is not open to a Valuation Officer to act in his capacity as Valuation Officer otherwise than in discharge of his statutory functions. He cannot be called upon nor would he have the jurisdiction to give a report to the Assessing Officer under the Income Tax Act except when a reference is made under and in terms of Section 55 A or to a competent authority except under section 269L.
We are therefore of the view that the High Court incorrectly answered the question referred to it in the affirmative. The Tribunal had not erred in holding that the Assessing Officer cannot refer the matter to the Valuation Officer for estimating the cost of construction of the house property. The appeal is accordingly allowed and the decision of the High Court set aside. There will be no order as to costs."[Emphasis given by us]
17. In the light of the decision of the the Hon'ble Supreme Court in Smt. Amiya Bala Paul Vs. CIT (supra) the Parliament gave power to AO by the introduction of section 142A by Finance Act, 2004 (supra). Later on the Parliament taking note that the Authorized Officer of the searched party u/s. 132 does not have the power to refer for valuation to the Valuation Officer inserted sub-section (9B) in section 132 of the Act by Finance Act, 2017 i.e. w.e.f. 01.04.2017. Sub-section (9B) of section 132 of the Act reads as under:
"Search and Seizure S.132.
(9)..........
(9A).........
(9B) ........
(9C)......
(9D) The authorized officer may, during the course of the search or seizure or within a period of sixty days from the date on which the last of the authorizations for search was executed, make a reference to a Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the said officer within a period of sixty days from the date of receipt of such reference."
18. Thus, from the aforesaid legislative history it can be noted that the authorized officer of the search DDIT (Inv.)/ADIT (Inv.) has been empowered to make reference to the Valuation Officer only after 01.04.2017 and not before that date. Here in this case, admittedly the search has taken place on 13.03.2014 and on a perusal of the valuation report dated 18.12.2014, it is 6 noted that the reference to the Valuation Officer was given by DDIT (Inv.) dated 11.07.2014. Thus, we find that when the reference to the Valuation Officer was made by the DDIT (Inv.)/ADIT (Inv.) both the authorities did not had power/jurisdiction to refer for valuation of the assets of the assessee pursuant to the search and for this legal proposition, we rely on the reasoning/ratio of the decision of the Hon'ble Supreme Court in Smt. Amiya Bala Paul (supra).
"
We find that the reasoning given by the learned Tribunal is fully justified and the order does not call for any interference.
For the above reason, the appeal filed by the revenue is dismissed and the substantial question of law is answered against the revenue.
The stay application being IA No: GA/2/2023 is also dismissed. In the combined order dated 20th February, 2023 in ITAT 110 of 2022 and ITAT 35 of 2023, the name of Mr. Smarajit Roychowdhury, learned standing counsel for the appellant, be recorded.
(T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.Pal/SN.