Bombay H.C : Notice dated 21st December, 2006 and 2nd February, 2007 issued by the District Valuation Officer (DVO) under Section 55A

High Court Of Bombay

Rallis India Ltd. vs. CIT (Appeals)- XXI, Mumbai

Section 251, 55A

Assessment year 2002-03

M.S. Sanklecha And G.S. Kulkarni, JJ.

Writ Petition No. 610 Of 2007

February 23, 2015

JUDGMENT

M. S. Sanklecha, J. – The challenge in this Petition under Article 226 of the Constitution of India is to the notice dated 21st December, 2006 and 2nd February, 2007 issued by the District Valuation Officer (DVO) under Section 55A of the Income Tax Act, 1961 (the Act). The substance of the Petitioner’s challenge is to the jurisdiction of the Commissioner of Income Tax (Appeals) [CIT(A)] under the Act to make a reference to the District Valuation Officer (DVO) in an Appeal before it for determining the FMV (FMV) of land as on 1st April, 1981. It is this reference by the CIT(A) which led to the issue of the two impugned notices.

2. This Petition was admitted on 24th April, 2007 and the proceedings calling for the report from the DVO was stayed.

3. Shorn of details, the facts are as under:—

(a) For the Assessment Year 2002-03, the Petitioner filed its return of income, returning a loss of Rs.107.63 Crores. During the previous year relevant to Assessment Year 2002-03, the Petitioner had sold its property at Andheri (land) for a consideration of Rs.131.15 Crores. For the purposes of computing its long term capital gains on the sale of land, the Petitioner adopted FMV of the land as on 1st April, 1981 at Rs.46.70 Crores. This was on the basis of a valuation report submitted by a registered valuer. The resultant difference between the sale price and the FMV on 1st April, 1981 of the land, was subject to capital gain tax;

(b) The Assessing Officer by his order dated 24th March,2005 passed an order under Section 143(3) of the Act. The Assessing Officer did not accept the FMV of the land at Rs.46.70 as claimed by the Petitioner but estimated the FMV as on 1st April, 1981 of the land at Rs.17.48 Crores. On the basis of the difference between the selling price and the FMV of the land as on 1st April, 1981 as estimated by the Assessing Officer was subjected to tax. The Assessment Order dated 24th March, 2005 determined the Petitioner’s income at Rs.47.43 lakhs.

(c) Being aggrieved, the Petitioner filed an Appeal to the CIT(A). In its appeal, the Petitioner, inter alia challenged the FMV of the land as on 1st April, 1981 done by the Assessing Officer. Pending disposal of the Appeal by the CIT(A), the Petitioner received a notice dated 19th April, 2005 from the DVO under Section 55-A of the Act, seeking particulars to determine the FMV of the land as on 1st April, 1981. This notice was on the basis of a reference made on 7th April, 2005 by the Assessing Officer to the DVO;

(d) The Petitioner challenged the notice dated 19th April, 2005 issued by the DVO under Section 55-A of the Act at the instance of the Assessing Officer by filing a Writ Petition No.392 of 2006 in this Court. By order dated 3rd April, 2006, this Court in the above Petition quashed the notice dated 19th April, 2005 issued by the DVO at the instance of the Assessing Officer. This on the ground that once the Assessing Officer has passed an assessment order, he becomes functus officio. Thus, after passing the assessment order, it is not open to the Assessing Officer to make any reference to the DVO to determine the FMV of the land as on 1st April, 1981 under Section 55-A of the Act;

(e) Thereafter, notices dated 26th December, 2006 and 2nd February, 2007 issued under Section 55-A of the Act were received by the Petitioner from the DVO. By the above notices, the Petitioner was called upon to furnish certain details with regard to the land for determining its FMV of land as on 1st April, 1981. The above notices state that the information is being sought to determine the FMV in view of the reference made to it by the CIT(A); and

(f) The aforesaid notices dated 26th December, 2006 and 2nd February, 2007 are a subject matters of challenge in the present Petition.

4. Mr. Pardiwalla, Sr. Counsel with Mr. Jain, in support of the Petition, submits as under:—

(a) The reference to the DVO by the CIT(A) under Section 55-A of the Act for determining the FMV of the land as on 1st April, 1981 is without jurisdiction. As in terms of Section 55-A of the Act, the jurisdiction to make such a reference is only with the Assessing Officer and not with any other authority;

(b) The reference made by the CIT(A) to the DVO under Section 55-A of the Act would be contrary to and in defiance of the order of this Court dated 3rd April, 2006 in Writ Petition No.392 of 2006;

(c) The Supreme Court in Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407/130 Taxman 511, has held that no reference can be made for determining the fair market value of immovable properties in the absence of a specific provision under the Act. The DVO gets jurisdiction to act upon the reference only if the same is made under Section 55-A of the Act and not otherwise;

(d) The Parliament has not empowered the CIT(A) while entertaining an appeal under Section 250 of the Act to make a reference to DVO under Section 55A of the Act. This is evident from specific provision found in Section 23A(7) of the Wealth Tax Act, which is pari materia to the powers of the CIT(A) under Section 250 (4) of the Act; and

(e) Without prejudice to the aforesaid, it is submitted that the jurisdiction under Section 55-A of the Act, can only arise if at the relevant time, the Assessing Officer or CIT(A) is of the opinion that value of land estimated by the Registered Valuer is less than its FMV. In this case, it is not disputed that the value of the land declared by the Registered Valuer is not less than its FMV.

5. As against above, Mr. Pinto, learned Counsel appearing for the Revenue opposes the Petition and submits as under:—

(a) No reference has been made by the CIT(A) to the DVO under Section 55-A of the Act. In support, reliance is placed upon the Affidavit in reply dated 11th April, 2007 and in particular to letter dated 21st December, 2006 of the CIT(A) to the DVO;

(b) This reference by the CIT(A) to the DVO is in exercise of its powers under Section 250(4) of the Act to make such further enquiry as he deems fit;

(c) The mere reference in the notice to Section 55-A of the Act by the DVO in his notices dated 26th December, 2006 and 2nd February, 2007 would not by itself make it an enquiry under the aforesaid provisions;

(d) The reliance upon the powers of the Appellate Authority under Wealth Tax Act is inappropriate as this Petition is concerned with the powers of appellate authority under the Act. Thus reference to the Wealth Tax Act is un-called for; and

(e) The issue whether or not, the CIT(A) satisfied the condition precedent to make a reference to the DVO under Section 55-A of the Act is an issue which could be determined by the CIT(A) in case the Petitioners take an objection before him in that regard. In any case, this enquiry by the CIT(A) not being under Section 55-A of the Act, there is no occasion to refer to the same when the CIT(A) exercises his power under Section 250(4) of the Act as an Appellate Authority.

6. On a query as made by us that the impugned notices are titled as a ‘Notice under Section 55A’, Mr. Pinto, learned Counsel for the Revenue submits that the impugned notice has not been issued under Section 55A of the Act, though so titled. He submits in fact, no reference under Section 55-A of the Act was made by the CIT(A) to the DVO and, therefore, no notice invoking Section 55A of the Act could be issued by the DVO. It was submitted that reference to Section 55A of the Act in the impugned notices by the DVO is a mistake and must be ignored.

7. On the background of the aforesaid submissions, the question which would arise is whether the CIT(A) is entitled to make a reference to the DVO under Section 250A(4) of the Act to determine the FMV of the property. It must be noted that the Respondents have not denied/ disputed that the reference made by the CIT(A) to the DVO is to determine a FMV of the land as on 1st April, 1981 for the purposes of determining the capital gains chargeable to tax. This is evident from the communication dated 21st December, 2006 addressed by the CIT(A) to the DVO which reads as under:—

“To ,

The District Valuation Officer,

Piramal Chambers,

Lal Bagh, Parel,

Mumbai 400 007.

Sub: Appeal No.CIT(A)XXI/1(3)/IT.53/05-06 in the case of Rallis India Ltd. A. Y . 2002-03.

Please refer to the above.

This is with reference to letter No.DCIT. Cir.10/04-05/Kol/14 dt. 7.4.2005 of Dy. CIT. Circle-10, Kolkata regarding valuation of the plot located at Suren Road, Plot bearing CTS Nos.221 to 227, 229 to 233, 236, 237, 244 and 245 of Village Gundavali at Andheri (E), Mumbai 400 093 (copy enclosed for your convenience). Appeal has been filed in the above case on the ground that the AO erred in not accepting the valuation report giving the fair market value as on 1.4.81 at Rs.46.70 crores of Andheri property furnished by a registered valuer and, that the valuer had valued the said property without substantiating the basis and the AO further erred in valuing the said property as on 1.4.1981 on an adhoc basis at Rs.17.48 crores. For this purpose, AO has referred the matter to you for valuation of the said plot. However, same has been quashed by Hon’ble High Court.

2 In view of the order of Hon’ble High Court, you are requested to forward a report on this matter at the earliest so as to enable this office to dispose the appeal as it is high demand appeal.”

Sd/-

The above letter makes a reference to the valuation of the land as on 1st April, 1981. It also refers to the reference by the Assessing Officer to the DVO and seeking a report which had been quashed by the High Court to enable the CIT(A) to dispose of the appeal.

8. It is contended by the Petitioner that under the Act as existing at the relevant time, a reference to the DVO can be made only under Section 55-A of the Act for the purposes of determining the FMV as on 1st April, 1981. This power to make a reference to the DVO has been bestowed only upon the Assessing Officer. It is submitted that if the Assessing Officer fails to make such a reference, no other authority can make a reference to the DVO under Section 55-A of the Act.

9. Mr. Pinto, learned Counsel appearing for the Revenue accepted the submission on behalf of the Petitioner and specifically states that the CIT(A) does not have any jurisdiction to make a reference to DVO under Section 55A of the Act. However, Mr. Pinto states that where the Assessing Officer has failed to make a reference when obliged to do so under Section 55-A of the Act, then the CIT(A), in an Appeal being heard by him, can make a reference under Section 250(4) of the Act to the DVO to make such further enquiry so as to determine FMV of the land as on 1st April, 1981.

10. Therefore, we shall first deal with the Revenue’s submission that the impugned communication are consequent to reference made by the CIT(A) in exercise of his powers under Section 250(4) of the Act as an appellate authority. Section 250(4) of the Act reads as under:—

” The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals).”

Mr. Pinto, learned Counsel appearing for the Revenue submits that this power is very wide. There are no fetters to it. Thus, the CIT(A) can make any enquiry which he deems fit.

11. However, according to us, this power to make further enquiry under Section 250(4) of the Act can only be in respect of issues which arise under the Act and for which specific provision have been made and the Assessing Officer has failed to do what he ought to have done. Thus, this power of enquiry though very wide has to find its source in one of the substantive provisions of the Act. It is in the context of substantive provisions that the CIT(A) has to examine whether Assessing Officer either did no enquiry at all or made insufficient enquiry. This power cannot be exercised dehors the substantive provisions of the Act. We find that the only provisions then existing to make reference to the DVO for the purposes of determining the FMV to compute the capital gains was found in Section 55-A of the Act.

12. We shall now deal with the contention of the Petitioner that there is no power available to CIT(A) under Section 55A of the Act to make any reference to the DVO. It is submitted that power under Section 55A of the Act can only be exercised by the Assessing Officer. In support of its submissions, the Petitioner has drawn attention to Sections 131, 133, 134, 189(2), 271(1)(c),271G, 271A and 271AA of the Act where specific reference has been made to the CIT(A) along with a reference to the Assessing Officer. This is being relied upon to suggest that if the powers under Section 55A of the Act could be exercised by the CIT(A), it would have been so mentioned eo nominee therein. All the above Sections being referred to above by the Petitioner are in a different context. Some of them are in respect of imposing penalty in appellate proceedings to take to take care of situations where no penalty has been imposed by the original authority. None of the above Sections are in respect of jurisdiction of the CIT(A) as an appellate authority from an order passed by the Assessing Officer. If the Petitioner’s submission is to be accepted, then in an appeal from an assessment order under Section 143(3) of the Act by the Assessing Officer, it would not be open to the CIT(A) to allow any claim which has been rejected by the Assessing Officer as Section 143(3) of the Act does not refer to CIT(A). In terms of Section 143(3) of the Act, it is only the Assessing Officer who can allow or reject a claim and arrive at the taxable income. Thus, we do not find any substance in the submissions of the Petitioner that in view of the fact that Section 55A of the Act does not mention CIT(A), the Section cannot be invoked by him. It also must be borne in mind that making a reference to the DVO under Section 55A of the Act for determination of capital gains is a part of the process in passing an assessment order under Section 143(3) of the Act.

13. It is undisputed that the power of a CIT(A) is co-terminus with that of the Assessing Officer. In fact, the CIT(A) can do what the Assessing Officer can do and has failed to do as held by the Apex Court in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225. Thus, in this case, even according to the Petitioner, the Assessing Officer could make a reference to the DVO but he failed to do so during the assessment proceedings. This Court in W. P. No.392 of 2006 by order dated 3rd April, 2006 set aside the reference to the DVO by the Assessing Officer as it was made after he had passed the assessment order and ceased to have jurisdiction. However, it is undisputed that during the assessment proceedings before him, the Assessing Officer could have made a reference to the DVO and yet he choose not do or failed to do. This failure or conscious decision of not referring to the DVO could be a subject matter of examination by the CIT(A), in an appeal before him. In this case, the issue of the FMV as on 1st April, 1981 was admittedly raised by the Petitioner in its appeal before the CIT(A). Thus the CIT(A) during the appellate proceedings before him can exercise powers under Section 55A of the Act and can make such enquiry in terms of Section 250(4) of the Act, either himself or direct the Assessing Officer to do so and report in terms of Section 250(4) of the Act. The order of this Court dated 3rd April, 2006 in W. P. No.392 of 2006 has no application in the present facts.

14. Thus, the CIT(A) can make further enquiries into FMV as on 1st April, 1981 in view of the Assessing Officer failing to make such enquiry under Section 55-A of the Act while passing the Assessment Order. The only other provision to make a reference to a Valuation Officer is Section 142-A of the Act introduced by Finance (No.2) Act 2004 with retrospective effect 15th November, 1972. Section 142-A of the Act deals with determination of the FMV of investments referred to in Section 69 or 69-B of the Act or to the value of bullion, jewellery or other valuable articles referred to Section 69-A or 69-B of the Act or in respect of FMV of any property referred to in Section 56(2) of the Act. In this case, the reference which had to be made by Assessing Officer to the DVO is under Chapter IV – part (E) of the Act while the reference which is to be made under Section 142-A of the Act is in respect of Chapter IV – part (F) and Chapter VI of the Act. Therefore, Section 142-A of the Act would have no application to the present facts.

15. It is a settled position that the provisions of Section 55-A of the Act which were amended in 2012 by substituting the following words “as it variance with its FMV” for “is less than its FMV” is clarifactory and not retrospective as held by this Court in CIT v. Puja Prints [2014] 360 ITR 697/24 Taxman 22/43 taxmann.com 247. Therefore, the Revenue did not contend that the provisions of Section 55-A of the Act is retrospective. It, therefore, follows that where admittedly the value arrived at by the Registered Valuer of the land is more than its FMV, no jurisdiction is acquired by the authorities to invoke Section 55-A of the Act.

16. Although reference has been made to the provisions of the Wealth Tax Act, we are as pointed out above, of the view that the CIT(A) does have power to make a reference to the DVO under Section 55-A of the Act. Moreover, an appeal under Section 23A(7) of the Wealth Tax Act to the first Appellate Authority would also lie from an order of the DVO’s having the effect of varying the value of the property independently of any assessment order. Thus, according to us, the provisions made in the Wealth Tax Act will not in any manner influence the interpretation of Section 250(4) of the Act.

17. However, before the CIT(A) makes a reference, to the DVO, in term of Section 55A of the Act, he should be of the opinion that the value determined by the Registered Valuer as the FMV of the property as on 1st April, 1981 is less than its FMV. Only on having formed the above opinion, the CIT(A) is entitled to call upon the DVO to submit a report with regard to its FMV as on 1st April, 1981. However, as rightly contended by the Revenue, this is an issue which the Petitioner could urge before the CIT(A) and satisfy him that a reference is not called for to DVO under Section 55A of the Act. As this is an issue to be decided by the CIT(A), on his satisfaction, we would not preempt his jurisdiction to decide on the facts as found by him.

18. We find as observed above, the powers under Section 250(4) of the Act of the CIT(A) though very wide, yet it would be circumscribed by the substantive provisions of the Act. The enquiry made by the CIT(A) under Section 250(4) of the Act cannot be outside the scope of the Act. The Revenue in spite of our repeated efforts insists on the fact that the power is being exercised only under Section 250(4) of the Act alone. No other provisions of the Act to determine capital gains under which the enquiry could be directed the CIT(A) in the present facts is applicable according to revenue. In view of the above, we cannot sustain the reference under Section 250(4) of the Act.

19. It may be pointed out that the Supreme Court in Smt. Amiya Bala Paul (supra) dealt with somewhat similar issue and the Revenue therein relied upon Section 142(2) of the Act to contend that by virtue of the above provisions, the Assessing Officer could order an enquiry by the DVO de hors Section 55A of the Act.

For convenience, we reproduce Section 142(2) of the Act as under:—

“For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary.”

The Supreme Court held that above provisions reiterates that the Assessing Officer is a fact finding authority. It is the opinion of the Assessing Officer consequent to an enquiry by him and not by a DVO. The Court observed that ” A report by the Valuation Officer under Section 55A of the Act is on the other hand the outcome of any inquiry held by the Valuation Officer himself and reflects his opinion on the evidence before him. Such a report would not be the result of an inquiry by the Assessing Officer.” Thus, Section 142(2) of the Act can not be the source of the power of the CIT(A) to direct the DVO to make an enquiry.

20. We have discussed the above issues, as we were of the view that notwithstanding the stand of the Revenue and the Petitioner that the CIT(A) cannot invoke Section 55A of the Act for making further enquiries in appeal, we do not agree with the same. Moreover, the CIT(A) before invoking the provisions of Section 55A of the Act has to form an opinion that the value determined as the value of the land as on 1st April, 1981 by the Registered Valuer was less than its FMV on that date. This exercise has not been done by the CIT(A) as according to the Revenue, he has not exercised powers under Section 55A of the Act. We, therefore, find that the impugned notices dated 26th December, 2006 and 2nd February, 2007 of the DVO not having been issued under Section 55A of the Act according to the Revenue, are quashed and set aside. However, the CIT(A) is at liberty to exercise powers under Section 250(4) read with Section 55A of the Act, if he is of the opinion that the conditions for its invocation are satisfied after hearing the Petitioner’s on the above aspect.

21. Accordingly, Petition is allowed in the above terms.

22. Before closing, we record with pain our dismay in the manner in which the Revenue has assisted us in this Petition. The Petition was first heard on 7th January, 2015 and 8th January, 2015 and thereafter reserved for orders. At that time, all proceeded on the basis that the Counsel for the Revenue is appearing for all the Respondents. However, to seek clarification, we put the matter on board on 22nd January, 2015 under caption ‘for directions’. At that time, we asked Counsel for the Revenue the exact stand of the DVO who has issued the impugned notice dated 21st December, 2006 and 2nd February, 2007 in respect of the Sections 55A of the Act invoked by him. At that time, Counsel for the Revenue informed us that he is briefed only to appear for Respondent Nos.1, 3 and 4 and that he does not appear for the DVO – i.e. Respondent No.2 and therefore, is unable to respond to our query. In the above circumstances, we closed the matter ‘for orders’.

23. Thereafter, it was brought to our notice that Counsel for the Revenue has filed his Vakalatnama only on 2nd February, 2015 wherein the name of the Respondent was indicated as Commissioner of Income Tax-3 who incidentally is not one of the parties to the Petition. In the above circumstances, we again kept the matter ‘for directions’ on 6th February, 2015. On pointing out the aforesaid facts, Counsel for the Revenue submitted that he would file fresh Vakalatnama in respect of all the Respondents and that he does appear for all the Respondents. This, after we pointed out that at the time of admission, the Counsel for the Respondents had waived service for all the Respondents including the DVO. We do understand that neither the Respondents or its Counsel had anything gain on the above account. It appears to have happened due to lack of adequate care.

24. Thereafter, we kept the matter on board again ‘for hearing’ on 12th February, 2015 to enable the Counsel for the Revenue to file his Vakalatnama as well as to respond to our query with regard to the DVO. On 12th February, 2015, when the matter was called out, none appeared for the Revenue. Unmindful of the fact that the Petition was listed only to accommodate the Revenue, it was after about 5 to 7 minutes of calling out the Petition shown as part-heard, that the Counsel for the Revenue walked into the Court and mentioned that he was busy in the another Court. Thereafter, we heard the Revenue.

25. We find that the Respondent-Revenue brief only a few selected counsel in all matters. This consequently results in the Counsel briefed for the Revenue not being completely prepared as it is humanly impossible for a Counsel to adequately prepare oneself in more then a couple of matters on an average per day. This results in lack of proper assistance to the Court. It would be proper that the Respondent-Revenue brief Counsel on their panel across the board so as to ensure that the Counsel have time to properly prepare themselves to render proper assistance to the Court.

26. We hope that the Respondent will give due consideration to our suggestion and appropriately distribute cases amongst its panel Counsel.

27. As mentioned at paragraph 21 above, Petition allowed in the above terms. No order as to costs.

[Citation : 374 ITR 462]

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