Income Tax Appellate Tribunal - Indore
Mahendra Kumar Sethia vs Wealth Tax Officer. (Prem Kumar Sethia ... on 6 May, 1995
Equivalent citations: (1995)52TTJ(INDORE)544
ORDER
BY THE BENCH :
The appeals of Shri Mahendra Kumar Sethia and Shri Prem Kumar Sethia are directed against the orders dt. 30th Oct., 1992 passed by the Dy. CWT(A). The appeals by S/Shri Vinaychand Chhajlani, Ajaychand Chhajlani and Abhaychand Chhajlani are directed against the orders of the Dy. CWT(A) dt. 18th Nov., 1992. Since the point involved in all the appeals is the same, they were heard together and are being disposed of by a common order.
2. All the above assessees are partners in Nai Dunia which is the publisher of a newspaper. In all the cases the Assessing Officer had made addition on account of the difference between the fair market value and the book value of the plant and machinery owned by the firm. The addition was based on the report of the DVO.
3. The addition was challenged in appeals by all the assessees. In the appeals filed by Shri Mahendra Kumar Sethia and Shri Prem Kumar Sethia the Dy. CWT(A) noted that similar point had come up for consideration before the CWT(A) in the case of Shri Vinaychand Chhajlani pertaining to the asst. yr. 1986-87 and vide order dt. 9th Aug., 1991, the CWT(A) has set aside the matter to the Assessing Officer for a fresh decision. Following that order the Dy. CWT(A) set aside the matter to the Assessing Officer for a fresh decision. The order passed in the case of Shri Vinaychand Chhajlani was followed by the Dy. CWT(A) in the appeals filed by S/Shri Vinaychand Chhajlani, Ajaychand Chhajlani and Abhaychand Chhajlani and the matter was set aside to the Assessing Officer for a fresh decision. Dissatisfied, the assessees are in appeal before the Tribunal.
4. The assessee has filed a copy of the order dt. 9th Aug., 1991 passed by the CWT(A) in the case of Shri Vinaychand Chhajlani pertaining to the asst. yr. 1986-87. It has been pointed out that the report of the Valuation Officer for the asst. yr. 1986-87 was not obtained by the Assessing Officer. The Assessing Officer had proceeded on the basis of the valuation made by the Valuation Officer as on 30th June, 1984 relevant for the asst. yr. 1985-86. Adding appreciation on the value as determined by the Valuation Officer for the asst yr. 1985-86 the addition was made. In first appeal it was pleaded by the assessee, namely, Shri Vinaychand Chhajlani that the valuation report should have been given as per Form 07 provided in r. 8D of the WT Rules. It was pointed out that the report has not been prepared in the said proforma nor it gives the necessary details. Agreeing with the submissions of the assessee, the CWT(A) held that the report itself is not valid. He also observed that even for estimation made by the Assessing Officer no basis has been given for increasing the value. He also observed that whereas there may be increase in the value of the plant and machinery on account of inflation, the plant and machinery also suffer depreciation and the same has also to be taken into account. Since the addition worked out by the Assessing Officer was not in accordance with the rules, the assessment on the point was set aside to be framed afresh and determining the proper fair market value on proper basis.
5. The learned counsel for the assessee has argued that in the instant cases the Dy. CWT(A) has committed an error in setting aside the matter to the Assessing Officer following the order of the CWT(A) ordered in the case of Shri Vinaychand Chhajlani. It has been pointed out that in the case of Shri Vinaychand Chhajlani the valuation report of the relevant assessment year was not there in the assessment proceedings. It has been pointed out that in the instant case the valuation report dt. 8th Jan., 1987 was available and the DVO had valued the plant and machinery as on 30th June, 1981, 30th June, 1982, 30th June, 1983 and 30th June, 1984. A copy of that report has been filed at pages 21 to 27 of the assessees compilation. Thus, it was contended that the Dy. CWT(A) should have decided the appeals on merits.
6. The learned counsel for the assessee has also submitted that all the relevant details were furnished before the Valuation Officer and such details were available even before the Assessing Officer as also the first appellate authority. Our attention was invited to such details which appear at pages 16 to 18 of the assessees compilation wherein the assessee has given the particulars with description and make of each machine, year of purchase, gross value and the written down value as on the relevant valuation date, i.e. 30th June, of the years 1981 to 1984.
7. The learned counsel for the assessee has also invited our attention to the copy of the report submitted by the DVO. It has been argued that the method of valuation adopted by the Valuation Officer is unscientific and incorrect and cannot be applied to the case of plant and machinery. The Valuation Officer has worked out the reconstruction cost as on the different dates of valuation in accordance with the market fluctuation, during the period as per price given in the statistical report, Ministry of Planning, Govt. of India. According to the assessee, the increase on the basis of the price index cannot be applied to the case of plant and machinery. It was argued that there is vast improvement in the technology and models of machines. Therefore, the value of the old and outdated models, the production of which has been stopped by the manufacturers, which are slow in speed and costlier to operate and for which it is difficult to get spare parts for repairs, should not be valued on the basis of increase in the price index. In the case of machinery, the market value of the same model of the same manufacturer should be taken into account on the date of valuation, the change in the technology and the model should also be taken into account. It has been pointed out that the valuation report in completely silent on these aspects of the matter.
8. The learned counsel for the assessee has also referred to the decision of the Calcutta High Court in the case of ITO vs. Santosh Kumar Dalmia (1994) 208 ITR 337 (Cal) for the proposition that the value determined by a Valuation Officer is not expected to be exact. The Honble Court has observed in that case that the question of valuation is a matter of opinion and the valuation differs from valuer to valuer, and property to property, depending on the facts and circumstances of each case. The valuers report is a statistical hypothesis that leaves wide room for error on either side.
9. Reference was also made to the decision of the Pune Bench of the Tribunal in the case of Finolex Plastics (P) Ltd. vs. IAC (1993) 47 ITD 333 (Pune) and our attention was invited to the following observations :
"There is a trend of decrease in the prices of the machinery year after year. For the machine purchased and sold as a second hand machine immediately after purchasing it, on purchaser can even pay the same price leave aside paying more price."
10. The learned counsel for the assessee has also invited our attention to Form 07 prescribed under the WT Rules. It was submitted that the DVO should have prepared his report in the said proforma. Particular mention was invited to item 6 which mentions that the Valuer should discuss in detail the make of the machinery/plant, name of the manufacturer, original price, price to the owner, if he is not the first owner, year of manufacture, present market price of similar new machinery/plant and other relevant factors. It was submitted that these particulars are lacking in the report submitted by the DVO and for this reason also the value determined by him is not acceptable.
11. It was also submitted that in determining the valuation the DVO has taken the expected life of a machine as 20 years. According to him, the usual life of plant is about ten years. Our attention was also invited to rr. 2, 2A and 2B of the WT Rules which have been omitted w.e.f. 1st April, 1989 but were on the statute book at the relevant time. It was submitted that these rule provide that where the market value of an asset exceeds its written down value or its book value, or the value adopted for the purposes of assessment under the IT Act, as the case may be, by more than 20%, the value of that asset shall, for the purposes of r. 2A, be taken to be its market value. It was submitted that the written down value can be discarded only if the market value of an asset was more than 20% of the value of the asset. According to the assessee, no such material could be placed on record which may indicate that the market value of the plant and machinery was more than 20% of the written down value.
12. The learned counsel for the assessee has also submitted that the DVO did not provide adequate opportunity to the assessee to file objections against the draft report and he has wrongly stated in the report that the objections were not filed by the assessee. According to the assessee, objections were filed and necessary details were furnished before the Valuation Officer which have been ignored by him and this fact was brought to the notice of the Assessing Officer vide letter dt. 13th Feb., 1987 a copy of which is available at page 10 of the assessees paper book. In this letter it is specifically stated that the copy of the draft report dt. 30th Dec., 1986 was not given to the assessee. Only the secretary of the firm was allowed to read the same on 5th Jan., 1987 at Delhi. Since the Valuation Officer was proceeding on leave, he wanted the objections to be filed immediately. Therefore, the secretary of the firm filed general objections on 7th Jan., 1987 and even these objections have not been considered by the Valuation Officer and the report dt. 8th Jan., 1987 was submitted.
13. Opposing the submissions of the assessee the learned Departmental Representative has supported the order of the Dy. CWT(A). He has also argued that the Form 07 is meant for the report to be given by a registered valuer. It is not meant to be used by the DVO. He has also submitted that keeping in view the rising price. The DVO was justified in working out the fair market value on the basis of the price index.
14. We have considered the rival submissions. We find considerable force in the contention of the assessee that due to advancement in technology old machines often become obsolete and the value of the outdated models goes down. There is also ample force in the contention that as soon as the machine is purchased, in becomes secondhand and in case the same is sought to be sold, the same day, it would not fetch the same price. Taking these facts into consideration, we are of the opinion that the method employed by the DVO for determining the value of the plant and machinery is not appropriate. However, the necessary details had been furnished by the assessee and they were before the first appellate authority. This being so, we are of the opinion that the first appellate authority instead of setting aside the matter to the Assessing Officer should have decided the appeals on merits. We, therefore, set aside the orders of the Dy. CWT(A) and restore the matter at his file for rehearing and disposal in accordance with law and in the light of the observations made above.
15. For statistical purposes, the appeals would be treated as allowed.