Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Tandel Automobiles on 16 July, 1990
Equivalent citations: [1990]35ITD191(AHD)
ORDER
M.AA. Khan, Judicial Member
1. These three appeals by revenue from the common order of the CIT(A), Surat dated March 25, 1987 pertain to A.Ys. 1981-82, 1982-83 and 1983-84 and involve common dispute. These are, therefore, being decided by this common order.
2. During the years under consideration, the assessee, a registered firm, had made investments in the construction of a hotel building called Rahat Hotel and certain shops. The construction of the immovable property, as mentioned above, had been started in April 1980 and completed in the financial year 1983. The assessee had disclosed the amounts of investments made by it in each of the three years at certain figures. The ITO, however, asked the District Valuation Officer (DVO), Ahmedabad, to determine the value of the investments made by the assessee in each of the three years. The DVO, vide his report dated 11-3-1985, determined the amounts of investments made in each of the three years at figures different from those returned by the assessee. The ITO, adopting the report of the DVO, finalised the assessments at the figures of the valuation of the investments as determined by the DVO. This resulted in addition of sufficiently good amount to the total income of the assessee in each of the three years which the ITO made under Section 69B of the IT Act, 1961 (the Act). To be clear on the point the final position came to this :
A.Y. Value as per Value as per Difference
assessee DVO/ITO added Under Section 69-B
1981-82 3,40,505 5,32,121 1,91,616
1982-83 6,29,800 10,59,780 4,29,980
1983-84 2,79,106 4,35,999 1,56,893
3. Aggrieved against the additions as made by the ITO, the assessee approached the CIT(A) in appeals. Before the CIT(A) the assessee challenged the additions mainly on two grounds. In the first place it was urged by the assessee that the additions as made by the ITO were invalid in law inasmuch as the report of the DVO was not binding on the ITO and also that the ITO had simply adopted the report of the DVO without giving an opportunity to the assessee of being heard ar.il without considering the account of construction and other relevant documents as submitted by the assessee in support of his claim for investments in the construction of the immovable properties in question. In the second place it was urged that the report of the DVO was not at all acceptable on merits also. The learned CIT(A) accepted both the above contentions of the assessee and held that Section 55 A of the Act under which the ITO could have made a reference to the DVO for determining the fair market value of an immovable property was not applicable to the facts of these cases. Following a number of decisions of the Tribunal on the point, the learned CIT(A) further held that the report obtained by the ITO in this case was not binding upon the ITO and that since the ITO had simply adopted the report of the DVO for the purposes of making additions to the total income of the assessee in the three years, the additions were not sustainable at law. On merits the CIT(A) agreed with the assessee that the DVO had without any reasonable basis adopted the higher valuation of the land and had thus arrived at higher value of investments made by the assessee in the construction of the properties in question.
4. In respect of the addition made for A.Y. 1981-82 the assessee had made one more objection. It had been contended by the assessee that the assessment for that year had been completed by the ITO Under Section 143(3) of the Act on 15-10-1982 at total income of Rs. 'nil', but the same had been reopened later on Under Section 147/148 of the Act on the strength of the report of the DVO which was obtained on 11-3-1985. It was thus submitted that the very reopening of the assessment for A.Y. 1981-82 was bad in law. The CIT(A) accepted this contention of the assessee also. In the result he deleted the additions as had been made by the ITO in all the three years.
5. In its appeals the revenue has raised the following common grounds in all the three years:
1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the justifiable addition Under Section 68 of the IT Act being unexplained difference between the cost of construction as reported by the District Valuation Officer and that debited in the books of accounts. It is not proper to give an outright reduction in such cases without hearing the District Valuation Officer who is a technically qualified person and his report cannot be altogether ignored without giving an opportunity of being heard.
2. Instead, the CIT(A) should have set aside the assessment with a direction to give reasonable opportunity to the assessee against adoption of cost, of construction as reported by the Dist. Valuation Officer and consequent addition thereby if the ITO has initially failed to do so and to make a fresh assessment in accordance with law.
6. At the very outset it may be pointed out that the assessment for A.Y. 1981 -82, as had been reopened by the ITO Under Section 147/148 of the Act had been held to be bad in law by the CIT(A). In the appeal for that year the revenue has not challenged that part of the order of the CIT(A). On the face of it, therefore, the appeal for A.Y. 1981-82 with the grounds mentioned in the memorandum of appeal which do not challenge the setting aside of the assessment on the ground of the reopening of the assessment under Section 147/148 of the Act being bad in law,is bound to fail. However, since we were required to consider the merits of revenue's case in the grounds raised for the rest of the two years, we have considered revenue's case on those grounds for A.Y. 1981-82 as well.
7. After hearing the parties, we entertain no doubt that the order under appeal is not only sustainable for the reasons which have found favour with the CIT( A) but also for other reasons, as well which we Would be mentioning hereinafter.
8. The learned Sr. D.R., opening his arguments on ground No. 1 above, vehemently urged that the CIT(A) had deleted the addition made by the ITO Under Section 68 (wrongly mentioned as Section 68 whereas in fact addition had been made by the ITO Under Section 69-B of the Act), on the basis of the report of the DVO without giving any opportunity of being heard to the DVO. It was submitted that the reference for the valuation of the DVO had been made by the ITO Under Section 55A of the Act and since the relevant provisions of Section 16A of the W.T. Act, 1957 were applicable in respect of the report of the DVO, as has been mentioned in Section 55A itself, the ITO was duty bound to have adopted the report of the DVO and in appeal the CIT(A) was under a statutory obligation to have heard the DVO before commenting adversely upon the report of the DVO. In this behalf the D.R. heavily relied upon the decision of the Andhra Pradesh High Court in the case of Daulatram v. ITO [1990] 181 ITR 119.
9. In reply, Mr. K.C. Patel, advocate appearing for the assessee, not only supported the order under appeal but also further submitted that neither a reference Under Section 55A could have been made by the ITO in the instant case nor was the ITO bound by the report of the DVO. The learned counsel vehemently urged that before adopting the report of the DVO, the ITO had not given any opportunity of being heard to the assessee and, therefore, the addition made on the basis of that report was quite invalid and has rightly been turned down by the CIT(A). It was further submitted by Mr. Patel that the provisions of Section 55A were not at all applicable to the facts in the present cases and, therefore, the CIT(A) has rightly determined the issue on the point in favour of the assessee. In support of his arguments, Mr. Patel heavily relied upon the full bench decision of the Punjab &Haryana High Court in the case of Jindal Strips Ltd. v. ITO [1979] 116 ITR 825.
10. The arguments advanced on both sides take us to consider the scope of applicability of Section 55 A of the Act. In the cases relied upon by the learned counsels for the parties, the scope of applicability of Section 55A has been considered differently, rather contradictingly. In the case of Daulatram (supra) the Andhra Pradesh High Court has held that "though Section 55A falls under the sub-chapter titled 'Capital gains' the intention of the Legislature is obvious as the words that have been employed are'for the purpose of this chapter'denoting thereby that while computing the income various factors might fall for determination and, therefore, whenever such contingency does arise, the ITO can ascertain it through the agency of the valuation officer". The Hon'ble High Court has further held that on sucii a reference the provisions, inter alia, of Sub-sections (2) to (6) of Section 16A and Sub-sections (3 A) & (4) of Section 23 of the W.T. Act, 1957 are ipso facto applicable by extension as laid down Under Section 55A of the Act itself. Thus according to this view a reference to the valuation cell of the department by the ITO Under Section 55A to ascertain the cost of construction of a building would be competent. However, according to the full bench decision of the Punjab & Haryana High Court in the case of Jindal Strips Ltd. (supra) Section 55A applies only to the computation of income under the head "Capital gains" and a reference Under Section 55A to the valuation cell of the department by the lTO to ascertain the cost of construction of a building would not be competent. With great respect to the learned Judges of the Andhra Pradesh Court, we feel inclined to follow the ratio in the full bench decision of the Punjab & Haryana High Court in the case oiJindal Strips Lid. (supra).
11. Section 55A occurs in Chapter IV of the Act which deals with the computation of total income of an assessee. The Chapter is divided into five heads of income. A study of the sub-chapters, each dealing with a separate head of income, would clearly disclose that the sub-chapters are quite exhaustive in regard to the subject matter dealt therein. Section 55A falls in sub-chapter E titled as "Capital gains". It is no doubt true that the opening words occurring in the language of Section 55 A and which are to the effect: "With a view to ascertain the fair market value of a capital asset for the purposes of this chapter, the assessing officer may refer the valuation of capital asset to a Valuation Officer-",prima facie show that the applicability of this section extends to the whole of the Chapter IV but in fact and in reality the scope of operation of that section is limited to sub-chapter E titled "capital gains". It may be noted that in the language of Section 55A the words "fair market value" have been used in relation to a capital asset. The term "fair market value" has been denned as follows in Section 2(22B) of the Act:
fair market value", in relation to a capital asset, means
(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and
(ii) where the price referred to in Sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act;
The definition of the words "fair market value" shows that wherever such words have been used in relation to a capital asset, they would, clearly fall within the purview of sub-chapter E of Chapter IV of the Act. The same result can be arrived at from another angle. Section 55 to which Section 55A was added with effect from 1-1-73 by the Taxation Laws (Amendment) Act, 1972, defines the meanings of the terms like "adjusted", "cost of improvement" and "cost of acquisition". Subsection (3) of Section 55 reads as under:
Where the cost of which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner. [Emphasis supplied] It may be noted that the concept of fair market value in the matters of computation of income on transfer of capital asset had'been considered under Sub-section (3) of Section 55. With a view to define the mode of ascertaining the fair market value of a capital asset, which had been referred to in Sub-section (3) of Section 55, Section 55A appears to have been brought on the statute book. It can thus be seen that it was to further the object of Section 55(3) of the Act that Section 55A lays down that with a view to ascertaining the "fair market value of a capital asset" the assessing officer may refer the valuation of that asset to a Valuation Officer. It clearly follows that reference by the assessing officer Under Section 55A to the Valuation Officer can be made for the purpose of computation of income from capital gains. No reference Under Section 55 A can be made by the ITO to the Valuation Officer in the matters of ascertaining the cost of construction of a building, as is the position in the case before us. Once it is found that in the instant case no reference Under Section 55 A could have been made by the ITO to the Valuation Officer, the report of the Valuation Officer, if obtained by the ITO, cannot be made the sole basis of the order of the ITO on the point. That being so it was not obligatory on the part of the CIT(A) to have heard the Valuation Officer before ignoring the report made by him.
12. At this stage Mr. Shah submitted that in fact during the course of making enquiries Under Section 142(2) of the Act, the ITO had called for a report from the Commissioner appointed by him, on the question of cost of construction of the building during the years under consideration. Mr. Shah submitted that the ITO was competent to have issued a commission in that itself to the District Valuation Officer Under Section 131 (1) of the Act and, therefore, the report obtained by the ITO from the Valuation Officer in that manner was a good piece of evidence on the question of cost of construction of the building under consideration and that should not have been ignored by the CIT(A). In reply, Mr. Patel submitted that no doubt during the course of the enquiry being conducted by the ITO Under Section 142(2) of the Act the ITO was competent to have issued a commission to the DVO Under Section 131(1)ofthe Act requiring the Commissioner to submit his report on the cost of construction of the building under consideration during the three years but the function of the DVO Under Section 131 (1)(d) would simply be an advisory function and his report would not be binding on the ITO. What the ITO has done in the present case, urged Mr. Patel, was simply to adopt the report of the Commissioner (DVO) without making his own evaluation of the report of the Commissioner (DVO) and that too without giving an opportunity of being heard to the assessee. According to Mr. Patel, since the ITO had not applied his own mind to the question of cost of construction and had simply based his order on the report of the DVO, without giving an opportunity of being heard to the assesses, the order was, on the face of it, bad in law and has been rightly turned down by the CIT(A) in appeal.
13. We find ample force in the arguments of Mr. Patel. During the course of hearing Mr. Shah produced before us the letter of the ITO dated 5-7-83 which clearly shows that he had authorised the Assistant Valuation Officer of the income-tax department Under Section 131(1)(rf) of the Act in order to ascertain the correctness of the cost of construction of the building under consideration. Section 131(1)(d) clearly confers such a power on the ITO and says that in the matters like issuing commissions for the purposes of the Act, the income tax authorities, including the ITO, shall have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908). By issuing the commission in the instant case the ITO had adopted quite a legal method for ascertaining the cost of construction of the building in this case. But after having done that the ITO seems to have fallen into error by considering the report of the DVO as binding upon him. That is what he has done in the present case. He must have considered that his powers to appoint a Commissioner Under Section 131(1)(d) of the Act were in the nature of powers of a Civil Court under the relevant provisions of the Civil Procedure Code, 1908. Keeping in mind the powers of the court with regard to the treatment to be given to the report of a commissioner appointed by it during the trial of a suit, it can safely be said that the function of a commissioner appointed by the court is simply that of an adviser. The report of the commissioner is not at all binding upon the court. Moreover before reading the report of the commissioner against a party, the court has to give an opportunity of being heard to the party concerned. Even a party opposing the report of the commissioner can insist upon examination of the commissioner before the court. Such being the powers of the court under the Code of Civil Procedure, 1908 and the powers to the ITO Under Section 131(1)(d) of the Act having been given on the same footing the ITO was required to have given an opportunity to the assessee to submit its objections against the report of the commissioner, which admittedly, the ITO has not done in this case. That obviously vitiates the order of the ITO. It is trite law that no person can be condemned without being heard. The ITO was not competent to have used the report of the Commissioner (DVO) against the assessee without giving an opportunity of being heard to the assessee. That being so we do not find any merits in the arguments of Mr. Shah.
14. The net result of the above discussion is that we hold that in the instant case no reference Under Section 55A of the Act had been made by the ITO to the DVO/AVO and, therefore, the relevant provisions of Section 16A of the WT Act, 1957 were not applicable to these proceedings before the CIT(A). The order under appeal is, therefore, not bad for the reason that the learned CIT(A) had not heard the valuation officer before passing the impugned order. We further hold that the ITO, in exercise of his powers Under Section 131 (1 )(d) of the Act had authorised the AVO to ascertain the cost of construction of the building under consideration and since the report of the AVO was not binding upon the ITO but he adopted the same without giving an opportunity to the assessee of being heard, the order of the ITO was bad in law. We, therefore, dismiss ground No. 1.
15. Now coming to the second ground Mr. Shah submitted that if the CIT(A) had come to the conclusion that the report of the AVO could not be relied upon as the same had been used by the ITO without giving reasonable opportunity of being heard to the assessee, the learned CIT(A) should have sent the case back to the ITO to make fresh assessments in accordance with law. Mr. Patel vehemently opposed the suggestion of giving this case a second round. He urged that a second round to this case was not only prejudicial to the interest of the assessee but was also uncalled for the obvious reason that the assessee had maintained the construction account which was duly supported by the relevant bills and vouchers and at no stage of the proceedings, the ITO had even doubted such accounts submitted by the assessee, what to speak of rejecting them.
16. We would have acceded to tl.e request of revenue of remitting the case back to the ITO for making re-assessments after having given an opportunity to the assessee of opposing the report of the AVO had we not felt convinced that such an order by us would certainly be prejudicial to the interest of the assessee and would lay down a very wrong precedent. It has clearly been found above that during the course of enquiry Under Section 142(2) the ITO had proceeded in right directions by authorising the AVO to act as Commissioner Under Section 131(l(d)of the Act in order to ascertain the cost of construction of the building in question but after having done that he had switched over to the provisions of Section 55 A which were not at all applicable to the facts and circumstances of this case. We must observe here that it is not denied before us that the assessee had submitted the relevant account of construction before the ITO. In fact the CIT(A) has recorded a clear finding to the effect that the relevant construction account had been duly maintained and submitted by the assessee at the assessment proceedings. In its letters the assessee had categorically asserted that it had submitted the construction account along with the relevant vouchers, bills and registers for the perusal of the ITO. The ITO has not expressed any opinion against the genuineness of the material so submitted by the assessee with regard to the cost of construction of the building in question over the three years. Once the books had not been rejected or even doubted by the ITO he was in fact having no basis for even issuing the commission Under Section 131(1)(d)ofthe Act. This very fact itself outweighs the reliance by the ITO on the report of the AVO.
17. The learned CIT(A) had dealt with the merits of the report of the AVO, which no doubt does not have the binding force on the ITO Under Section 55 A but which certainly was a relevant and material evidence in the case like any other piece of evidence collected during the course of enquiry in the direction of making assessment and could have been used as such had the same been received in evidence by observing the principle of giving an opportunity of being heard to the assessee before the same was being used against it. The CIT(A) has not rejected the contention of the assessee that the DVO had adopted the value of Rs. 756 per sq.mts. in respect of ground floor without any basis. It has also not been disputed that the amount spent by the assessee on the construction of the building was maintained by it in its books which were verified by the ITO during the course of assessment proceedings but nothing incriminating had been found by him. The CIT(A) has come to the conclusion that the ITO had without having found any incriminating fact against the construction account had merely relied upon the report of the DVO which had no basis at all for estimation of cost of construction. We fully agree with these conclusions of the CIT(A) recorded by him on appreciation of the relevant facts and material on record. We must point out that by the non-rejection of its account books including the audited balance-sheet, the ITO had failed to make any case for not accepting the cost of construction of the building as declared by the assessee in its books. Taking into account the totality of the circumstances, we are left in no doubt that the approach made by the CIT(A) to the facts obtaining in this case was fully justified. Under these circumstances we are not prepared to give a further opportunity to the ITO to reject what he had accepted at the earlier stage of the proceedings. By a remand under these circumstances we would be inviting the ITO, may be indirectly or impliedly to reject the books of account of the assessee and to make fresh assessments taking into account the report of the Commissioner after giving an opportunity to the assessee of being heard. We are afraid we cannot do that at this stage. The second ground is also thus dismissed.
18. In the result, these appeals are dismissed.