ME & MUMMY HOSPITAL V. ASSISTANT COMMISSIONER OF INCOME TAX

SCA/7543/2005

AI Insights

The case involves Me & Mummy Hospital, a partnership firm, which challenged a reference order by the Assistant Commissioner of Income Tax to the DVO for valuing investments made in a hospital property. The reference was made under section 142A of the Income Tax Act, 1961, which allows the Assessing Officer to seek a valuation report if certain conditions are met. The petitioner argued that the reference was made without proper authority and was merely a fishing inquiry. The Department contended that the reference was valid as the assessment was not finalized at the time of the reference. The court sided with the petitioner, quashing the reference order.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 754457 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 12-02-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax vs. Umiya Co-op. Housing Society Ltd., Commissioner of Income-tax vs. Rajendra Aggarwal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S UDHIR M EHTA
• Assessee Lawyers: J P SHAH; MANISH SHAH
• Keywords: Assessment Year; Fishing inquiry; Unexplained investment; Valuation Officer; Investment Valuation
• Section: 69; 69B; 69A; 142A

Judgement Text

"C/SCA/7543/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 7543 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ ME & MUMMY HOSPITAL....Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX & 2....Respondent(s) ================================================================ Appearance: MR JP SHAH with MR MANISH J SHAH, ADVOCATES for the Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1 RULE SERVED for the Respondent(s) No. 1 - 3 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI Page 1 of 17 C/SCA/7543/2005 JUDGMENT and HONOURABLE MS JUSTICE SONIA GOKANI Date : 12/02/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has challenged reference order dated 30.3.2005 made by respondent no.1 Assessing Officer to Valuation Officer, Baroda calling for the valuation of investment made by the petitioner in the construction/renovation of the property mentioned in the order, namely, hospital building situated on the third floor of Jalnidhi complex, Surat. 2. Petition arises in the following factual background:- 2.1 The petitioner is a partnership firm. For the Assessment Year 2002-03 the petitioner filed its return of income on 29.10.2002. During the previous year relevant to the said assessment year, the petitioner had purchased a property for a hospital jointly with one Praful Doshi-HUF. The petitioner declared cost of property in the return at Rs.83.87 lakhs (rounded off). Page 2 of 17 C/SCA/7543/2005 JUDGMENT 2.2 On 30.3.2005, the Assessing Officer passed the impugned order requesting the Valuation Officer, Baroda to calculate the correctness of the cost of investment and authorized the said officer under section 142A of the Income Tax Act, 1961 (“the Act” for short) to inspect the property and make such investigation as considered necessary. The order of reference reads as under:- “To: Date:30/3/2005 The Valuation Officer Valuation Cell, Income tax Department, Baroda. Sir, Sub:-Valuing the cost of investment in the property belonging to M/s. Me & Mummy Hospital, 3rd floor, Jalnidhi, Opp.Bhumali Besides Navdi Ovara, Nanpura, Surat 395 ------------------------------------ M/s. Me & Mummy Hospital has invested in the construction/renovation of the property as per the details indicated below:- DETAILS: 1 Description of the Assets/ property giving exact location with complete address Hospital building/ Clinic at 3rd floor, Jalnidhi, Opp.Bahumali Besides Navdi Ovara, Nanpura, Surat 395 001 Page 3 of 17 C/SCA/7543/2005 JUDGMENT 2 Name & complete address of the Assessee with Telephone No., if any M/s. Me & Mummy Hospital 3rd floor, Jalnidhi, Opp.Bahumali Besides Navdi Ovara, Nanpura, Surat 395 001 3 Name & complete address & Telephone No. of the C.A/Lawyer or Assessee’s Authorised Representative dealing with the case, if any M/s. Hiren M.Diwan & Co. Surat 0261 2470102 4 Amount declared by the assessee as filed in the return of income for the Assessment Year or as admitted during Survey/Search Rs.83.87 lakhs as on 31/3/2002 (cost price) 5 Estimated cost of investment 6 Cost estimated by the Registered Valuer if any (copy of the Valuer’s Report to be submitted if available) Not available 7 Whether Valuation of Plant & Machinery is also required or whether a separate reference has been made directly to the Valuation Officer (M&P) or the same is attached with the reference Yes, and also furniture and fittings. 8 Period for which Valuation is required F.Y.2001-02 9 Grounds on which the opinion of the assessing officer is based N.A. 2(a) It is certified that the assessment for the period relevant to the above mention valuation period have been finalized. But, the Addl.CIT Range-6 has directed to refer the building to Valuation Cell. (b) The Assessment is getting time barred on 31/3/2005 for A.Y.2002-03. You are requested to submit the report on or before 30/4/2005 so that case can be reopened, if any variation is Page 4 of 17 C/SCA/7543/2005 JUDGMENT found preferably by 30/04/2005. In order to elucidate the correctness of the cost of investment, I require and authorize you u/s.142(A) of the Income Tax Act, 1961 to inspect the property and to make such investigation and seek clarification and material from the assessee and other concerned persons as are considered necessary and take such measures as are deemed fit for determining the true and correct cost of investment of the said property. You are requested to send your Valuation report to me in duplicate urgently and preferably by 30/4/2005. Yours faithfully, (SANJAY PUNGLIA) Asst. Commissioner of Income-tax Circle-6, Surat.” 3. On 31.3.2005, the Assessing Officer framed assessment of the return filed by the petitioner but left the question of investment in the acquisition of the hospital building unchanged. The petitioner carried the assessment order in appeal. We are not concerned with the details of the appellate proceedings. 4. When the petitioner received the notice from the District Valuation Officer (“DVO” for short) dated 15.4.2005 calling for details about the said investment, the petitioner filed this petition and challenged the very order of reference. Page 5 of 17 C/SCA/7543/2005 JUDGMENT 5. Learned counsel Mr.J.P.Shah for the petitioner inviting our attention to the reference order raised following contentions: (1) That as per the Assessing Officer the assessment was already finalized when the order of reference was passed. Therefore, since neither the assessment nor reassessment was pending on such date, the Assessing Officer had no authority to call for DVO’s report under section 142A of the Act. (2) That such report cannot be in anticipation of reopening the assessment as was done in the present case. (3) The Assessing Officer had no reason to call for the valuation. The Valuer’s report is called for only by way of fishing inquiry, which is not permissible. (4) Before making a reference calling for the report of the Valuer, the Assessing Officer must be satisfied that valuation for the purpose of sections 69,69A and 69B is required to be made. In the present case, no such eventuality existed when the reference was made. (5) He lastly contended that the Assessing Officer Page 6 of 17 C/SCA/7543/2005 JUDGMENT called for the report under the directives of his superior. In absence of his own satisfaction, such reference could not have been made. 6. Counsel relied on the decision of this Court in the case of Commissioner of Income-Tax vs. Umiya Co- op. Housing Society Ltd. reported in [2009] 314 ITR 272 (Guj) to contend that if no proceedings for assessment or reassessment are pending, the Assessing Officer would have no jurisdiction to call for the report of DVO. 7. On the other hand, learned counsel Mr. Sudhir Mehta for the Department opposed the petition raising following contentions:- (1) The petition is not maintainable. The petitioner has challenged only the order of reference. The Valuer’s report is yet to be made. At this stage, therefore, the petition is premature. (2) That the assessment was not yet finalized when the reference order was passed. In any case the petitioner had filed appeal against such order of assessment. The appeal would be continuation of the assessment proceedings and that therefore, the Page 7 of 17 C/SCA/7543/2005 JUDGMENT Assessing Officer was within his right to call for the report of DVO. In this context, counsel relied on the decision of Uttarakhand High Court in the case of Commissioner of Income-tax vs. Rajendra Aggarwal reported in [2012] 22 taxmann.com 40(Uttarakhand) in which the petitioner’s challenge to the order of reference under section 142A of the Act made by the Assessing Officer was rejected. The Court observed that the Assessing Officer was well within his power under section 142A to take up the issue of valuation of investment in the petitioner’s plant for reassessment, if necessary. 8. From the record, it emerges that the order of reference was passed on 30.3.2005. Though loosely mentioned in the said order but explained in the affidavit-in-reply filed before the Court, the assessment was not yet over on the day on which the said reference order was passed. Admittedly, the order of assessment was passed only on 31.3.2005. As held by this Court in the case of Commissioner of Income-Tax vs. Umiya Co-op. Housing Society Ltd.(supra) the matter can be referred to Valuation Officer only when the proceedings of assessment or reassessment are Page 8 of 17 C/SCA/7543/2005 JUDGMENT pending before the Assessing Officer. In the present case, however, such proceedings were not yet terminated and were thus pending. Even without, therefore, resorting to the logic adopted by Uttarakhand High Court in the case of Commissioner of Income-tax vs. Rajendra Aggarwal (supra), it can be safely taken that Assessing Officer, if other parameters of section 142A were satisfied, did have jurisdiction to call for the report from the Valuer. Uttarakhand High Court in the said decision, considered pendency of appeal against order of assessment as continuation of the assessment, and therefore, held that during the pendency of such appellate proceedings also power under section 142A can be exercised by the Assessing Officer. The decisions of Delhi, Allahabad and Karnataka High Courts taking contrary view were not followed. In the present petition, we are not concerned with this controversy and would, therefore, refrain from giving any expression of our opinion on the same. Suffice to conclude that assessment proceedings were pending before the Assessing Officer when the reference order was passed. Page 9 of 17 C/SCA/7543/2005 JUDGMENT 9. Despite such conclusion the crucial question is whether the requirements of exercising such powers under section 142A calling for DVO’s report are satisfied. In this context, we may peruse the provisions of section 142A more minutely. Section 142A pertains to estimate by Valuation Officer in certain cases and reads as under:- “Estimate by Valuation Officer in certain cases. 142A(1) For the purposes of making an assessment or reassessment under this 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 or fair market value of any property referred to in sub-section (2) of section 56 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: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be Page 10 of 17 C/SCA/7543/2005 JUDGMENT made in accordance with the provisions of section 153A.” 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)” 10. Power of the Assessing Officer for making a reference to the Valuation Officer seeking the estimate flows from sub-section (1) of section 142A. It provides that for the purposes of making 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 or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, such reference to make an estimate of such value can be made to the Valuation Officer. 11. We are not concerned with the fair market value of the property referred to in sub-section (2) of section 56. We would, therefore, confine our inquiry with respect to the provisions contained in sections 69, 69A and 69B of the Act. Since sub-section(1) permits the Assessing Officer to call for the Valuer’s Page 11 of 17 C/SCA/7543/2005 JUDGMENT report where an estimate of the value of such investment or value of billion or jewellery of valuable article is required to be made, for the purposes of invoking powers under sub-section (1) of section 142A, therefore, there must be a case where an estimate of the value of such investment or value of billion or jewellery or valuable article is required to be made. 12. Section 69 of the Act pertains to unexplained investment and starts with the expression “ Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of investments....” 13. Section 69A pertains to unexplained money etc. and starts with the expression “Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income and the Page 12 of 17 C/SCA/7543/2005 JUDGMENT assessee offers no explanation about the nature of source of acquisition of the money, bullion, jewellery or other valuable article....” 14. Likewise section 69B of the Act pertains to amount of investments etc., not fully disclosed in books of account. The said section starts with expression ”Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount...” 15. All these three provisions give rise to deeming fiction and consider such unexplained investment, unexplained money or investment not fully disclosed to be deemed income of the assessee. These provisions start with an essential requirement that the assessee has made such investments or that the assessee is found to be the owner of such money, bullion, Page 13 of 17 C/SCA/7543/2005 JUDGMENT jewellery etc. or where assessee has made investment or is found to be the owner of bullion, jewellery etc. which are not recored in the books of account and the assessee offers no explanation about the nature and source of such investment or expenditure or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. Common thread which runs through all these three provisions is that the assessee has made certain investments or expenditure or is found to be the owner of any billion, jewellery etc. and the same are not recorded in the books of account. 16. The Valuer’s report under section 142A of the Act is for the purpose of estimating value of such 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 of the Act. Unless, therefore, there is prima facie application of sections 69, 69A and 69B of the Act, reference to the valuer is simply not permissible. It is only when there is some material before the Assessing Officer to hold that in case of an assessee falls under sections 69, 69A and 69B as the case may Page 14 of 17 C/SCA/7543/2005 JUDGMENT be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc., call for the report of the Valuer. Initial starting point for triggering a reference to the Valuer, therefore, has to be invocation of sections 69,69A or 69B of the Act. It is only when any of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation under section 142A of the Act. In our opinion, the scheme of the provisions when read harmoniously would lead to a situation where in case the Assessing Officer, during the pendency of assessment or reassessment, is of the opinion that sections 69, 69A and 69B of the Act can be invoked; in order to estimate such unexplained investment or expenditure in acquisition of bullion, jewellery or valuable article, he can resort to valuation by the Page 15 of 17 C/SCA/7543/2005 JUDGMENT Valuation Officer in terms of sub-section (1) of section 142A of the Act. In the present case, no such material emerges from the record. To the contrary, neither from the order of reference nor from any other material, the respondent could point out that the Assessing Officer had invoked the provisions of sections 69,69A or 69B of the Act and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVO’s report was called. He simply gave no reasons in the order. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought to our notice. Thus quite apart from the petitioner’s grievance that the Assessing Officer merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report, in absence of any valid reasons for making a reference, in our opinion, the order must fail. 17. The objection of the Revenue that the petition is premature must be rejected out of hand. If the reference to DVO is simply not competent, we fail to see why the petitioner should be made to go through Page 16 of 17 C/SCA/7543/2005 JUDGMENT the gamut of supplying details permitting the Valuer to make his estimate. If eventually such report itself can be of no legal value, the inquiry must be terminated at the threshold. We do not see any other stage where the assessee can oppose the reference to the Valuer itself. 18. Under the circumstances, impugned order dated 30.3.2005 is quashed. The petition is allowed. Rule is made absolute. No order as costs. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) SUDHIR Page 17 of 17 "