TMI Blog1997 (5) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Valuation Cell. According to the Valuer's Report, the estimated cost of construction was Rs.12,08,000. On the other hand, the assessee filed a Report from a Registered Valuer, according to which, the cost of construction was Rs. 5,06,000 only. The assessee submitted various objections to the valuation by the Departmental Valuer but the Assessing Officer rejected them saying that they were the same which were made before the Valuation Cell. He, accordingly, estimated the investment up to the year at Rs.12,08,000. The pro rata investment in this year was taken at 19.32% of Rs.12,08,000 i.e., Rs.2,33,144 as against Rs.95,440 shown by the assessee. The difference of Rs.1,37,404 was added to the assessee's income for the year as "Income from undisclosed sources". 3. The CIT(A) went into the matter in a greater detail. He summarised the objections to the report of the Valuation Cell and made out a comparative chart of the valuation as per Departmental Valuer and as per Registered Valuer as under: "3. Before me, the A.R. has reiterated the objections taken before the ITO and has also assailed the valuation made by the Valuation Cell on other grounds which are summarised below: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Old materials 25,000 20,315 ------------- ----------- 4,62,147 2,70,965 Second Floor Cost (including services) 2,46,915 24,801 Less: Less: Self supervision Self supervision @ 7.5% 18,519 @ 10% 2,480 -------------- ---------- 2,28,396 22,421" -------------- ---------- 4. Thereafter, the CIT(A) allowed relief on certain grounds. He observed that the rates adopted by the Valuation Cell were the same for the ground floor and the first floor, and allowed a reduction of 15% for the first floor. He also accepted the contention that the second floor consisted only of some pillars and an unfinished room and, therefore, could not be valued at Rs.1,89,366. He reduced th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een produced before the Valuation Cell. Regarding reopening under section 143(1)(b), he submitted that it was in order relying on the decision of the Karnataka High Court in Om Trading Co. v. Second ITO [1991] 188 ITR 641/59 Taxman 101. 9. We have considered the rival submissions carefully. As far as preliminary objections are concerned, we hold that re-opening under section 143(1)(b) was an order in view of the decision of the Karnataka High Court in Om Trading Co.'s case. We now proceed to consider the issue on merits. 10. The salient feature in the controversy is that the assessee was a contractor himself but did not maintain regular books of account for the construction of the shopping complex. In such circumstances, the Assessing Officer was justified in referring the cost of construction to the Valuation Cell. Our conclusion is further strengthened by the decision of the Rajasthan High Court in CIT v. Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar [1993] 200 ITR 788/[1992] 64 Taxman 585, relevant extract from which is reproduced below: "We have considered the matter. In respect of the investment which is made in the property, there can be only two methods to find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable for trees on agricultural land utilised by the partners, and so no relief can be allowed for that purpose either. However, benefit should be given for old foundation on the ground floor. We find from the report of the Valuation Cell that salvage value of old structure has been taken into account to the extent of Rs.50,800. This shows that an earlier building did exist and the earlier building could not have been made without a foundation. We would, therefore, allow an ad hoc relief of Rs.1 lakh for the earlier foundation, which would have been made at the rates prevailing in 1974-75. Lastly, for the second floor, the relief allowed by the CIT(A), by reducing the estimated cost to 50% of Rs.1,89,366 is not adequate. Considering the nature of construction, we direct that this estimate should be reduced by 75%. No further relief is due for rates of services beyond what is given by the CIT(A). The Assessing Officer is directed to modify the assessment and compute the pro rata difference on cost of construction for this year accordingly. The difference should be sustained as an addition. 13. In the result, the assessee's appeal is partly allowed and the Departmental appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer formed an opinion that 19.32% of Rs.12,08,000 as certified bv the DVO was invested by the assessee in the financial year ending 31-3-1986 as against disclosed expenditure of Rs.95,440. According to the said percentage taken by the Assessing Officer, an addition to the extent of Rs.1,37,404, as unexplained investment during the previous year relevant to the year under appeal, was stated to have been made by the assessee in the construction of the said hotel complex, and the same was added to the returned income, as income from undisclosed sources. Though the Assessing Officer has not stated that the addition is made bv him under section 69 of the Act; yet it is assumed by my ld. Brother that it is added under section 69 of the Act. I do not dispute this and I also assume so. I, therefore, proceed to examine the impugned addition in the light of the provisions of section 69 of the Act. 3. In my view when an assessee discloses a particular amount as being spent on construction of a building then it is the fundamental duty of the Assessing Officer to collect, during the course of assessment proceedings, all details from the assessee; such as copy of plan of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the opinion of the DVO on the cost of construction should be the basis for making addition as undisclosed income of the assessee from some undisclosed sources under section 69 of the Act. Their Lordships of the Rajasthan High Court in the said case of Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar were not considering whether the Assessing Officer is authorised or empowered for making reference to the DVO for ascertaining and taking the opinion of the estimated, probable or actual cost of construction by the assessee. In my opinion, therefore, the observations of their Lordships of Rajasthan High Court have no relevance at all with regard to the power of Assessing Officer in seeking opinion of the DVO on the cost of construction. The Full Bench of the Hon'ble Patna High Court in a recent judgment rendered on 11-11-1993 in the case of CIT v. Smt. Kamla Devi Rathi [1995] 213 ITR 177/82 Taxman 348 have laid down that a decision is, an authority for what it decides and not what can logically be deduced therefrom. This decision of the Hon'ble Rajasthan High Court is, therefore, distinguishable and has no application to the facts of this case, to which I have adverted to. 6. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for tendering opinion on 'valuation' aspects of any referred property or asset in accordance with the provisions either of section 16A of the Wealth-tax Act or under section 55A of the Income-tax Act. The DVO is not trained nor he is an expert in tendering opinions on the 'cost' aspects of any property or asset. It is the job of an cost analyst, and the DVO is not a cost analyst. How can than a matter be referred by the Assessing Officer to the DVO for obtaining his opinion on the 'cost' aspect of a particular property/asset. Assuming that the Assessing Officer can under the guise of his 'powers of enquiry' take an opinion from an expert (DVO). But, the question is, can he (Assessing Officer) subject the assessee to tax on the basis of such an opinion of the DVO and, further, expose the assessee to additional levies and imposts, including penalties and prosecutions, under various provisions of Income-tax Act, 1961? -- If the answer is in the affirmative than I think such a power is arbitrary, oppressive and unreasonable offending Articles 14 and 21 of the Constitution of India and cannot be allowed to be exercised as has been authoritatively laid down by their Lordships of the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the provisions of sub-section (4) of section 255 of the Act and we request the Hon'ble President for making suitable reference:-- "1. Whether, on the facts and in the circumstances of the case, the Assessing Officer was justified in refering the matter to the Departmental Valuation Officer (DVO) for ascertaining the cost of construction of the hotel complex called "Shanti Complex" constructed by the assessee? 2. If the answer is in the affirmative to the above question, then whether on the basis of such report/opinion of the DVO, the Assessing Officerwas justified in making addition in terms of section 69 of the Income tax Act, 1961?" THIRD MEMBER ORDER 1. Under sub-section (4) of section 255 of the Income-tax Act, 1961, the Hon'ble President of the Appellate Tribunal has appointed me as a Third Member for my opinion in respect of the aforesaid appeals to the decision of which the two learned Brothers constituting the original Bench could not agree. The points of difference for the opinion of the Third Member are these:-- "1. Whether, on the facts and in the circumstances of the case, the Assessing Officer was justified in referring the matter to the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) going into great details of the matter allowed elief to the assessee on certain points, as a result of which, the total investment in the property stood reduced by Rs.2.5 lakhs, as pointed out by the learned Accountant Member in his order. 7. Both the assessee as well as the department feeling aggrieved preferred appeals before the Tribunal. 8. While the learned Accountant Member who originated the appeal order allowed the assessee's appeal partly by granting and entitling them to some more relief in the estimated cost of construction and dismissed the departmental appeal, the learned Judicial Member allowed the assessee's appeal in full. The departmental appeal met the same fate at both ends. 9. A few other relevant facts are that the assessee before us are contractors and secondly they did not maintain regular books of account for the construction of the shopping complex. Also in support of their claim of investment made during the year in a sum of Rs.95,440 and up to date cost of construction detailed out hereinbefore the assessee had submitted report dated 7th November, 1987 from M/s. Dhody Dhody of Gaya, Bihar, copy of which is available at pages 23 to 28 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he may be to issue commissions, for the purposes of Income-tax Act. These powers are the same as are vested in a Court under the Code of Civil Procedure, 1908 when trying a civil suit. The Assessing Officer while completing an assessment exercises quasi-judicial functions as has been held by the High Court of Bombay in the case of Dinshaw Darabshaw Shroff v. CIT [1943] 11 ITR 172 and is expected to confirm to the elementary rules of judicial procedure. It is pertinent to state here that this is in addition to the specific powers with which he is vested under section 131 in the matter of discovery, production of evidence, etc., as per which he would exercise the same jurisdiction as conferred by the Code of Civil Procedure in a Civil Court, inter alia, in the matter of issuing commissions. In this connection, reference could also be advantageously made to the provisions of sub-section (6) of section 133 of the Act which permits an Assessing Officer as follows:-- "133. Power to call for information.-- The (Assessing Officer), the Deputy Commissioner (Appeals), the (Deputy Commissioner) or the Commissioner (Appeals) may, for the purposes of this Act,-- (1)......................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 of the Wealth-tax Act, 1957. 14. "Valuation Officer" as per clause (r) of section 2 of the Wealth-tax Act means a person appointed as a Valuation Officer under section 12A of the Act. Under section 12A of the same enactment, the Central Government may appoint as many Valuation Officers as it thinks fit. What is the role of a Valuation Officer in the implementation of the provisions of Wealth-tax Act not being germane to the present controversy is intended to be skipped over by me. 15. After dealing with the relevant provisions pertaining to office of the Valuation Officer and his appointment I would immediately proceed to refer here to the legal provisions relating to the institution of a Registered Valuer as it is quite significant for our purposes. 16. Clause (oaa) of section 2 of the Wealth-tax Act, inserted by the Taxation Laws (Amendment) Act, 1972 w.e.f. 15th of November, 1972 defines a "Registered Valuer" a person registered as a Valuer under section 34AB of the same Act. 17. Coming to section 34AB found in Chapter VII-B of the Wealth-tax Act dealing with Registered Valuers, at the outset, it may be stated that the Legislature has seemingly prescribed a rigorou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frown at the Assessing Officer in referring the matter to the Valuation Officer for ascertaining the cost of construction of the Hotel Complex of the assessee. For this, no separate constructions or guidelines required to be followed by an Assessing Officer, necessarily ought to exist. In this connection, reference to the view taken by the High Court of Rajasthan in the case of Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar, is well taken as per which in a case where an assessee has not maintained proper books of account in respect of any investment made in property duly supported by vouchers, a valuation report of an expert could be called for. No doubt, if books of account have been properly maintained wherein all details have been recorded by an assessee supported by vouchers/documents and no defects are pointed out and the books are not rejected, the result shown by them is bound to be accepted. It is equally true that as held by various judicial pronouncements including Smt. Kamla Devi Rathi's case, a decision is an authority for what it decides and not what logically could be deduced therefrom, with all perspicacity at my command, I would say that the ratio of Prataps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of construction was recorded by the Assessing Officer at least minimally. However, although reference on the facts and in the circumstances of the case, to the Valuation Officer has been found to be justified, yet there is something more than what meets the eye and the relevant facts as are being unfolded, do cry for a legal answer. 22. After the report of the Valuation Officer was received by the Assessing Officer, the assessee made certain objections as are contained in the assessment order. The Assessing Officer over-ruled these objections in the following manner:-- "The above statements of the assessee have been examined. The statement made before me are the same which were made before the Valuation Officer at the time of inspection of the building and later on and no new material have been brought on record. The assessee could not make out the case such as the huge difference in the investment shown by it and determined by the Valuation Officer. I, therefore, reject the assessee's contention and take the investment made by the assessee as under:" 23. In this connection, special mention is required to the use of the word 'same' by the Assessing Officer in the ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue. The appreciation of such documents is open to judicial scrutiny by a higher judicial forum and, therefore, necessarily requires the decision of the authority backed by proper and sound reasoning. In the case in hand, this is totally missing so much so that there is not even a reference to the Registered Valuer's report. As pointed out, the law does not admit of any substantial difference between the two experts, namely, a Valuation Officer and a Registered Valuer. One is not superior to the other; nor inferior. Both are statutory creations and are to perform functions provided by the relevant statute. In such a circumstance, both in law and equity it was the bounded duty of the Assessing Officer to take into consideration the report of the Registered Valuer also effectively and arrive at his own conclusion. Needless to say even at the cost of repetition that, since, the reference to the Valuation Officer had not been made a WTO under section 16A of the Wealth-tax Act, 1957, the same was not at all binding on him as envisaged by sub-section (6) thereof. It is also interesting to mention that the Assessing Officer has treated the report of the Registered Valuer as that of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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