1990 (7) TMI 139 - AT - Income Tax

Being Heard Capital Gains Civil Court Hotel Building Reference To Valuation Officer Tax Authorities

Summary

Issues Involved:
1. Validity of additions made by the ITO under Section 69B based on the DVO's report.
2. Legality of reopening the assessment for A.Y. 1981-82 under Sections 147/148.
3. Whether the CIT(A) erred in deleting the additions without hearing the DVO.
4. Whether the CIT(A) should have remanded the case back to the ITO for reassessment.

Issue-wise Detailed Analysis:

1. Validity of Additions Made by the ITO Under Section 69B Based on the DVO's Report:

During the assessment years 1981-82, 1982-83, and 1983-84, the assessee, a registered firm, made investments in constructing a hotel and shops. The ITO, relying on the DVO's report, determined higher values for these investments than those declared by the assessee, leading to significant additions to the assessee's total income under Section 69B of the IT Act, 1961. The CIT(A) found that the ITO had adopted the DVO's report without giving the assessee an opportunity to be heard and without considering the construction accounts and other relevant documents submitted by the assessee. The CIT(A) held that Section 55A, under which the ITO could refer to the DVO for determining the fair market value, was not applicable. The CIT(A) also agreed with the assessee that the DVO's valuation was without reasonable basis. Consequently, the additions were deemed unsustainable in law.

2. Legality of Reopening the Assessment for A.Y. 1981-82 Under Sections 147/148:

The assessment for A.Y. 1981-82 was initially completed under Section 143(3) at a total income of 'nil' but was later reopened under Sections 147/148 based on the DVO's report obtained on 11-3-1985. The CIT(A) accepted the assessee's contention that the reopening was bad in law, resulting in the deletion of the additions for that year. The revenue did not challenge this part of the CIT(A)'s order, leading to the inevitable failure of the appeal for A.Y. 1981-82.

3. Whether the CIT(A) Erred in Deleting the Additions Without Hearing the DVO:

The revenue argued that the CIT(A) should have heard the DVO before deleting the additions, as the DVO's report was obtained under Section 55A. However, the Tribunal found that Section 55A, which pertains to the valuation of capital assets for capital gains, was not applicable in this case. The Tribunal preferred the interpretation of the Punjab & Haryana High Court in Jindal Strips Ltd., which limits the applicability of Section 55A to capital gains. The Tribunal concluded that the ITO's reliance on the DVO's report without giving the assessee an opportunity to be heard was invalid. The CIT(A) was not obligated to hear the DVO before disregarding the report.

4. Whether the CIT(A) Should Have Remanded the Case Back to the ITO for Reassessment:

The revenue suggested that the CIT(A) should have remanded the case to the ITO for fresh assessments after giving the assessee an opportunity to contest the DVO's report. The Tribunal rejected this suggestion, noting that the assessee had maintained and submitted detailed construction accounts, which the ITO had not disputed. The Tribunal emphasized that the ITO had erred by treating the DVO's report as binding and by failing to give the assessee an opportunity to be heard. The Tribunal found that remanding the case would be prejudicial to the assessee and would set a wrong precedent, as the ITO had already accepted the construction accounts at an earlier stage. The Tribunal upheld the CIT(A)'s decision to delete the additions without remanding the case.

Conclusion:

The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s order that the additions made by the ITO based on the DVO's report were invalid. The Tribunal found that the ITO had improperly relied on the DVO's report without giving the assessee an opportunity to be heard and that Section 55A was not applicable in this case. The Tribunal also agreed with the CIT(A) that the reopening of the assessment for A.Y. 1981-82 was bad in law.