Calcutta High Court
Roof & Tower Construction (P) Ltd. vs Asstt. Cit on 27 April, 2001
Equivalent citations: (2001)72TTJ(CAL)433
ORDER
Pramod Kumar, A.M. These three appeals, filed by the assessee, are directed against the consolidated order dated 1-10-1999, passed by the learned Commissioner (Appeals), Calcutta-IV, in the matter of order under section 144 read with section 147 for the assessment years 1990-91, 1991-92 and 1993-94. Although this consolidated order also deals with the assessment year 1992-93, appeal for that year is delinked with the above three appeals since the basic ground that we are to adjudicate by way of this consolidated order, i.e., the ground regarding legality of assuming jurisdiction under section 147, is not relevant for the assessment year 1982-83.
2. A perusal of records indicates that Honble Calcutta High Court had, vide order dated 11-12-2000, in WP No. 3186, inter alia, directed this Tribunal to hear these appeals expeditiously, particularly on the point of jurisdiction, Honble High Court further directed that the point of jurisdiction shall be decided before hearing the merit. Honble High Court had set a time-limit of three months, for completion of hearing by the Tribunal, from the date of receiving order dated 11-12-2000. Accordingly, the appeals were fixed, on out of turn basis, for 31-1-2001. However, Shri S.P. Choudhury, counsel for the assessee, moved an adjournment petition dated 22-1-2001, which inter alia, stated as follows :
"That the above appeals have been fixed for hearing on 31-1-2001, but as I am leaving Calcutta today to have a holy bath at Kumbh Mela and will be returning on 31-1-2001, it will not be possible for me to appeal and argue the appeals on 31-1-2001.
Under the above mentioned facts and circumstances, your goodselves are requested to adjourn the hearing of appeals on 31-1-2001, and refix the same after 31-1-2001, at your convenience."
Accordingly, the appeals were posted for hearing on 8-3-2001, but, even on this date, the appeals could not be heard. Record of proceedings for that day are as follows :
"8th March, 2001 The case is adjourned to 28-3-2001, at the request of the assessees counsel. Both the parties are informed.
Sd/xx S.P. Choudhary Sd/xx Sd/xx J.M. A.M."
On 28-3-2001, when this case came up for yet another hearing, Shri Choudhary again moved an adjournment petition inter alia, stating as follows :
"That the above appeals have been fixed for hearing today but in these appeals my client has engaged Dr. D Pal as senior counsel and today he is in Delhi. Considering the above facts, your goodselves are requested to adjourn the hearing of the appeal today and refix the same at your convenience."
3. When this adjournment petition came up before us and we noticed that there are Honble High Courts directions for expeditious disposal of these appeals, we granted the adjournment only for one day, on the condition that the appellant shall forthwith move to the Honble High Court seeking suitable extension of time frame set by the Honble High Court. We understand, from copies of papers filed before us, that the appellant has moved appropriate petition to the Honble High Court and sought further time of at least two months for hearing of the case. In the meantime, hearing of these appeals was concluded on 29-3-2001.
4. As we have mentioned above, in terms of the Honble High Courts directions, we are required to first adjudicate on the question of legality of assessing officers jurisdiction to reopen the case under section 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act). Upon adjudication of this question, if necessary, appeals will again be posted for hearing on merits of the additions made by the assessing officer.
5. Rival contentions are conscientiously heard, orders of the authorities below, as well as elaborate paper books filed by the assessee, carefully perused and authorities cited at Bar duly deliberated upon.
6. Let us first summarize the marterial facts. The assessee is a private limited company engaged in the business of constructing residential complexes and selling flats therein. In the relevant previous years, the assessee sold the flats upon construction in its premises at 201-297, Jodhpur Park, Calcutta, 14 MT Road, Calcutta, 110, H.K. Sarani, Calcutta, and 2 NB Lane, Calcutta. Income-tax assessment for the assessment years 1990-91 and 1991-92 were completed under section 143(3) the Act, and assessment for the assessment year 1993-94 was processed under section 143(1)(a). It is also not in dispute that audited accounts were duly furnished for all these years and that the assessee attended satisfactorily to all the queries made by the assessing officer during the course of scrutiny proceedings under section 143(3) of the Act. The assessments for all these years were reopened on 2-5-1995, on the basis of Departmental Valuers report obtained after completion of original assessments. The reasons recorded for reopening the assessment for the assessment year 1991-92, which are materially identical to the reasons for reopening of assessments for other years also, are reproduced below :
"During the Financial Year 1990-91 (assessment year 1991-92), the a Co. has sold flats at 201 Jodhpur Park, Calcutta, claiming to have sold the flats at an average rate of Rs. 348 per sq. feet which was assessed @ Rs. 359 per sq. feet. Subsequently, on a reference made to the valuation cell, the Valuation Officer has valued the FMV per sq. ft. @ Rs. 509.66 which amounts to suppression of actual sales price by the a Co. to the extent of difference amount. During the assessment year, the 'a Co. has sold 7,760 sq. ft. of flats and I, therefore, have reasons to believe that income by way of sales price suppression to the extent of (509.66-359) i.e. 151 x 7,760 = Rs. 11,71,760 has escaped assessment for the year. Issue notice under section 148 of the Income Tax Act."
The question before us is whether on the above facts, the assessing officer could have legitimately assumed jurisdiction to reassess the assessee.
7. It is no doubt true that the scope and effect of the section 147, as substituted with effect from 1-4-1989, is much wider. To confer jurisdiction under earlier section 147(a), two conditions were required to be satisfied, firstly, the assessing officer must have the reasons to believe that income, profits or gains chargeable to income-tax has escaped assessment, and, secondly, he must also have reasons to believe that such escapement has occurred by the reason of either omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions were required to be satisfied for assuming jurisdiction to issue notice under section 148 read with section 147(a). However, under the substituted section 147, existence of only the first condition suffices. In other words, if the assessing officer simply has reason to believe that income has escaped assessment, it confers upon him the jurisdiction to reopen the assessment. As to the connotations of reasons to believe, Honble Supreme Court, in the matter of ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), has observed as follows :
"The powers of the Income Tax Officer to reopen the assessment, though wide, are not plenary. The words of the statute are reason to believe and not reason to suspect. The reopening of assessment after several years is a serious matter. The Act no doubt contemplates that the reopening of assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reasons for that is that instances of concealed income or other income escaping assessment in large number of cases comes to the notice of the income-tax authorities after the assessment is completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right to appeal and revision, finality of orders made in judicial and quasi judicial proceedings. It is, therefore, essential that before such action is taken, requirement of law should be satisfied."
Earlier in the same order, Their Lordships have observed that the reason for formation of belief must have rational connection with or bearing on formation of belief. Rational connection was said to postulate that there must be direct nexus and live link between material coming to the notice of the assessing officer and formation of belief that there is some escapement of income. We may also refer to the observations of Honble Gauhati High Court, in the case of Bhola Nath Majumdar v. ITO (1996) 221 ITR 608 (Gau) to the effect that a valuation report is only an opinion of valuer. It is further stated that the same can neither amount to information nor to reason to believe that any income has escaped assessment. The condition precedent for assumption of jurisdiction under section 147 is assessing officers reason to believe that any income has escaped assessment. Honble High Court has also observed that if that be so, opinion of a third party cannot be the reason of assessing officers such a belief. Honble Gauhati High Court has, while dealing with valuation report by the Departmental Valuation Officers and in the context of section 147 as it exists today, also categorically held that section 55A has no relevance and cannot be applied after the assessment is completed and before the reassessment has commenced that is, to consider whether the completed assessment is based on under valuation. It was thus held by the Honble Gauhati High Court, in the context of the section 147 as it exists today, that no completed assessments could be reopened on the basis of a valuation report under section 55A obtained by the Income Tax Officer, after the assessments are completed and that the purpose of section 55A is not to arm the Income Tax Officer for making a roving and fishing enquiry for finding out materials for reopening or revising a completed assessment.
8. In view of the school of thought emerging from the above discussions on judicial precedents, a view can indeed be taken that a completed assessment cannot be reopened on the basis of Departmental Valuation Officers report and that a Departmental Valuation Officer report cannot amount to information or to reason to believe that any income has escaped assessment. A valuation report is at best an opinion about the fair market value of a capital asset.
9. The reason for reopening of assessments, as recorded by the assessing officer, is assessing officers believe that sales consideration has been suppressed by the assessee. Such a belief is said to have been formed merely because Departmental Valuation Officers report mentioned fair market value at a figure higher than the sales price disclosed by the assessee. If we are to approve the stand of the revenue , we have to impliedly hold that in effect, prima facie it is on assessee to prove that he did not receive sales consideration lesser than the fair market value mentioned in the Departmental Valuation Officer reporta proposition which has been unambiguously rejected by the Honble Supreme Court in the case of K.P. Varghese v. ITO (1982) 131 ITR 597 (SC). It may be recalled that Honble Supreme Court, in the aforesaid case, has observed that ".................. the burden is on the revenue to show that there is an understatement of consideration.................." Moreover, to throw the burden of showing that there is no understatement of consideration, on the assessee would be to cast an impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him." In our view, therefore, merely because a Departmental Valuation Officer report support higher fair market value of the floor space than the sales price disclosed by the assessee, it cannot be said there is any reason to believe that any income has escaped assessment. As observed by the Honble Supreme Court in the case of ITO v. Lakhmani Mewal Das (supra), there has to be direct nexus and live link between material coming to the notice of the assessing officer and formation of belief that there is some escapement of income. To our mind, there is no such direct nexus between Departmental Valuation Officer report and ascertaining suppressed sale amount of the related flats. The reasons of reopening, therefore, cannot be said to be relevant for that purpose.
10. In the case of N.R.K. Ramkumar Raja v. CIT (1999) 12 DTC 610 (Mad-HC) : (2001) 249 ITR 385 (Mad) Honble Madras High Court has, while dealing with section 147 as it exists today, observed as follows :
"The words assessing officer has reason to believe should be read with reference to the other provisions of the Act, under which, income is chargeable to tax. It is in this regard that authorities should satisfy themselves whether such income is chargeable to tax, before holding that the assessing officer has reasons to believe that any income of the assessee petitioner chargeable to tax has escaped assessment for any assessment year."
It appears from the above observations that unless the assessing officer is satisfied that the reasons on account of which the assessment is being reopened may lead to detection of some income which is chargeable to tax but has escaped assessment to tax, reopening of assessment cannot be said to be good in law. Let us apply this test on the facts of the case before us. Can it be said that, under any circumstances, any addition can be made to the returned income of the assessee because the sales price, as per his accounts, is less than the price indicated in the Departmental Valuation Officers report ? To our mind, the answer is an emphatic no. For this reason also we find that reasons of reopening the assessments are not legally sustainable.
11. We are conscious to the fact that at this stage sufficiency or correctness of the reasons of reopening the assessments is not required to be examined. We have to only see whether there is some prima facie material on the basis of which revenue could reopen the case and whether such a material has any relevance to the income escaping assessment. However, as we have mentioned earlier, we are of the view that the reasons of reopening the assessments are not relevant to any suppression of sales which is said to be the income escaping assessment. If the reasons of reopening cannot be said to be relevant for ascertaining whether or not any income has escaped assessment due to suppression of sales, its only axiomatic that such reasons cannot constitute even prima facie material on the basis of which the revenue could reopen the case. In coming to this conclusion, we also find support from the judgment of Honble Gauhati High Court in the case of Bhola Nath Majumdar v. Income Tax Officer (supra).
12. We may also mention that learned Departmental Representative has referred to a reported judgment of Honble Delhi High Court in which this is held that a completed wealth-tax assessment can be reopened on the basis of Departmental Valuation Officers report. In some other reported cases, a view is also taken that a completed income-tax assessment can also be reopened on the basis of Departmental Valuation Officers report where the assessing officer is of the opinion that investment in construction of property, as per Departmental Valuation Officers report, is more than what is disclosed by the assessee. These situations, in our opinion, are not in pari materia with the facts of the cases before us inasmuch as in the cases before us the revenue has linked valuation as per Departmental Valuation Officers report to the suppressed sales by the assessee-something which, in our considered opinion, is only fit to be rejected at the threshold itself. We, therefore, see no necessity of dealing with these reported judgments. We also see no need to address ourselves to other contentions of the learned counsel since these appeals succeed on the very preliminary ground that prima facie revenue did not have any material on the basis of which revenue could reopen the assessment on account of alleged suppression of sales by the assessee.
13. In the result, assessees appeals are allowed.