2000 (1) TMI 1010 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 55A of the Income-tax Act, 1961 for referring valuation to the Departmental Valuation Officer (DVO) in the context of Section 69.
2. Tribunal's basis for holding that the Income-tax Officer (ITO) did not refer the matter to the Valuation Officer under Section 55A.

Detailed Analysis:

Issue 1: Applicability of Section 55A for Referring Valuation to the DVO in the Context of Section 69
The primary issue revolves around whether Section 55A can be invoked by the Income-tax Officer (ITO) for purposes beyond Chapter IV, specifically for additions made under Section 69 of the Income-tax Act, 1961. The Tribunal, relying on the decisions in Daulatram v. ITO [1990] 181 ITR 119 (AP) and CIT v. Roshan Lal Seth [1989] 178 ITR 660 (Punj. & Har.), held that Section 55A is confined to ascertaining the fair market value for Chapter IV purposes only, and not for any other purposes under the Act.

The respondent (assessee) had constructed a building used as a hotel, with a disclosed cost of Rs. 1,28,290. The ITO, finding this cost unsatisfactory, referred the matter to the Departmental Valuation Officer (DVO), who assessed the value at Rs. 1,92,350, leading to an addition of Rs. 54,160 to the assessee's income under Section 69.

The Tribunal's decision was challenged, and it was argued that the powers of the assessing authority to call upon the DVO for valuation under Section 69 can be traced to Section 133(6) of the Act. This view was supported by the Division Bench of the High Court in CIT v. Smt. Amiya Bala Paul [1999] 240 ITR 378, which concluded that the assessing authority is competent to call for a valuation report under Sections 131, 133(6), and 142(2) of the Act.

The relevant provisions of the Act, including Sections 55A, 131(1), 133(6), and 142(2), were examined. Section 55A specifically deals with the valuation of a capital asset for Chapter IV purposes. However, Sections 131 and 133(6) provide broader powers to the assessing authority to gather information useful for any enquiry or proceeding under the Act, including valuation reports from any person, which would include a Valuation Officer.

The court emphasized that while Section 55A is specific to Chapter IV, the machinery provisions like Sections 131, 133(6), and 142(2) should be interpreted liberally to aid the enforcement of the charging provisions. The court referred to the decisions in Murarilal Mahabir Prasad v. B.R. Vad [1976] 37 STC 77 (SC) and Associated Cement Co. Ltd. v. CTO [1981] 48 STC 466 (SC), which support a liberal interpretation of machinery provisions.

Issue 2: Tribunal's Basis for Holding that the ITO Did Not Refer the Matter to the Valuation Officer Under Section 55A
The second issue pertains to whether the Tribunal had any basis to hold that the ITO did not refer the matter to the Valuation Officer under Section 55A. The Tribunal observed that the ITO found the cost of investment low and referred the case to the Departmental Valuation Officer, Gauhati.

The court noted that the Division Bench in CIT v. Smt. Amiya Bala Paul had clarified that the assessing authority could call for a valuation report under Sections 131, 133(6), and 142(2), and any wrong mention of the provision (e.g., Section 55A) would not vitiate the report. This view was supported by the Full Bench decision of the Punjab and Haryana High Court in Jindal Strips Ltd. v. ITO [1979] 116 ITR 825, which held that Section 133(6) could be invoked for revaluation in reassessment proceedings, even if Section 55A was wrongly mentioned.

The court concluded that the Tribunal erred in holding that the assessing authority lacked the power to refer the valuation of a capital asset to the Valuation Officer for assessing the cost of construction. The report from the Valuation Officer is a piece of evidence, and the assessing authority retains the discretion to accept or reject it.

Conclusion
The court answered the questions in the affirmative, holding that the Tribunal erred in its interpretation. The assessing authority is competent to refer the valuation of a capital asset to the Valuation Officer for the assessment of the cost of construction under Sections 131, 133(6), and 142(2) of the Act. The judgment emphasized the liberal interpretation of machinery provisions to facilitate the enforcement of charging provisions, and any wrong mention of the provision in the requisition memo would not invalidate the report. The decision rendered in CIT v. Smt. Amiya Bala Paul was upheld, and no order as to costs was made.