Commissioner of Income-tax and anr. Vs. Bhawani Shankar Was - Court Judgment

Sudhanshu Dhulia, J.

1. In all these appeals filed under Section 260A of the Income-tax Act, 1961, the facts and issues are the same although the appeals themselves pertain to different assessment years. For this reason, all these appeals are being disposed of by this common judgment and order since the substantial questions of law involved in all these appeals are common.

2. The leading appeal in the present bunch of appeal is bearing No. I.T.A. No. 125 of 2007 which is directed against the judgment and order dated February 23, 2007, passed by the Income-tax Appellate Tribunal (hereinafter referred to as 'the ITAT') whereby the said authority has allowed the appeal of the assessee and has set aside the order of the Assessing Officer as well as that of the learned Commissioner of Income-tax (Appeals) (hereinafter referred to as 'the CIT(A)').

3. Heard the counsel for the parties and perused the record.

4. Brief facts of the case are as follows:

For the assessment year 1998-99, the assessee, Shri Bhawani Shankar Vyas, proprietor of M/s. Shiva Sanitary Store had filed its return declaring an income of Rs. 90,350. The case was processed under Section 143(1) on May 14, 1999. The case was then fixed for scrutiny and notices issued by the concerned Income-tax Officer on August 27, 1999, which was served upon the assessee on August 31, 1999. The assessee is a proprietor of M/s. Shiva Sanitary Store and has disclosed the income from purchase and sale of sanitary items. For the said assessment year, the assessee had filed two balance-sheets, (A) for M/s. Shiva Sanitary Store, and (B) for M/s. Hotel Gangore. Notice under Section 142(1) was issued by the Income-tax Officer on July 26, 2000, which was served upon the assessee on the same date. In this notice, information was sought from the assessee on various aspects of his income. Subsequently, a notice under Section 143(3) dated October 31, 2000, was served on the assessee and he was required to furnish details along with evidence in respect of electric equipment of Rs. 2,49,057, furniture and fixture of Rs. 3,30,876, fire saver at Rs. 6,875 and telephone equipment of Rs. 52,100 as shown in the balance-sheet of M/s Hotel Gangore as on March 31, 19981 The assessee was also requested to give the complete detail of the building construction shown at Rs. 14,00,805.77 in the balance-sheet as on March 31, 1998. Thereafter, the Income-tax Officer referred the matter to the valuation cell. The Valuation Officer in his valuation report as against the valuation declared by the assessee for the entire period as Rs. 21,36,643.77 had given the value of Rs. 56,55,000. Opportunity was given to the assessee to substantiate the difference between the assessee's valuation and valuation of the Valuation Officer.

5. In reply, the assessee through his valuer (Government approved valuer). M/s. BLT Associates submitted a letter dated December 11, 2000, wherein he objected to various aspects of the valuation report submitted by the Valuation Officer. The valuer submitted his para-wise comment on the assessee's objection, vide his letter dated January 25, 2001. Again, a copy of this letter was forwarded to the assessee, vide letter dated February 29, 2001. The main objection of the assessee was that while working out the cost of the said property, rates of UPPWD (short for 'the Uttar Pradesh Public Works Dept') should be applied whereas the Valuation Officer has adopted the rates of CPWD. Besides citing certain order passed by the learned Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, the assessee placed reliance on the decision of the Allahabad High Court in the case of CIT v. Raj Kumar MANU/UP/0251/1990 : [1990]182ITR436(All) in which it was held that the estimated cost of construction should be taken at the UPPWD rates and not at the CPWD rates. Opportunity for cross-examining the Valuation Officer in respect of his report was also given to the assessee. After examining the factual matrix in great detail and largely relying upon the report of the Valuation Officer, the Assessing Officer has come to the conclusion that the assessment has to be made on an income of Rs. 24,97,710 (for the assessment year 1998-99). Consequently, notices under Sections 271(1)(c) and 271E of the Income-tax Act were issued to the assessee. The said assessment order was passed by the Income-tax Officer on March 28, 2001, as against Rs. 90,350 as disclosed by the assessee.

6. Aggrieved by the assessment order the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), however, agreed with the Assessing Officer and rejected all the reports which were submitted by the assessee such as the report of the municipal engineer as well as by the Government approved valuers and then after examining the report of the Departmental Valuation Officer though agreeing largely with the correctness of the report, he recorded that this was somewhat, on the higher side considering the facts that it was the CPWD rates and not the UPPWD rates which were applied. Accordingly, the Commissioner of Income-tax (Appeals) reduced the valuation by 15 per cent. to arrive at the cost of construction as per the UPPWD rates. Thereafter, he considered the higher rates applied by the Assessing Officer regarding raw materials and a difference of Rs. 1,86,235 was worked out by him. He allowed a further deduction of 5 per cent. on account of availability of raw materials at cheaper rates. Thus, certain relief was granted to the assessee by the Commissioner of Income-tax (Appeals) to the extent that the Commissioner of Income-tax (Appeals) worked out an addition of Rs. 9,91,553. The assessee, all the same, challenged the addition of Rs. 9,91,553 by taking specific ground to the following effect:

1. That the learned Commissioner of Income-tax (Appeals) is not justified and has erred in confirming/maintaining the following additions which being erroneous and uncalled for under the facts and circumstances of the case be kindly deleted and the income as returned on the basis of books of account be kindly accepted.

(A) as unexplained investment in construction of Hotel Gangour building-Rs. 9,91,552

(2) That the learned Commissioner of Income-tax (Appeals) is not justified and has erred in maintaining an addition of Rs. 9,91,553 as unexplained investment in construction of hotel building on estimate basis by rejecting the actual cost as per books of account and supported by three different reports of cost of construction given by qualified engineers.

7. The Revenue, on the other hand, also challenged the order of the Commissioner of Income-tax (Appeals) on the ground that the learned Commissioner of Income-tax (Appeals) has erred in law as well as on facts in deleting the addition of Rs. 7,93,597 made on account of unexplained investment in construction of property.

8. The Income-tax Appellate Tribunal in its judgment has allowed the appeal of the assessee and has rejected that of the Revenue. On the question of law, the Tribunal has said that it was wrong on the part of the Assessing Officer to have straightaway made a reference, to the Departmental Valuation Officer without rejecting the report and the books of account submitted by the assessee. In other words, the logic adopted by the Tribunal is that the Incomertax Officer though had powers to make a reference under Section 142A or Section 131(1)(d) of the Act, asking for the report of the Departmental valuer, but the same could only be done after he had formally and categorically rejected the reports and books of account submitted by the assessee. In the absence of such categorical rejection the view of the Tribunal is that the calling for the reference itself is bad. Apart from this the Tribunal has given its finding on the accounts submitted by the assessee. The Tribunal has come to the conclusion that in the present case the assessee has filed three valuation reports including a certificate of engineer, all of which were examined by the Tribunal. On a careful perusal of the order of the Assessing Officer and that of the learned Commissioner of Income-tax (Appeals), the Tribunal came to a finding that the books of account, valuation reports, etc., submitted by the assessee were proper and both the Assessing Officer as well as the Commissioner of Income-tax (Appeals) has committed an error in not relying upon them. The Tribunal, therefore, expressed its inability to concur with the finding of the Departmental authorities in estimating the cost of construction as done by them.

9. The substantial questions of law on which the appeals were admitted are as follows:

1. Whether the Income-tax Appellate Tribunal was justified in holding that without rejecting the books of account, the Assessing Officer was not justified in making reference to the Departmental Valuation Officer, ignoring the retrospective effect of the provisions of Section 142A of the Income-tax Act ?

2. Whether it is mandatory to reject the books of account before making reference under Section 131(1)(d) ?

10. Since the Tribunal is the last fact finding forum, we refrain from interfering with this finding of fact as recorded by the Tribunal. Findings of the Tribunal on a pure question of facts are not liable to be interfered by the High Court, if it is seen that the Tribunal had examined all the available evidence which were produced before it by the parties. After reading the judgment and order of the Tribunal, we also find that the Tribunal has recorded an independent finding as to the correctness and genuineness of the documents and books of account, including the assessment reports submitted by the assessee and has found them to be correct. Having said this, however, we have to give our opinion on the question of law framed by this Court which is primarily whether the Assessing Officer was right in calling for a reference under Section 142A of the Income-tax Act or under Section 131(1)(d) of the Income-tax Act without first rejecting the books of account submitted by the assessee.

11. On this question of law the assessee has placed before us the ruling of CIT v. Pmtapsingh Amrosingh Rajendra Singh and Deepak Kumar reported in MANU/RH/0095/1992 wherein the Division Bench of the Rajasthan High Court has held that in case where proper books of account are maintained and there is no dispute that the assessee has maintained proper books of account, it is the books of account which have to be relied upon and not the valuation report. The valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers and the Income-tax Officer is of the opinion that no reliance can be placed on such books of account and there must be a finding by the Assessing Officer that the books of account maintained by the assessee are defective or are not reliable. We do not see how this judgment could help the assessee being clearly distinguishable on facts, inasmuch as in the present case the Assessing Officer has clearly expressed his views on the correctness and certain aspects of the accounts submitted by the assessee. In the assessment order, it has clearly been stated as follows:

In view of the above deficiencies in the books of account of the assessee exposed by me and in view of the assessee's failure to produce stock register, I conclude that the assessee's books are such as true and correct income of the assessee cannot be deduced by me, however, I restrict myself to rejecting of the books only to the extent of disallowance of expenditure claimed by the assessee in the profit and loss account.

12. Moreover, the judgment of the Rajasthan High Court predates the amendment brought in the Income-tax Act in the year 2004 whereby Section 142A was inserted, which we will discuss shortly.

13. Suffice would it be to say that where the Income-tax Officer while making his assessment had doubts on the correctness of the accounts submitted by the assessee, in such a condition, in our considered view, after perusal of the relevant provisions of the Act, we find that the income-tax authority was perfectly justified in making a reference to a departmental valuer without formally or categorically rejecting the books of account submitted by the assessee. This view is further strengthened by Section 142A which was inserted in the Act by the Finance Act of 2004 with retrospective effect from November 15, 1972. Section 142A is being reproduced below:

142A. (1) For the purpose of making an assessment or reassessment under the Act, where an estimate of the value of any investment referred to in Section 69 or Section 69B or the value of any bullion, jewellery or other valuable article referred to in Section 69A or Section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.

(2) The Valuation Officer to whom a reference is made under Sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under Section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:

14. Under Section 142A of the Income-tax Act, full powers have been given to the Assessing Officer to call for a report from the Valuation Officer. Therefore, the view taken by the Tribunal to this extent was not in accordance with law as it has not fully appreciated the ambit and scope of Section 142A of the Income-tax Act. This is also the view taken by the Lucknow Bench of the Allahabad High Court in CIT v. Rohtas Projects Ltd. [2006] 154 Taxman 88. Therefore, in view of the clear position stated in Section 142A of the Act, there was absolutely no anomaly in the Assessing Officer calling for a report from the Valuation Officer. It has further been argued before us that the method of accounting as given under Section 145 also gives this power to the Assessing Officer and when he is not satisfied with the correctness or completeness of the accounts of the assessee or when the method of accounting has not been regularly followed by the assessee, the Assessing Officer may make an assessment in a manner provided in Section 144 of the Income-tax Act.

15. A perusal of Section 144 of the Act makes it clear that the powers have been given to the said Assessing Officer to determine the sum payable by the assessee after taking into account all relevant material which the Assessing Officer has gathered and after giving the assessee an opportunity of being heard make an assessment of total income or loss to the best of his judgment and determine the sum payable by the assessee.

16. Therefore, on a perusal of Section 144 read with Section 145 and Section 142A as well as Section 131(1)(d) of the Income-tax Act, we are of the considered view that Income-tax Appellate Tribunal was not justified in holding that without rejecting the books of account the Assessing Officer was not justified in making reference to the Departmental Valuation Officer. For the same logic, we also hold that it is not mandatory for the Assessing Officer to reject the books of account first before making reference under Section 131(1)(d) of the Act or calling for a report of valuer under Section 142A of the Act.

17. In the light of the discussion made above, we allow the appeal of the Revenue to the extent that the substantial questions of law raised by them in their appeal are answered in their favour. All the same, for the reasons stated above, we do not find any reason for interfering with the finding of fact recorded by the Tribunal, particularly in view of the fact that the Tribunal has independently dealt with the factual matrix.

18. For the foregoing reasons, the appeal is allowed on the questions of law. All the connected appeals are also decided accordingly. No order as to costs.