Calcutta High Court
Hotel Mount View vs Commissioner Of Income Tax And Ors. on 5 August, 2005
Equivalent citations: (2006)1CALLT545(HC), (2005)198CTR(CAL)435, [2006]280ITR51(CAL)
Author: D.K. Seth
Bench: D.K. Seth
JUDGMENT D.K. Seth, J.
1. The questions:
In this appeal two questions have since been framed for being answered by this Court, viz. :
(i) Whether the reopening of the assessment under Section 148 Read with Section. 147 of the Act after the expiry of four years can be made on the basis of the report of the valuation officer who has been appointed under Section 131(1)(d) of the Act for proper valuation of the cost of construction of the building ?
(ii) Whether the report of the valuation officer in any event is merely an opinion and can be relied upon as a material or evidence on the basis of which the sum of Rs. 12,32,954 can be treated as the undisclosed income of the assessee when the said amount of Rs. 12,32,954 as undisclosed income of the assessee is without any material or evidence ?
Submission on behalf of the appellant/assessee :
2. Dr. D. Pal, learned senior counsel, appearing on behalf of the appellant, submits that in this case the assessment for the relevant asst. yr. 1993-94 was complete under Section 143 of the IT Act, 1961. There was nothing on record to show that there was any defect in the books of account produced in connection with the said assessment proceedings under Section 143. The assessee had constructed a hotel building during 1991-92, 1992-93 and 1993-94. The cost of construction whereof incurred in the relevant assessment years were reflected in the return submitted for the concerned assessment years respectively. After lapse of four years, Section 147 was resorted to by the AO on the allegation that income for the asst. yr. 1993-94 had escaped assessment. Admittedly, this was done after expiry of four years from the end of the relevant assessment year. Therefore, Section 147 could be resorted to only if there was a finding that the assessee had failed to disclose truly and correctly the income.
2.1 Relying on the finding of facts arrived at by the learned CIT(A) and the learned Tribunal, Dr. Pal points out that there was no such finding and as such the embargo provided therein could not be overcome. The AO, however, in course of the proceedings under Section 147 had recorded that only the cash book was produced and other relevant books of account were not produced; but he did not refer to the books of account produced during the relevant assessment under Section 143, whereas the CIT(A) had referred to the fact that there was defect in the books of account in course of assessment under Section 143. Therefore, according to him, the finding of facts seems to be concluded by the finding of the CIT(A). This finding of the CIT(A) has not at all been looked into by the learned Tribunal while recording an observation that it was an admitted fact that the books of account were not produced excepting the cash book. At the same time, the learned Tribunal had referred to different versions with regard to the valuation of the property by different authorities. According to Dr. Pal, these different versions were very much before the authority concerned at the time of assessment under Section 143 and even then the difference between the different versions were not such as to bring the question within the purview of Section 147 of the IT Act, 1961. He further contends that reliance was placed on a valuation of a valuer appointed under Section 131(1)(d) of the Act, which was a subsequent event and the said valuation cannot be treated to be a material on the basis of which the IT authority came to the conclusion that the assessee had failed to disclose truly and correctly the income. Therefore, according to Dr. Pal, this assessment, purported to have been made under Section 147, cannot be sustained.
2.2 Dr. Pal relies upon the decision in Smt. Tarawati Debi Agarwal v. ITO to contend that the valuation report obtained at a later point of time cannot be a foundation for holding that the assessee did not disclose the cost of construction truly and correctly at the relevant point of time and a valuation report obtained afterwards might be affected by the subsequent enhancement of valuation. He then relies upon the decision in Durga Sharan Udho Prasad v. CIT to contend that when the assessee had disclosed by means of a valuation report and to support the accounts reflected in the books of account to substantiate the valuation given, it was under no obligation to furnish anything else. Without any other material on record there was no occasion for the IT authority to conclude that the assessee failed to disclose truly and correctly its income. Dr. Pal then relies upon the decision in Indian Oil Corporation v. ITO and Ors. , to contend that it was not possible to apprehend that in future there would be another valuation report at the time when the return was submitted in order to entangle the assessee within the sweep of the proviso to Section 147.
2.3 Dr. Pal on the second question, submits that, assuming but not admitting that the valuation report is an admissible evidence under Section 45 of the Evidence Act, as suggested by Mr. Shome and that such an evidence could be brought on the record and looked into under Section 75 of the CPC, r/w order 26, Rule 9, thereof, even then it would remain only a piece of evidence which without being corroborated or supported by other evidence could not supersede the evidence already on record on the basis of which the proceeding under Section 143 was concluded, so as to hold that the assessee had failed to disclose his income truly and correctly. Dr. Pal relies upon the decision in Smt. Amiya Bala Paul v. CIT to contend that the power available under the CPC conferred on the AO under Section 131(1) is confined only to the extent relevant for Section 133(1) without attracting the power conferred under Section 55A. Relying on the said decision in Amiya Bala (supra), he submits that Section 131(1) cannot be resorted to for the purpose mentioned in Section 55A which again, according to him, is confined to the case of computation of capital gain and cannot be applied in respect of computation of income from business though it uses an expression for the purposes of this chapter.
Submission on behalf of the respondent/Department:
3. Mr. Shome, learned senior counsel appearing for the Department, on the other hand, points out that the AO had found that except the cash book no other books of account were produced during the course of the proceedings under Section 143 but that was overlooked by the CIT(A), which was corrected by the learned Tribunal. As such the finding of fact were concluded with the observation of the learned Tribunal that the assessee had failed to disclose truly and correctly his income attracting the provisions of Section 147. He also drew our attention to the three versions disclosed by the assessee before three authorities. This itself was sufficient to hold that there was a case of escapement of income on account of non-disclosure of true and correct income by the assessee. He points out that a valuation report is admissible in evidence in view of Section 45 of the Evidence Act, Read with Section 75 of the Code of Civil Procedure (CPC) and order 26, Rules. 9 and 11, respectively thereof. According to him, there being nothing to point out the defects in the valuation report, it was open to the IT authority to depend on the same and the evidentiary value of such a report cannot be brushed aside simply because there was another valuation report submitted by the assessee earlier and that the valuation report was made correctly on the basis of the acceptable CPWD standard. He also points out that this valuation report was done on the basis of the 1992 valuation and as such cannot be overlooked. He then contends that this finding accepting the valuation report is a finding of fact. In the absence of any perversity this Court cannot interfere with the same. According to him, Section 131(1)(d) empowers the AO to make a reference to obtain the valuation report in terms of order 26, Rules 9, CPC. Therefore, this Court should not interfere with the order appealed against.
The scope : Section 147: If can be resorted to :
4. After having heard the learned Counsel for the parties, the moot question that we are called upon to decide is as to whether the proviso to Section 147 could be attracted in view of the fact that Section 147 was resorted to after expiry of four years from the end of the relevant assessment year.
4.1 Section 147 can be resorted to upto the limit of six years even after expiry of four years only in case the assessee fails to disclose truly and correctly his income.
4.2 So far as Clause (b) is concerned, it would not be attracted in this case since valuation that has been made far exceeds Rs. 1 lakh which could be realized as tax. On facts could this second valuation report be treated as a material to arrive at a conclusion that the assessee had failed to truly and correctly disclose its income. In fact, Section 147 is to be followed by Section 148, and Section 147 cannot be resorted to without being followed by Section 148. Section 148 requires reason to be recorded in writing. Therefore, there must be sufficient material to conclude that the assessee had failed to disclose truly and correctly its income. The reference under Section 131(1)(d) was made in course of proceedings under Section 147 after the notice under Section 148 was issued but this material was not present when the notice under Section 148 was issued. However, Dr. Pal, in his usual fairness, has not challenged the very reopening. Even then it does not seem that there was sufficient material to reopen the assessment on the ground that it had escaped notice in view of expiry of four years by reason of the proviso to Section 147.
Ground No. (i):
5. Be that as it may, since this point has not been pressed by Dr. Pal and no such ground having been framed in the appeal, we may switch over to the other ground, namely, the ground No. (i). Now, we are supposed to answer as to whether on the basis of the valuation report obtained under Section 131(1)(d) could the AO assess the assessee holding that some income had escaped assessment. The primary foundation for such reassessment is escapement of assessment; but such escapement of assessment must be on account of the failure of the assessee to disclose his income truly and correctly since in the meantime four years have lapsed after the relevant assessment year. Mr. Shome has not been able to point out any finding either by the AO or by the CIT(A) or the learned Tribunal that any of these authorities had arrived at such a conclusion without the second valuation report. Dr. Pal has submitted that here is no such finding in order to enable the AO to hold that there was escapement of income. In fact, unless there is a finding that the assessee had failed to disclose truly and correctly its income, no assessment could be made under Section 147.
5.1 The provision of Section 131(1)(d) though empowers the AO with all the powers under the CPC for issuing commission but such power cannot be equated with the power under Section 55A. In Smt. Amiya Bala Paul (supra) the apex Court had held that in view of the existence of Section 55A, Section 131(1)(d) could not be resorted to for obtaining the power of exercising the power available under order 26, Rule 9, CPC for obtaining valuation of a capital asset. Section 55A uses the expression that a reference can be made for the purposes of valuation of a capital asset under this chapter namely, Chapter IV, which includes Part B dealing with capital gains, within which Section 55A has been enacted; but that does not confine the application of Section 55A only for the purpose of computation of capital gains. Capital asset has been defined in Section 2(14) to include capital asset used in connection with business also. Therefore valuation of capital asset may be for the purpose of computing capital gains or for the purpose of computing income from business, both of which are dealt with under Chapter IV. Then again the use of the word "purposes" in plural is significant to indicate that it is not made for one purpose namely, for the purpose of computing capital gains alone, but for other purposes contemplated under Chapter IV. The legislature has used the expression "Chapter" instead of Part B or for computing capital gains. Therefore, the application of Section 55A cannot be excluded for the purposes contemplated under Chapter IV as a whole.
5.2 It was on these reasons the apex Court in Smt. Amiya Bala Paul (supra) had held that in view of Section 55A, Section 131(1)(d) could not be held to have conferred the same power which is available under Section 55A. The distinction has been drawn that Section 55A having specifically conferred power for reference for valuation, Section 131(1)(d) cannot be resorted to for obtaining the same purpose. Therefore, we do not think that a valuation report obtained under Section 131(1)(d) could be relied upon for the purpose of holding that the assessee had failed to disclose his income truly and correctly, that too on the basis of a valuation obtained upon a reference under Section 55A subsequent to the reopening of assessment under Section 147. Then again this Court in Smt. Tarawati Debi Agarwal (supra) had held that jurisdiction under Section 147(a) cannot be exercised on the basis of a valuation obtained on a subsequent stage when admittedly the valuation had increased and it is only an opinion and could not be relied upon except with corroborative or supportive materials to support the same to show that the assessee had failed to disclose truly and correctly its income. In Indian Oil Corporation (supra) the apex Court had held that in anticipation of a future report one cannot be held to have failed to disclose truly and correctly his income, particularly when it is, an opinion and nothing more than that.
Conclusion: The question No. (i):
6. Therefore, in the facts and circumstances of the case we find that there was no such material to support this valuation report, though admissible in evidence, it could not have been relied upon by the AO affirmed by the learned Tribunal.
6.1 Having regard to the facts and circumstances of the case, we find that at the time of the assessment under Section 143 the alleged valuation report obtained by the AO subsequent to the reopening of the assessment under Section 147 was not there. After having reopened the assessment the evidence cannot be fished out through reference to a fresh valuation which is merely an opinion and which is not a conclusive proof to establish escapement of assessment unless being supported by other supportive and corroborative evidence.
The question No. (ii):
6.2 After we have answered the question No. (i) in the negative, the second question becomes academic. Even then we would like to answer the same having regard to the decision in Smt. Tarawati Debi Agarwal (supra) and Durga Sharan Udho Prasad (supra) where it has been held that such an evidence is an admissible evidence within the meaning of Section 45 of the Evidence Act. But then it has to be supported by sufficient material and even though such piece of evidence is to be obtained through a manner which is not supported by law, it is only the value of such evidence which is to be considered, nothing more nothing less.
Order:
7. The appeal, therefore, succeeds and is allowed. The order of the learned Tribunal is hereby set aside. The order of the CIT(A) is hereby affirmed.
7.1 In the circumstances we answer the question No. (i) in the negative.
7.2 We answer the second question also in the negative.
7.3 There will, however be no order as to costs.
S.K. Gupta, J.
4. I agree.