2012 (9) TMI 262 - HC - Income Tax

Valuation of cost of construction of the commercial building - assessee contested against reference made by AO to District valuation officer regarding determination of cost of construction - Held that - Considering amendment to the Income Tax Act u/s 142A AO has got power to refer the matter to the District Valuation Officer for the purpose of valuation. Further, the Tribunal has committed an error in holding that CPWD rates adopted by the District Valuation Officer was not correct without assigning any reason to arrive at such a conclusion. Hence, the order passed by the Income Tax Appellate Tribunal cannot be sustained. The amended section 142-A(3) contemplates that on receipt of the report from the Valuation Officer, AO must give the assessee an opportunity of being heard and then take into consideration such report in making such assessment or reassessment. In the instant case, on the objections field by the assessee, though the matter was referred to the District Valuation Officer for his comments, without waiting for further comments from the District Valuation Officer AO has proceeded with the matter without considering the valid objections raised by the assessee. The same was confirmed by the CIT (Appeals) - As the Appellate Authority set aside the said order without remanding the matter for reconsideration the matter requires to be reconsidered by the Assessing Authority afresh after getting necessary clarification from District Valuation Officer with regard to value of the building constructed by the assessee - in favour of assessee.

Summary

Issues:
1. Jurisdiction of Assessing Officer to refer to District Valuation Officer for cost of construction determination.
2. Reliability of documents requisitioned by Assessing Officer.
3. Validity of valuation report by District Valuation Officer.
4. Application of Section 142-A of the Income Tax Act.
5. Consideration of objections raised by assessee in valuation process.
6. Correct procedure for assessment and reassessment.

Issue 1: Jurisdiction of Assessing Officer to refer to District Valuation Officer:
The case involved a civil contractor who constructed a commercial complex, with the Assessing Officer disputing the cost of construction. The Tribunal questioned the Assessing Officer's jurisdiction in referring the matter to the District Valuation Officer, citing relevant legal provisions and Supreme Court judgments. The Tribunal allowed the appeal, leading to the revenue filing further appeals.

Issue 2: Reliability of documents requisitioned by Assessing Officer:
The appellant argued that the Assessing Officer's order was lawful, emphasizing the lack of documentation from the assessee to support construction costs. The appellant contended that the District Valuation Officer's assessment was based on inspection and justified the additional tax imposed. The reliability of the documents requisitioned was a key point of contention.

Issue 3: Validity of valuation report by District Valuation Officer:
The respondent argued against the validity of the valuation report, pointing out discrepancies in the assessment process and the reliance on CPWD rates instead of standard valuation procedures. The respondent highlighted the failure to consider materials cost and the impact of tenant modifications on the building.

Issue 4: Application of Section 142-A of the Income Tax Act:
The respondent relied on Section 142-A of the Income Tax Act, emphasizing the Assessing Officer's power to refer valuation matters to the District Valuation Officer. The appellant contested the Tribunal's interpretation of the law and the relevance of the Supreme Court judgment.

Issue 5: Consideration of objections raised by assessee in valuation process:
The case highlighted the importance of considering objections raised by the assessee in the valuation process. The failure of the District Valuation Officer to respond to objections and the Assessing Officer's hasty assessment without clarification were key factors in the decision.

Issue 6: Correct procedure for assessment and reassessment:
The judgment emphasized the correct procedure for assessment and reassessment under the Income Tax Act. It outlined the necessity of giving the assessee an opportunity to be heard, especially concerning valuation reports and objections. The Tribunal's oversight of the amended Section 142-A and procedural errors led to the remand of the case for reconsideration by the Assessing Authority.

In conclusion, the High Court allowed the appeals, remanding the case to the Assessing Authority for a fresh assessment order in accordance with the law, highlighting the importance of following correct procedures and considering all relevant legal provisions in tax assessment matters.