Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in coming to the conclusion that the orders of the WTO were not erroneous and prejudicial to the interest of the Revenue in the cases of the three assessees ?

High Court Of Delhi

Commissioner Of Wealth Tax vs. Smt. Shakuntla Mehra & Ors.

Section WT 25(2)

Asst. Year 1975-76

Arijit Pasayat, C.J. & D.K. Jain, J.

WT Ref. Nos. 1 to 3 of 1981

11th August, 2000

Counsel Appeared

R.D. Jolly with Ms. Premlata Bansal, for the Petitioner : None, for the Respondents

JUDGMENT

ARIJIT PASAYAT, C.J. :

As the point of dispute involved in these three reference applications is the same, they are disposed of by this common judgment. Accepting a prayer for reference made by the Revenue under s. 27(1) of the WT Act, 1957, the Appellate Tribunal, Delhi Bench ‘B’ (in short the ‘Tribunal’) has referred the following question for opinion :

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in coming to the conclusion that the orders of the WTO were not erroneous and prejudicial to the interest of the Revenue in the cases of the three assessees ?”

2. Facts giving rise to these reference applications are as under : Smt. Shakuntala Mehra (mother), Shri Moti Lal Mehra (son) and Shri Prince Mehra (son) (hereinafter referred to as ‘assessee’ by respective names) had 1/6th share each in the properties bearing Nos. (1) E. 40313, Greater Kailash-1, (2) E-337, Greater Kailash 1, and (3) H.S. 35, Kailash Colony and five plots of land in Greater Kailash II bearing Nos. E-22, E-303, E-324, E-355 and E-576. For the asst. yr. 1975-76 corresponding to valuation date i.e. 31st March, 1975, returns under the Act were filed by the assessees. Properties in question were valued by registered valuer, who fixed the valuation of the properties at E-313, Greater Kailash at Rs. 1,09,000, E-207, Greater Kailash at Rs. 1,36,000 and of H.S.-35 , Kailash Colony at Rs. 1,01,000. Valuation was done on the basis of average of land and construction method and rental method. Accordingly share of the assessees in each case came to 1/6th of Rs. 3,46,000. The five plots in Greater Kailash II were also valued by the registered valuer. He valued Plot No. E-22 at Rs. 37,500, E-303 at Rs. 37,550, E-324 at Rs. 37,500, E-355 at Rs. 37,500 and E-576 at Rs. 71,630, the total being Rs. 2,21,480. On the basis of valuation of the properties and land, 1/6 share of each of the three assessees came to Rs. 95,580. After assessment, the CWT called for the records and formed an opinion that WTO was in error in accepting the value of the three properties at Greater Kailash-II and Kailash Colony. He was also of the opinion that value of the single room tenements at Lajpat Market owned by Smt. Shakuntla Mehra had been wrongly accepted. Notices were issued to the assessees, requiring them to show cause as to why the orders of the WTO should not be cancelled on the ground that assessment in each case was erroneous and prejudicial to the interest of Revenue. Assessee in each case submitted show cause reply. It was submitted that assessment in respect of each of the properties had been done by a valuer and merely because a different method could be adopted for fixing the valuation, that did not make the WTO’s order erroneous. In the notice issued to the assessee, it was indicated by the CWT that the valuation should have been done only on the rental income basis and not on the basis of average of the two, i.e. cost of construction and rent capitalisation method. After considering the assessee’s replies, CWT exercised power under s. 25(2) of the Act and set aside all the three assessments and directed AO to make fresh assessment after taking into consideration Departmental valuation and after giving due opportunity to the assessees. Order of the CWT were challenged before the Tribunal by the assessees. It was stand of the assessees that order of the WTO suffered from no infirmity. In any event, it was not erroneous and/or prejudicial to the interest of the Revenue. Merely because a different method of valuation was available that cannot be a ground to hold that the assessment by adopting one method was erroneous. Tribunal held that the CWT had not objected to the land and construction method and the only objection was regarding rental method of valuation wherein multiple of 10 had been applied to the net annual income. Referring to a decision of the apex Court in Smt.Tribeni Devi & Ors. vs. The Collector AIR 1972 SC 1417, it was held that in arriving at a reasonable correct market value it may be necessary to take even two or all of those methods which can be adopted. It was, therefore, concluded that the orders passed by the WTO were, in noway, erroneous. Accordingly the order passed by the CWT in each case was set aside. On being moved for reference in each case, reference as aforesaid has been made.

3. Learned counsel for the Revenue submitted that Tribunal misconstrued scope of power available to be exercised under s. 25(2) of the Act. It was submitted that the Tribunal proceeded on erroneous presumption that CWT had not objected to the land and construction method and only objection related to the multiple to be adopted for rental method. There is no appearance on behalf of the assessees in spite of service of notice, when the matter was called.

4. What constitutes an erroneous order which is prejudicial to the interest of the Revenue has been dealt with by various Courts including the apex Court. In Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) the matter was again examined by the apex Court and it was observed as follows : “The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the ITO has taken one view with which the CWT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interests of the Revenue.”

5. In the background of power exercisable under s. 25(2) of the Act, it is to be seen how the Tribunal was justified in coming to its conclusion. We may point out here that Tribunal has proceeded on erroneous presumptions to hold that the CWT had not objected to the land and construction valuation method, and only the multiple to the adopted in respect of the rental method was objected to. In fact show-cause notice is each case issued to the assessees contained a reference to a decision of the apex Court in State of Kerala vs. P.P. Hassan Koya AIR 1968 SC 1201, and it was indicated that WTO should have valued the properties on the basis of rental income only and not on the basis of average of two i.e. cost of construction and rental method. In the orders passed by the CWT also it was clearly held that, in view of the aforesaid decision of the apex Court WTO should have valued property on the basis of rental income only and not on the basis of average of the two. To that extent Tribunal’sconclusions are erroneous. Additionally, on the factual position highlighted above, the WTO’s conclusion, relying on the registered valuer report which proceeded on the basis of average between two methods, is unsustainable. That being the position Tribunal was not justified in setting aside CWT’s order passed under s. 25(2) of the Act. Our answer to the reference in each case is in the negative, in favour of the Revenue and against the assessee. References are accordingly disposed of.

[Citation : 246 ITR 501]

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