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TMI Blog1992 (1) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... ting year is the financial year ending with 31-3-1985 while filing the income-tax statement, the assessee admitted the value of the cinema theatre (building as well as fixtures, furniture and machinery fitted therein) at Rs. 18,05,401. The Income-tax Officer referred the question of valuation of the said cinema theatre to the Valuation Cell, Kakinada by his requisition dated 21-1-1988. The Valuation Cell estimated the cost of construction at Rs. 16,89,000. The cost of machinery and furniture was admitted by the assessee itself at Rs. 4,23,407. Hence the total cost of the cinema hall was worked out at Rs. 21,12,407. The valuation report was signed by the Executive Engineer, Valuation Cell on 22-3-1988. The Valuation Cell furnished the report to the Income-tax Officer on 28-3-1988. However, even before the receipt of the valuation report, the ITO completed the assessment under section 143(1) accepting the total income of Rs. 1,360 returned by the assessee by his assessment order dated 9-2-1988. 4. The Commissioner of Income-tax, Visakhapatnam while making a check of impugned assessment, felt that the difference between Rs. 21,12,407 which was estimated as cost of the cinema hall by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of the revenue. The show-cause notice under section 263 was issued without any proper enquiry or without affording an adequate opportunity to the assessee.The contentions raised in the reply of the assessee, were rejected. The learned CIT held that the assessment completed by the ITO prior to the receipt of the valuation report sought for by him from the Valuation Cell, had resulted in an under-assessment to the tune of Rs. 3,07,006, being the difference in cost of construction which was assessable as unexplained investment under section 69 of the IT Act. He rejected the tenability of the contention raised in the assessee's petition that the difference in cost of construction would workout to only Rs. 1,53,000. The learned CIT held that the assessee itself admitted the value of the cinema hall building at Rs. 18,05,401 in its income-tax statement as against the approved valuer's report of Rs. 15,35,449 to be the estimated cost of construction. Ultimately, the learned CIT held that he will set aside the assessment and direct the ITO to make a fresh assessment after affording to the assessee an adequate opportunity and after placing the Divisional Valuation Cell's valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e estimated in place of the returned figure. The notice must fix the date of hearing, giving a reasonable opportunity to the assessee to put forth his objections orally or in writing in respect of the estimated figure proposed by the Valuation Officer. The notice must call upon the assessee to produce at the hearing, his evidence in support of the returned valuation. Sub-section 5 sets down the requisites of the hearing before the Valuation Officer. The Valuation Officer should then, taking into consideration all the materials on record, proceed to determine in an order in writing, his valuation of the assets in question. The Valuation Officer, cannot dispense with the statutory requirements as to giving notice to the assessee and hearing him and finalise his orders and report. The Valuation Officer cannot skip the statutory requirements in order to hustle the hearing unfairly, just to make the WTO's position safe with regard to the assessment. Since no preliminary report under section 16(4) was given to the assessee and since his objections were not called and he was heard, before passing an order under sub-section 5 of section 16A, the whole of the Valuation Report is vitiated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DVO had not mentioned in his report as to what was the investment made by the assessee in the relevant accounting year, the undisclosed investment in the accounting year in question, cannot be known and for this reason also the direction to add Rs. 4,23,407 is illegal and unjustified and for that reason 263 orders of the CIT, cannot be sustained. 6. As against these submissions advanced by the learned counsels for the assessees, the learned D. R. submitted that the arguments advanced for the assessee are neither tenable nor relevant. Firstly the reference to the Valuation Cell was not made either under section 16A of the W. T. Act for purpose of ascertaining the value of the asset or under section 55A of the I. T. Act for purposes of determining the capital gains arising out of the transfer of a capital asset in which case also the whole of the procedure contemplated under section 16A of the W. T. Act, should be gone through. In this case, the ITO wanted to know the actual cost of construction in order to determine whether there was any undisclosed investment. A copy of the report of the Valuation Cell was provided at pages 32 to 50 of the paper book. In page 34 itself, the Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport can form part of basis of the revisionary order passed by the CIT and whether any revisionary order passed on the basis of it, can be valid. The learned Departmental Representative relied upon the latest Calcutta High Court decision in CIT v. S. M. Oil Extraction (P.) Ltd. [1991] 190 ITR 404. In the facts of that case also the Commission sought to base his revisionary order on the valuation report received subsequent to the passing of the assessment order. The question ultimately came up before the Calcutta High Court was, whether such a revisionary order is valid. Upholding the validity of the said revisionary order, the Calcutta High Court held the following :--- " The expression ' record ' as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. All proceedings which constitute evidence on which the assessment order is based must normally be regarded as part of the record. So long as the revisional authority does not rely on any extraneous matter, his jurisdiction cannot be questioned. The assessment order which on the face of it was a good order at the time when it was passed may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiated in the course of an assessment proceeding is not a proper assessment and such assessment is erroneous insofar as it is prejudicial to the interests of the Revenue. " Thus, on the basis of the above ratio of the Calcutta High Court, it was argued that the revisionary order passed by the CIT, is perfectly justified within its rights and cannot be questioned by the assessee. 8. I have heard the arguments on both sides. I have already extracted the ratio of the Calcutta High Court decision in S. M. Oil Extaction (P.) Ltd.'s case. It is no doubt true that the said decision supports the view canvassed by the revenue. However, it may be mentioned that the earlier decisions of the Calcutta High Court itself were differently decided holding that the valuation report received subsequently to the closing of assessment proceedings, cannot be made use of by the CIT, for purposes of exercising revisionary jurisdiction. Reference may be made in this connection to Calcutta High Court decision in Reliance Jute Industries Ltd. v. ITO [1984] 150 ITO 643 and also in Smt. Uma Debi Jhawar v. WTO [1982] 136 ITR 662. In those two cases it was held that when the assessment was once complet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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