1997 (11) TMI 117 - AT - Wealth-tax

Summary

Issues Involved:

1. Jurisdiction of the AO to refer the property valuation to the DVO.
2. Applicability of Rule 3 read with Rule 5 of Schedule III for property valuation.
3. Validity of the DVO's final valuation report.
4. Determination of the fair market value (FMV) of the property.
5. Levy of interest under Section 17B of the WT Act.
6. Initiation of penalty proceedings under Section 18(1)(c) of the WT Act.

Detailed Analysis:

1. Jurisdiction of the AO to Refer Property Valuation to the DVO:
The assessee challenged the jurisdiction of the AO to refer the valuation to the DVO under Section 16A of the WT Act, arguing that the reference was made without fulfilling the necessary conditions and without providing notice of hearing to the assessee. The Tribunal held that the reference to the DVO was invalid as the conditions precedent for making such a reference were not met. The AO did not confront the assessee with the proposal to refer the valuation, and the Dy. CIT granted approval mechanically without giving the assessee an opportunity to be heard. The Tribunal emphasized that jurisdiction cannot be conferred by mere consent or waived by not raising the objection in the first round of appeal.

2. Applicability of Rule 3 read with Rule 5 of Schedule III for Property Valuation:
The Tribunal examined whether the valuation of the property should be governed by Rule 3 read with Rule 5 of Schedule III. It was determined that the property, being a building with appurtenant land, was mandatorily required to be valued under Rules 3 to 7 of Schedule III. The Tribunal noted that the AO's opinion that it was not practicable to apply Rule 3 was misplaced, as the property had been assessed under the head "Income from house property" and subjected to wealth tax using Rule 1BB in the past. The Tribunal concluded that none of the exceptions in Rule 8 of Schedule III applied to the case, and thus, the valuation should have been done according to Rules 3 to 7.

3. Validity of the DVO's Final Valuation Report:
The DVO's final valuation report was challenged on the grounds that it treated the property as an open plot rather than a building with appurtenant land. The Tribunal found that the DVO exceeded his jurisdiction by valuing the property incorrectly and that the valuation report was not enforceable as it did not comply with the mandatory conditions precedent. The Tribunal directed that the property should be valued according to the established rules of Schedule III.

4. Determination of the Fair Market Value (FMV) of the Property:
The AO had adopted the FMV of the property based on the DVO's report, which was significantly higher than the value determined according to Rule 1BB. The Tribunal held that the legislative mandate required the property to be valued only in the manner laid down in Rules 3 to 7 of Schedule III. The Tribunal rejected the AO's reliance on the DVO's report and directed that the valuation should be done according to the rules specified in Schedule III.

5. Levy of Interest under Section 17B of the WT Act:
The assessee challenged the levy of interest under Section 17B. The Tribunal directed the AO to charge interest under Section 17B, if any, after considering the relief provided by the Tribunal's order.

6. Initiation of Penalty Proceedings under Section 18(1)(c) of the WT Act:
The assessee's challenge to the initiation of penalty proceedings under Section 18(1)(c) was not pressed during the hearing and was accordingly dismissed by the Tribunal.

Conclusion:
The Tribunal allowed the appeals in part, directing the AO to value the property according to Rules 3 to 7 of Schedule III and to reconsider the levy of interest under Section 17B in light of the relief granted. The initiation of penalty proceedings under Section 18(1)(c) was dismissed as it was not pressed by the assessee.