Assessing Officer made valuation of cinema hall building of assessee on basis of land and building method by making a reference to Departmental valuer, same was justified
Resort to section 7(2)(a) is discretionary and
enabling provision to Wealth Tax Officer to adopt method as laid down in
section 7(2)(a) for a running business but above enabling power cannot be held
as obligation or shackles on right of Assessing Officer to make reference to
Departmental valuer under section 7(3). Therefore, where Assessing Officer made
valuation of cinema hall building of assessee on basis of land and building
method by making a reference to Departmental valuer, same was justified. [In
favour of revenue] (Related Assessment years : 1970-71 to 1974-75) - [Bimal
Kishore Paliwal v. Commissioner of Wealth Tax (2017) 398 ITR 553 : 298 CTR 540
: 251 Taxman 312 : 87 taxmann.com 40 (SC)]
Assessment had not become final and conclusive because appeal preferred by revenue was pending before High Court, in view of proviso to sub-section (3) of section 142A, a valid reference to DVO could be made
From the order of the Tribunal we find that the Tribunal has even though held that the reference to the Departmental Valuation Officer in question is not valid, in view of the decision of this Court in the Case of Amiya Bala Paul v. CIT (2003) 262 ITR 407 : 130 Taxman 511, but it has also held that it is settled principle of law that in place of Central Public Works Department rates local Public Works Department rates are to be applied and adopted to determine the cost of construction. In view of the fact that Section 142A was inserted by Finance (No.2) Act, 2014 (23 of 2004) w.e.f. 15th November, 1972 and subsequently again substituted by Finance Act, 2010 (14 of 2010) w.e.f. 1st July, 2010 and Finance (No.2) (225 of 2014) w.e.f. 1st October, 2014, as the proviso to sub-section (3) of Section 142A as it existed during the relevant period, reference to the Departmental Valuation Officer can be made because assessment in the present case had not become final and conclusive because the appeal preferred by the Revenue under section 260A of the Income Tax Act, 1961 was pending before the Rajasthan High Court. However, in view of the finding recorded by the Tribunal that the local Public Works Department rates are to be applied and adopted in place of Central Public Works Department rates, we do not find any good ground to interfere in the impugned judgment on this issue on merits. The appeal fails and is dismissed. [In favour of revenue] – [CIT, Ajmer v. Sunita Mansingha (2017) 393 ITR 121 : 295 CTR 590 : 247 Taxman 93 : 80 taxmann.com 258 (SC)]
Assessee filed writ petition
challenging power of Assessing Officer to obtain report of DVO for computing
capital gain arising from sale of land on ground that same had been assessed on
basis of Jantri rates prevailing at time of sale, since those Jantri rates had
not been revised for a long time, petition filed by assessee was to be
dismissed
During relevant year, assessee sold three pieces of agricultural lands situated in different villages. While scrutinizing such assessment, Assessing Officer desired to obtain valuation of such properties, for which purpose he made a reference to DVO under section 50C(2). Assessee raised a plea that capital gain could not be computed on basis of report of DVO as same had been assessed on basis of Jantri rates prevailing at time of sale. It was noted that Jantri rates had not been revised for a long time. Moreover, in terms of section 142A Assessing Officer had power to obtain valuation reports even in context of issues other than that of capital gains computation. In view of aforesaid, writ petition filed by assessee was to be dismissed. [In favour of revenue] (Related Assessment year : 2008-09) – [Kanaiyalal Dhansukhlal Sopariwala v. District Valuation Officer (2017) 391 ITR 56 : (2016) 75 taxmann.com 271 : 243 Taxman 378 (Guj.)]
In
reassessment Assessing Officer took FMV of co-owned land as on 01.04.1981 as
determined by DVO which was much lower than value claimed by assessee, in view
of adoption of DVO valuation by Commissioner (Appeals) in case of co-owner,
assessee’s writ petition was not maintainable; assessee should avail statutory
remedy of appeal
Reference to valuation officer (Determination of Fair market Value) - Assessee claimed certain long term capital gain on sale of agricultural land and said land was co-owned by 5 person. Assessing Officer initiated re-assessment proceeding. He valued fair market value of land as on 01.04.1981 on basis of DVO Report which was much more lower than amount claimed by assessee resulting into capital gain. Assessee filed writ against it - However, it was found that in case of one of co-owner holding in same property, similar addition had been confirmed by Commissioner (Appeals). Fair market value which was applied/estimated in case of co-owner was required to be considered. Since there cannot be two different estimations of fair market value as on 01.04.1981 with respect to same land but in case of different assessees/co-owners, hence writ was not maintainable. [In favour of revenue] (Related Assessment year : 2012-13) – [Maheshchandra Chimanlal Raval (HUF) v. ITO (2017) 249 Taxman 160 : 83 taxmann.com 114 (Guj.)]
Clause (b)(ii) to section 55A empowers Assessing Officer to make reference to DVO where in his opinion fair market value estimated by assessee is not proper
Clause (b)(ii) to section
55A empowers Assessing Officer to make reference to DVO where in his opinion
fair market value estimated by assessee is not proper. Assessee had sold its
property for Rs. 97,50,000 which was purchased by assessee on 31.07.1979 at a
purchase price of Rs. 2,80,882. However, while calculating long-term capital
gain, assessee adopted market value of property at Rs. 34,55,000 as on 01.04.1981.
Assessing Officer considered such estimation of fair market value at a higher
side and referred matter to DVO who computed fair market value of property at
Rs. 3,77,250 and completed assessment accordingly. Since assessee inflated
market value of property as on 01.04.1981 with motive of avoiding capital gain,
action of Assessing Officer in making reference to DVO while not accepting
valuation shown by assessee on basis of registered valuer's report was well
permissible under law. [In favour of revenue] (Related Assessment year : 1996-97)
– [Nirmal Kumar Ravindra Kumar-HUF v. CIT (2016) 316 ITR 10 : 288
CTR 710 : 240 Taxman 404 : 70 taxmann.com 339 (Cal.)]
Difference in consideration as disclosed by
assessee and value as estimated by DVO indicated that consideration recorded
was understated and DVO’s report was to be relied upon to corroborate statement
of assessee, addition made under section 69B was justified
Assessee disclosed certain sum as consideration
for purchase of a property. Summoned under section 131, assessee recorded his
statement disclosing higher amount but subsequently retracted it. DVO estimated
value of property. Assessing Officer accepted value as reported by DVO and made
addition under section 69B as deemed income. Difference in consideration as
disclosed by assessee and value as estimated by DVO indicated that
consideration recorded was understated and DVO’s report was to be relied upon
to corroborate statement of assessee. Therefore, addition made by Assessing
Officer under section 69B was justified. [In favour of revenue] (Related Assessment
year : 2005-06) – [CIT v. Narinder Kr. Budhiraja (2015) 368
ITR 709 : 231 Taxman 592 : 56 taxmann.com 315 (Del.)]
Cost of construction shown
in books of account was not proper, reference by Assessing Officer to DVO was
justified
Where it was only during
search when assessee had no other option then assessee surrendered certain
amount on account of unaccounted amount utilised by him, only inference in such
circumstances would be that cost of construction shown in books of account was
due to fact that they were not properly maintained and, thus, reference by
Assessing Officer to DVO would be justified. [In favour of revenue] (Related Assessment
year : 2007-08) – [Dr. Raghuvendra Singh v. CIT (2015) 229
Taxman 554 : (2014) 267 CTR 374 : 49 taxmann.com 544 (P&H)]
Assessee being promoter of a company arranged money
for construction of building for company and at that time company had no source
of income, unaccounted investment, if any, was to be assessed in hands of
assessee and not in hands of company
Section 69 - Unexplained
investment (Construction expenses) - Assessee, a member of HUF, entered into
agreement with HUF to form a company with object of carrying on hotelling and
catering business for which a building was to be constructed on land of HUF. As
per agreement, funds for construction had to be arranged by assessee. Assessee
incurred certain expenditure for construction of building. Board of company
approved said expenditure and incorporated same in books of company. Assessing
Officer referred matter of valuation of cost of construction to DVO who
estimated cost of construction at higher figure. Assessing Officer added amount
of excess investment to income of assessee as unexplained amount. Assessee
claimed that excess investment, if any, should be considered in assessment of
company. Since money for carrying out construction was being arranged by
assessee as per terms of agreement, and company had no income at that time,
there was no occasion to assess unaccounted investment in hands of company and
it was rightly assessed in hands of assessee. [In favour of revenue] (Related Assessment
years : 1975-76 to 1977-78) – [CIT
v. D.P. Kanodia (2014) 362 ITR 163 : 226 Taxman 67 : 49 taxmann.com 255 (All.)]
Fair market value determined by DVO on a reference made by Assessing Officer in terms of sub-section (2) of section 50C is less than value adopted or assessed by Stamp Valuation Authority then such fair market value determined by DVO has to be treated as full value of consideration received by assessee for purpose of computing capital gain
Where fair market value
determined by DVO on a reference made by Assessing Officer in terms of
sub-section (2) of section 50C is less than value adopted or assessed by Stamp
Valuation Authority then such fair market value determined by DVO has to be
treated as full value of consideration received by assessee for purpose of
computing capital gain. [In favour of revenue] (Related Assessment year : 2006-07)
- [Sri Pattabhiram v. ITO, Kakinada (2014)
148 ITD 282 : 45 taxmann.com 141 (ITAT Visakhapatnam)]
Reference under section 55A(b) can be made even
when registered valuer's report has been filed by assessee, if Assessing
Officer is of opinion that value as per registered valuer was higher than
market value
Reference to Valuation
Officer [In case of registered valuer's report] – During the relevant year the
assessee had sold a plot for certain consideration. Since the plot had been
acquired prior to 01.04.1981, the assessee had adopted the cost of acquisition
as the market value of the property as on 01.04.1981 on the basis of report of
registered valuer and computed long-term capital gains. The Assessing Officer
referred the valuation of property as on 01.04.1981 to the District Valuation
Officer (DVO) who valued the property at lesser amount. The Assessing Officer,
adopting that value of the property, computed capital gains at higher figure. On
appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. The
assessee filed appeal before the Tribunal.
Held : There is nothing in
section 55A which debars Assessing Officer for making reference to DVO under
clause (b) even when registered valuer's report has been filed. In case
Assessing Officer is of opinion that value as per registered valuer is higher
than market value, he can make reference under section 55A(b)(ii). However,
valuation of property is required to be made after allowing proper opportunity
of hearing to assessee by DVO. [Matter remanded] (Related Assessment year : 2007-08)
– [Vijay P. Karnik v. ITO (2013) 60 SOT
155 : 37 taxmann.com 48 (ITAT Mumbai)]
Assessing Officer having formed on opinion that books of account were not maintained properly, referred matter to DVO, addition made on basis of report of DVO was to be upheld
In course of assessment,
Assessing Officer referred matter to District Valuation Officer for estimating
cost of construction of hospital building on ground that account of assessee
had not been properly maintained. Subsequently, on basis of report of DVO,
assessment order was passed making certain additions. First Appellate Authority
and Tribunal sustained 25 per cent of addition. Assessee thus filed instant
appeal contending that since Assessing Officer had not specifically set aside
accounts maintained by assessee, matter could not be remitted to DVO and,
therefore, impugned order passed by Tribunal was perverse and arbitrary. It was
apparent from records that Tribunal had taken a specific view that matter was
referred to DVO only after it was found that account had not been properly
maintained which would necessarily mean that account of assessee had been
rejected and reference had been made by DVO. Moreover, Tribunal had already
given substantial relief to assessee by adding only 25 per cent of cost of
construction. In view of aforesaid, impugned order passed by Tribunal did not
require any interference. [In favour of revenue] (Related Assessment year ; 2001-02)
- [Indira Hospital Research & Diagnostic
Centre v. ACIT (2012) 208 Taxman 124 : 19 taxmann.com 130 (Karn.)]
Reference to DVO does not become invalid on completion of assessment
proceedings before receipt of valuation report - Such a valuation report
received after completion of assessment proceedings, would become part of
record and if any action is taken by departmental authorities on basis of such
a valuation report, same will be open to challenge by assessee - Writ petition was to
be dismissed
The assessee-company filed
its return declaring capital gains on sale of a land for certain consideration.
Thereafter, the assessee opted to take fair market value of land as on 01.04.1981
in place of original cost of acquisition and submitted revised computation on
basis of report of a registered valuer valuing said property as on 01.04.1981.
The Assessing Officer opined that revised valuation was on higher side and
referred the matter to the DVO. Since report was not received within time
stipulated for completing assessment proceedings, the Assessing Officer
completed assessment on basis of revised valuation and directed for
recomputation of capital gains on receipt of DVO’s report. Thereafter, the DVO
sent a notice to the assessee proposing to estimate fair market value of said
land at lower figure. Against said proposal, the assessee had filed the writ
petition to withdraw or cancel the impugned valuation proceedings. The main
contention of the assessee was that the reference made to the District
Valuation Officer was invalid once the assessment under section 143(3) was completed.
Held : A perusal and a
plain reading of section 55 shows the circumstances under which the Assessing
Officer may refer the valuation of the property to the DVO. The section can be
invoked by the Assessing Officer for ascertaining the fair market value of a
capital asset for the purpose of Chapter IV of the Act, which includes the
provisions relating to capital gains. Sections 45 to 55 fall under the Chapter,
under the sub-head 'E.- Capital Gains'. Section 55(2)(b)(i) gives the assessee
the option to substitute the fair market value of the property as on 01.04.1981
in the place of the cost of acquisition thereof, if the property had been
acquired by the assessee before 01.04.1981 The option given to the assessee was
exercised by it by filing the letter dated 18.11.2010 before the Assessing
Officer under which the original computation of the capital gains was sought to
be substituted by a revised computation in which the cost of the property was
taken at the fair market value as on 01.04.1981 on the basis of the registered
valuer's report. This letter was filed about 1.5 months before the date on
which the assessment would have become barred by time. The Assessing Officer
while examining the computation of the capital gains was of opinion that the
fair market value of the property as on 01.04.1981 was on the higher side and,
accordingly, referred the matter to the DVO, on 20.12.2010. In doing so, he was
only exercising his power under section 55A(b)(ii) under which he may refer the
valuation to the DVO if he considers it necessary to do so, having regard to
the nature of the asset and other relevant circumstances. The contention of the
assessee that the Assessing Officer had no basis to form the opinion is not
acceptable. The original computation of the capital gains as per the return
filed by the assessee was Rs. 130.19 crores as seen from the assessment order.
After the revised computation/modification of the capital gains was filed, the
figure of capital gains came down drastically to Rs. 14,07,16,551. There was,
thus, a reduction of approximately Rs. 116 crores in the computation of the
capital gains and this was significantly due to the claim that the fair market
value of the land as on 01.04.1981 was higher. It was on this basis that the
Assessing Officer took the view that the valuer's report filed by the assessee
showed the figure on higher side and came to the conclusion that the matter
should be referred to the DVO for valuation. The Assessing Officer obviously
had the registered valuer's report filed by the assessee before him. It cannot,
therefore, be said that he had no basis or material to form the opinion that a
reference ought to be made to the DVO. The reference was made before the
assessment order was passed and during the pendency of the assessment
proceedings. The contention of the assessee to the contrary is, therefore,
rejected.
There is no provision in
the Act which deals with the situation as to what would happen to a reference
made to the DVO under section 55A which is pending completion at the time of
passing the assessment order. Obviously, the assessment order cannot be
deferred in view of the limitation prescribed for passing the same. The report
of the DVO, as and when received by the Assessing Officer, may be acted upon by
the income tax authorities and if they do so, the validity of that action can
be questioned by the assessee on grounds which he may be advised to take.
Section 55A does not in terms create any bar on the DVO proceeding to value the
property on the basis of a valid reference made by the Assessing Officer. One
need not speculate as to what purpose the report of the DVO would serve if it
is received after the completion of the assessment. As already pointed out, if
any action is taken by the departmental authorities on the basis of the report
of the DVO received after the completion of the assessment, such action will be
open to challenge by the assessee and it is at that point of time that the
Court may be called upon to examine the validity of the action taken by the
revenue authorities. That stage has not yet arisen in the instant case. It is
in this behalf pointed out in the counter-affidavit that the reference to the
DVO does not become invalid on the completion of the assessment proceedings
before the receipt of the valuation report and that after the receipt of the
valuation report after completion of the assessment proceedings, the report
would become part of the record which may enable the income tax authorities to
take action as permissible under the Act, such as section 147, section 263,
appellate power under section 250 or section 251, etc.
In any case, it would not
be justified to prevent the Assessing Officer from collecting evidence which
may be used by him for the purpose of bringing to tax what in his opinion is
the proper amount of capital gains on the sale of concerned land. The assessee
would be at liberty to strain every nerve in opposing and challenging any
action sought to be taken by the Assessing Officer or any other departmental authority
under the Act, if and when such an action is taken. Thus, the writ petition was
to be dismissed. [In favour of revenue] (Related Assessment year : 2007-08) - [ACC
Ltd. v. District Valuation Officer (2012)
357 ITR 160 : 208 Taxman 397 : 21 taxmann.com 488 (Del.)]
Section 142A does not make any distinction between amount spent for investment purpose or stock-in-trade
Assessee invested certain amount in purchase of
property. In order to verify genuineness of investment, Assessing Officer
referred matter to DVO. Assessee raised an objection that since said property
formed its stock-in-trade, reference to DVO under section 142A was not
justified. Section 142A does not make any distinction between amount spent for
investment purpose or stock-in-trade. Since, in instant case, value of property
had not been disclosed fully by assessee in books of account, it was covered by
provisions of section 69B and, consequently, Assessing Officer was justified in
making reference under section 142A. [In favour of revenue] Assessment year
2003-04 – [Shagun
Buildwell Ltd. v. DCIT (2012) 49 SOT 91 : (2011) 16 taxmann.com 86 : 11 ITR(T)
273 (Del.)]
If vast difference between valuation done by DVO and that done by approved valuer was not taken note of, assessment order would be erroneous
During assessment proceedings for assessment
year 1984-85 it was found that assessee had made huge investments in
construction of a cinema building during assessment years 1978-79 to 1983-84. Matter
was referred for valuation to Departmental Valuation Officer who estimated cost
of same at Rs. 16.33 lakhs. During reassessment proceedings on basis of report
of an approved valuer assessee disclosed investment in cinema building at Rs.
6.58 lakhs. Assessing Officer passed assessment orders for these six years
taking total income of only Rs. 1.70 lakhs on agreed basis. On revision,
Commissioner held that there was non-application of mind on part of Assessing
Officer inasmuch as he failed to take note of vast difference between valuation
done by DVO and approved valuer. Consequently, he set aside assessment order
and directed Assessing Officer to pass fresh assessment order. On facts,
Commissioner was perfectly justified in setting aside assessment in exercise of
powers under section 263. [In favour of revenue] (Related Assessment years : 1978-79
to 1983-84) – [CIT v. Kamala Prasad Seth (2012) 207 Taxman 174 : 22 taxmann.com 23 (All.)]
Assessee constructed a new factory building, which was started in financial year 2003-04 and was completed during financial year 2005-06. During financial year 2004-05 relevant for assessment year 2005-06, assessee had shown investment to factory building amounting to Rs. 1,04,41,314. Further, registered valuer of assessee had estimated cost of construction for entire building at Rs. 2,38,28,993 as against Rs. 2,32,51,710 shown by assessee in books of account. Assessing Officer made a reference under section 142A to Departmental Valuation Officer (DVO) for valuation of factory building. DVO estimated cost of construction for entire building at Rs. 4,29,16,000. Thereupon assessee filed report of another registered valuer and also filed his comments on report of DVO. He also raised legal objections against referring valuation to DVO under section 142A. Assessing Officer held that reference to valuation cell was legally valid. Assessing Officer further estimated cost of construction of factory building during financial year 2004-05 at Rs. 1,78,26,300 as against Rs. 1,04,41,341 shown by assessee. Commissioner (Appeals) held that cost of construction of factory building for year under consideration as recorded in books of account of assessee was to be accepted. Since (i) order of Assessing Officer clearly suggested that vouchers as maintained by assessee were not correct or complete, (ii) cost of construction for factory building as given by two registered valuers of assessee was different as compared to cost of construction shown by assessee, and (iii) DVO had clearly pointed out that valuation report as made by first registered valuer of assessee was not correct and complete, Assessing Officer was justified in referring valuation to valuation cell. Since (i) estimate as done by DVO was not acceptable and addition could not be made only on basis of DVO’s report and (ii) assessee had not fully explained defects pointed out by DVO that less quantity of cement and steel had been shown by assessee, estimate of cost of construction in respect of building was to be taken at Rs. 2.45 crores as against Rs. 2,32,51,711 shown by assessee. (Related Assessment year : 2005-06) – [DCIT, Jaipur v. Abdul Latif (2011) 138 TTJ 216 : 130 ITD 255 (ITAT Jaipur)]
Merely because section 44A nowhere provides that books of account maintained by a professional must be based on valuation report of technically qualified person, it would not mean that whatever has been shown by assessee in his/her books of account must be taken as a gospel truth - Assessing Officer, after inspecting building where assessee herself had admitted that accounts maintained by her were not complete and Rs. 5 lakh more might have been spent in construction of building, rightly decided to get value of building assessed through Departmental Valuation Officer
In her return of income for
the relevant assessment year, the assessee, a medical professional, had shown
an investment of Rs. 26.99 lakh on a newly constructed building which was being
used for her professional activities. The assessee had maintained books of
account under section 44A. The Assessing Officer found that the claim of
investment was not supported with sufficient proof and, therefore, he got the
value of the building assessed by the Departmental Valuation Officer. The
valuation report showed that the value of the building was much more than shown
by the assessee. The Assessing Officer treated the amount of difference between
the value assessed by the DVO and the value shown by the assessee as an
additional investment from undisclosed sources under section 69 and made
addition accordingly. The Commissioner (Appeals) dismissed the assessee's
appeal. On further appeal, the Tribunal reduced additions to certain extent.
On appeal to the High
Court, the assessee contended that she was not required under any law to get
the constructions valued from technically qualified persons and, as such, the
value of construction shown in her books of account should have been accepted
by the authorities; and that the Tribunal had erred, in law, in accepting
valuation got done by the revenue without rejecting books of account submitted
by her.
Held : It is
true that section 44A nowhere provides that books of account maintained by
medical professionals and other professionals, must be based on valuation
report of technically qualified persons. However, that does not mean that
whatever has been shown by the assessee must be taken as a gospel truth. Though
the assessee was right in contending that the Assessing Officer could not have
recorded statement of the assessee on oath, yet once the fact that low
investment was shown by the assessee had come to the knowledge of the Assessing
Officer, whether it came through the assessee’s admission on oath or otherwise,
satisfaction of the Assessing Officer to invite the Departmental Valuation
Officer could not be said to be illegal or unjust. As far as the contention of
relying on the report of the Valuation Officer without rejecting the books of
account produced by the assessee was concerned, the same was liable to be
rejected not only for the reason that the assessee herself had admitted at the
spot that the accounts were not complete, but the valuation report had also
corroborated the said fact. The rejection of the books of account stood
implied. Therefore, the order of the Tribunal was to be upheld and the
assessee's appeal was to be dismissed. (Related Assessment
year : 2002-03) - [Smt. Kiran Lata v. ITAT (2009) 318 ITR 44 :
177 Taxman 420 (Uttaranchal)]
There were circumstances that warranted estimation of cost of construction of property-in-question by reference to an expert
The reference to the DVO was found to have been made in the backdrop of the fact that at the time of survey under section 133A, the books of account of the assessee were not complete. In the return of income filed, the assessee nowhere indicated that the books of account for consideration had been maintained by him nor that the balance sheet enclosed with the return of income was shown to have been drawn from the books of account maintained, if any. The balance sheet itself showed that there was a difference of certain amount for which no reconciliation statement or explanation was found laid on record. There were, thus, circumstances that warranted estimation of cost of construction by reference to an expert. The overall perusal of facts and the amended provisions brought into statute by inserting section 142A revealed that the assessing authority acted within his competence and made a valid reference within the scope of powers vested in him. The Commissioner (Appeals) was, thus, found to have misdirected himself in annulling the reference and thereby erred in deleting the addition as such. His decision on that count, was, therefore, to be set aside. In the result the appeal of the revenue was to be allowed. (Related Assessment year : 2005-06) – [ITO v. Balram Jhanwar (2009) 123 TTJ 717 : (2010) 35 SOT 6 (URO) (ITAT Jodhpur)]
Assessing Officer made
addition on basis of difference between cost of construction determined by
Valuation Officer and that declared by assessee - Commissioner (Appeals)
accepting assessee’s submission that Valuation Officer had estimated cost of
construction on basis of CPWD rates and had ignored local PWD rates, granted
deduction of 201 per cent from cost so determined by Valuation Officer -
Tribunal accepted view taken by Commissioner (Appeals) - Tribunal was justified
The assessee constructed a
house and declared the cost of construction of the same. However, the Assessing
Officer referred the matter to valuation cell and the Valuation Officer (DVO)
determined the cost at a much higher figure than that declared by the assessee.
The Assessing Officer made addition on the basis of difference in the cost of
construction determined by the Valuation Officer and that declared by the
assessee. On appeal, the Commissioner (Appeals) accepting the assessee's
contention that the DVO had estimated the cost on CPWD rates basis by ignoring
the local PWD rates, reduced the addition by granting 20 per cent deduction in
the cost so determined by the DVO. On second appeal, the assessee contended
that the Assessing Officer was not entitled to reject the books of account and
refer the matter to the DVO. The Tribunal found that the Assessing Officer had
already pointed out that the assessee had not maintained proper details for
expenses relating to construction and had maintained only self-made vouchers
and no supporting vouchers were available for such expenses and under these
circumstances, he in order to find out the real value of cost of construction,
referred the matter to the DVO and made addition. The Tribunal, accordingly,
upheld the order of Commissioner (Appeals). On appeal :
There was no evidence
available in any manner regarding the cost of construction and, therefore, in
order to find out the real value of cost of construction, the Assessing Officer
adopted such course. On the basis of same, even the Commissioner (Appeals)
upheld the only contention raised by the assessee in connection with granting
20 per cent deduction from total value of cost of construction as estimated by
the DVO. In fact, the only argument which was canvassed by the assessee before
the Commissioner (Appeals) was in connection with the valuation on the basis of
CPWD rates. The Commissioner (Appeals) accepted the said submission and 20 per
cent deduction was also granted. Against the order of the Commissioner
(Appeals), even the revenue had also preferred appeals as the revenue was not
satisfied with the said order in connection with granting deduction of 20 per
cent in the cost of construction.
The Commissioner (Appeals)
had categorically found that the only point which was argued by the assessee
was taken into consideration and the relief as prayed for by the assessee
before the Commissioner (Appeals) was granted by the Commissioner (Appeals). It
is true that before the Tribunal, the assessee can raise question of law for
the first time, i.e., question of law can be raised at any stage. However, when
on finding of fact, the appellate authority as well as the Tribunal had found
that valuation made on the basis of giving deduction of 20 per cent from the
valuation made by the DVO was the correct valuation and such finding of fact
could not be disturbed by the Court as the instant tax appeal could be
entertained only on a substantial question of law.
The question of valuation
is essentially a question of fact and that finding had been properly given by
the lower authorities by giving cogent reasons. There was no reason to take a
different view in the matter. The impugned orders did not suffer from any
infirmity. No question of law much less any substantial question of law would
arise for the determination of the Court as the Commissioner (Appeals) had
decided the appeals on the basis of evidence and material on record and on the
basis of submission of the assessee before it. It had taken just and proper
decision. In fact, the revenue which was also aggrieved by the said decision
had challenged the same and the Tribunal dismissed the appeals of the revenue
by accepting the view taken by the Commissioner (Appeals). Considering the
aforesaid aspect of the matter as well as considering the question regarding
consistency in the orders in connection with the same assessee, in view of
dismissal of revenue's appeals and upholding the decision of the Commissioner
(Appeals) as well as considering the fact that the finding arrived at by the
Commissioner (Appeals) as well as the Tribunal was a finding of fact, no
interference of the High Court was called for in the instant appeal. Accordingly,
the appeal was to be dismissed. (Related Assessment year : 1995-96) - [Smt. Prem Kumari Mudria v. ACIT (2008) 303 ITR 128 : 211
CTR 500 : 166 Taxman 1 (Raj.)]
Order of Department
Valuation Officer (DVO) is binding upon WTO and WTO has no discretion to ignore
or disregard order of DVO, and if he does so, then assessment made by him
without taking into account estimate made by DVO cannot be a legally correct
order - Held, yes - Whether since assessment order passed was found to be not
in conformity with order of DVO, said order was rightly held by Commissioner to
be erroneous and prejudicial to interests of revenue - Held, yes
In his wealth-tax return,
the assessee included value of an immovable property. The assessment under
section 16(3) was completed. The value of the said property was determined by
the WTO at Rs. 16,50,000 on estimate basis. Before completion of the assessment
the WTO had referred the valuation of the said property to the DVO who had
determined the value of the property at Rs. 34,25,000. Since the WTO did not
accept the valuation determined by the DVO but adopted the value at Rs.
16,50,000 on estimate basis, the Commissioner was of the view that the
assessment order was not in conformity with the statutory provisions contained
under section 16A(6). He, accordingly, held that since the WTO had not taken
into consideration the report of the DVO while determining the value of the
property in question, the order of the WTO was erroneous and prejudicial to the
interests of the revenue. He directed the WTO to modify the valuation of the
said property. On appeal :
Held : After considering
the relevant material including the reply of the assessee, the value of the
property was determined at Rs. 34,25,000 by the DVO. Since the WTO had made
reference to the DVO under section 16A for the assessment year under consideration,
it was incumbent upon him to have considered the report of the said DVO which
was relevant for the assessment year in question. He had totally ignored the
report of the DVO and had placed reliance on the report of the DVO for earlier
assessment year to suit his purpose. He had not assigned any reason for his
option. That approach was legally erroneous and patently faulty. The DVO passed
order after following the procedure laid down in section 16A, and the
assessment was to be completed in conformity with the estimate of the DVO in
view of section 16A(6). Therefore, the WTO cannot ignore or disregard the order
of the DVO and if he does so, then the assessment made by the WTO without
taking into account the estimate made by the DVO cannot be a legally correct
order. In the instant case, the legal error had been committed by the WTO who
had totally overlooked the order of the DVO. The order of the DVO is binding
upon the WTO who has to adopt the same in the assessment order. This is because
the DVO has to follow entire procedure which is laid down for passing a
judicial order, i.e., he has to consider the objections of the assessee and has
also to provide him opportunity of being heard and thereafter only he has to
pass the order for estimating the value of the asset. In view of the process
involved in passing the order by the DVO, the WTO has no discretion to ignore
the order so passed. In the instant case also, that procedure had been followed
by the DVO. The Commissioner found the assessment order erroneous and
prejudicial to the interests of the revenue because it was not in conformity
with the order of the DVO. The Assessing Officer had, thus, given a go-bye to
the provisions contained in section 16A(6) and the Commissioner on examination
on his part found that error manifest on record. Thus, the order of the WTO was
rightly held to be erroneous as well as prejudicial to the interests of the
revenue. Every assessment year is a separate assessment year, and the order of
the Tribunal for the assessment year 1987-88 could not be held to be binding
for the assessment year 1988-89, particularly when the facts were also
distinguishable. Otherwise also the correctness of the estimate made by the DVO
in the case of the assessee for that assessment year could not be decided in
the year in question. Therefore, there was no error in the order of the
Commissioner as he had considered the entire relevant material and had passed a
detailed and speaking order after providing opportunity of hearing to the
assessee. The impugned order of the Commissioner was, thus, to be upheld and
the assessee’s appeal was to be dismissed. (Related Assessment year : 1988-89)
- [Gulab Singh v. ACIT (2004) 89 ITD 510 (ITAT Delhi)]
All authorities found that books of account were not properly maintained by assessee - Assessing Officer referred matter to DVO and adopted value fixed by DVO for making addition - First appellate authority fixed value by adopting average of cost of construction reported by assessee and cost reported by DVO - That was accepted by Tribunal also - Since no question of law arose from finding so arrived at by Tribunal, appeals were liable to be dismissed
The assessee constructed a commercial building. It had shown the cost of
construction at Rs. 19,29,051 at the time of assessment. The Assessing Officer
did not accept the accounts maintained by the assessee in respect of the cost
of construction and referred the matter for valuation by the Departmental
Valuer. The Departmental Valuer reported that the cost of construction came to
Rs. 29,83,400. The Assessing Officer adopted that report and the difference of
Rs. 10,54,359 was treated as unexplained investment in the building. On appeal,
the Commissioner (Appeals) modified the cost of construction to Rs. 24,67,590
which represented the average of the cost fixed by the Departmental Valuer and
cost furnished by the assessee. Further appeal filed by assessee was dismissed
by the Tribunal and the order of the Commissioner (Appeals) was confirmed. On
appeal :
Once the regular books of
account of the assessee are rejected, it is for the assessing authority to
estimate the cost of construction of the commercial complex. It was in those
circumstances that the assessing authority had referred the matter to the
Departmental Valuer and the assessing authority had determined the cost of
construction at the figure reported by the said valuer. The assessee got relief
from the first appellate authority and the Tribunal confirmed the same.
Admittedly, the assessee had not shown any payment of supervision charges,
transportation charges, etc., in the accounts. All the authorities had found
that the books of account were not properly maintained. The valuation report
submitted by the assessee also diferred. The first appellate authority found
that the valuation report of the assessee and the Departmental Valuer could not
be sustained and took the average of both, which method was accepted by the
Tribunal also. The High Court was unable to find out any question of law
arising from the finding so arrived at by the Tribunal. No other points were
raised for consideration in these appeals. There was no merit in these appeals.
These three appeals were, accordingly, dismissed. – [Capricon Shopping Complex v. CIT (2003) 260
ITR 647 : 180 CTR 54 : 127 Taxman 230 (Ker.)]
Even though report of DVO cannot be made the sole basis for initiating
action under section 147, read with section 148, it can certainly be considered
with other facts for forming belief that income of assessee has escaped
assessment
The objection of the petitioner regarding collection of information and
reference to valuation cell was baseless in view of sub-section (1A) of section
131 which authorises the issuing of commissions. So in view of aforesaid
provisions, there was no illegality or infirmity in referring the matter
regarding the valuation of property to the DVO by respondent No. 2 which he was
authorised to do so, notwithstanding that no proceedings with respect to the
above person were pending before him or any other income-tax authority. It was
further wrong to allege that the petitioner had disclosed all the facts. The case
in hand was not a case of change of opinion. Concealment of income was clearly
established in the instant case when the fact of unexplained investment in
building was found. Notices under section 148 had been issued in the instant
case after recording reasons. It was wrong to allege that the action was in any
way unjurisdictional or mala fide.
It was an undisputed position that after having got information about
the loan obtained by the petitioner from the Haryana Financial Corporation,
respondent No. 2 confronted Dr. G with the said information and called upon him
to furnish details and the source of investment on assets pledged with the
Corporation. Thereafter, a detailed investigation was made into the valuation
of the land and building of the nursing home. He then issued notices to Dr. G
under section 147, who responded to the same by asserting that the building did
not belong to him. Respondent No. 2 accepted his version and filed the notice.
Simultaneously, he issued the impugned notices to the petitioner. While doing
so respondent No. 2 took into consideration the report of the DVO and the fact
that the assessee had not offered any explanation about the difference in the
valuation projected by it and the report of the DVO and further that the income-tax
returns had not been filed for the years 1993-94 and 1994-95. On the basis of
this material, he formed the belief that it was a case of escaped assessment.
Even though the report of the DVO could not be made the sole basis for
initiating action under section 147, read with section 148, it could certainly
be considered with other facts for forming the belief that the income of the
assessee had escaped assessment and, in the facts of the present case, it was
not possible to hold that the belief formed by respondent No. 2 was not based
on any material whatsoever. The plea of the petitioner that the notices should
be declared as barred by limitation which appeared to be based on the language
of the first proviso to section 147 merited rejection; its case was fully
covered by section 149(1) (b) (ii) and (iii) which prescribes limitation of
seven years for initiation of action under section 147 in a case like the
present one. On the basis of the above conclusion, it was to be held that the
impugned notices did not suffer from any jurisdictional or legal infirmity
which might justify interference by the High Court under article 226 of the
Constitution. (Related Assessment years : 1993-94 to 1995-96) – [Grover Nursing Home v. ITO (2001) 248 ITR 493 : 119
Taxman 830 (P&H)]
During the assessment year
1977-78, the assessee-firm constructed a cinema theatre and showed cost of
construction at Rs. 20,28,498. The Assessing Officer referred the matter to DVO
who could not submit his report by 31.03.1980, i.e., before expiry of
time-limit to complete assessment. The assessment order was passed accepting
the valuation mentioned by the assessee. Thereafter on 16.12.1980, the DVO
submitted the report wherein the cost of construction was shown at Rs.
34,58,600. The Commissioner, therefore, issued notice under section 263(1) to
the assessee. The assessee submitted before the Commissioner that the valuation
report was not available on the record of the Assessing Officer at the time of
passing the assessment and, thus, it could not be a valid basis for initiating
an action under section 263. The Commissioner, however, rejected it on the
ground that the 'record' would include all records available at the time of
examination by him. On appeal, the Tribunal accepted the view of the assessee
and that was upheld by the High Court. On appeal to the Supreme Court:
It could not be said that
the correct and settled legal position, with respect to the meaning of the word
'record' till 01.06.1988, was that it meant the record which was available to
the Assessing Officer at the time of passing of the assessment order. Further,
such a narrow interpretation of the word 'record' was not justified, in view of
the object of the provision and the nature and scope of the power conferred
upon the Commissioner. The revisional power conferred on the Commissioner under
section 263 is of wide amplitude. It enables the Commissioner to call for and
examine the record of any proceeding under the Act. It empowers the
Commissioner to make or cause to be made such enquiry as he deems necessary in
order to find out if any order passed by the Assessing Officer is erroneous
insofar as it is prejudicial to the interests of the revenue. After examining
the record and after making or causing to be made an enquiry if he considers
the order to be erroneous then he can pass the order thereon as the
circumstances of the case justify. Obviously, as a result of the enquiry he may
come in possession of new material and he would be entitled to take that new
material into account. If the material, which was not available to the
Assessing Officer when he made the assessment could, thus, be taken into
consideration by the Commissioner after holding an enquiry, there is no reason
why the material which had already come on record though subsequently to the
making of the assessment cannot be taken into consideration by him. Moreover,
in view of the clear words used in clause (b) of the Explanation to section
263(1), it has to be held that while calling for and examining the record of
any proceeding under section 263(1) it is and it was open to the Commissioner
not only to consider the record of that proceeding but also the record relating
to that proceeding available to him at the time of examination. Therefore, in
the instant case, it was open to the Commissioner to take into consideration
all the records available at the time of examination by him and, thus, to
consider the valuation report submitted by the DVO subsequent to the passing of
the assessment order and so, the order passed by him was legal. (Related Assessment
year : 1977-78) - [CIT v. Shree Manjunathesware Packing Products & Camphor Works
(1998) 231 ITR 53 : 96 Taxman 1 : (1997) 143 CTR 406 (SC)]
Unless Valuation Officer sends his report, there is no bar to Assessing
Officer's completing assessments taking value of asset referred for valuation
in best possible method he can take in limiting circumstances of situation - ITO
found that report of registered valuer was unacceptable - He referred matter to
DVO who could not determine cost of assets in absence of inspection of assets -
Mere fact that reference was made under section 55A would not operate as bar
against estimation of value by ITO himself when report of DVO was not
forthcoming - ITO was justified in adopting book value of assets after setting
off depreciation against inflation in price - Therefore, assessee could not get
away with not paying any tax on capital gains taking advantage of DVO’s
pratical barrier to reporting value
Section 45 - Capital gains - Chargeable as - In any case, in the instant
case, there was no evidence to show that the assets were really brand new
assets on 01.01.1954, as claimed by the assessee. Repairs and renewals appeared
to have been effected as evident from the revenue expenditure incurred. But
that could not lead one to the conclusion that the assets were in a condition
comparable to brand new assets. In point of fact, it had not been contested
that a large part of the assets had been in use since 1937 and in 1954, the
addition was only to the extent of Rs. 9,54,654 as against old assets worth Rs.
51,77,936. It could be said that only 20 per cent of the assets in question
could be said to be new assets in 1954. The rest 80 per cent of the assets were
in use prior to 1954.
The absurdity of the valuation of the assessee’s value is palpable. As a
matter of fact, the period of 1970 was a period marked by a general trend of
rising prices of building materials, iron scrap, etc. There being no dispute
about the fairness of the price of Rs. 1,46,30,900 in 1970 a process of
backtracking the inflation rate year by year would quite probably show the same
figure as adopted by the ITO for the value in 1954 as Rs. 68,41,397. Thus,
there was an increase in the value between the years 1954 and 1957 by Rs.
77,89,503. This would give the average rate of inflation at 4.5 per cent. The
rate of inflation could not be said to be unreasonably reckoned. The ITO had
not committed an error in rejecting the report of the assessee's valuer. There
were sufficient reasons for rejecting the said report. The determination of the
value of the assets as on 01.01.1954, at a figure higher than the sale proceeds
of the year 1970 was unsupportable. In fact, if the cost of acquisition would
have to be taken on the basis that the assets were subjected to depreciation,
in that case, the cost of acquisition of the assets as reduced by the annual
depreciation since the date of acquisition or, in other words, the written down
value of the assets as on 01.01.1954, and not the price of the assets as brand
new assets would be the cost of acquisition. The basis that the ITO had taken
was a reasonable basis not assailable as unrealistic or totally opposed to the
economic realities. Even the fact that the assets were kept in an excellent
state of repair as claimed by the assessee was not of much consequence so long
as it could not be denied that, by the user of the assets for about 80 years,
the longevity or effective life of the assets got materially exhausted. Of
course, there were some machineries which were new in 1954, but they accounted
for a mere 20 per cent of the total assets. So, that fact was also of little
consequence and did not detract from the merits of the estimate adopted by the
Assessing Officer. There was also the question of inflation and the contrary
force of depreciation the two opposites pulling on the price of the assets were
quite reasonably assumed to be neutralizing in effect. So the adoption of the
book value as on 01.01.1954, was quite a rational approach. In fact, if the
assets were really subjected to depreciation, in that event, one would have
directed the Assessing Officer to adopt the written down value of the assets as
on 01.01.1954, as the value of the assets on that date. In fact, there are
decisions to the effect that, in the case of determining the capital gains of a
depreciable asset, in the event of its transfer, the cost of acquisition when
requiring advancement to the date as on 1-1-1954, it is the written down value
of the assets on that date which is to be taken and not be market value of the
same assets as new assets could be such value. Therefore, the ITO correctly
estimated the cost of acquisition as on 01.01.1954, by setting off depreciation
against inflation in the price and thereby taking the book value (purchase
price) of the said assets as their cost of acquisition on 01.01.1954. (Related Assessment
year : 1972-73) – [Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. v. CIT
(1994)
208 ITR 882 (Cal.)]
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