2003 (7) TMI 4 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal erred in law by holding that the Assessing Officer cannot refer the matter to the Valuation Cell for estimating the cost of construction of the house property - High Court incorrectly answered the question referred to it in the affirmative - tribunal rightly allowed the assessee s appeal holding that AO could not have referred the question of the cost of construction of the assessee s house to the Valuation Officer

Summary

Issues Involved:
1. Whether the Assessing Officer (AO) could refer the cost of construction of the assessee's house to the Valuation Officer under section 55A of the Income-tax Act, 1961.
2. Whether the AO had the power under sections 131(1), 133(6), and 142(2) of the Income-tax Act to request a valuation report from the Valuation Officer.
3. The role and jurisdiction of the Valuation Officer under the Wealth-tax Act and its applicability under the Income-tax Act.

Issue-wise Detailed Analysis:

1. Reference to Valuation Officer under Section 55A of the Income-tax Act:
The assessee disclosed investments in the construction of a house for the assessment years 1982-83 and 1983-84. The AO accepted the return for 1982-83 but referred the cost of construction for 1983-84 to the Valuation Officer under section 55A of the Income-tax Act. The Valuation Officer's report led to the reopening of the assessment for 1982-83 and additions to the assessee's income for both years. The Income-tax Appellate Tribunal held that the AO could not refer the matter to the Valuation Officer under section 55A, and the High Court, while agreeing that section 55A was not applicable, held that the AO had ample power under sections 131(1), 133(6), and 142(2) to request a valuation report.

2. AO's Power under Sections 131(1), 133(6), and 142(2):
The High Court held that the AO could request a valuation report under sections 131(1), 133(6), and 142(2) of the Income-tax Act, which are enabling machinery provisions. However, the Supreme Court disagreed, stating that these sections do not include the power to refer a matter to the Valuation Officer. The Court emphasized that section 55A specifically empowers the AO to refer the valuation of a capital asset to a Valuation Officer for the purpose of computing capital gains, and this specific provision prevails over the general powers of inquiry granted under sections 131(1), 133(6), and 142(2).

3. Role and Jurisdiction of the Valuation Officer:
The Valuation Officer is appointed under the Wealth-tax Act and has specific functions and powers under that Act. The Supreme Court noted that section 55A of the Income-tax Act incorporates several provisions from the Wealth-tax Act and applies them to the valuation of capital assets for computing capital gains. The Court clarified that the Valuation Officer cannot act outside his statutory functions under the Wealth-tax Act and cannot be called upon to provide a report to the AO under the Income-tax Act, except when a reference is made under section 55A or section 269L. The Court also highlighted that section 55A was introduced when sections 131(1), 133(6), and 142(2) were already in place, indicating that the legislature intended section 55A to be the specific provision for such references.

Conclusion:
The Supreme Court concluded that the High Court incorrectly answered the question in the affirmative and upheld the Tribunal's decision that the AO could not refer the matter to the Valuation Officer for estimating the cost of construction of the house property. The appeal was allowed, and the High Court's decision was set aside.