1998 P T D 697

[221 1 T R 608]

[Gauhati High Court (India)]

Before S. L. Saraf, J

BHOLA NATH MAJUMDAR

versus

INCOME-TAX OFFICER and others

Civil Rules Nos.356 and 357 of 1991, decided on 18/07/1996.

Income-tax----

----Reassessment---Failure to disclose material facts necessary for assessment--Valuation of capital asset--Scope of S.55-A--Construction of building--Cost of construction disclosed by assessee and assessment completed--Subsequent report of valuer under S.55-A--Report of valuer is only an opinion and cannot constitute reason to believe--Reassessment proceedings on the basis of such report not valid---Indian Income Tax Act, 1961, Ss.55-A & 147.

A perusal of section 55-A of the Income Tax Act, 1961, makes it clear that for computation of income falling under Chapter IV of the Income Tax Act, the Income-tax Officer may refer the matter of valuation of a property to the Valuation Officer when the assessment is still pending. There is no authority under the provisions of section 55-A to refer the valuation of a property after the assessment is completed by the Income-tax Officer. The reference becomes invalid because the purpose for which the valuation report can be utilised, namely, completion of the assessment in conformity with the valuation report is no longer in existence, the assessment having been completed in the meantime. The purpose of section 55-A of the Act is not to enable the Income-tax Officer to make a roving and fishing inquiry for finding out materials for reopening or revising a completed assessment. Pendency of an assessment including reassessment is a sine qua non for giving jurisdiction to the Assessing Officer to make a reference under section 55-A of the Act. Section 55-A has no relevance and cannot be applied after the assessment is completed and before tire reassessment .has commenced, that is, to consider the question whether the completed assessment is based on undervaluation.

A valuation report is only an opinion of a valuer. The same dose not amount to information within the meaning of section 147(b) nor can it from a ground for reason to believe that the assessee had failed to disclose his income fully and truly within the meaning of section 147(a) of the Act. The condition precedent for assumption of jurisdiction under section 147(a) of the Act is reason to believe of the Income-tax Officer. An opinion of a third person cannot be "a reason to believe" of the Income-tax Officer. It is the Income-tax Officer who has to assert on materials available that he has reason to believe that any income chargeable to tax. has escaped assessment or that the same was due to the fact that the assessee failed to disclose his income truly and fully. The reason to believe of an Income-tax Officer cannot be substituted by an opinion of a valuer.

The returns for the assessment years 1984-85 and 1985-86 were filed by the assessee alongwith the balance-sheets and profit and loss accounts. The balance-sheet showed that a sum of Rs.86,911.70 was spent for construction of a house during the earlier years and a sum of Rs.95,444.82 was added towards the construction during the assessment year 1984-85 totalling a sum of Rs.1;82,356.52. The balance-sheet for the assessment year 1985-86 showed that a sum of Rs.1.82.356.52 was spent for the construction of the house during the earlier assessment years and a sum of Rs.2. 12,825.72 was added towards the construction during the assessment year 1985-86 totalling a sum of Rs.3,95,182.24. The Income-tax Officer considered the returns and completed the assessments. Subsequently, a reference was made to the departmental valuation cell and based on their report reassessment proceedings were initiated. On writ petitions to quash the notices:

Held, allowing the petitions, that the primary facts relating to the construction of the house from year to year were fully and truly disclosed by the assessee and there was nothing further to disclose. The notices issued by the Income-tax Officer under section 148 of the Act beyond the period of four years were without jurisdiction and not in compliance with the provisions of sections 147 and 148 of the Act and were liable to be quashed.

Amala Das (Smt.) v. CIT (1984) 146 ITR 216 (P&H): Brig. B, Lall v. WTO (1981) 127 ITR 308 (Raj.); Daulatram v I.T.O. (1990) 181 ITR 119 (AP); Jindal Strips Ltd. v. ITO (1979) 116 ITR 825 (P&H) and Reliance Jute and Industries Ltd. v. ITO (1984) 150 ITR 643 (Cal.) ref

N.M. Lahiri, G.N. Sahewalla and N. Choudhury for Petitioners.

J.K. Joshi and U. Bhuyan for Respondents.

JUDGMENT

By these two writ applications, the petitioner had challenged the notices issued under section 148 of the Income Tax Act, 1961, by the respondents after a period of four years from the date of the assessment. The notices relate to the assessment years 1984-85 and 1985-86. From the notices dated December 13, 1990 under section 148 of Income Tax Act, 1961 it appears that the said notices were issued alleging that the Income-tax Officer had reason to believe that the income for the assessment years 1984-85 and 1985-86 escaped assessment. As such, the said officer was entitled to reassess the income of the assessee for the said two assessment years: The said notice contain a further sentence relating to the obtaining of the necessary satisfaction of the Deputy Commissioner of Income-tax for issuance of such notices. The said notices were challenged by the petitioner by a letter dated December 28, 1990, whereby the petitioner stated that the conditions precedent for assumption of jurisdiction under section 147 (a) of the Act were not satisfied and as such the notices were bad and illegal. It was stated that there was no reason to believe that income escaped assessment for the assessment years 1984-85 and 1985-86.

The case of the petitioner before this Court is that the income-tax authorities have no reasons to believe that any income escaped assessment or that the petitioner has failed to disclose material facts truly and fully required for the purpose of making the assessment for the said assessment years. According to the petitioner, all the relevant material facts have been disclosed at the time of filing of the return. The returns for the assessment years 1984-85 and 1985-86 were filed alongwith the balance-sheets and profit and loss account. The balance-sheet shows that a sum of Rs.86,911.70 was spent for the construction of the house during the earlier years and a sum of Rs.95,444.82 was added towards the construction during the assessment year 1984-85 totalling a sum of Rs.1,82,356.52. The balance-sheet for the assessment year 1985-86 shows that a sum of Rs.1,82,356.52 was spent for the construction of the house during the earlier assessment years and a sum of Rs.2,12,825.72 was added towards the construction during the assessment year 1985-86 totalling a sum of Rs.3,95,182.24.

Mr. IV. M. Lahiri, learned senior counsel, has referred to a letter, dated December 3, 1990, which is annexed as Annexure IX to the petition wherein it has been stated by the petitioner that a valuation report regarding the cost of construction of the house was filed and that was in the file of the Department. The petitioner further submitted a fresh report of a different valuer and the said two reports of the valuers were in conformity with each other regarding the actual cost of construction of the house. The said reports give full details and particulars of the cost of construction. According to the submissions of Mr. Lahiri, what was necessary for the purposes of making assessment by the Income-tax Officer were all truly and fully disclosed. No materials were kept concealed from the Income-tax Officer. The cost of construction, the fact of construction, the actual progress of the construction from year to year were all disclosed in each assessment year. Further, it was submitted that at no stage the contents of the letter dated December 3,1990, or the letter was denied. Thereafter, the Income-tax Officer considered the returns of the petitioner and allowed it to be assessed under section 143(1) or section 143(3) of the Income Tax Act without raising any doubt and without making any further enquiry under section 143(2) of the Act. It was urged that all the primary facts were in the possession of the Income-tax Officer whether discovered by the assessee or discovered by him on the basis of the facts disclosed or otherwise and it was for the authority to draw the proper legal inferences and ascertain on a correct interpretation of the taxing enactment the proper tax leviable. Mr. Lahiri further tries to draw inspiration from the copy of the orders served on the petitioner for both the assessment years 1984-85 and 1985-86. It appeared that though in answer to the printed form under what section the orders were passed, it is stated in handwriting that the same were passed under section 143(1) of the Act whereas in the typed portion at the bottom shows that the said orders were passed under section 143(3) of the Act. Without going into the aforesaid disputed questions at this stage, the matter could be disposed of otherwise. It appears that the assessments were completed by passing orders under section 143(1) or under section 143(3) of the Act for the assessment years 1984-85 and 1985-86 on June 26, 1985, and September 30, 1985, respectively. Thereafter, the Income-tax Officer issued notices under section 148 of the Income Tax Act on December 30, 1990, that is beyond the period of four years from the end of the relevant assessment years without however stating in the said notices whether the notices were issued under section 147(a) or under section 147(b) of the Act, Presumably the notices were issued under section 147(a) since they have been issued beyond the period of four years. The reasons recorded for reopening the assessment for the assessment year 1984-85 have been set out in paragraph 7 of the affidavit of the Income-tax Officer which reads as follows:---

"The original assessment for the assessment year 1984-85 was made under section 143(1) on June 26 1985 on a total income of Rs.65,250. In this case, a reference was made to the Departmental Valuation Cell, Guwahati, for determination of the cost of construction of the assessee's four-storeyed R.C.C. Building at Main Road, Karimganj. From the valuation report dated September 18, 1989, it reveals that there is a difference of value as determined by the Valuation Cell and the value as declared by the assessee in his return of income. It indicates, therefore, that the assessee has understated the cost of construction to the extent of Rs.70,214.18 for the assessment year under reference.

I have, therefore, reasons to believe that by reasons of omission/failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1984-85, the income of Rs.70,214.18 chargeable to tax has escaped assessment within the meaning of section 147(a) of the Income Tax Act, 1961."

??????????? Same reasons recorded for the assessment year 1985-86 were set out in the affidavit filed for the year 1985-86.

??????????? Sections 147, 148 and section 151 of the Income Tax Act, 1961, read as follows:

"147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

??????????? Provided that where an assessment under subsection (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

Explanation 1.---Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.---For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:---

??????????? (a) ?????? where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous

??????????? year exceeded the maximum amount which is not chargeable to income-tax;

??????????? (b) ?????? where a return of income has been .furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

??????????? (c)??????? where an assessment has been made, but---

??????????? (i) ??????? income chargeable to tax has been under assessed; or

??????????? (ii)??????? such income has been assessed at too low a rate; or

??????????? (iii) ????? such income has been made the subject of excessive relief under this? Act; or

??????????? (iv) ????? excessive loss or depreciation allowance or any other allowance? under this Act has been computed.

148.(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be apply according as if such return were a return required to be furnished under section 139.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

151. (1) In a case where an assessment under subsection 93) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner, unless the Deputy Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice:

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under subsection (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Deputy Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Deputy Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that, it is a fit case for the issue of such notice. "

??????????? Mr. Joshi, on behalf of the Department forcefully argued before this Court that the notices issued under section 148 of the Act were valid and in consonance with section 147 of the Act and the said notices were issued after obtaining prior sanction from the Deputy Commissioner under the provisions of section 151(2) of the Act. As per the submissions of Mr. Joshi, the order of assessment was made under the provisions of section 143(1) and reference to section 143(3) at the bottom of the order was a mistake and/or a typographical error. As such, there was no necessity for the Assessing Officer to take the approval of the Commissioner for reopening the case which could only be done in cases where the assessment is made under section 143(3) of the Act. Mr. Joshi further refers to Explanation 1 to section 147 of the Act and submits that filing of the balance-sheet or the production of books of account from which material evidence could, with due diligence, have been discovered by the Income-tax Officer which will not necessarily amount to disclosure within the meaning of the foregoing proviso. Mr. Joshi further submitted that as the balance-sheet did not disclose the proper progress of the work like what area was constructed during the said assessment years and how many floors were ready during the said assessment years, it does not amount to a full and true disclosure and as such the Income-tax Officer was justified in issuing notices under section 148 of the Act after obtaining the valuation report of a valuer under section 55-A of the Act. Mr. Joshi further contended that the Income-tax Officer was fully justified in issuing the notices under section 148 of the Act to reopen assessment under section 147 of the Act on the basis of the valuation report. Mr. Joshi further submitted that the valuation report was obtained by the Income-tax Officer taking resort to section 55-A of the Act. The said section 55-A of the Act reads as follows:

"55-A, With a view to ascertaining 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---

(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that-the value so claimed is less than its fair market value;

??????????? (b) in any other case, if the Assessing Officer is of opinion--

(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or

(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.

and where any such reference is made, the provisions of sub?sections (2), (3), (4), (5) and (6) of section 16-A, clauses (h-a) and (i) of subsection (1) and subsections (3-A) and (4) of section 23, subsection (5) of section 24, section 34AA, section 35 and section 37 of the Wealth Tax Act, 1957 (27 of 1957), shall, with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under subsection (1) of section 16-A of that Act.

Explanation.---In this section, 'Valuation Officer' has the same meaning as in clause (r) of section 2 of the Wealth Tax Act, 1957 (27 of 1957)."

??????????? In order to appreciate the arguments of Mr. Joshi, the Court has to analyses the provisions of section 55-A of the Act as set out hereinabove. The opening words of section 55-A reads as follows,--- "with a view to ascertaining 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". From the above wording of section 55-A, it is abundantly clear that for computation of income falling under Chapter IV of the Income Tax Act, the Income-tax Officer may refer the matter of valuation of a property to the Valuation Officer when the assessment is still pending. There is no authority under the said provisions of section 55-A to refer for valuation of a property after the assessment is completed by the Income-tax Officer. The reference becomes invalid because the purpose for which the valuation report can be utilised, namely, for completion of the assessment in conformity with the valuation report is no longer in existence, the assessment having been completed in the meantime. The purpose of section 55-A is not to arm the Income-tax Officer for making a roving and fishing inquiry for finding out materials for reopening or revising a completed assessment. The same is not permissible in law. In this connection, I refer to three decisions reported in Brig. B. Lall v. WTO (1981) 127 ITR 308 of the Rajasthan High court; Smt. Amala Das v. CIT (1984) 146 ITR 216 of the Punjab High Court and Reliance Jute and Industries Ltd. v. ITO (1984) 150 ITR 643 of the Calcutta High Court. The said decisions uniformly stated that pendency of an assessment including reassessment is a sine qua non for giving jurisdiction to the Assessing Officer to make a reference under section 55-A of the Act. Section 55-A has no relevance and cannot be applied after the assessment is completed and before the reassessment has commenced that is to consider the question whether the completed assessment is based on undervaluation. The Rajasthan High Court in Brig. B. Lall. v. WTO (1981) 127 ITR 308 in a wealth tax matter has succinctly put in the following words page 329:

??..notices under section 17 to the petitioners in all the above eight cases is based on the valuation report received under section 16A of the Act wholly and solely. This report is non est as being without jurisdiction, illegal, null and void and, therefore, the entire fabric for reopening these proceedings falls flat and the impugned notices deserve to be quashed. The notices are based on an absence of the existence of any legal foundation which could have given rise to a valid belief or reason to believe, as contemplated by section 17(1)(a) or could have provided information as contemplated by section 17(1)(b) of the Act.

It can neither constitute information within the meaning of section 17(1)(b) of the Act nor can it become a reason for the belief within the meaning of section 17(l)(a) of the Act."

??????????? The Calcutta High Court in Reliance Jute and Industries Ltd. v. ITO (1984) 150 ITR 643, at page 647, in relation to a valuation report observe as follows: '

"The purpose for which alone a valuation report can be utilised, namely, for com, on of the assessment in conformity with the valuation report no longer existent, the assessment having been completed in the meantime. In such circumstances, to allow the assailed valuation proceeding to continue, would militate against well-known canons of strict construction of taxing statutes."

??????????? On mere charge of opinion on the basis of the valuation report, the Punjab High Court in Smt. Amala Das v. CIT (1984) 146 ITR 216 at page 220 held as follows:

"On the basis of the valuation report, the petitioner cannot possibly be accused of not fully and truly disclosing the facts at the time of the assessment as, to my mind, this report is nothing more than a mere opinion about the cost of construction or the fair market value of the building in question."

In Brig. B. Lall. v. WTO (1981) 127 ITR 308, at page 323, the Rajasthan High Court held as follows:

"We are of the opinion that the foundation or bedrock of the jurisdictional facts necessary for giving jurisdiction under section 16-A is that the Wealth Tax Officer must be seized of a return filed by the assessee containing valuation of his assets for which he is to apply his mind and adjudicate the valuation for completing the assessment. The situation contemplated in clauses (a) and (b) of subsection (1) of section 16-A can be visualised only in a case of pending assessment and not a completed assessment. Once the assessment is completed and before the reassessment commences the Wealth Tax Officer becomes functus officio for the purposes of '' section 16-A, as he is not in the process of completing any assessment, for the purpose of which he wants to check up from the Valuation Officer, the correctness of the valuation of the assessee in the return and which, according to him, are undervalued, looking to the fair market value or as per the standards laid down in clause (a) or clause (b) or 'It subsection (1).

This makes the opening phrase 'for the purpose of making an assessment' extremely important and an opening gate through which and through which alone, the Wealth Tax Officer can have access and approach to the Valuation Officer. The opening gate of section 16-A is wholly, solely and exclusively governed and contained in the phrase 'for the purpose of making an assessment which, of course, can include the reassessment as per the definition of assessment as mentioned above."

??????????? For the purposes of this case, I am not entering into the controversy as to whether section 55-A can at all be resorted to for the purposes of making an assessment or reassessment under section 143(3) or under section 147 of the Act inasmuch as the said section only applies in cases of computing and ascertaining the fair ?market value of a capital asset for computing the capital gains. The Punjab High Court in the Full Bench decision reported in Jindal Strips Ltd. v. ITO (1979) 116 ITR 825 has held that the section is only applicable in cases of capital gains whereas, the Andhra Pradesh High Court in Daulatram v. ITO (1990) 181 ITR 119 has held that the said provisions of section 55-A also apply in case of assessment under section 143(3) of the Act. For deciding the present case, I am proceeding on the basis that the provisions of section 55-A could be utilised for the purposes of making assessment under section 143(3) or section 147 of the Act. However, in view of my observations hereinabove and keeping in view the decisions of the Rajasthan, Punjab and Calcutta High Courts, 1 hold that no completed assessment could be reopened on the basis of a valuation report obtained by the Income-tax Officer after the assessments were completed.

??????????? A valuation report is only an opinion of a valuer. The same does not amount to information within the meaning of section 147(b) nor it can form a ground for reason to believe that the assessee had failed to disclose his income fully and truly within the meaning of section 147(a) of the Act. The condition precedent for assumption of jurisdiction under section 147(a) of the Act is reason to believe of the Income-tax Officer. If that be so, then a report or information of a valuer cannot substitute the words "reason to believe" of the Income-tax Officer. An opinion of a third person cannot be a "a reason to believe" of the Income-tax Officer. It is the Income-tax Officer who has to assert on materials available that he has reason to believe that any income chargeable to tax has escaped assessment or that the same was due to the fact that the assessee failed to disclose his income truly and fully. The reason to believe of an Income-tax Officer cannot be substituted by an opinion of a valuer. No condition precedent for assumption of jurisdiction under section 147(a) is satisfied. In the affidavit filed by the Income-tax Officer before this Court it is admitted by the Income-tax Officer that the report of the valuer was advisory in nature. If that be so then prima facie the notices issued under section 148 of the Act are without jurisdiction and illegal.

??????????? According to me, the primary facts relating to the construction of the house from year to year were fully and truly disclosed by the assessee and there was nothing further to, disclose. Explanation 1 to section 147 is relevant if the facts disclosed require further elucidation. This was not the case. In construction work, the valuation during the progress of the work, if done by a third person or valuer, could only be a guess or estimate the exact cost of construction could only be found out at the end of the work. In the instant case, the assessee had given out the cost incurred towards the progress of construction made during the year of assessment and there were no materials before the Income-tax Officer to challenge the same except an opinion of a valuer and that is not permissible in law.

??????????? The Court is satisfied that the present notices issued by the Income? tax Officer under section 148 of the Act beyond the period of four years were without jurisdiction and not in compliance with the provisions of sections 147 and 148 of the Act. As such notice dated December 13, 1990, for the assessment year 1984-85 in Civil Rule No.356 of 1991 and notice, dated December 13, 1990, for the assessment year 1985-86 to Civil Rule No-357 of 1991 are quashed and set aside.

??????????? In the result, the rule issued in Civil Rule. No.356 of 1991 and Civil Rule No.357 of 1991 are made absolute and the petitions are allowed. There will be no order as the costs.

M.B.A./1299/FC???????????????????????????????????????????????????????????????????????????????? Rule made absolute.