Ita/1302/2006 Of The Commissioner Of Income Tax v. Sri M Nagaraja

IN THE HIGH COURT OF KARNATAKA AT BANGALOREDATED THIS THER 13 DAY OF AUGUST 2012PRESENT THR HON'BLE MR.JUSTICK K.SRBEBDHAR RA ANT THR HON'BLE MR. JUSTICK B.MANOHAR ITA.NO.1302/2006 & ITA.NO.1304/2006 ITA.NO.1302 /200 BETWEEN: 1.THE COMMISSIONER OF INCOME TAX,NO.959/1, SHILPASHREEVIDYARANYA COMPLEX,VISWESHWARAPURAM,MYSORKENO.959/1, SHILPASHREEVIDYARANYA COMPLEX,VISWESHWARAPURAM,MYSORKE 2.THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE - 2 (1),NO.55/1, SHILPASHREE,VIDYARANYA COMPLEX,VISWESHWARAPURAM,MYSORK._ APPBRLLANCIRCLE - 2 (1),NO.55/1, SHILPASHREE,VIDYARANYA COMPLEX,VISWESHWARAPURAM,MYSORK._ APPBRLLAN _ APPBRLLAN (BY SRIL.E.SANMATHI, ADV ANT) SRIL.M.NAGARAJAM/S.NAGEETHA COMPLEX,DOUBLE ROAD, SARASAWATHIPURAM,MYSORE. .... RESPONDE (BY SRI.B.S.RAGHUPRASAD, ADV) ITA FILED U/S. 260-A OF I.T.ACT 1961 ARISING OUTOFORDERDATEHD21-04-2006PASSEDINITA.NO.719/BANG/2005 FOR THE ASSESSMENT YEARS1998-99, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND TO ALLOWTHR APPBAL AND SET ASIDE THR ORDER PASSBD BY THEITAT, BANGALORE IN ITA.NO.719/BANG/2005 DATED 21-04-2006 AND CONFIRM THR ORDER PASSED BY THEAPPEBELLATK COMMISSIONER CONFIRMING THR ORDPASED BY THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE -2 (1), MYSORE, IN THE INTEREST OF JUSTICEAND EQUITY. ITA NO.1304/2006 BETWEEN: 1.THE COMMISSIONER OF INCOME TAX,NO.595/1, SHILPASHREEVIDYARANYA COMPLEX,VISWESHWARAPURAM,MYSORKH 2.THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE —- 2 (1)NO.99/1, SHILPASHREE,VIDYARANYA COMPLEX,VISWESHWARAPURAM,MYSORE... APPELLAN (BY SRIL.E.SANMATHI, ADV AND: SRIL.M.NAGARAJAM/S.NAGEETHA COMPLEX,DOUBLE ROAD,SARASAWATHIPURAM,MYSORE. .... RESPONDE (BY SRI.B.S.RAGHUPRASAD, ADV) ITA FILED U/S. 260-A OF I.T.ACT 1961 ARISING OUTOFORDERDATEHD21-04-2006PASSEDINITA.NO.793/BANG/2005 FOR THE ASSESSMENT YEAR1999-00, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND TO ALLOWTHE APPEAL AND SET ASIDE THR ORDER PASSED BY THEITAT, BANGALORE IN ITA.NO.793/BANG/2005 DATED 21-04-2006 AND CONFIRM THR ORDER OF THR APPBKLLATCOMMISSIONER CONFIRMING THR ORDER PASED BY THEDEPUTY COMMISSIONER OF INCOME TAX, CIRCLE —2 (1),MYSORE, IN THE INTEREST OF JUSTICE AND EQUITY. THESE J[TA’S ARB HAVING BEBN HRBARD ARESKBRVED AND COMING ON FOR PRONOUNCKMENT OJUDGEMENT THIS DAY,B.MANOHAR J.,DBLIVERED THRRKOLLOWING JUDGMENT These appeals are filed by the revenue being aggrievedby the order dated 21.04.2006 passed by the Income TaxAppellate Tribunal, Bangalore Bench-B in ITA Nos.719 and793/Bang/20095 confirming the order passed by thCommissioner of Income Tax (Appeals) (CIT (Appeals) forshort) dated 21-02-2005. a2These appeals are admitted on the following substantial questions of law: ITA.NO. 1302/200 “Whether the Tribunal was right in holdingthat the reference made by the Assessingofficertothe|Districtvaluationofficerregardingdeterminationof|COST.ofconstruction of|assessee’s complexLWWwithout jurisdiction, in view of decision of theSupreme Court, reported in 262 ITR 407 andalso under the provisions of section 142(A) ofthe Income Tax Act, inserted by the FinanceAct of 2004 with retrospective effect from)-.)).)/("0 ITA NO.1304/2006 ).Whether the Appellate Tribunal was right inholding that the reference made by theAssessing Officer to the District Valuationofficer for determination of cost of constructionof Nageetha Complex without jurisdiction inview of the provision of Sec.142-A of the Actwhich was inserted by the Finance Act, 2004with retrospective effect from 15.11.1972 andJudgment of the Apex Court?holding that the reference made by theAssessing Officer to the District Valuationofficer for determination of cost of constructionof Nageetha Complex without jurisdiction inview of the provision of Sec.142-A of the Actwhich was inserted by the Finance Act, 2004with retrospective effect from 15.11.1972 andJudgment of the Apex Court? ITA NO.1304/2006 ).Whether the Appellate Tribunal was right inholding that the reference made by theAssessing Officer to the District Valuationofficer for determination of cost of constructionof Nageetha Complex without jurisdiction inview of the provision of Sec.142-A of the Actwhich was inserted by the Finance Act, 2004with retrospective effect from 15.11.1972 andJudgment of the Apex Court?holding that the reference made by theAssessing Officer to the District Valuationofficer for determination of cost of constructionof Nageetha Complex without jurisdiction inview of the provision of Sec.142-A of the Actwhich was inserted by the Finance Act, 2004with retrospective effect from 15.11.1972 andJudgment of the Apex Court? ".Whether the Tribunal was right in holdingthat before referring to the District Valuationofficer, the books of accounts, bills vouchers,etc., was not requisitioned and the conclusionthat the same was not reliable had beenarrived at by the assessing Officer when infact, on the requisition made by the Assessingthat before referring to the District Valuationofficer, the books of accounts, bills vouchers,etc., was not requisitioned and the conclusionthat the same was not reliable had beenarrived at by the assessing Officer when infact, on the requisition made by the Assessing Officer the assessee failed to produce thesedocuments and consequently, the findingrecorded by the Tribunal is perverse.r 3,The respondent-assessee is a Civil Contractor byprofession. He filed return of income for the assessmentyears 1998-1999 and 1999-2000. A survey was conductedon 7-1-1999 and the Assessing Officer found that theassessee has constructed a commercial complex and it wascompleted in three years from 1998-1999 to 2000-2001. Theassessee has admitted that the cost of construction of thecommercial building is Rs.1,/72,98,255/-. The AssessingOfficer not found favored with the cost of construction givenby the assessee referred the matter to the District ValuationOfficer to estimate the cost of construction under Section55-A of the Act. The District Valuation Officer assessed thecost of construction of the building at Rs.2,61,94,033/-. TheAssessing Officer worked out the difference amount shownby the assessee and the estimation by the District ValuationOfficer in a sum of Rs.88,95,825/-. This was spread over tothree assessment years. For the assessment year 1998-1999the difference was taken as Rs.30,20,722/- and for the assessment year 1999-2000 at Rs.29,07,287/- which wasadded to the income of the assessee for the assessment yearsunder the appeals as unexplained income invested in thecost of construction. Being aggrieved by the assessment ofincome made by the Assessing Officer, the assessee preferredappealsbefore|theCIT.(Appeals),Mysore1nNITANos.1200/Mys/CIT(A)/03-04 and 1752/Mys/CIT(A)/04-O5.The CIT (Appeals), Mysore dismissed the appeals. Beingagerieved by the same, the assessee preferred appeals beforethe Income Tax Appellate Tribunal, Bangalore, mainlycontending that in view of the law laid down by the ApexCourt in a decision reported in (2003)262 ITR 407 in thecase of SMT.AMIYA BALA PAUL v/s COMMISSIONER OFINCOME TAX that a Valuation Officer appointed under theWealth Tax Act can discharge the function within thestatutory limits under which he was appointed. It is notopen to a Valuation Officer to Act in his capacity as aValuation Officer under the Income Tax Act. Referring thematter to the District Valuation Officer by the AssessingOfficer is contrary to law. The Appellate Tribunal after considering the matter and relying upon the judgment of theHon'ble Supreme Court cited supra allowed the appeal andset aside the determination of market value of the building.Being aggrieved by the same, the revenue has preferredthese two appeals. considering the matter and relying upon the judgment of theHon'ble Supreme Court cited supra allowed the appeal andset aside the determination of market value of the building.Being aggrieved by the same, the revenue has preferredthese two appeals. 4ori.E.I.Sanmathi, learned Advocate appearing for theappellants contended that the order passed by the AppellateTribunal is contrary to law. The judgment relied upon by theassessee is not applicable in view of the amendment made tothe Income Tax Act incorporating new Section 142-A of theIncome Tax Act in Finance Act No.2/2004 w.e.f. 15-11-1972.The assessee himself admitted that he has spent sum oiRs.1,72,98,255/- for construction of the commercial complexfrom the assessment year 1998-1999 to 2000-2001, whereasthe District Valuation Officer after inspecting the buildingreported the valuation of the construction of the building atRs.2,61,94,033/-. The difference amount was brought totax. Further the assessee has not produced any documentto show as to how much expenditure he has incurred forconstruction of the building. In the absence of the same, the Assessing Officer after getting the report from the DistrictValuation Officer has assessed value of the building. Thereis no infirmity in the order passed by the AssessingAuthority as well as the CIT (Appeals) and sought for settingaside the order passed by the Appellate Tribunal. 5.On the other hand, sSri.B.S.Raghu Prasad, learnecounsel appearing for the respondent-assessee contendedthat there is no infirmity or irregularity in the order passedby the Appellate Tribunal. Further, Section oo-A of theIncome Tax Act deals with the capital gain for the purpose ofassessing the fair market value of the capital assets inconnection with the computation of the capital gain. Itincorporates several provisions relating to the ValuationOfficer in the Wealth Jax Act. The Valuation Officerappointed under the Wealth Tax Act can discharge hisfunction within the statutory limits under which he wasappointed. It is not open to the Valuation Officer to act inhis capacity as a Valuation Officer. He also relied upon thefollowing paragraph of the judgment reported in (2003) 262ITR 407 (supra); JIn an assessment of the assessee to theincome tax, the Assessing Officer cannot refer tothe Valuation Officer the question of cost ofconstruction of a House property built by theassessee : section 55-A of the Income Tax Act,1961, can have no application to such a matter.The power of the Assessing Officer under SectionIS1(1) and 133/(6) ts distinct from and does noinclude the power to refer a matter to theValuation Officer under section 55-A. A report ofthe Valuation Officer under section 55-A may beconsidered by the Assessing Officer as a piece ofevidence if it is relevant. However, the power ofinquiry granted to an Assessing Officer undersection 1335(6) and 142(2) does not include poweto refer the matter to the Valuation Officer for anenquiry by the latter.” Hence, the reliance placed on the Valuation report by theAssessing Authority is contrary to law. 6.Further, the Valuation Officer relying upon the CPWDrates has taken into consideration the plinth area to valuethe building. Usually for valuation of the building, the DSRrates and PWD procedure will be followed. The cost of thematerials was not taken into consideration. Atter valuationof the building, more than three years has been taken tocomplete the construction of the building. In the meantime,the building was leased to the tenant and tenant has put up a partition wall and flooring, which suits to his convenience.After receipt of report from the Valuation Officer, the samewas made available to the assessee and the assessee hasfiled detailed objections to the said report. Without gettingClarification from the District Valuation Officer regarding theobjections filed by the assessee, the Assessing Officer hasproceeded to fix the value of the building, which is contraryto law and sought for dismissal of the appeals. a partition wall and flooring, which suits to his convenience.After receipt of report from the Valuation Officer, the samewas made available to the assessee and the assessee hasfiled detailed objections to the said report. Without gettingClarification from the District Valuation Officer regarding theobjections filed by the assessee, the Assessing Officer hasproceeded to fix the value of the building, which is contraryto law and sought for dismissal of the appeals. T We have carefully considered the arguments addressedby the learned counsel for the parties and perused the ordersimpugned. 8.It is not in dispute that the assessee had constructedthe building in question during the assessment years 1998-1999 to 2000-2001. The Assessing Officer during surveynoticed the construction of building. During the enquiry, theaSSe€@SSEhasadmitted theCOST.oT construction43Rs.1,72,98,255/-. The Assessing Officer not agreeing withthe assessee referred the matter to the District ValuationOfficer to estimate the cost of construction. The District Valuation Officer estimated the value of building atRs.2,61,54,033/-. The assessee filed objections to theestimation of the valuation of the building. The AssessingOfficer addressed a letter to the District Valuation Officer toclarify the objections raised by the assessee. However, theDistrict Valuation Officer has not submitted his reply to theobjections raised. In view of that, the estimated value of thebuilding submitted by the District Valuation Officer has beentaken into consideration and called upon the assessee to paythe additional tax. The appeal filed by the assessee wasdismissed by the CIT (Appeals). However, Income TaxAppellate Tribunal allowed the appeal filed by the assesseesolely on the ground that the Assessing Authority cannotrely upon the Valuation Report submitted by the DistrictValuation Officer under Section 55-A ot the Act and thevaluation has been done in CPWD rates. The valuationtaken by the Assessing Officer is at a higher rate comparedto the DSR rates fixed by the PWD and also relied upon thejudgment of the Hon'ble Supreme Court in (2003) 262 ITR407 cited supra. However, the Tribunal has lost sight of the amendment brought into the Income Tax Act and the newsection 142-A inserted by the Finance (No.2) Act 2004 w.e.f, 15-11-1972. Section 142-A of the Act reads as under: *)+For the purposes of making an assessmentor reassessment under this Act, where anestimate of the value of any investmentreferred to in section 69 or section 69B orthe value of any bullion, jewellery or othervaluable article referred to in section 69A orsection 69B or fair market value of anyproperty referred to in Sub-Section (2) ofsection 56 1s required to be made, theAssessingOfficermayrequiretheValuation Officer to make an estimate ojsuch value and report the same to him,or reassessment under this Act, where anestimate of the value of any investmentreferred to in section 69 or section 69B orthe value of any bullion, jewellery or othervaluable article referred to in section 69A orsection 69B or fair market value of anyproperty referred to in Sub-Section (2) ofsection 56 1s required to be made, theAssessingOfficermayrequiretheValuation Officer to make an estimate ojsuch value and report the same to him, *"+The Valuation Officer to whom a reference tsmade under sub-Section(1) shall, for thepurposes of dealing with such reference,have all the powers that he has undersection 38A of the Wealth-tax Act, 1957 (27of 1957),made under sub-Section(1) shall, for thepurposes of dealing with such reference,have all the powers that he has undersection 38A of the Wealth-tax Act, 1957 (27of 1957), *;+On receipt of the report from the valuationOfficer, the assessing Officer may aftergiving the assessee an opportunity of beingheard, take into account such report inmaking such assessment or reassessment)Officer, the assessing Officer may aftergiving the assessee an opportunity of beingheard, take into account such report inmaking such assessment or reassessment) *"+The Valuation Officer to whom a reference tsmade under sub-Section(1) shall, for thepurposes of dealing with such reference,have all the powers that he has undersection 38A of the Wealth-tax Act, 1957 (27of 1957),made under sub-Section(1) shall, for thepurposes of dealing with such reference,have all the powers that he has undersection 38A of the Wealth-tax Act, 1957 (27of 1957), *;+On receipt of the report from the valuationOfficer, the assessing Officer may aftergiving the assessee an opportunity of beingheard, take into account such report inmaking such assessment or reassessment)Officer, the assessing Officer may aftergiving the assessee an opportunity of beingheard, take into account such report inmaking such assessment or reassessment) Providedthat nothing contained in this section shallapply in respect of an assessment made on or beforethe 30[th]~day of September, 2004, and where suchassessment has become final and conclusive on orbefore that date, except in cases where a reassessment is required to be made in accordance with theprovisions of section 153A. QOIn view of the amendment to the Income Tax Act, theAssessing Officer has got power to refer the matter to theDistrict Valuation Officer for the purpose of valuation.Further, the Tribunal has committed an error in holding thatCPWD rates adopted by the District Valuation Officer wasnot correct without assigning any reason to arrive at such aconclusion. Hence, the order passed by the Income TaxAppellate Tribunal cannot be sustained. 10,It is the specific case of the respondent-assessee thathe had filed detailed objections to the District Valuationreport. The Assessing Officer referred the objections to theDistrict Valuation Officer. The District Valuation Officer hasnot given any reply with regard to the objections raised bythe assessee. However, the Assessing Officer withoutconsidering the objections proceeded to assess the value ofthe building. The amended section 142-A(3) contemplatesthat on receipt of the report from the Valuation Officer, the Assessing Officer must give the assessee an opportunity ofbeing heard and then take into consideration such report inmaking such assessment or reassessment. In the instantcase, on the objections filed by the assessee, though thematter was referred to the District Valuation Officer for hiscomments, without waiting for further comments from theDistrictValuationOfficer,|theAssessingOfficer|143proceeded with the matter without considering the validobjections raised by the assessee. The same was confirmedby the CIT (Appeals). However, the Appellate Authority setaside the said order without remanding the matter forreconsideration. The matter requires to be reconsidered bythe Assessing Authority afresh after getting necessaryClarification from District Valuation Officer with regard tovalue of the building constructed by the assessee. Hence,the points are answered in favour of the assessee.Accordingly, we pass the following: ����� �12�4552463�472�466BF2:�4?:�72D4?:2:�=B�=12�332339?A��@=1B79=<�=B�72CB?39:27�=12�D4==27�4?:�5433433233D2?=�B7:27�487231�9?�4CCB7:4?C2�F9=1�64F� ��������:�+��������� ���������:�+����������� D5H�+K