Income Tax Appellate Tribunal - Hyderabad
Sundaramma & Ors. vs Income Tax Officer. on 31 January, 1992
Equivalent citations: (1993)45TTJ(HYD)273
ORDER
T. V. RAJAGOPALA RAO, J.M. :
This is an assessees appeal for asst. yr. 1985-86 which arose out of the revisionary order of the CIT, Visakhapatnam, dt. 1st Aug., 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 sale deed dt. 24th Jan., 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 asst. yr. 1985-86 for which the accounting year is the financial year ending with 31st March, 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 ITO referred the question of valuation of the said cinema theatre to the Valuation Cell, Kakinada, by his requisition dt. 21st Jan., 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 22nd March, 1988. The Valuation Cell furnished the report to the ITO on 28th March, 1988. However, even before the receipt of the valuation report, the ITO completed the assessment under S. 143(1) accepting the total income of Rs. 1,360 returned by the assessee by his assessment order dt. 9th Feb., 1988.
4. The CIT, 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 S. 143. However, inasmuch as the ITO having failed to take this aspect of the matter, went erroneous in passing his assessment dt. 9th Feb., 1988 and the said assessment was prejudicial to the interests of the Revenue. Since he proposed to set aside the assessment for being redone in accordance with law, the learned CIT, issued notice under S. 263 to the assessee dt. 10th June, 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 dt. 23rd June, 1988 before the learned CIT, Visakhapatnam. Copies of the petitions were now furnished at pages 2 and 3 of the paperbook filed before me. So also another letter dt. 3rd Oct., 1988 was filed by the assessee before the ITO, Srikakulam, before completing his fresh assessment order, following the 263 orders dt. 1st Aug., 1988. It was contended in the reply to the 263 notice, that the assessment order passed under S. 143(1) was not either erroneous or prejudicial to the interests of the Revenue. A ground is taken that the provisions of S. 263(1) were not complied with and the revisionary proceedings were started with all preconceived notions and the necessary inquiries contemplated under S. 263(1), were not carried out by the CIT. Before passing the assessment order dt. 9th Feb., 1988 under S. 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 in so far as it is prejudicial to the interests of the Revenue. The show-cause notice under S. 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 S. 69 of the IT Act. He rejected the tenability of the contention raised in the assessees 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 valuers 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 Cells 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 dt. 1st Aug., 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 part of record, as it stood when the assessment was made that Departmental Valuation Officers report should not have been taken as part of the assessment proceedings while invoking revisionary powers under S. 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 9th Feb., 1988 whereas the report of the Departmental Valuation Officer was received on 28th March, 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 S. 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 vs. WTO (1984) 149 ITR 65 (Ker).
J. K. K. Natarajah vs. WTO (1983) 142 ITR 804 (Mad).
Sri Harisankar Cashew Mfg. Co. vs. ITO (1991) 41 TTJ (Hyd) 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 S. 16A of the WT 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-s. (4) of S. 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-s. (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 WTOs position safe with regard to the assessment. Since no preliminary report under S. 16A(4) was given to the assessee and since his objections were not called and he was heard before passing an order under sub-s. (5) of S. 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 revisionary powers. It is submitted that the ITO furnished a copy of the report of the Departmental Valuation Officers report after the learned CIT passed his impugned orders under S. 263. The orders under S. 263 were passed on 1st Aug., 1988. On 3rd Oct., 1988 by means of a letter a copy of which furnished at pages 4 and 5 of the paperbook filed on behalf of the assessee, request was made to the ITO to furnish a copy of the Departmental Valuation Officers 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 reported in ITO vs. Dr. R. P. Patel (1987) 59 CTR (Trib) 105 (Coch). 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 S. 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 pinpoint 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. Sec. 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 Departmental Valuation Officer 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 S. 263 orders of the CIT cannot be sustained.
6. As against these submissions advanced by the learned counsel for the assessee, the learned Departmental Representative 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 S. 16A of WT Act for purpose of ascertaining the value of the asset or under S. 55A of the IT 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 S. 16A of the WT 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 paperbook. In page 34 itself, the Valuation Cell stated as part of their report the following :
"Valuation as an advisory capacity of the property under IT 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, dt. 29th Jan., 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 years report under S. 131 of the IT Act. Under the provisions of the 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 S. 16A of WT Act while administering which only he had to comply with the procedure under S. 16A(4) and (5). While giving its opinion with regard to the valuation of this asset under S. 131, the procedure under S. 16A of 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 (1984) 149 ITR 65 (Ker) as well as (1983) 142 ITR 804 (Mad) 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 Officers 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 counsel based upon the Cochin Tribunals decision reported (1987) 59 CTR (Trib) 105 (Coch).
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 revisionary order passed by the CIT and whether any revisionary order passed on the basis of it, can be valid. The learned Departmental Representative relied upon the latest Calcutta High Court decision reported in CIT vs. S. M. Oil Extraction Pvt. Ltd. (1991) 190 ITR 404 (Cal). In the facts of that case also the Commissioner sought to base his revisionary 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 revisionary order is valid. Upholding the validity of the said revisionary order, the Calcutta High Court held the following :
"The expression record as used in S. 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 CIT 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 1st Feb., 1983. The ITO, 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 ITO when the assessment was completed. The valuation proceeding is a part of the assessment proceeding. But once the valuation report was received by the ITO although subsequent to the completion of the assessment, it forms part of the records of the assessment year in question. The CIT, 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 or impropriety of an order. The assessment order appeared to the CIT erroneous in so far 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 CIT. Sec. 263 says that the CIT 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 ITO 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 in so far 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 revisionary 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 CIT vs. S. M. Oil Extraction Pvt. Ltd. (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 revisionary jurisdiction. Reference may be made in this connection to the Calcutta High Court decision in Reliance Jute and Industries Ltd. vs. ITO & Ors. (1984) 150 ITR 643 (Cal) and also Smt. Uma Devi Jhawar vs. WTO (1982) 136 ITR 662 (Cal). 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 revisionary jurisdiction, is entitled to look into every record forming part of the assessment proceeding. The word "record" is defined in S. 263 as "including and shall be deemed always to have included all records relating to any proceeding under IT 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 S. 131 of the IT Act is certainly a proceeding under the IT 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 revisionary 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 revisionary orders. It is no doubt true that the definition of "record" was inserted from 1st April, 1988 and the case before me deals with asst. yr. 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 1st April, 1988. Therefore, the definition of the word "record" should be deemed to be retrospective and governs all the pending assessment years even though they pertain to earlier assessment years like asst. yr. 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 Devi Jhawar vs. WTO (supra) and Reliance Jute and Industries Ltd. vs. ITO & Ors. (supra) and would not have decided its latest decision in CIT vs. S. M. Oil Extraction Pvt. Ltd. (supra) differently. I have already quoted from the decision in CIT vs. S. M. Oil Extraction Pvt. Ltd. (supra). Under the circumstances, it is not possible to hold that the CIT has no jurisdiction to invoke powers under S. 263 for exercising his revisionary 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.