1992 (1) TMI 166 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the CIT's revisionary order under Section 263 of the IT Act.
2. Consideration of the valuation report received after the assessment order.
3. Compliance with natural justice principles by the Valuation Officer.

Detailed Analysis:

1. Validity of the CIT's Revisionary Order under Section 263 of the IT Act

The primary issue is whether the Commissioner of Income Tax (CIT) was justified in invoking his revisionary powers under Section 263 of the Income Tax Act, 1961. The CIT observed a discrepancy between the cost of the cinema hall as estimated by the Valuation Cell (Rs. 21,12,407) and the value admitted by the assessee (Rs. 18,05,401). The CIT found that this difference of Rs. 3,07,006 should be treated as unexplained investment under Section 69 of the IT Act. The CIT issued a notice under Section 263 to the assessee, proposing to set aside the assessment and directing the Income Tax Officer (ITO) to make a fresh assessment after giving the assessee a chance to respond to the valuation report.

The assessee contended that the assessment order dated 9th Feb., 1988, was neither erroneous nor prejudicial to the interests of the Revenue. The assessee argued that the CIT did not comply with the provisions of Section 263(1) and that the revisionary proceedings were initiated with preconceived notions without proper inquiry.

2. Consideration of the Valuation Report Received After the Assessment Order

The assessee argued that the valuation report from the Departmental Valuation Officer, received after the completion of the assessment, should not form part of the assessment record. The assessment was completed on 9th Feb., 1988, while the valuation report was received on 28th March, 1988. The assessee cited decisions such as A.S. Suiesh Shenoy vs. WTO and J.K.K. Natamjah vs. WTO, arguing that the valuation report, not being part of the record at the time of assessment, should not be considered for revisionary purposes.

However, the Departmental Representative argued that the reference to the Valuation Cell was made under Section 131 of the IT Act, and the valuation report was used only as an advisory capacity. The CIT's direction to the ITO to make a fresh assessment was based on the valuation report, which was considered part of the assessment record under Section 263.

The Tribunal considered the Calcutta High Court decision in CIT vs. S.M. Oil Extraction (P) Ltd., which upheld the validity of a revisionary order based on a valuation report received after the assessment. The Court held that the expression "record" in Section 263 includes all proceedings and evidence related to the assessment, even if received subsequently. This decision supports the CIT's action to rectify the assessment based on the valuation report.

3. Compliance with Natural Justice Principles by the Valuation Officer

The assessee argued that the Valuation Officer violated principles of natural justice by not informing the assessee about the higher valuation and not providing an opportunity to object. The assessee cited cases where the absence of such procedural compliance rendered the valuation report null and void.

The Departmental Representative countered that the Valuation Officer was not acting as a quasi-judicial authority under Section 16A of the Wealth Tax Act but was providing an advisory opinion under Section 131 of the IT Act. Therefore, the procedural requirements under Section 16A were not applicable.

The Tribunal observed that the CIT had directed the ITO to make a fresh assessment after providing the assessee with the valuation report and an opportunity to object. This direction ensured compliance with natural justice principles, addressing the assessee's concerns.

Conclusion

The Tribunal upheld the CIT's revisionary order under Section 263, finding it justified and within his rights. The valuation report, although received after the assessment, was considered part of the assessment record under Section 263. The CIT's direction for a fresh assessment with an opportunity for the assessee to object ensured compliance with natural justice principles. Consequently, the assessee's appeal was dismissed.