2021 (10) TMI 574 - HC - Income Tax

Estimation of cost of extraction of ore - reference to the valuation officer under the provisions of Section 142A of the Act by the search officer - addition of income, which was added based upon the valuation report of the Registered Valuer - whether the person, who has valued the stock in trade i.e., stock of iron ore, was a person, who is a Valuation Officer, as defined under clause (r) of Section 2 of the Wealth Tax Act? - HELD THAT - Regional Valuation Officers, District Valuation Officers, Valuation Officers and Assistant Valuation Officers are all officers appointed by the Central Government. A Registered Valuation Officer is not an officer appointed by the Central Government and would come under the category of a Valuation Officer or even an Assistant Valuation Officer. A Valuer, who is registered under Section 34AB of the Wealth Tax Act shall be called as a Registered Valuer. A Registered Valuer can appear on behalf of an assessee before the assessing officer under the provisions of Section 34AB of the Wealth Tax Act. A person who is registered as a Registered Valuer cannot be a Valuation Officer. Section 16A of the Wealth Tax Act empowers the assessing officer to make a reference to a Valuation Officer, in a case, where the assessing officer is of the opinion 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 that behalf or in any case, where having regard to the nature of the asset and other relevant circumstances, the assessing officer deems it necessary to do so. In the present case, the facts of the case reveal that the appellant has disclosed the closing stock of iron ore at ₹ 5,96,74,794/- as against the valuation of ₹ 11,10,01,980/- obtained by the authorized officer. The same fact could have led the assessing officer to believe that the appellant has suppressed the value of the asset in the return of income filed by him and the proper course of action would have been to get a valuation report done by the aforesaid Valuation Officers. If the stock in trade comes under the purview of Section 142(2A) of the Act of 1961, the aforesaid Valuation Officer is the person authorized to value the same and by no stretch of imagination, the assessing officer could have relied upon the Valuation Report furnished by a Registered Valuer to the authorized officer for the purpose of framing the assessment. AO gravely erred in relying upon the valuation report submitted by a Registered Valuer while assessing the income of the appellant, as such a report being invalid in law. Keeping in view the statutory provisions governing the filed, he should have sought a valuation by the District Valuation Officer and could have relied upon his report to assess the income of the appellant. The provisions of the Wealth Tax Act and the Rules applicable for the assessment year 2008-2009 are governing the field and therefore, substantial question of law to be answered in favour of the appellant and against the respondent/revenue by deleting the addition of income, which was added based upon the valuation report of the Registered Valuer.

Issues Involved:
1. Legality of the search conducted.
2. Valuation of closing stock.
3. Addition of unexplained investment.
4. Allocation of the addition to the correct assessment year.
5. Rejection of the declared loss.
6. Jurisdiction and validity of the valuation report.

Issue-wise Detailed Analysis:

1. Legality of the Search Conducted:
The appellant contended that the search conducted on their premises was illegal as no search warrant was issued in their name. The search was carried out under Section 133A at the business place and under a warrant of authorization in the name of another individual, not associated with the appellant, at the residential premises. The appellant argued that the search had no basis, rendering subsequent proceedings invalid.

2. Valuation of Closing Stock:
The core issue was whether the Tribunal was justified in not considering the value of the closing stock at ?5,96,74,794/- as per the financial statement. The Income Tax Department obtained a valuation certificate from a Registered Valuer, estimating the stock at ?11,10,01,980/-. The assessing officer accepted this valuation for computing the appellant's income. The appellant argued that the valuation report was invalid as it was not obtained under Section 142A of the Income Tax Act, 1961, and the valuation was not conducted by a competent Valuer as required by law.

3. Addition of Unexplained Investment:
The Tribunal confirmed the addition of ?8,55,52,040/- as unexplained investment in raising iron ore, ignoring the appellant's explanation and financial statements. The appellant contended that the valuation report could not be the basis for such an addition, and the assessing officer erred in relying on it.

4. Allocation of the Addition to the Correct Assessment Year:
The appellant argued that the entire addition of ?8,55,52,040/- should not be made in the assessment year 2008-09 since the expenses were incurred from 2005 onwards. The Tribunal's order was challenged as perverse for not considering this aspect.

5. Rejection of the Declared Loss:
The Tribunal rejected the appellant's declared loss of ?1,05,57,700/- without assigning any reason. The appellant contended that this rejection was unjustified and unsupported by the facts and circumstances of the case.

6. Jurisdiction and Validity of the Valuation Report:
The appellant argued that the reference to the Valuation Officer under Section 142A by the search officer was ultra vires. The statutory provision under Section 142A empowers only the assessing officer to make such a reference, not the search officer. The valuation report obtained by the authorized officer was invalid in law and could not be relied upon for assessment purposes. The court noted that the valuation should have been conducted by a District Valuation Officer, as the value exceeded ?50 lakhs, and a Registered Valuer's report was not legally acceptable.

Judgment:
The court concluded that the assessing officer erred in relying on the valuation report submitted by a Registered Valuer, as it was invalid under the law. The proper course would have been to obtain a valuation from a District Valuation Officer. Consequently, substantial question of law No.6 was answered in favor of the appellant, leading to the deletion of the addition based on the invalid valuation report. As a result, substantial questions of law Nos.2, 3, and 5 were also answered in favor of the appellant. The issues in substantial questions of law Nos.1 and 4 were left open as they were not pressed by the appellant. The appeal was allowed, and the orders of the Income Tax Appellate Tribunal were set aside. No order as to costs.

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