Bombay H.C : Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in holding that the AO was not justified in reopening the assessment on the basis of the valuation report obtained by him subsequent to the date of completion of assessment ?

High Court Of Bombay

Commissioner Of Wealth TAX vs. Sona Properties (P) Ltd.

Section WT 16A, 17(1)

Asst. Years 1988-89, 1989-90, 1991-92, 1992-93

F.I. Rebello & R.S. Mohite, JJ.

WT Appeal Nos. 163, 174, 188, 195 & 196 of 2004

7th April, 2008

Counsel Appeared :

A.S. Rao with P.S. Sahadevan, for the Appellant : A.K. Jasani with S.N. Inamdar, for the Respondent

JUDGMENT

F.I. Rebello, J. :

All these appeals are being disposed of by this common order as the questions of law in issue are the same. The question of law as framed on behalf of Revenue reads as under :

“Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in holding that the AO was not justified in reopening the assessment on the basis of the valuation report obtained by him subsequent to the date of completion of assessment ?”

The learned Tribunal in the appeals preferred by the Revenue against the order of the CIT(A)s dismissed the same by a common order, being WTA Nos. 806 to 810/Mumbai/1998 for the asst. yrs. 1988-89 to 1992-93. As there are differences on facts, we will briefly set out the relevant facts in each of the appeals.

2. WT Appeal No. 188 of 2004 is in respect of the asst. yr. 1988-89. In that case return of wealth was filed on 29th July, 1988. The assessment under s. 16(1) was made on 27th March, 1992. The reference was made to District Valuation Officer (DVO) on 9th Nov., 1993. The valuation report was received on 29th March, 1994. The notice under s. 17 for reopening the assessment was issued on 29th March, 1996. The reference to DVO, thus was made after the completion of assessment. WT Appeal No. 174 of 2004 is for the asst. yr. 1989-90. The original assessment under s. 16(1) was made on 27th March, 1992. The reference to DVO was made on 9th April, 1993. The report from the DVO was received on 29th March, 1994. Notice under s. 17 was issued on 29th March, 1996. The reopening was thus sought based on the report of DVO which was called for after the assessment order was passed.

3. WT Appeal No. 195 of 2004 is in respect of the asst. yr. 1990-91. The original return was filed on 28th Dec., 1990. It was processed under s. 16(1)(a). On 21st May, 1991 the appellant filed a revised return declaring net wealth. On 25th March, 1993 the appellant filed another revised return. The assessment was completed under s. 16(3) on 31st March, 1994. The report from the DVO was called on 9th Jan., 1993. The report was received on 19th Dec., 1994. Therefore, the report was called for during the pendency of the proceedings before the WTO but the report was received after the order under s. 16(3) was made on 31st March, 1994. Notice under s. 17 was issued on 29th March, 1996.

4. WT Appeal No. 163 of 2004 is for the asst. yr. 1991-92. The return was filed on 31st Dec., 1991. The report was called for on 9th Nov., 1993. The DVO submitted his report dt. 19th Dec., 1994. The original return was accepted under s. 16(1). The date of the order is not available on the record. At any rate the order ought to have been passed not later than 31st Dec., 1994. In this case also therefore, the report was called for before the order of assessment but was received subsequent to the order of assessment. WT Appeal No. 196 of 2004 is for the asst. yr. 1992-93. The return of wealth was filed on 31st Dec., 1992 and the same was processed under s. 16(1) of the WT Act. The assessment under s. 16 (1) was completed on 8th Nov., 1994. The report from the DVO was called on 9th Nov., 1993. The DVO’s report was received subsequently. Notice under s. 17(1) was thereafter issued.

5. Thus for the asst. yrs. 1990-91, 1991-92 and 1992-93 the report was called from the DVO during the pendency of the proceedings before the WTO. The report was received subsequently to the order passed by the WTO.
Insofar as asst. yrs. 1988-89 and 1989-90 the report was called subsequent to the order of assessment by the WTO

6. To answer the question therefore, we will have to answer the following issues :

(1) Was it open to the AO to issue notice under s. 17 for reopening of assessment based on the report of the DVO which was called for after the assessment order was passed insofar as asst. yrs. 1988-89 and 1989-90 ?

(2) Can the report called from the DVO before the assessment order was passed but received after the order was passed, constitute material for “reason to believe” based on which notice under s. 17, could have been issued for reopening the assessments already completed ?”

Before answering these issues, it would be necessary to refer to the relevant provisions of s. 16A of the WT Act. “Sec. 16A. Reference to Valuation Officer—(1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, where under the provisions of s. 7 read with the rules made under this Act or, as the case may; be, the rules made in Sch. III, the market value of any asset is to be taken into account in such assessment, the AO may refer the valuation of any asset to a Valuation Officer— (a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the AO is of opinion that the value so returned is less than its fair market value; (b) in any other case, if the AO is of opinion— (i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned 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. …………….. (6) On receipt of the order under sub-s. (3) or sub-s. (5) from the Valuation Officer, the AO shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.” Similarly gainful reference may be made to s. 17 which reads as under :

“17. Wealth escaping assessment—(1) If the AO has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year (whether by reason of under-assessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and s. 17A, serve on such person a notice requiring him to furnish within such period, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under s. 14 : Provided that where an assessment under sub-s. (3) of s. 16 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any net wealth chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 14 or s. 15 or in response to a notice issued under sub-s.(4) of s. 16 or this section or to disclose fully and truly all material facts necessary for his assessment for that assessment year : Provided further that the AO shall before issuing any notice under this sub-section, record his reasons for doing so.

Explanation : Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. (1A) No notice under sub-s. (1) shall be issued for the relevant assessment year : (a) if four years have elapsed from the end of the relevant assessment year unless the case falls under cl. (b). (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees ten lakhs or more for that year. Explanation : For the purposes of sub-s. (1) and sub-s. (1A), the following shall also be deemed to be cases where net wealth chargeable to tax has escaped assessment, namely : (a) where no return of net wealth has been furnished by the assessee although his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax. (b) where a return of net wealth has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the net wealth or has claimed excessive exemption or deduction in the return.”

7. A reading therefore, of the provisions of s. 16A would indicate that for the purpose of making assessment it is open to the WTO to refer for valuation the property to the Valuation Officer. If the WTO exercises discretion to call for the report from the DVO, the DVO after complying with the procedural formalities as contemplated by sub-ss. (4) and (5) of s. 16A will pass an order in writing estimating the value of the asset and send a copy to the AO and to the assessee. The WTO, concerned, has to proceed to complete the assessment in conformity with the estimate of the Valuation Officer. Sec. 16A(3) sets out that if the Valuation Officer is satisfied that the valuation of the asset as it has been correctly declared in the return, he shall pass order in writing to that effect and send a copy of the order to the WTO and to the assessee. Under s. 16A(4), where the Valuation Officer is of the opinion that the valuation of the asset is higher than the value declared in the return made by the assessee under s. 14 or s. 15, or where the asset is not disclosed or the value of the asset is not declared in such return or where no such return has been made, the Valuation Officer shall serve a notice on the assessee intimating the value which he proposes to estimate and giving the assessee an opportunity to state, on a date to be specified in the notice, his objections either in person or in writing before the Valuation Officer and to produce or cause to be produced on that date such evidence as the assessee may rely in support of his objections. It is thus clear on this procedure being satisfied, the order estimating the value is binding on the WTO.

The other aspect of the matter on a reading of the provisions is that the report can be called for only when there are proceedings pending before the WTO. There is nothing in the WT Act or Rules which provides that the WTO can call for a report from the DVO after the order of assessment is completed. That jurisdiction is conferred when he is seized of the matter under s. 16 of the Act.

We may also note that insofar as reassessment is concerned, in cases covered by s. 16(3) there is a limitation. There is no limitation insofar as assessments completed under s. 16(1) of the Act.

9. With that background before answering the issues we may gainfully refer to the law as understood by this Court and several other High Courts. In Tulsidas Kilachand vs. D.R. Chawla & Ors. (1980) 122 ITR 458 (Bom) the proceedings were sought to be reopened by issuing show-cause notice under s. 17(1)(b) of the WT Act. After the assessment was completed, the WTO called for the report from the DVO and based on this issued notice under s. 17(1)(b). A learned Judge of this Court noted that the jurisdiction to open assessment orders which had become final can be exercised provided the officer has reason to believe from the information in his possession that the earlier orders escaped the net wealth chargeable to tax and that mere change of opinion of the succeeding officer is not enough and especially when before passing the assessment order the officer could have easily ascertained the correctness of the statements made in the return. The Court noted that in that case the only information available with the respondent No. 1 is a valuation report and the mere fact that the two valuers have given conflicting reports about the true value of the properties is not sufficient to reopen the assessment under s. 17(1)(b) of the WT Act, and consequently struck down the notice. In Smt. Bella Cajeton Travasso vs. WTO & Ors. (1986) 58 CTR (Bom) 223 : (1987) 166 ITR 49 (Bom) the report of the DVO was called for after the final assessment order was already passed. A learned Judge of this Court was pleased to hold that s. 16A permits calling of a valuation report before the assessment is finalised and that it is not permissible to make reference to the Valuation Officer after it is already finalized. The petition was partly allowed. The Valuation Officer was permitted to proceed to valuate for the assessment years where the orders had not been passed. This judgment was followed by another learned single Judge in Shantilal Bhogilal Jhaveri & Ors. vs. C.L. Bhatia, WTO & Ors. (1991) 92 CTR (Bom) 241 : (1991) 187 ITR 395 (Bom). In Smt. Uma Debi Jhawar vs. WTO & Ors. (1982) 136 ITR 662 (Cal) the learned single Judge of the Calcutta High Court again was dealing with the issue whether the report had been called from the DVO after the assessment has been completed. The learned Judge noted the intent and or purpose for which s. 16A was introduced and held that s. 16A had no relevance and cannot be applied after the assessment is completed and before reassessment is commenced and that the report of the Valuation Officer under s. 16A can neither constitute information within the meaning of s. 17(1)(b) nor provide a reason for the belief that income had escaped assessment due to the assessee’s failure to disclose material facts under s. 17(1)(a). In CWT vs. Ravi Choloor (1989) 78 CTR (Ker) 153 : (1989) 178 ITR 640 (Ker), the issue came up for consideration before the learned Division Bench of Kerala High Court. Considering the provisions the learned Division Bench of the Kerala High Court held that the pendency of assessment proceedings are condition precedent for making reference to Valuation Officer and if a reference is made after the assessment is completed, it would be unauthorised and reopening based solely on this information under s. 17(1)(b) for reassessment was equally unauthorised and illegal.

In CWT vs. Shriniwas Sharma 1993) 204 ITR 587 (Raj) the learned Division Bench of Rajasthan High Court held that it is open to the WTO to form opinion for making reference to the Valuation Officer under s. 16A of the WT Act but after the assessment is completed, the WTO becomes functus officio and that reference to Valuation Officer under s. 16A after the assessment is completed is not possible for initiating reassessment proceedings.

In CWT vs. Malhar Rao Tatya Saheb Holkar (1996) 134 CTR (MP) 436 : (1996) 220 ITR 466 (MP) the learned Division Bench of the Madhya Pradesh High Court was considering the cases where the report under s. 16A was called for after the completion of assessment. On the basis of the said report, notice was issued under s. 17. The learned Division Bench held that the proceedings initiated were manifestly vitiated on account of procedural impropriety.

The Full Bench of Kerala High Court was considering the issue in CWT vs. V. Cleetus (1995) 125 CTR (Ker)(FB) 409 : (1995) 213 ITR 14 (Ker)(FB). In that case report was called for during the pendency of the proceedings. But the report was obtained after completion of assessment. Based on the report, notice was issued under s. 17(1)(b) of the WT Act for reassessment. The Tribunal held that any reference made under s. 16A cannot lead to reopening of the closed assessment under s. 17(1) as the report submitted by the Valuation Officer would be invalid reference and must be treated as invalid and void in the eye of law. On reference the Court held that merely because the order of Valuation Officer reached the WTO after the completion of assessment proceedings, it does not lose the character of information as envisaged under s. 17(1)(b) of the Act. The Court also held that in the case where assessment proceedings were completed, WTO cannot call for the order of the Valuation Officer. A valuation order subsequently received but called when proceedings were pending can be used as piece of information by the WTO and it certainly enables the WTO to commence reassessment proceedings under s.
17(1)(b).

In Dr. Karni Singh Ji of Bikaner (Decd.) vs. Dy. CIT & Anr. (1999) 156 CTR (Del) 147 : (1999) 237 ITR 505 (Del), the Delhi High Court was considering the case where report was called for during the pendency of the proceedings. The report was received after the assessment order was passed, but the report was considered for issuing notice for reassessment under s. 17(1)(b). The learned Division Bench held that the proceedings for reassessment based on said report were valid.

In Brig. B. Lall vs. WTO & Anr. (1980) 15 CTR (Raj) 180 : (1981) 127 ITR 308 (Raj) the learned Division Bench of Rajasthan High Court took a view that reference to Valuation Officer cannot be made where assessment is completed and said report cannot be formed basis for reassessment proceedings.

10. From the provisions of the Act and the judgments which have been set out earlier what emerges is : that it is not open to the Valuation Officer (sic.-AO) to call for the report of the Valuation Officer after the assessment proceedings are completed and use that report to commence proceedings for reassessment. The law in such cases would be that the jurisdiction conferred on the Valuation Tax Officer (sic.-WTO) is limited to calling for the report when the proceeding are pending and not when the WTO becomes functus officio. As we have noted earlier, under s. 16A it is only in the event the WTO is of the opinion that the valuation report submitted to him by the registered valuer does not disclose fair market value, can the report of the DVO be called. It is therefore, a discretion to be exercised in the course of exercise of quasi judicial powers of WTO. Such exercise cannot be resorted to after the assessment is completed as it would be without jurisdiction. A report called by an authority having no jurisdiction would be a nullity at law and consequently proceedings based solely on such report considering the requirement of s. 17 would be illegal and will have to be quashed. The report of the DVO in such circumstances cannot constitute “reason to believe” to reopen a concluded assessment.

11. The position in law insofar as report which was called for but not received during the pendency of the proceedings but received subsequent to the proceeding will have to be treated differently. The WTO has to in some circumstances, complete the proceedings for assessment within the time-limit set out under the Act. In these circumstances, if the report is called for and the report is not received, the time for completing the assessment proceedings is not saved. The WTO in such circumstances if completes the order of assessment before the report is received cannot be precluded from considering the said report as information for the purpose of issuing notice for reassessment under s. 17(1). This would also be the position in a case where assessment is completed before the report is received irrespective of the issue of limitation for completing the assessment. From a reading of s. 16A(4) and (5), it is clear the report, which is submitted is after giving an opportunity to the assessee who also is entitled to lead his evidence before the Valuation Officer, before he proceeds to value the property. Such a document will have to be treated as information giving rise to reason to believe that the wealth has escaped assessment. In our opinion, therefore, in cases where the report was called for during the pendency of the proceedings but received subsequent to the completion of assessment the law would be that such report/order can be the basis for issuing notice for reopening the assessment under s. 17(1) of the WT Act.

12. Having stated the law, we may now proceed to dispose of the appeals. Insofar as WT Appeal No. 188 of 2004 for the asst. yr. 1988-89 and WT Appeal No. 174 of 2004 for the asst. yr. 1989-90, the report was called for after the assessment was completed and in these circumstances, both the appeals preferred by the Revenue will have to be dismissed and are accordingly dismissed. WT Appeal No. 195 of 2004 the assessment was made under s. 16(3) for asst. yr. 1990-91. The assessment was completed on 31st March, 1994. The report was called for as noted earlier before the assessment order could be completed on 9th Jan., 1993. The learned Tribunal proceeded on the basis that there is no material to show that assessment proceedings were validly reopened and in the course of the assessment proceedings, reference was made to DVO. In our opinion that finding is contrary to record and consequently the order of the Tribunal is set aside the matter is remanded back to the Tribunal to decide the matter afresh on the basis that the proceedings for reassessment were legally initiated. Whether the other predicates including limitation are satisfied, are left open to be decided by the Tribunal.

In WT Appeal Nos. 163 of 2004 and 196 of 2004 the learned Tribunal dismissed the appeal filed by the Revenue and proceeded on the basis that the reference was made to the Valuation Officer after the assessment was completed. In our opinion, this is contrary to the record. The report was called for during the pendency of the proceedings. In the light of that, both the impugned orders are set aside and the matter is remanded back to the Tribunal to decide the matter afresh on the basis that the proceedings for reassessment were legally initiated. It will be open to the Tribunal to answer the issue as to whether the predicates of s. 17 were satisfied or not.

In the light of the above, appeals disposed of accordingly.

[Citation : 327 ITR 592]