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TMI Blog2007 (12) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... sment for taxing capital gain in the hands of the assessee, being market value as estimated by the Departmental Valuation Officer cannot be a proper basis under the relevant provisions of law contained under section 48 of the Income-tax Act for the reopening of the assessment. There is another aspect of the matter. The valuation report is an expert opinion at the most. In relation to the transaction of transfer such report cannot be treated to be proof of the fact that there is some under hand dealing and consideration has passed more than what is disclosed. Since in the present case the reasons recorded for reopening and the facts taken into account for formation of belief by the Assessing Officer that income of the assessee has escaped assessment is based on the report of DVO, in view of the above authorities, the assumption of jurisdiction under section 148 by the Assessing Officer on this basis is not legally justified. The contention of the assessee that the 'reason to believe' should be considered with reference to the relevant provisions of the Act under which the income is chargeable to tax also carries force. In the instant case, therefore, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no nexus between alleged material and the facts of the appellant's case and, therefore, the provisions of section 147 are not applicable at all. 4. That the reference by the Assessing Officer to the Valuation Cell in the year 2000 invoking the provisions of section 131(d) of the Act for valuation of agricultural land at village Mandoaoli sold is without jurisdiction and so the valuation report obtained in furtherance of such invalid jurisdiction is not admissible in law and cannot be made the basis for reopening an assessment under section 147 of the Income-tax Act. 4. The assessee, an individual, was carrying on business of finance and investment etc. He had agricultural land in village Mandoli in Delhi as ancestral property. During the year under consideration the assessee had shown capital gain on account of sale of agricultural land at village Mandoli, sale consideration of which was disclosed at Rs. 50,000. The return was processed under section 143(1)(a) on 25-2-2002. Thereafter the DCIT (In.), Circle 12(1), New Delhi made reference of the matter relating to valuation for determining the fair market value of the agricultural land shown by the assessee. The refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of land sold was much more than that declared by the appellant. Hence this ground of appeal stands dismissed. 5. Before us, while support ground No. 4, the learned counsel for the assessee submitted that reference made by the Assessing Officer to the Valuation Officer, in this case, is illegal because the same was made when no proceedings were pending before the Assessing Officer. In this regard he invited our attention to the valuation report available at pages 52 to 64 of the paper book. We have considered the entire relevant material. As per the report of Valuation Officer, reference was made to the valuation officer on 31-3-2000. The Assessing Officer thereafter recorded reasons for reopening the assessment on 11-3-2002. The reasons for assessment year 1999-2000 are as under : This is a case of individual. The assessee is being assessed in this circle and is filing the return of income regularly. There is a complain against the assessee that he had land at village Mandoli, near Shahdara Delhi which he had sold in phased manners. Total area of land sold year-wise, sale value declared by the assessee and value as per valuation report is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions : (1) Dr. Arjun D. Bharad v. ITO [2002] 83 ITD 774 (Nag.); (2) CIT v. Nevendram Ahuja [2007] 290 ITR 453 (MP); (3) Smt. Rina Sen v. CIT [1999] 235 ITR 219 (Pat.). 6. The learned DR on the other hand submitted that the reference can be made under section 131 against any person even though proceedings may not be pending against him. According to him, the reference was valid and therefore the reopening based on the report of Departmental Valuation Officer is fully justified. On facts the learned DR submitted that a notice was issued under section 131 to the assessee vide letter dated 26-11-1998, in response to which the assessee submitted reply dated 3-12-1998. According to him, therefore, the proceedings against the assessee commenced from the issuance of notice dated 26-11-1998 and thus the reference being subsequent to this letter, the same cannot be treated to be invalid. The learned DR also placed reliance on the following authorities : (1) ITO v. Prem Hotel [2000] 109 Taxman 357 (J K); (2) Peerless General Finance Investment Co. Ltd. v. Assessing Officer [2001] 248 ITR 113 (All.); (3) Om Prakash Bamba v. Valuation Officer [2002] 122 Taxman 624 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, under the Income-tax Act, the Assessing Officer can exercise such powers when the assessment proceedings are pending before him. The nature of the activities and functions for which the power is exercised, like discovery and inspection of record, summoning of witnesses or any other person or to compel production of books etc., can be exercised by a Civil Court during the trial of a suit or during the pendency of other proceedings before such Civil Court and similarly such powers are to be, exercised by the Assessing Officer for making assessment effectively. Hence the object and the purpose behind giving such power to the assessing authorities and other authorities discharging quasi-judicial functions, shows the nature of functions and the nature of proceedings in which such powers are to be exercised. Certain other authorities have been given power under section 131(1A). These authorities can exercise power even if the assessment proceedings are not pending before them. These are different authorities, which exercise different jurisdiction which pertains to the area of investigation, inquiry and search etc. This position is clear from the provision contained under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before them. The proceeding with the meaning of section 131(1) of the Act must, therefore, be an independent proceeding pending from before and it is only in connection with that proceeding that commission can be issued. 7.5 In the case of Dr. Arjun D. Bharad (supra), the Nagpur Bench of the ITAT has considered the issue in detail. After following the decision in the case of Bhola Nath Majumdar v. ITO [1996] 221 ITR 608 (Gau.) and several other authorities, the Bench has observed as under : In the light of legal position emanating from the various judicial pronouncements, the basic conditions precedent for issue of commission under section 131(1)(d) are that there must be a proceeding pending before the Assessing Officer and that the Assessing Officer must form a judicial opinion having regard to the relevant material/evidence produced by the assessee in support of the construction cost disclosed, in the books of account that the cost of construction disclosed by the assessee is under stated. If these conditions are not satisfied, the commission issued by the Assessing Officer without satisfying the said conditions cannot be considered as valid. In the instant case, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the commencement of proceedings then the reference cannot be treated to have been made during the pendency of the proceedings and as such the validity of the reference cannot be legally justified. Consequently, the reopening of the assessment made on the basis of such reference can also not be justified. 7.8 The learned DR has made reference to certain authorities. In our considered opinion, in view of direct authorities to which have made reference as above, these authorities are either not applicable or are distinguishable. 7.9 In the case of Prem Hotel (supra), the Assessing Officer wanted to determine the fair market value of the capital asset for the purpose of Chapter IV. Therefore, he made reference to the Departmental Valuation Officer. The assessee challenged the reference on various grounds. It was found that the assessee was informed that a commission was being issued. The Commission under section 131(1)(d) of the Act was issued in that case during assessment proceedings. The main issue involved in that case was as to whether a show-cause notice should be issued to the assessee before making a reference and as to whether before making reference the assessee shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible views then the one favourable to the assessee should be followed, unless there is any direct authority of the Jurisdictional High Court, as held by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In that case the Hon'ble Apex Court has made following observations : If the court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty. 7.12-1 In the case of Virtual Soft Systems Ltd. v. CIT [2007] 289 ITR 83, the Hon'ble Supreme Court has observed that where the predominant majority of the High Courts have taken a certain view of the interpretation of a certain provision, the Supreme Court would lean in favour of the predominant view. 7.13 It is to be pointed out that neither of the parties has brought to our notice any direct decision of Hon'ble Delhi High Court on the issue before us. In view of the above, we consider it proper to place reliance on the ratio of decision of the Hon'ble Madhya Pradesh High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er by the Assessing Officer was without any basis as there was no material before him to justify the action taken by him. 8.3 In view of the above facts, the reference made to the Valuation Officer was itself illegal and consequently non est. When the reference itself is illegal and non est in law, the report submitted in such reference, cones-quently, cannot be relied upon to initiate reassessment proceedings. It was so held by the Hon'ble Rajasthan High Court in the case of Brig. B. Lall v. ITO [1981] 127 ITR 308.In the case of Bhagwandas Jain v. Dy. CIT [2000] 246 ITR 632, the Hon'ble M.P. High Court, after following the decision of Hon'ble Rajasthan High Court in the case of Brig. B. Lall (supra), held that reopening of the assessment on the basis of valuation report is not valid. In that case notice dated 19-2-1988 was issued under section 17 of the Wealth-tax Act for reopening the assessment on the basis of valuation report, which report related to the period from December 1981 to 1984. The assessee challenged the notice as illegal and without jurisdiction. The Hon'ble High Court of Madhya Pradesh held that the report of the Valuation Officer was not called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer are to be deducted from the full market value of the asset. The expression 'full value of the consideration' does not mean 'market value' or 'fair market value' of the asset transferred. Hence, capital gain tax cannot be computed and levied with reference to the market value determined on the basis of valuation report. 8.9 In the case of CIT v. George Henderson Co. Ltd. [1967] 66 ITR 622 (SC), the Hon'ble Supreme Court of India, while considering a similar provision contained in section 12B(2) of the Income-tax Act, 1922, has observed as under : The expression 'full value of the consideration for which the sale, exchange or transfer of the capital asset is made', appearing in section 12B(2) of the Indian Income-tax Act, 1922, does not mean the market value of the asset transferred, but the price bargained for by the parties to the sale, etc. The consideration for the transfer of a capital asset is what the transferor receives in lieu of the asset he parts with, viz., money or money's worth, and therefore the very asset transferred or parted with cannot be the consideration for the transfer. The expression 'full consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under hand dealing and consideration has passed more than what is disclosed. 8.13 In the case of Britannia Industries Ltd. (supra), the Hon'ble Calcutta High Court has held that in case of transfer of asset, no capital gain tax can be taxed over and above the capital gain shown and disclosed by the assessee unless there is evidence that there has under statement by the assessee and more consideration has passed than disclosed. The Hon'ble Court has also held that on the basis of valuation report, the Assessing Officer cannot assume jurisdiction under section 148. The observations of the Hon'ble Court are reproduced as under : Although section 52(2) of the Income-tax Act, 1961 has been omitted from the statute the fact remains that in case of transfer of assets no capital gain tax can be taxed over and above the capital gain shown and disclosed by the assessee unless there is evidence that there has been an understatement by the assessee and more consideration has passed than disclosed. A valuation report is only an opinion, but that does not show or prove that there is some underhand dealing and consideration has passed more than what is disclosed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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