BASANTA KUMAR BISWAL V. COMMNR

SJC/120/1997

AI Insights

The case involves Chiranjib Biswal and others, who are the legal heirs of the original assessee, Sri Khetra Mohan Biswal, contesting the valuation of a commercial complex constructed on leasehold land from the State Government. The Income Tax Department challenged the assessee's declared construction cost, leading to a series of assessments and appeals. The ITAT upheld the AO's and CIT's decisions, which were contested in the High Court. The primary legal issues revolved around the admissibility of the DVO's valuation under Section 55A of the Income Tax Act and the appropriate classification of income from the commercial complex. The High Court's decision reversed the ITAT's findings on the valuation issue, aligning with precedents that restrict the AO's authority to refer valuation matters to the DVO under Section 55A.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 725967 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 12-05-2021
• Assessment Year: misc
• Other Referred Cases: Amiya Bala Paul v. Commissioner of Income Tax, Shillong, Commissioner of Income Tax v. Harchand Palace, Hotel Amar v. Commissioner of Income Tax and Ors
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R CHIMANKA
• Assessee Lawyers: S RAY
• Keywords: Construction cost; Income from house property; Income Tax; Natural Justice; Valuation
• Section: 148; 133(6); 55A; 142(2); 131(1); 256(2)

Judgement Text

" Page 1 of 9 IN THE HIGH COURT OF ORISSA AT CUTTACK S.J.C. Nos.120, 121 and 122 of 1997 In S.J.C. Nos.120, 121 and 122 of 1997 Chiranjib Biswal and others …. Petitioners Mr. S. Ray, Advocate -versus- Commissioner of Income Tax, Orissa …. Opposite Party Mr. R. Chimanka, Senior Standing Counsel CORAM: THE CHIEF JUSTICE JUSTICE K.R. MOHAPATRA Order No. ORDER 12.05.2021 09. I.A. Nos.4, 5 and 6 of 2019 1. This matter is taken up by video conferencing mode, in the Vacation Court. 2. These three I.As. have been filed in SJC Nos.120, 121 and 122 of 1997 respectively for amendment of the main applications by adding Question No.3 as mentioned in the scheduled of the I.As. 3. For the reasons stated, the I.As. are allowed. The amendment as sought is allowed. Consequently, Question No.3 as mentioned in the scheduled of the I.As. is added in the main applications for consideration. // 2 // Page 2 of 9 S.J.C. Nos.120, 121 and 122 of 1997 1. These three applications under Section 256 (2) of the Income Tax Act, 1961 (IT Act) are directed against a common order dated 22nd March 1996 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, Cuttack in ITA Nos.93, 94 and 95/CTK/95 for the assessment years (AY) 1988-89, 1989-90 and 1990-91 respectively. 2. The applications are admitted and the following common Questions of Law are framed for consideration. i. Whether on the facts and in the circumstances of the case, the Tribunal is legally justified to deny that rules of natural justice was not violated by the CIT (A) Orissa, Cuttack while he made use of materials available to him through the departmental valuer; and whether non- confrontation of the material did not vitiate the proceedings? ii. Whether on the facts and in the circumstances of the case the commercial complex as was constructed on the basis of the terms attached to the agreement and integrally and directly connected to the property itself should not have been held as income from business.\" // 3 // Page 3 of 9 iii. Whether the Assessing Officer was justified in referring the valuation of the construction of the multi storied building to the D.V.O. under Section 55A of the Income Tax Act? 3. The background facts are that Sri Khetra Mohan Biswal, the original Assessee, constructed a property known as \"market complex' in Bhubaneswar on a leasehold land obtained from the State Government for a period of sixty years. According to the Assessee, his main source of income prior thereto was from agricultural resources and interest on deposits. For the AY 1988- 89, the Assessee did not file his return. After notice was issued to him under Section 148 of the IT Act, he filed a return in which while disclosing the income from the agricultural resources and pisciculture, he claimed loss from the market complex. It may be mentioned here that the Assessee declared the cost of construction of the commercial complex, which construction started in 1987-88 and was completed during AY 1990-91, as Rs.18,11,500/-. According to the Assessee, he supported his claim with the valuation report of the registered valuer (RV). He sought to spread the investment over the three AYs. 4. The Assessing Officer (AO) did not accept the Assessee's claim regarding valuation of the cost of construction. He then referred it to the District Valuation Officer (DVO) of the IT Department, who initially estimated the cost of construction at // 4 // Page 4 of 9 Rs.28,11,600/-. However, after considering the objections of the Assessee, the DVO reduced the estimated cost to Rs.24,65,659/-. 5. The Assessee then filed a report dated 26th February 1994 of the RV, who placed the cost of construction at Rs.19,14,196/-. 6. The AO considered the valuation by the DVO as well as the report of the RV engaged by the Assessee. The AO held that some reduction is required on account of self supervision charges. The cost of construction was accordingly determined as Rs.24,06,309/-. Further, rejecting the Assessee's contention that the income earned from the commercial complex should be treated as business income, the AO proceeded to treat it as \"income from house property\". 7. While the assessment order for the year 1988-89 dated 31st March 1988, an order of the same line was passed by the AO for the following two AYs 1989-90 and 1990-91. 8. Aggrieved by the above assessment orders, the Assessee filed appeals before the Commissioner of Income Tax (Appeals) Orissa, Cuttack [CIT (A)]. 9. Before the CIT (A), the Assessee produced a fresh valuation report and other relevant documents. The CIT (A) accepted the cost of the construction as determined by the AO and allowed some reduction on ad hoc basis. The CIT (A) also agreed with // 5 // Page 5 of 9 the AO that the income would be treated as income from house property. 10. Aggrieved by the common order of the CIT (A) for the three AYs, the Assessee filed the aforementioned three appeals i.e. ITA Nos.93, 94 and 95/CTK/95 before the ITAT. The ITAT by the impugned order has upheld the order of the AO and CIT(A). 11. The Assessee filed Reference Applications under Section 256 (1) of the IT Act before the ITAT. The said Reference Applications Nos.37, 38 and 39/CTK/96, by an order dated 12th March 1997, were dismissed by the ITAT holding that no questions of law arose from the common orders passed in the three appeals by the ITAT. 12. During the pendency of the present applications, the original Assessee expired, and by an order dated 18th July 2001, he was substituted by Sri Basanta Kumar Biswal. Subsequently, Sri Basanta Kumar Biswal expired and by an order dated 14th August 2019, he was substituted by his legal heirs Chiranjib Biswal, Ranjib Biswal and Anuradha Biswal. 13. The Court has heard the submissions of Mr. S. Ray, learned counsel for the Assessee and Mr. R. Chimanka, learned Senior Standing Counsel for the Income Tax Department. // 6 // Page 6 of 9 14. Mr. S. Ray, learned counsel for the Petitioners has placed reliance on the judgment of the Supreme Court in Amiya Bala Paul v. Commissioner of Income Tax, Shillong AIR 2003 SC 2702 as well as on the decision of the Punjab and Haryana High Court in Commissioner of Income Tax v. Harchand Palace [2004] 269 ITR 251 (P & H) and the decision of this Court in Hotel Amar v. Commissioner of Income Tax and Ors [1993]200ITR785 (Orissa). 15. In Amiya Bala Paul (supra), the question that arose for consideration was as under: \"Whether on the facts and in the circumstances of the case, the Tribunal erred in law by holding that the Assessing Officer cannot refer the matter to the Valuation Cell (sic) for estimating the cost of construction of the house property.\" 16. In the above case, the ITAT had held that AO cannot refer the matter to the valuation officer for estimating the cost of construction of the house property. The High Court had reversed the order of the ITAT which led to the filing of the appeal in the Supreme Court. 17. The Supreme Court in Amiya Bala Paul (supra) came to the conclusion that under Section 55A of the IT Act, an AO could not refer the matter concerning valuation of cost of construction // 7 // Page 7 of 9 of house property to the valuation officer. It held that the powers available to a valuation officer under the Wealth Tax Act, 1957, was not available to an AO under the IT Act. It was held categorically that the power of the AO under Sections 131 (1) and 133 (6) of the IT Act is \"distinct from and does not include the power to refer the matter to the valuation officer under Section 55A. Not even the third Section i.e. Section 142 (2) of the Act on which reliance had been placed by the Respondent allows him to do so.” Accordingly, while upholding the order of the ITAT, the Supreme Court reversed the order of the High Court and answered the question in the negative. 18. Following the above decision in Amiya Bala Paul (supra), the High Court of Punjab and Haryana held in Commissioner of Income Tax v. Harchand Palace (supra) that no reference could be made to the DVO for ascertaining the cost of construction of the building. Even prior to the decision in Amiya Bala Paul (supra), this Court had in Hotel Amar (supra) held that the AO could not, under Section 55A of the IT Act, make a reference to the DVO to determine the cost of the construction. 19. In view of the settled legal position, Question No.3 referred to above is answered in the negative by holding that the AO in the present case was not justified in referring the valuation of the construction of the commercial complex to the DVO under // 8 // Page 8 of 9 Section 55A of the IT Act. In other words, the Question No.3 is answered in favour of the Assessee and against the Revenue. 20. Once it is clear that the report of the DVO could not be called for, that report necessary has to be cast aside. The last report of the RV as placed on record by the Assessee before the CIT (A) has to be accepted as correct. 21. Consequently, Question No.1 referred to above has been rendered academic and need not be answered. As regards Question No.2, in view of the consistent concurrent findings of the AO, CIT (A) and the ITAT and not being persuaded to take a different view, the Court concurs with those views that the income from the commercial complex constructed has to be treated as income from house property and not business income. 22. The impugned orders of the AO, CIT (A) as well as ITAT stand modified accordingly and the tax demand shall worked out on that basis for the three AYs in question. 23. The applications are disposed of in the above terms. 24. As the restrictions due to resurgence of COVID-19 situation are continuing, learned counsel for the parties may utilize a printout of the order available in the High Court’s website, at par with certified copy, subject to attestation by the concerned advocate, in the manner prescribed vide Court’s Notice No.4587, // 9 // Page 9 of 9 dated 25th March, 2020 as modified by Court’s Notice No.4798, dated 15th April, 2021. (Dr. S. Muralidhar) Chief Justice (K.R. Mohapatra) Judge S.K. Guin. "