2013 (7) TMI 204 - HC - Income Tax

Computation of long term capital gain - fair market value - rejection of value determined by valuation officer and acceptance of FMV worked out by the assessee s Registered Valuer - Held that - Valuation officer is constituted as an independent & distinct statutory forum for resolving the controversy regarding determination of the market value of the property with all necessary powers. Its order or report is made binding on the assessing officer and thus he enjoys equivalent status. As per the statutory scheme when the report /order of Valuation Officer under Section 50C(2) is objected to by assessee the CIT (Appeals) or ITAT are obliged to extend an opportunity of hearing to such Valuation Officer. The ITAT has in paragraph no.8 found faults with the report/order of District Valuation Officer. Admittedly the said Valuation Officer has not been heard and no opportunity was extended to him. This is contrary to obligation cast upon it by the proviso of S.24(5) of the Wealth Tax Act, 1957 as attracted by S. 50C(2) of the Income Tax Act . Impugned order of ITAT hereby quashed and set aside and the proceedings are restored back to the file of ITAT Nagpur for taking decision a fresh therein in accordance with law - Following decisions of Amiya Bala Paul .vrs. Commissioner of Income Tax Shillong 2003 (7) TMI 4 - SUPREME Court and Commissioner of Income Tax .vrs. Smt. Prem Kumari 1983 (1) TMI 46 - ALLAHABAD High Court - Decided in favour of Revenue.

Summary

Issues Involved:
1. Whether the ITAT erred in rejecting the Valuation Officer's report without providing an opportunity of being heard to the Valuation Officer, thereby violating the principle of 'audi alteram partem'?

Issue-Wise Detailed Analysis:

1. Rejection of Valuation Officer's Report and Violation of 'audi alteram partem':

Heard Shri Anand Parchure, learned Counsel for the appellant - Department and Shri C.J. Thakkar, learned Counsel for respondent - Assessee. As we find a substantial question of law arising in the matter, and parties agree to immediate final disposal, we proceed to Admit the matter on the following as substantial question of law.

“(c) Whether on the facts and in the circumstances of the case, the ITAT is correct in law, in rejecting the Valuation Officer's report without providing an opportunity of being heard to the Valuation Officer, thereby violating the basic principle of 'audi alterm partem' ?”

Shri Parchure, learned Counsel for appellant - Department has urged that question nos. (a) and (b) also constitute substantial questions in the matter. However, we find that if question (c) is, answered in favour of the department, it is not necessary to look into the said questions.

The facts are not in dispute. Search and seizure operations were carried on 27.09.2005 and a notice under Section 154A of the Income Tax Act, 1961 dated 05.12.2006 was served upon the said respondent - assessee on 18.12.2006. Notice under Section 142[1] along with detailed questionnaire was also served on the assessee on 25.09.2007. Assessee then filed a return of income on 08.10.2007, declaring total income of Rs. 2,07,44,890/. Assessee admitted long term capital gains from sale of immoveable property at Hyderabad and adopted actual sale consideration of Rs. 2,06,18,227/as basis therefor. The Assessing Officer found that as per concerned Stamp Valuation Authority, the market value of the property was Rs, 4,04,48,000/, on the basis of document found during the course of search. The Assessing Officer then proposed to adopt this value for computing long term gains as per provisions contained in Section 50C of the Income Tax Act, 1961. The assessee objected to this which resulted into reference to the Valuation Officer, as per Section 50C(2), for ascertaining fair market value, as on the date of transfer. During this process, the assessee submitted a report of Registered Valuer disclosing fair market value on the date of transfer to be Rs. 2,23,41,000/. The Valuation Officer estimated the fair market value on the date of transfer to be Rs. 2,83,19,289/and the Assessing Officer accordingly worked out long term capital gain and made addition of Rs. 83,70,731/. The assessee had in the return, surrendered Rs. 46,70,000/under the head 'Long Term Capital Gain' to cover up any shortfall/infirmity/discrepancy arising at the time of assessment.

The assessee then approached the CIT (Appeals), which on 27.01.2009 confirmed the action of the Assessing Officer. The assessee then approached the ITAT, and the ITAT partly allowed his appeal holding that the fair market value worked out by the assessee's Registered Valuer alone should have been used for computing the long term capital gain, as it was reasonably arrived at after making allowances for various encumbrances attached to the subject property. It rejected the valuation arrived at by the Valuation Officer after noting that the Valuation Officer treated stamp duty valuation as base rate, instead of actual sale instance value. It is this order dated 03.07.2009, that has been questioned before us by the appellant - Department. Relevant discussion in this respect is contained in paragraph nos. 8 and 9 of the judgment of ITAT. Paragraph no.5 of the said judgment shows the contentions of assessee. In view of the question of law framed by us above, we do not find it necessary to go into said contentions. The ITAT, has in paragraph no.8 found that the Valuation Officer did not consider the sale instance cited by the assessee and accepted the stamp duty valuation as base. It, therefore, discarded the valuation report of District Valuation Officer. It also observed that though such report is binding on Revenue Authorities, it is not binding on the Tribunal and for said purpose it relied upon the Division Bench judgment of Allahabad High Court reported at 146 (1984) ITA 191 (All) (Commissioner of Income Tax .vrs. Smt. Prem Kumari). In paragraph no.9, it has looked into the alternate plea of the assessee for grant of deduction of expenditure of Rs. 46,70,000/which was recorded on the other side of the seized document. The opening part of paragraph no.9 shows that the surrender of Rs. 46,70,000/was subject to a condition that long term capital gain shown by the assessee would not be further disturbed and if it was done so, then the disclosure so made by the assessee would stand withdrawn. Again this aspect has no bearing & is not relevant for consideration at this stage.

Perusal of provisions of Section 50C of the Income Tax Act, 1961 shows that it is a special provision for full valuation consideration in certain cases inserted by Finance Act of 2000 w.e.f. 01.04.2003. Its subsection shows that where consideration received is less then the value adopted or assessed is, deemed to be the full value of consideration received for the purpose of Section 48. Section 48 is about computation of income chargeable under the head “Capital gains”. Subsection (2) of Section 50C is without prejudice to subsection (1) thereof. We are concerned with Clause [a] thereof. According to said clause, where the assessee claims before any Assessing Officer that the value adopted or assessed by the Stamp Valuation Authority under subsection [1] exceeds the fair market value of the property as on the date of transfer, the Assessing Officer may refer the question of valuation of capital asset to the Valuation Officer. In facts before us, such claim by the assessee is not in dispute and validity of action of the Assessing Officer in making reference to Valuation Officer i.e. the District Valuation Officer is also not assailed. Explanation 1 of this subsection (2) lays down that phrase “Valuation Officer” has the same meaning, as in Clause [r] of Section 2 of the Wealth Tax Act, 1957. Subsection [3] contemplates a situation where the value ascertained in subsection [2] exceeds the value adopted or assessed. We are not require to deal with that situation here.

Subsection [2] of Section 50C itself lays down that where any reference is made by the Assessing Officer to Valuation Officer, provisions of subsections [2], [3], [4], [5] and [6] of Section 16A; Clause [i] of subsection [1] and subsections [6] and [7] of Section 23A; subsection [5] of Section 23; Section 34AA, Section 35 and Section 37 of the Wealth Tax Act, 1957 apply with necessary modifications to such reference.

Before proceeding further we may point out that the Division Bench of Allahabad High Court in the case of Commissioner of Income Tax .vrs. Smt. Prem Kumari (supra), has delivered a judgment on 31.01.1983 when this provision was not in existence. The said Division Bench was looking into the acquisition proceedings initiated under Section 269D of the Income Tax Act, 1961 on transfer of property. The Division Bench has found that the valuation relied upon by the IAC and determined by the department valuer was arrived at on land and building method. Appeals of assessee against said exercise of IAC were allowed by ITAT and then the Commissioner preferred two appeals before the High Court. The High Court has considered the question - whether Income Tax Tribunal committed any error of law in ignoring the report of department valuer and in holding on the basis of examples, that the apparent value was fair market value ? It found that accepting valuers report was not illegal and no interference by High Court was called for. High Court held that the opinion of the skilled witness is admissible, but, not binding on the Court or Tribunal before which it is filed or given. The Allahabad High Court has held that the Tribunal is independent to judge for itself and find out whether it is reliable or not. Thus, the provision like Section 50C was not required to be construed by the Allahabad High Court.

The Hon'ble Apex Court in (2003) 6 SCC 342 (Amiya Bala Paul .vrs. Commissioner of Income Tax, Shillong), considered the question of valuation of asset qua the provisions of Income Tax Act, 1961 and Wealth Tax Act, 1957. It has been held that a Valuation Officer can discharge the functions within the limits of statute under which he is appointed, and not otherwise. He cannot be required, nor he has a jurisdiction to give report to the Assessing Officer under the Income Tax Act, except in a reference made under and in terms of Section 55A or to a Competent Authority except under Section 269L of the Income Tax Act. It has been held that the Assessing Officer under Section 16A of the Wealth Tax Act, does not retain the power to enquire and the entire process of inquiry therein is, solely conducted by the Valuation Officer alone, whose responsibility itself is to arrived at a correct valuation of the asset. The said inquiry by the Valuation Officer is distinct from the power of the Assessing Officer, who is otherwise invested with the powers to enquire into the actual wealth of an assessee. For the purpose of present adjudication, it is not necessary to deal with this judgment of Hon'ble Supreme Court in more details. Section 55A, explains 'Valuation Officer' in same words and procedure applicable in reference therein is same as envisaged in Section 50C.

Section 16A of Wealth Tax Act, 1957 is about reference to Valuation Officer. Subsection (2) onwards thereof, apply mutatis mutandis to reference made by the assessing officer under Section 50C of the Income Tax Act. Subsection (2) enables the Valuation Officer to serve on assessee a notice requiring him to produce accounts, records or other documents. Subsection (3) obliges the Valuation Officer to pass an order in writing if, he is of the opinion that the return contained a correct declaration of valuation of the asset. Copy of this order is required to be sent to the assessing officer and to the assessee. Under subsection (4), when his opinion is otherwise, the Valuation Officer has to serve a notice on the assessee intimating him the value which he proposes to estimate and giving assessee an opportunity. Subsection (5) contemplates hearing of evidence produced by the assessee, its consideration by the Valuation Officer and passing of an order in writing by him estimating the value of asset. Again copy of such order is required to be sent by him to the assessing officer and to the assessee. Subsection (6) stipulates that on receipt of such order of Valuation Officer, the assessing Officer has to proceed to complete the assessment in conformity with the assessment of the Valuation Officer. It is therefore, apparent that these provisions mandate that after the assessing officer receives report of Valuation Officer under Section 50C, he has to act in conformity with the valuation of the capital asset worked out therein.

Section 23A of the Wealth Tax Act appears in ChapterVI dealing with Appeal, Revision and Reference. Section 23 speaks of Appeals to the Deputy Commissioner (Appeals) from orders of Assessing Officer under Wealth Tax Act. Section 23A gives list of appealable orders. Clause (i) of subsection (1) thereof, is about objection to any order of the Valuation Officer enhancing the valuation of an asset. Section 50C makes this provision applicable even to valuation of capital asset worked out by the Valuation Officer in it. Thus, an order of Valuation Officer determining the market value of the asset on the date of transfer under Section 50C(2) is made appealable even for the purpose of Income Tax Act, 1961 as per scheme therein. Subsection (6) of Section 23A stipulates that when the valuation of any asset is objected to in an appeal, the Commissioner (Appeals) has to extend an opportunity of hearing to the Valuation Officer, who has made order under Section 16A. Subsection (7) enables such Commissioner to direct further inquiry to be made by the assessing officer or by the Valuation Officer. Section 50C makes both these subsections applicable even to determination of market value of a capital asset by the Valuation Officer. It therefore, follows that when in an appeal, such exercise of valuation officer is disputed, the Appellate Authority has to extend an opportunity of hearing to the Valuation Officer. Section 24 speaks of further appeals to the Appellate Tribunal and its subsection (5) had been made applicable even for the purpose of Section 50C proceedings. As per Section 24(5) of the Wealth Tax Act, 1957; the Appellate Tribunal has to extend opportunity of hearing to the Valuation Officer, and this provision is pari materia with Section 23(6) above. Therefore, when order of CIT (Appeal), is questioned in further appeal before the ITAT, the ITAT has to keep in mind the provisions of Section 24(5) of Wealth Tax Act, 1957 and has to extend an opportunity of hearing to the Valuation Officer. Section 34AA is in Chapter VIIB of the Wealth Tax Act, 1957 and it deals with appearance by the Registered Valuers. Section 35 is about rectification of mistakes. Section 37 of Wealth Tax Act is made applicable to valuation proceedings before the Valuation Officer under Section 50C of the Income Tax Act & it clothes him with the power to take evidence on oath etc. This provision declares that for the purpose of Wealth Tax Act, the Valuation Officer also has same powers, as are vested in a Court under Code of Civil Procedure when trying a suit in respect of following matters. Those powers are - (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of a Banking company and examining him on both; (c) compelling the production of books of account and other documents; and (d) issuing commissions. Subsection (3) enables the Valuation Officer to impound and retain in its custody any books of account or other documents . Under subsection (4) proceedings before Wealth Tax Authority or any Tribunal are deemed to be judicial proceedings within the meaning of Section 193 and Section 228, and for the purpose of Section 196 of Indian Penal Code.

When these provisions are looked into in the background of the judgment of Hon'ble Apex Court in case of Amiya Bala Paul .vrs. Commissioner of Income Tax, Shillong (supra), it follows that such valuation officer is constituted as an independent & distinct statutory forum for resolving the controversy regarding determination of the market value of the property with all necessary powers. Its order or report is made binding on the assessing officer and thus he enjoys equivalent status. As per the statutory scheme when the report /order of Valuation Officer under Section 50C(2) is objected to by assessee, the CIT (Appeals) or ITAT are obliged to extend an opportunity of hearing to such Valuation Officer. Perusal of order of ITAT, particularly paragraph no.5 reveals contention of the assessee that the assessing officer was not bound to accept the value decided by the District Valuation Officer i.e. Valuation Officer. In paragraph no.6, the ITAT has noted the contention that in facts and circumstances, addition by the assessing officer was not warranted. There is a reference to report of registered valuer furnished by the assessee to counter the order of Valuation Officer. The ITAT has allowed the appeal of the assessee against the order of CIT (A), and that order of CIT (A) was in favour of the present appellantdepartment. The ITAT has in paragraph no.8 found faults with the report/order of District Valuation Officer. Admittedly the said Valuation Officer has not been heard and no opportunity was extended to him. This is contrary to obligation cast upon it by the proviso of S.24(5) of the Wealth Tax Act,1957 as attracted by S. 50C(2) of the Income Tax Act .

In this situation, we find that a mandatory requirement of law has been violated in present matter. The question framed above is answered in favour of the appellantdepartment. Hence, the impugned order of ITAT dated 03.07.2009 is, hereby quashed and set aside and the proceedings in ITSSA No. 41/Nag/2009 are restored back to the file of ITAT, Nagpur for taking decision a fresh therein, in accordance with law. Parties are directed to appear before the ITAT on 29.07.2013 and to abide by its further instructions in the matter.

Appeal is, thus, allowed. However, in the facts and circumstances of the case, there shall be no order as to cost.