Madras H.C : Whether a writ petition is maintainable in view of an alternative remedy available to the petitioner ?

High Court Of Madras

Kamalam Rajendran vs. Inspecting Assistant Commissioner Of Income Tax

Sections 147, 148, Art. 226

Asst. Year 1983-84

P.D. Dinakaran, J.

Writ Petn. No. 9339 of 1988

24th March, 1998

Counsel Appeared

P.P.S. Janarthana Raja, for the Petitioner : C.V. Rajan, for the Respondent

JUDGMENT

P.D. DINAKARAN, J. :

In the above writ petition, the petitioner challenges the notice dt. 28th March, 1988, issued under s. 148 of the IT Act, 1961, proposing to reassess the income of the petitioner chargeable to tax, which is said to have escaped assessment for the asst. yr. 1983-84 within the meaning of s. 147 of the IT Act, 1961.

2. The brief facts of the case are stated as follows : The petitioner constructed a residential house in 1981-82 for his own use in RA-1, RA-2, Poonga Street, Thirunagar, Madurai-625 008. The construction was completed before the financial year ended on 31st March, 1982, and the petitioner was occupying the house ever since the completion of the construction. The petitioner duly submitted his return of income for the year 1982-83 relating to the accounting year ended on 31st March, 1982, disclosing the value of the said house. Necessary evidence, viz., vouchers, contractor’s bills, etc., showing the cost of construction as Rs. 8 lakhs, relating to the construction of the property were also produced before the respondent and the same were accepted by the respondent by order dt. 24th Dec., 1985, accepting the notional property income as disclosed by the petitioner. In fact, the income-tax assessment for the next two assessment years, namely, 1983-84 and 1984-85 were also completed by orders of the respondent dt. 24th Dec., 1985. That apart, the value of the said property was also included by the petitioner in the wealth-tax returns as per the valuation as on 31st March, 1982, being the valuation date for the asst. yr. 1982-83. Thevaluation of the property was made in accordance with r. 1BB of the WT Rules, 1957, and accordingly, the wealth-tax assessment for the asst. yr. 1982-83 was also completed by the order dt. 6th March, 1987, passed by the respondent acting as the WTO. But during the course of the proceedings for assessment to income-tax for the asst. yr. 1985-86 and the assessment to wealth-tax for the year 1983-84, the respondent required the petitioner to produce a valuation report once again for the said house and the petitioner submitted a valuation report dt. 16th Jan., 1988, from an authorised valuer, who valued the cost of construction of the building at Rs. 8,15,000 on the basis of which, the wealth-tax assessment for the year 1983-84 was duly completed on 29th Feb., 1988. However, the Valuation Officer of the IT Department, by letter dt. 8th March, 1988, proposed to value the said property once again. Hence, the petitioner, by his letter dt. 9th March, 1988, pointed out to the respondent that the valuation of the house was already disclosed to the IT authorities in his return submitted for income-tax assessment for the asst. yr. 1982-83 and for the wealth-tax assessment for the asst. yr. 1983-84 and that his income was duly assessed, as mentioned above. But the petitioner did not receive any reply from the Department. On the other hand, he received a letter dt. 25th March, 1988, that the Valuation Officer has submitted his valuation report dt. 24th March, 1988, on the basis of which, he had determined the value of the building at Rs. 9.49 lakhs, which is higher than the valuation filed by the petitioner valuing the property for Rs. 8.15 lakhs as on 31st March, 1985.

On receipt of the said letter from the Valuation Officer dt. 25th March, 1988, the petitioner, once again, submitted his representation dt. 2nd April, 1988, that the proceedings for the valuation of the property are totally withoutjurisdiction for the reasons that : (a) there is no provision for the income-tax for valuation of the property, except the valuation required under Chapter IV, Part E, for the purpose of computation of capital gains; (b) there was no construction activity after submitting the returns for the asst. yr. 1982-83; and (c) the valuation of the said house property for the wealth-tax assessment has already been made under r. 1BB of the WT Rules, and the same was also accepted by the wealth-tax authorities, and therefore, the question of valuing the very same house property by the Department does not arise. But, the respondent still issued notice dt. 28th March, 1988, under s. 148 of the IT Act, which is impugned in the above writ petition, proposing to reassess for the asst. yr. 1983-84, holding that the said house property had escaped the assessment within the meaning of s. 147 of the IT Act.

3. Mr. P.P.S. Janarthana Raja, learned counsel for the petitioner, contends that there is no reason for the AO to believe that the income chargeable to tax for the asst. yr. 1983-84 had escaped assessment within the meaning of s. 147 of the IT Act, 1961. Mr. P.P.S. Janarthana Raja, learned counsel for the petitioner, further contends that the assessing authority failed to apply their mind to consider that the impugned building was constructed long before the asst. yr. 1985-86 and, therefore, the proposal for reassessing the income chargeable to tax for the asst. yr. 1983-84 on the basis of a valuation report dt. 24th March, 1988, and holding that the same had escaped assessment within the meaning of s. 147, and the consequential impugned notice issued under s. 148 of the IT Act are wholly without jurisdiction. That apart, learned counsel for the petitioner, also contends that the respondent has failed to appreciate the valuation arrived a t under r. 1BB of the WT Rules, and in any event, the respondent ought to have given an opportunity to the petitioner to submit his explanation in support of the vouchers and contractor’s bills relating to the construct ion, justifying his valuation of the impugned building constructed prior to 1982-83 which was already accepted by the assessing authority for the asst. yr. 1982-83. In support of his contention, learned counsel for the petitioner relies upon the decisions in : (i) Smt. Meherbanoo G. Wadiwalla vs. WTO (1992) 103 CTR (Guj) 340 : (1992) 195 ITR 578 (Guj) : TC 66R.494; (ii) CIT vs. Smt. Prem Kumari Surana (1994) 206 ITR 715 (Raj) : TC 51R.1578; (iii) ITO vs. Santosh Kumar Dalmia (1994) 121 CTR (Cal) 17 : (1994) 208 ITR 337 (Cal) : TC 56R.1167; and (iv) Bhola Nath Majumdar vs. ITO (1997) 137 CTR (Gau) 198 : (1996) 221 ITR 608 (Gau) : TC 51R.1121.

4. Per contra, Mr. C.V. Rajan, learned counsel for the respondent, contends that the impugned notice, being only a notice under s. 148 of the Act, the petitioner has no right to challenge the same which is only a proposal to reassess the income for the asst. yr. 1983-84 with regard to the alleged escaped assessment of the income within the meaning of s. 147 of the Act based on the valuation report and, therefore, the petitioner has a statutory duty to submit his returns within the time stipulated under the impugned notice dt. 28th April, 1988; instead the petitioner has chosen to approach this Court under the writ petition, and therefore, the same is liable to be dismissed as not maintainable in law. Learned counsel for the respondent further contends that once there are sufficient reasons to believe that the income chargeable to tax for the year 1983-84 has escaped the assessment, the impugned notice dt. 28th March, 1988, issued under s. 148 of the Act is well within the jurisdiction, and justified in law, as the same is within the period of limitation prescribed under s. 147 of the Act. In support of his contention, learned counsel for the respondent relies upon the decision of a Division Bench of this Court consisting of Mr. Kanakaraj J., and Mr. S.M. Abdul Wahab, J., made in W.A. Nos. 1094 to 1096 of 1992, dt. 26th June, 1997 in K.R. Venkatesalu vs. WTO [reported at (1998) 146 CTR (Mad) 268].

5. In reply to this, learned counsel for the petitioner contends that once a writ petition is admitted, rule nisi is issued and the matter is pending before this Court for a long time, there is no justification in dismissing the writ petition on the ground of alternative remedy , and in support of this contention, learned counsel for the petitioner relies upon the decision in Thanthi Trust vs. CBDT (1995) 213 ITR 639 (Mad) : TC 69R.332. That apart, placing reliance on the decision in Smt. Uma Devi Jhawar vs. ITO (1996) 218 ITR 573 (Cal) : TC 51R.1115, learned counsel for the petitioner contends that, assuming the petitioner has got an alternative remedy before the appellate authority against the proposed reassessment for the year 1983-84, when once it is contended that the very jurisdictional facts are lacking for issuing a notice under s. 148 of the Act, and if this Court is satisfied with the contention relating to the lack of jurisdictional facts, the notice issued under s. 148 of the Act goes, and consequently, certainly, the order of assessment also would go. Learned counsel for the petitioner therefore contends that there is no substance in the objections of learned counsel for the respondent to dismiss the writ petition as not maintainable on the ground of alternative remedy. Learned counsel for the petitioner, further, relying upon the decision in Smt. Uma Devi Jhawar vs. ITO (supra), contends that the valuation certificate cannotsatisfy the requirement contemplated under s. 147, namely, that the AO should have reason to believe that the income chargeable to tax for the year 1983-84 has escaped.

6. I have given a careful consideration to the submissions of both sides. The points that arise for my consideration are that : (i) Whether a writ petition is maintainable in view of an alternative remedy available to the petitioner ? (ii) Whether the petitioner is entitled to challenge the notice dt. 28th March, 1988, under s. 148 of the IT Act ? and (iii) If the writ petition is maintainable, and the petitioner is entitled to challenge the impugned notice dt. 28th March, 1988, whether the impugned notice is liable to be quashed ? Point No. 1 :

7. Whether a writ petition is maintainable in view of an alternative remedy available to the petitioner ? In this connection, it is relevant to refer to the decision in Thanthi Trust vs. CBDT (supra), it is held as follows : “No doubt, the petitioner is having an effective alternative remedy by way of appeal before the appellate authority and further appeal before the Tribunal and these writ petitions could not have been entertained, if this objection, regarding the maintainability was raised and brought to the notice of this Court, when these writ petitions came up for admission or immediately thereafter. However, it is seen from the records that some of the writ petitions in this batch, have been entertained by this Court in the year 1989 and they are pending for nearly five years. The counter- affidavits in these writ petitions have been filed before this Court, only on 28th Nov., 1994, when these writ petitions were taken up for final hearing, raising the contentions that the petitioner is having an alternative remedy and that the writ petitions are liable to be dismissed on that ground. However, as the writ petitions have been admitted and kept pending before this Court all these years, we are of the view that it is not proper to dismiss these writ petitions, at this stage, on the ground that the petitioner has not exhausted the alternative remedy. Inasmuch as these cases involve interpretation of s. 11(4A) of the Act, on the undisputed facts of this case, and as it is also in the interest of the Revenue to have the issues in question settled early, the petitioner is not directed to avail of the remedy of appeal.” In view of the above decision of the Division Bench of this Court, I have no other alternative except to accept the contentions of learned counsel for the petitioner that there is no justification in dismissing the writ petition which was admitted in 1988 and kept pending before this Court for all these years. Therefore, I hold that even though alternative remedy is avail-able under the Act, as the writ petition was admitted by this Court during 1988 and kept pending for ten years, I do not think that it is justified to dismiss the writ petition on the ground of alternative remedy. Point Nos. 2 and 3

8. Whether the petitioner is entitled to challenge the notice dt. 28th March, 1988, under s. 148 of the IT Act ? and If the writ petition is maintainable, as the petitioner is entitled to challenge the impugned notice dt. 28th March, 1988, whether the impugned notice is liable to be quashed ? Point Nos. 2 and 3 are inter-related. In this regard, it is necessary to refer to ss. 55A, 147 and 148 of the IT Act, 1961, which read as follows : “55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the AO may refer the valuation of the 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 AO is of opinion that the value so claimed 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 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, and where any such reference is made, the provisions of sub-ss. (2), (3), (4), (5) and (6) of s. 16A, cls. (ha) and (i) of sub-s. (1) and sub-ss. (3A) and (4) of s. 23, sub-s. (5) of s. 24, s. 34AA, s. 35 and s. 37 of the WT 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 WTO under sub-s. (1) of s. 16A of that Act. Explanation.—In this section, ‘Valuation Officer’ has the same meaning as in cl. (r) of s. 2 of the WT Act, 1957 (27 of 1957).” “147. If the AO, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned : Provided that where an assessment under sub-s. (3) of s. 143 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 income 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. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.—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.

Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income 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 income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.” “148. (1) Before making the assessment, reassessment or recomputation under s. 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under s. 139. (2) The AO shall, before issuing any notice under this section, record his reasons for doing so.”

9. While interpreting s. 17(1)(a) of the WT Act, with regard to similar powers conferred on the assessingauthorities under the WT Act, a Division Bench of this Court consisting of Mr. Kanakaraj, J. and Mr. S.M. Abdul Wahab, J. by order dt. 26th June, 1997, in W.A. Nos. 1094 to 1096 of 1992 in K.R. Venkatesalu vs. WTO (supra), has held as follows : “The argument of Mr. Sundar, learned counsel for the appellant, is based on the judgment of the Supreme Court in Ganga Saran & Sons (P) Ltd. vs. ITO (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC) : TC 51R.639. It has to be remembered that the said judgment arose out of the unamended provisions of the IT Act, which contained similar provisions of law like the WT Act. It was with reference to the said provisions of law, the apex Court pointed out that unless the ingredients are available for reopening an assessment, the power cannot be exercised. Learned counsel for the appellant also relies on the judgment in Acchut Kumar S. Inamdar vs. P.R. Hajarnavis (1981) 132 ITR 331 (Bom) : TC 66R.429, for the proposition that mere undervaluation of a property cannot give rise to reopening of assessment. We are of the opinion that after the amendment of s. 17 of the Act w.e.f. 1st April, 1989, the position is slightly different. All that is necessary is that the AO should have every reason to believe that a property has escaped assessment, whether by reason of underassessment or assessment at too low a rate or otherwise. The word ‘otherwise’ has to be given some meaning and it is not possible to contemplate or limit the circumstances under which an assessment can be reopened, because the property has not been correctly valued. All that can be said is that an AO should not exercise the power arbitrarily or in a mala fide manner. So long as the AO has some reason to believe that the property had escaped proper assessment, he can always exercise the power provided he does so within the period of limitation.” No doubt, the Division Bench has held that if an assessing authority has reason to believe that a property has escaped assessment, it can always exercise a power to reassess the same, provided it does so within the period of limitation. Placing reliance on the said decision of the Division Bench by order dt. 26th June, 1997, in W.A. Nos. 1094 to 1096 of 1992 in K.R. Venkatesalu vs. WTO (supra), learned counsel for the respondent justifies the issue of the impugned notice dt. 28th March, 1988, made under s. 148 of the IT Act. But, in this regard, the decisions relied upon by learned counsel for the petitioner also deserve to be referred to.

10. In Smt. Meherbanoo G. Wadiwalla vs. WTO (supra), it is held as follows : “The valuation report by which agricultural lands held by the petitioner were valued at Rs. 13,31,030 was considered by the WTO for different assessment years. The AAC has also considered the same. Thereafter, the wealth-tax assessment orders were passed. Therefore, for the WTO, there was no reason to believe that net wealth chargeable to tax has escaped assessment because of failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment of net wealth. Hence, the impugned notices issued by the WTO are absolutely baseless.”

11. Similarly, a Division Bench of the Calcutta High Court in ITO vs. Santhosh Kumar Dalmia (supra), have held as follows : “It is immaterial whether the ITO has rejected the contentions of the assessee on the existence of the jurisdictional facts. He cannot assume jurisdiction by deciding jurisdictional facts wrongly. If the ITO did not have any jurisdiction to issue the impugned notice, the writ Court can always interfere irrespective of the fact whether the assessment pursuant to such notice has been made or not. If the notice issued under s. 148 of the said Act, which is the condition precedent for making reassessment is quashed, then the reassessment cannot stand and that is why the learned Judge after quashing the notice under s. 148 of the said Act also directed that if any assessment order has been passed pursuant to the said notice, the same would also be set aside and quashed. That apart, the assessee also challenged the said order of reassessment in the writ petition. If the notice goes, so also does the order of reassessment.”

12. In Smt. Uma Devi Jhawar vs. ITO (supra), it is held as follows (headnote) : “A notice under s. 148 read with s. 147(a) of the IT Act, 1961, is not a show-cause notice. Such a notice can be issued only if the conditions precedent for assumption of jurisdiction under s. 147(a) are satisfied. For invocation of jurisdiction under s. 147(a), two conditions are to be satisfied; firstly, the ITO must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and secondly, he must have also reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to make a return of his income under s. 139 or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both the conditions are conditions precedent to be cumulatively satisfied before the ITO could assume jurisdiction to issue notice under s. 148, r/w s. 147(a). When the validity of a notice issued under s. 148 is in challenge, it is for the ITO to satisfy the Court that the aforesaid conditions have been satisfied. The expression ‘reason to believe’ means that there is a reason coupled with the belief. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have had reason to believe. In such a case, the notice issued by him would be liable to be struck down as invalid and without jurisdiction. The materials having a natural nexus to the formation of the belief have to be disclosed by the ITO. He can do so by filing an affidavit. Mere disclosure of the belief in the affidavit filed by the ITO without setting out any material on the basis of which the belief was arrived at is not sufficient. Where no affidavit is filed by the ITO, in spite of opportunity given, the Court may direct production of the records containing materials to establish that there is a direct nexus or live link between the materials and the formation of his belief. If the Court allows the ITO to produce such records and the Court examines the materials to find out whether there are tenable reasons, the Court must allow inspection of such records to the assessee. The recorded reasons or materials or the letter of proposal sent by the ITO to the CIT are not privileged documents. The appellant purchased a piece of land. In July, 1966, the appellant started construction of a house thereon which was completed in October, 1968. The said building was constructed at a total cost of Rs. 1,46,363 paid by the appellant in four years from 1967 to 1970. In the course of the assessment proceedings for the asst. yr. 1967-68, the appellant furnished details of the cost of construction in each year and also filed a valuation report. The ITO on the basis of a valuation report made an addition of Rs. 48,182. The addition was deleted by the AAC. The Tribunal dismissed the appeal of the Department and held, inter alia, that before the ITO the books of account maintained for the construction and other details supported by vouchers had been produced, that the ITO had not pointed out any defect in the accounts or bills produced, and that hence, the accounts could not be rejected. In March, 1976, the appellant received a notice under s. 148 for the asst. yr. 1967-68. The appellant required the ITO to disclose the reasons for the said notice. No reply was given by the ITO. No copy of the recorded reasons was given to the appellant. The appellant filed a writ petition against the notice which was dismissed by a single Judge. On appeal :

Held : (i) that the Judge was not right in denying the inspection of the records to the appellant; (ii) that in an affidavit filed by the ITO in the appeal it had been stated that the Departmental Valuation Officer had estimated the cost of construction at a higher figure. However, in the original assessment proceedings, the Tribunal had held that the assessee’s valuer’s report on the basis of which the addition of Rs. 48,182 had been made did not reflect the correct valuation and that since the assessee had maintained books of account the ITO could not reject the same without pointing out defects. The Tribunal had accepted the cost of construction furnished by the assessee. This finding had become final and binding on the ITO. The decision of the Tribunal was arrived at prior to the issue of the notice under s. 148 on 31st March, 1976. In the face of the aforesaid findings and the order of the Tribunal, the ITO could not have had any basis to assume that the cost of construction was anything more than Rs. 1,46,363 ahe could not have had any reason to believe that there was any omission or failure on the part of the appellant to disclose fully or truly any material facts necessary for the assessment. The valuation made by the Departmental valuer could not be lawful or relevant material on the basis whereof the ITO could have had any reason to believe or could bona fide and lawfully have believed that any income as regards the construction of the said house property had escaped assessment. The ITO could not have formed the requisite belief under s. 147(a) and had no jurisdiction to issue the notice. The reassessment proceedings were not valid and were liable to be quashed. “

13. In Bhola Nath Majumdar vs. ITO (supra), it is held as follows : “The opening words of s. 55A reads as follows— ‘With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the AO may refer the valuation of capital asset to a Valuation Officer.’ From the above wording of s. 55A, it is abundantly clear that for computation of income falling under Chapter IV of the IT Act, the ITO may refer the matter of valuation of a property to the Valuation Officer when the assessment is still pending. There is no authority under the said provisions of s. 55A to refer for valuation of a property after the assessment is completed by the ITO. The reference becomes invalid because the purpose for which the valuation report can be utilised, namely, for completion of the assessment in conformity with the valuation report is no longer in existence, the assessment having been completed in the meantime. The purpose of s. 55A is not to arm the ITO for making a roving and fishing inquiry for finding out materials for reopening or revising a completed assessment. The same is not permissible in law. In this connection, I refer to three decisions reported in Brig. B. Lall vs. WTO (1980) 15 CTR (Raj) 180 : (1981) 127 ITR 308 (Raj) : TC 66R.266 of the Rajasthan High Court; Smt. Amala Das vs. CIT (1983) 34 CTR (P&H) 268 : (1984) 146 ITR 216 (P&H) : TC 51R.1112 of the Punjab High Court and Reliance Jute & Industries Ltd. vs. ITO (1984) 43 CTR (Cal) 168 : (1984) 150 ITR 643 (Cal) : TC 22R.694, of the Calcutta High Court. The said decisions uniformly stated that pendency of an assessment including reassessment is a sine qua non for giving jurisdiction to the AO to make a reference under s. 55A of the Act. Sec. 55A has no relevance and cannot be applied after the assessment is completed and before the reassessment has commenced that is to consider the question whether the completed assessment is based on undervaluation. The Rajasthan High Court in Brig. B. Lall vs. WTO (supra), in a wealth-tax matter has succinctly put in the following words : ‘. . . . notices under s. 17 to the petitioners in all the above eight cases is based on the valuation report received under s. 16A of the Act wholly and solely. This report is non est as being without jurisdiction, illegal, null and void and, therefore, the entire fabric for reopening these proceedings falls flat and the impugned notices deserve to be quashed. The notices are based on an absence of the existence of any legal foundation which could have given rise to a valid belief or reason to believe, as contemplated by s. 17(1)(a) or could have provided information as contemplated by s. 17(1)(b) of the Act.

It can neither constitute information within the meaning of s. 17(1)(b) of the Act nor can it become a reason for the belief within the meaning of s. 17(1)(a) of the Act.’ The Calcutta High Court in Reliance Jute & Industries Ltd. vs. ITO (supra),in relation to a valuation report observed as follows : ‘The purpose for which alone a valuation report can be utilised, namely, for completion of the assessment in conformity with the valuation report is no longer existent, the assessment having been completed in the meantime. In such circumstances, to allow the assailed valuation proceeding to continue, would militate against well-known canons of strict construction of taxing statutes.‘ On mere change of opinion on the basis of the valuation report, the Punjab High Court in Smt. Amala Das vs. CIT (supra), held as follows : ‘On the basis of the valuation report, the petitioner cannot possibly be accused of not fully and truly disclosing the facts at the time of the assessment as, to my mind, this report is nothing more than a mere opinion about the cost of construction or the fair market value of the building in question.’

In Brig. B. Lall vs. WTO (supra), the Rajasthan High Court held as follows : ‘We are of the opinion that the foundation or bedrock of the jurisdictional facts necessary for giving jurisdiction under s. 16A is that the WTO must be seized of a return filed by the assessee containing valuation of his assets for which he is to apply his mind and adjudicate the valuation for completing the assessment. The situation contemplated in cls. (a) and (b) of sub-s. (1) of s. 16A can be visualised only in a case of pending assessment and not a completed assessment. Once the assessment is completed and before the reassessment commences the WTO becomes functus officio for the purposes of s. 16A, as he is not in the process of completing any assessment, for the purpose of which he wants to check up from the Valuation Officer, the correctness of the valuation of the assets disclosed by the assessee in the return and which, according to him, are undervalued, looking to the fair market value or as per the standards laid down in cl. (a) or cl. (b) of sub-s. (1). This makes the opening phrase “for the purpose of making an assessment ” extremely important and an opening gate through which and through which alone, the WTO can have access and approach to the Valuation Officer. The opening gate of s. 16A is wholly, solely and exclusively governed and contained in the phrase “for the purpose of making an assessment” which, of course, can include the reassessment as per the definition of assessment as mentioned above.’ For the purposes of this case, I am not entering into the controversy as to whether s. 55A can at all be resorted to for the purposes of making an assessment or reassessment under s. 143(3) or under s. 147 of the Act inasmuch as the said section only applies in cases of computing and ascertaining the fair market value of a capital asset for computing the capital gains. The Punjab High Court in the Full Bench decision in Jindal Strips Ltd. vs. ITO (1979) 10 CTR (P&H) 103 : (1979) 116 ITR 825 (P&H) : TC 22R.669, has held that the section is only applicable in cases of capital gains whereas, the Andhra Pradesh High Court in Daulatram vs. ITO (1990) 90 CTR (AP) 152 : (1990) 181 ITR 119 (AP) : TC 22R.675, has held that the said provisions of s. 55A also apply in cases of assessment under s. 143(3) of the Act. For deciding the present case, I am proceeding on the basis that the provisions of s. 55A could be utilised for the purposes of making assessment under s. 143(3) or s. 147 of the Act. However, in view of my observations hereinabove and keeping in view the decisions of the Rajasthan, Punjab and Calcutta High Courts, I hold that no completed assessment could be reopened on the basis of a valuation report obtained by the ITO after the assessments were completed. A valuation report is only an opinion of a valuer. The same does not amount to information within the meaning of s. 147(b) nor can it form a ground for reason to believe that the assessee had failed to disclose his income fully and truly within the meaning of s. 147(a) of the Act. The condition precedent for assumption of jurisdiction under s. 147(a) of the Act is reason to believe of the ITO. If that be so, then a report or information of a valuer cannot substitute the words ‘reason to believe’ of the ITO. An opinion of a third person cannot be ‘a reason to believe’ of the ITO. It is the ITO who has to assert on materials available that he has reason to believe that any income chargeable to tax has escaped assessment or that the same was due to the fact that the assessee failed to disclose his income truly and fully. The reason to believe of an ITO cannot be substituted by an opinion of a valuer. No condition precedent for assumption of jurisdiction under s. 147(a) is satisfied. In the affidavit filed by the ITO before this Court it is admitted by the ITO that the report of the valuer was advisory in nature. If that be so then prima facie the notices issued under s. 148 of the Act are without jurisdiction and illegal.

According to me, the primary facts relating to the construction of the house from year to year were fully and truly disclosed by the assessee and there was nothing further to disclose. Expln. 1 to s. 147 is relevant if the facts disclosed require further elucidation. This was not the case. In construction work, t he valuation during the progress of the work, if done by a third person or valuer, could only be a guess or estimate the exact cost of construction could only be found out at the end of the work. In the instant case, the assessee had given out the cost incurred towards the progress of construction made during the year of assessment and there were no materials before the ITO to challenge the same except an opinion of a valuer and that is not permissible in law. The Court is satisfied that the present notices issued by the ITO under s. 148 of the Act beyond the period of four years were without jurisdiction and not in compliance with the provisions of ss. 147 and 148 of the Act.”

14. In CIT vs. Smt. Prem Kumari Surana (supra), it is held as follows : “. . . . . on merits also, we find that the question has to be answered against the Department on the ground that no proceedings under s. 147(b) of the Act could be initiated on the basis of the valuer’s report. It is only an information which, without being substantiated by convincing evidence or circumstances, could not be the basis for reopening of an assessment order. In L.B. Kharawala vs. ITO (1984) 38 CTR (Guj) 218 : (1984) 147 ITR 67 (Guj) : TC 51R.577, Dinkarrai Anantrai Mankad vs. ITO (1985) 155 ITR 406 (Guj) : TC 51R.909 and Sardar Kehar Singh vs. CIT (1991) 92 CTR (Raj) 88 : (1992) 195 ITR 769 (Raj) : TC 51R.1579, it has been held that the valuation report did not constitute information under cl. (b) of s. 147 of the Act and as such the same cannot be a valid basis for reassessment.”

15. A reading of the above decisions makes it clear that even to issue the notice under s. 148, the AO should satisfy himself about the existence of jurisdictional facts. A harmonious reading of ss. 147 and 148 would make it clear that for the purpose of issuing a notice under s. 148 for assessment of income, there should be a reason for the AO to believe that a particular property has escaped assessment. In other words, a mere reason, cannot, by itself, be sufficient to satisfy the existence of a jurisdictional fact for issuing a notice under s. 148 of the Act, but, such reason should be a believable one.

16. Under the facts and circumstances of the case, a report of a valuer, can, at the best, be considered as his opinion regarding the value of the property. In other words, such valuation report can, at the best, be considered as a mere reason, but cannot be a reason to be believed by the assessing authority, unless and otherwise there is a believable reason by the assessing authority that the petitioner has failed to file a return or failed to disclose, fully and truly, all material facts.

17. In the instant case, admittedly, the petitioner has fully and truly disclosed all the material facts by producing the vouchers and other contractors ’ bills, etc., at the appropriate time for assessing the property supported by the valuation certificate under r. 1BB of the WT Rules for assessing the same both under the IT Act as well as under the WT Act. Hence, I do not find any justification to hold that the income has escaped the assessment within the meaning of s. 147 of the Act, enabling the respondent to issue the impugned notice dt. 28th March, 1988, under s. 148 of the IT Act. Therefore, I am satisfied that the impugned notice dt. 28th March, 1988, issued under s. 148 of the IT Act, lacks very much, the jurisdictional fact, namely, that the assessing authority had reason to believe that the property, namely the building located at RA-1, RA-2, Poonga Street, Thirunagar, Madurai-625 008, has escaped assessment. Hence, the impugned notice dt. 28th March, 1988, is without jurisdiction, and, accordingly, the same is quashed.

18. In the result, the above writ petition is allowed as prayed for. However, there will be no order as to costs.

[Citation : 237 ITR 299]

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