VIJAYA KHANDELWAL V. INCOME TAX OFFICER

ITA/49/2003

AI Insights

The case involves four Income Tax Appeals (ITA No.48, 49, 50, and 51 of 2003) which were heard together due to their identical nature and similar facts. The appellant challenged the order of the Income Tax Appellate Tribunal, Cuttack, which had partly allowed the appeal and remitted the matter back with an estimation of Rs.2.50 lakhs for the cost of construction of a house. The main legal issues revolved around whether the Tribunal was justified in estimating the cost of construction despite the assessee maintaining proper accounts and vouchers, and whether the cost could be determined based on a departmental valuer's report rather than the assessee's detailed books. The court found that the Tribunal erred in proceeding on the basis of estimation when the books of account were not rejected by the Department.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 769589 (HC-CUTTACK)
• Appeal Type: Others
• Pronouncement Date: 13-03-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax-v-Hotel Joshi; reported in (2000) 242 ITR 478 (Raj)
• Laws Referred To: Income Tax Act
• Result in Favour of: Applicant
• Court: HIGH COURT
• Keywords: Books of account; Cost of construction; Estimation; Income tax appeal; Valuation Officer
• Section: 55A

Judgement Text

" ITA No.48, 49, 50 and 51 of 2003 05. 13.03.2019 Heard learned counsel for the parties. 2. All these four Appeals being identical in nature and being based on similar facts and law, all the four are taken up for disposal by this common order. For better understanding, ITA No.48 of 2003 is taken as leading case and the common order is being passed basing on the arguments laid in the said Appeal. 3. By way of this Income Tax Appeal, the appellant- assessee has challenged the order dated 30.06.2003 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack whereby learned Tribunal has partly allowed the order and remitted the matter back after giving estimation of Rs.2.50 lakhs . 4. This Court, while admitting the matter on 19.08.2008, has framed the following substantial questions of law: “(i) Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal is justified to determine the cost of construction of the house on estimation in view of its own finding that the assessee has maintained proper accounts with vouchers in respect of the investment made in the construction in question and no defect has been found out from such accounts by the Income Tax Department? (ii) Whether on the facts and circumstances of the case, the cost of construction of the house building can be determined on the basis of the departmental valuer’s report which is prepared on estimation and not in accordance with the State P.W.D. rate ignoring the detained books of account maintained by the assessee in respect of investment made in house property and no defect was point out by the Income Tax Department from such accounts?” ITA No.49 of 2003 2 5. Learned counsel for the appellant has taken us to the order of learned Tribunal at paragraphs-4, 5 and 6, which are extracted hereunder for ready reference. “4. We have heard both the parties and perused the records available on file. That as far as CPWD rates are concerned, the AO has already given a concession to the assessee by reducing the cost of construction as determined by DVO from Rs.385 to Rs.310 per sq. metre. 5. As regards supervision charges the CIT(A) has given him a relief on this point. The CIT (A) also gave relief regarding the cost of civil construction also. However, we feel that since the lower authorities have not disputed the fact that the assessee had maintained proper accounts and vouched for material purchased and utilized for construction of house building and have not found any defect on this score in his books of accounts. The books of accounts maintained by the assessee have been accepted by the department and therefore it looks odd as to not to accept the cost of construction shown by the assessee in his books of accounts. 6. Therefore, we feel that the assessee deserves some more relief on this count. He also deserves some relief on account of unfinished second floor of the building. We deem it fit that the valuation of the property should be further reduced by an amount of Rs.2,50,000/- as per pronouncement made by us in the open court at the time of hearing. If this amount is reduced from the figure taken by the CIT(A) then the cost of construction of property comes to Rs.23,08,610 (2556610-250000). The AO is directed to take this valuation as the cost of construction of property and he should accordingly determine the investment of the respective assessee in respective assessment years. 7. In the result the appeals of the assessee are partly allowed.” 5.1 Learned counsel for the appellant relied upon the decision of the Rajasthan High Court in the case of Commissioner of Income Tax-v-Hotel Joshi; reported in (2000) 242 ITR 478 (Raj), more particularly paragraphs-3 to 6, where it is observed as follows: 3 “3. Mr. Suresh Ojha, learned counsel appearing for the respondent-asses-see, submits that no fact has been brought before this court as to how the desired question of law arises out of the order of the Tribunal and how the Tribunal has erred in not making a reference. It is also submitted that in the D. B. Income Tax Reference No. 115 of 1995, the cost was based on the basis of PWD rates of the State but in the instant case, valuation of the cost of the building is not solely based on X-3 circular of the Rajasthan Government but the cost of the building has been estimated on the basis of the cost of each item of construction and otherwise referred to and used in construction. It is also submitted that the Tribunal, on principle held that if the books do not show any serious infirmity, they should be accepted. In the instant case, the Tribunal did not interfere with the order of the Commissioner of Income-tax (Appeals) as the assessee himself had procured the valuation of the registered valuer based on the rates of the Rajasthan P. W. D. It is also submitted that the finding of the Tribunal is based on appreciation of material on record and, as such, no question of law arises from the order of the Tribunal. 4. We have considered the rival contentions. At the first instance, we are in agreement with the view of the Commissioner of Income-tax (Appeals) that in the facts of the case, the Assessing Officer was in error in making a reference to the Valuation Officer under Section 55A of the Act to ascertain the fair market value of the hotel building. Section 55A of the Act reads as follows : \"55A. Reference to valuation officer.--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 a 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, 4 and where any such reference is made, the provisions of Sub-sections (2), (3), (4), (5) and (6) of Section 16A, Clauses (ha) and (i) of Sub-section (1) and Sub-sections (3A) and (4) of Section 23, Sub-section (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 Sub-section (1) of Section 16A of that Act.\" 5. A plain reading of the provision shows that an Assessing Officer with a view to ascertain the fair market value of a capital asset, has a discretion to refer to the Valuation Officer, only in the eventualities provided in the said provision. One of the eventualities is where the value of the asset as claimed by the assessee is in accordance with the assessment made by the registered valuer and in the opinion of the Assessing Officer, the value so claimed is less than its fair market value. Thus, in a case where the value of the asset is claimed by the assessee on the basis of regular books of account maintained for the purpose of construction of the asset and not on the basis of the valuation of the registered valuer, it will not be open for the Assessing Officer to make a reference to the District Valuation Officer unless the Assessing Officer forms an opinion that having regard to the nature of the asset and other relevant circumstances, it is necessary to do so. Thus, the powers under Section 55A cannot be exercised in a routine manner. For invoking Sub-clause (ii) of Clause (b) of Section 55A, the Assessing Officer is required to form an opinion on the basis of the material on record that reference to the District Valuation Officer for ascertaining the fair market value of the asset is necessary having regard to the nature of the asset and other relevant circumstances. It is also necessary to record as to why it is necessary to adopt such a course. 6. If the account of the expenses of the construction of the asset are maintained regularly in the books of account and an assessee also produces the vouchers, there should be no reason not to accept the same for assessing the value of the assets. It is unfair and against public policy to proceed on the assumption that the assessee is dishonest and he must have submitted an incorrect account of expenses. In case, the assessee has not maintained the regular books of account of the construction of asset and he relies upon the reports of the registered valuer, it will be open for the Assessing Officer under the provisions of Section 55A of the Act to 5 refer to the District Valuation Officer for valuation of the asset. In that event also, there cannot be a straitjacket formula that it is only the report of the District Valuation Officer based on the CPWD rates, which should be accepted or it is only the report of the registered valuer based on the rates provided by the public works department of the State, which should be preferred. The cost of construction varies from place to place depending upon the local conditions. The Assessing Officer is required to assess the value of the asset on appreciation of material before him. It may be pointed out that the CPWD rates are based on Instruction No. 1671. Para 4 of the instruction says that the data collected by the valuation cell is in the nature of broad guidelines and in its application to individual cases, may vary on the facts of a particular case. Thus, it is ultimately for the Assessing Officer to appreciate the material on record and satisfy himself as to the correct valuation of the asset. A reference to the District Valuation Officer would arise only in a case where the Assessing Officer is not satisfied with the account of construction produced by the assessee or where such account is kept and the assessee relies on the valuation report of the registered valuer. In a case where the Assessing Officer does not agree with the account submitted by the assessee with respect to the cost of construction, there must exist some strong reasons to disagree.” 5.2 Learned counsel for the appellant also contended that the Department has gone on the estimation basis and roughly reduced the valuation to Rs.2,50,000/-, which is not sustainable. The so-called estimation is contrary to the observation made in the impugned order. 6. Learned counsel for the respondents contended that view taken by learned Tribunal is just and proper and interference is uncalled for. 7. We have heard learned counsel for the parties. Taking into consideration the facts, more particularly when the learned Tribunal himself affirmed the action, wherein the books of account accepted by the Department, there is no scope of estimation. The Department ought to have gone 6 through the books of account which has been shown by the assessee. 8. In that view of the matter, question No.(ii) is only answered in favour of the assessee and we hold that learned Tribunal has committed an error in proceeding on the basis of estimation, when the books of account were not rejected by the Department. Accordingly, the issue is answered in favour the assessee and against the Department. In view of the answer in question No.(ii), the other question need not be answered. 9. Accordingly, the appeals are allowed to the extent stated above. Urgent certified copy of this order be granted on proper application. ……..………………… K.S. JHAVERI (CHIEF JUSTICE) ……..…………………… K.R. MOHAPATRA (JUDGE) jm/ss "