2006-VIL-467-MP-DT

Equivalent Citation: [2006] 287 ITR 523, 202 CTR 583, 155 TAXMANN 427

MADHYA PRADESH HIGH COURT

Date: 13.04.2006

COMMISSIONER OF INCOME-TAX

Vs

OMPRAKASH BAGRIA (HUF).

BENCH

Judge(s)  : A. K. PATNAIK., A. M. SAPRE.

JUDGMENT

The judgment of the court was delivered by A. K. PATNAIK C. J.-This is an appeal under section 260A of the Income-tax Act, 1961 (for short "Act"), filed by the Commissioner of Income-tax, Bhopal, against the order dated May 9, 2000, of the Incometax Appellate Tribunal, Indore Bench, Indore, in I. T. A. No. 88/lnd./1998.

The facts briefly are that the respondent/assessee filed income-tax return for the assessment year 1994-95 on July 29,1994, in Ward-1, Ujjain, showing a loss of Rs. 2,77,300. The return was processed and an intimation dated October 17, 1994, was sent to the respondent under section 143(1)(a) of the Act. Thereafter, the respondent filed a revised return of income on August 31, 1995, showing a total income of Rs. 33,650. In the revised return, the respondent disclosed income from capital gains from the land used for the construction of Bagria Towers, which he had not shown in the original return. In the original return, the respondent had claimed house tax, but in the revised return he withdrew the said claim towards payment of house tax as the same had not been paid. In the revised return, the value of Bagria Towers (land and structure) as on March 31, 1994, was shown at Rs. 14,14,828. The case was selected for scrutiny and notice dated April 19, 1996, was issued under section 143(2) of the Act and in the course of assessment proceedings, the Assessing Officer issued a commission under section 131(1)(d) of the Act to the District Valuation Officer, Bhopal, for determination of cost of construction of Bagria Towers. On the basis of the report of the District Valuation Officer, Bhopal, the Assessing Officer determined the investment on the Bagria Towers during the previous year relevant to the year 1994-95 as Rs. 21,25,042 against the investment of Rs. 8,26,715 shown by the respondent. After giving an opportunity to the respondent, the Assessing Officer made an addition of Rs. 12,98,328 on account of unexplained investment under section 69 of the Act to the income of Rs. 33,646 shown in the revised return and determined the total income as Rs. 13,31,974.

Aggrieved, the respondent filed an appeal before the Commissioner of Income-tax (Appeals) contending, inter alia, that the original return for the assessment year 1994-95 was filed on July 29, 1994, and an intimation was sent to the respondent under section 143(1)(a) of the Act on October 17, 1994. Thereafter limitation under the proviso to section 143(2) of the Act for issue of notice in respect of original return expired on July 31, 1995, and hence intimation dated October 17, 1994, under section 143(1)(a) of the Act became a final assessment order and the revised return that was filed on August 31, 1995, was not a valid return and the assessment made by the Assessing Officer was a nullity. The respondent also contended before the Commissioner of Income-tax (Appeals) that the reference to the District Valuation Officer, Bhopal, for determining the cost of construction of Bagria Towers was not a valid reference. The Commissioner of Income-tax (Appeals) did not accept the aforesaid contentions of the respondent but accepted the contention of the respondent that no opportunity of hearing was given and restored the matter back to the Assessing Officer to afford a reasonable opportunity of being heard to the respondent and make a fresh assessment.

Aggrieved by the order dated December 8, 1997, of the Commissioner of Income-tax (Appeals), the respondent filed an appeal before the Incometax Appellate Tribunal, Indore Bench, Indore (for short "the Tribunal"). In the impugned order dated May 9, 2000, the Tribunal held that the assessment made by the Assessing Officer on the revised return was invalid and void ab initio. In the impugned order, the Tribunal also held that the valuation report made by the District Valuation Officer, Bhopal, was not in accordance with the terms of reference of the commission and cannot be used as a piece of evidence against the respondent and no cognizance of the valuation report prepared by the District Valuation Officer beyond the period of limitation can be taken. Aggrieved, the appellant has filed this appeal.

On July 14, 2004, this court while admitting the appeal against the impugned order of the Tribunal, formulated two substantial questions of law:

"(1) Whether the Income-tax Appellate Tribunal Was justified in holding that assessment made by the Income-tax Officer, (i.e., the Assessing Officer) on the strength of a revised return submitted by the assessee is non est?

(2) Whether the Income-tax Appellate Tribunal was justified in holding that the Assessing Officer had no jurisdiction to take into account and rely upon the valuation submitted by the District Valuation Officer in respect of the house property belonging to the assessee?"

When the matter was taken up again on January 10, 2005, the court lost sight of the fact that the appeal had already been admitted and substantial questions of law had already been formulated on July 14, 2004, and again passed order admitting the appeal and formulated the following two substantial questions of law:

"(1) Whether the Income-tax Appellate Tribunal was justified in coming to a conclusion that the assessment made on March 27, 1997, for the assessment year 1994-95 is not a valid assessment and hence deserves to be annulled?

(2) Whether the finding recorded by the Tribunal annulling the assessment in question is legally sustainable and can be said to be in conformity with the requirement of law and on the facts emerging on record?"

Thereafter on January 31, 2006, the court heard learned counsel for the parties on the substantial questions of law as formulated in the orders dated July 14, 2004, and January 10, 2005.

The first substantial question of law as formulated by order dated July 14, 2004, and the first and second substantial questions of law as formulated by order dated January 10, 2005, relate to one and the same issue: whether the Tribunal was right in law in coming to the conclusion that the assessment made by the Assessing Officer on March 27, 1997, was not a valid assessment. The reasons given by the Tribunal in coming to the conclusion that the assessment was invalid, are contained in paragraphs 9 and 10 of the impugned order dated May 9, 2000. The said paragraphs 9 and 10 of the impugned order are quoted hereinbelow:

"Para. 9 : Having regard to the above discussions, we are of the considered opinion that the intimation issued under section 143(1)(a) of the Act will remain merely an intimation if the action for framing the regular assessment is initiated but if no action is taken within the prescribed period for framing the regular assessment, the intimation issued under section 143(1)(a) of the Act will partake of the character of assessment. Admittedly, the revised return was filed on August 31, 1995, after the expiry of the period prescribed for issuance of notice under section 143(2) of the Act for framing of the regular assessment. The time for filing of the revised return is prescribed under section 139(5) of the Act, according to which the revised return can only be filed at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. It means, in the instant case the revised return could only be filed before August 1, 1995, the day on which the intimation issued under section 143(1)(a) of the Act partook of the character of an assessment order in the absence of issuance of any notice under section 143(2) of the Act. We are, therefore, of the view that the revised return in the instant case was not filed within the period prescribed under section 139(5) of the Act.

Para. 10 : We have carefully perused the judgments referred to by the parties specifically the judgment of the apex court in the case of Panchamahal Steel Ltd. v. U. A. Joshi, ITO [1997] 225 ITR 458 in which their Lordships have held that a revised return cannot be filed even after the draft assessment order referred with the assessee's objection to the IAC under the law. In these circumstances, the revised return is non est in law and no cognizance can be taken thereof. If any assessment is framed on the basis of such a revised return, it would be invalid and void ab initio. Since in the instant case, the assessment was framed on the basis of the revised return which is non est in law, we have no option but to hold that the aforesaid assessment is invalid and void ab initio. We, therefore, annul the same."

Mr. R. L. Jain, learned senior advocate appearing for the appellant, submitted that the Tribunal has taken an erroneous view that an intimation issued under section 143(1)(a) of the Act partakes of the character of an assessment if no action is taken within the prescribed period for framing regular assessment. He cited the decision of the Madhya Pradesh High Court in Kamal Textiles v. ITO [1991] 189 ITR 339, the decision of the Delhi High Court in Apogee International Ltd. v. UOI [1996] 220 ITR 248 and the decision of the Allahabad High Court in Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46 in support of his contention that the intimation sent under section 143(1)(a) of the Act was not an assessment. He submitted that since the intimation dated October 17, 1994, sent to the respondent on the original return dated July 29, 1994, was not an assessment, the revised return filed by the respondent on August 31, 1995, was a valid return under section 139(5) of the Act. He submitted that the view taken by the Tribunal that the revised return filed by the respondent was not a valid revised return after the intimation dated October 17, 1994, had partaken of the character of an assessment, is not correct. He cited the decision of the Kamataka High Court in Chief CIT (Administration) v. Machine Tool Corporation of India Ltd. [1993] 201 ITR 101, for the proposition that once the revised return is filed under section 139(5) of the Act, the original return is substituted by the revised return. He argued that the limitation in the proviso to section 143(2) of the Act will have to be with reference to the revised return and not to the original return, which stood substituted by the revised return and the notice dated April 19, 1996, issued under section 143(2) of the Act is, therefore, within the period of twelve months from the end of the month in which the revised return was furnished. He submitted that the view taken by the Tribunal that the assessment was not a valid assessment and deserves to be annulled is therefore, not correct.

Mr. P. M. Choudhary, learned counsel appearing for the respondent, on the other hand, submitted that an intimation under section 143(1)(a) of the Act may not be an assessment and the Assessing Officer may initiate assessment proceedings even after such intimation by issuing a notice under section 143(2) of the Act to the assessee. But once the limitation period as prescribed in the proviso to section 143(2) of the Act expires without issue of a notice under section 143(2) of the Act to the assessee the intimation partakes of the character of an assessment and becomes final and this is what the Tribunal has held in the impugned order. He cited the decision of the Punjab and Haryana High Court in Punjab Tractors Ltd. v. Joint CIT [2002] 254 ITR 242 in which it has been held that the intimation under section 143(1) of the Act operates as an order of assessment unless the authority proceeds to issue notice under section 143(2) of the Act and passes an order under section 143(3) of the Act. He also relied, on the decision of the Punjab and Haryana High Court in Vipan Khanna v. CIT [2002] 255 ITR 220 in support of his submissions that a notice under section 143(2) of the Act cannot be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished and that in such a case the assessment proceedings under section 143 of the Act come to an end and the matter becomes final. He also cited the decision of the Gujarat High Court in Panchmahal Steel Ltd. v. U. A. Joshi, ITO [1994] 210 ITR 723 wherein the Gujarat High Court has held that no revised return can be filed by the assessee after the Income-tax Officer makes a draft order of assessment under section 144B of the Act because under section 139(5) of the Act a revised return cannot be filed after completion of the assessment. He submitted that since no notice was issued in the present case to the respondent under section 143(2) of the Act within the period of one year from the end of July, 1994, the month in which the original return was filed, the intimation dated October 17, 1994, operated as an assessment and had become final and hence the revised return filed on August 31, 1995, by the respondent was not a valid revised return under section 139(5) of the Act and the assessment made on the basis of the revised return was invalid and had to be annulled. According to him, the Tribunal was right in taking the view that the assessment was an invalid assessment.

Sub-section (5) of section 139, sub-section (l)(a) and its first proviso and sub-sections (2) and (3) of section 143 of the Act then in force, which are relevant for deciding whether the assessment made by the Assessing Officer on March 27, 1997, pursuant to the revised return filed by the respondent was a valid assessment, are quoted herein below:

"139. Return of income.-...

(5) If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier:

Provided that where the return relates to the previous year relevant to the assessment year commencing on April 1, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.

"143. Assessment.-(l)(a) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee:

Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:

(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;

(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed;

(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed:....

(2) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return:

Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.

(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment."

Sub-section (5) of section 139 of the Act quoted above provides that if the person, who has furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142 of the Act, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Thus, before the expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier, a revised return can be filed by an assessee under sub-section (5) of section 139 of the Act. The Tribunal has taken a view in paragraphs Nos. 9 and 10 of the impugned order quoted above that since the revised return was filed by the respondent on August 31, 1995, after the expiry of the period prescribed for issuance of notice under section 143(2) of the Act for framing of the regular assessment, the intimation issued under section 143(1)(a) of the Act partakes of the character of an assessment and the revised return filed after the intimation had become an assessment, was not a valid revised return under sub-section (5) of section 139 of the Act and the assessment framed on the basis of such revised return was consequently invalid.

We have to consider whether this view taken by the Tribunal in the impugned order is correct or incorrect in law. A plain reading of sub-section (l)(a) of section 143 of the Act would show that an intimation is sent to the assessee specifying the sum payable towards any tax or interest found due on the basis of return filed by the assessee. Similarly, intimation is sent to the assessee if such refund is found due on the basis of the return filed by the assessee. Further, under the first proviso to sub-section (l)(a) of section 143 by adjustments arithmetical errors in the return may be corrected, losses, deduction, allowance or relief on the basis of the information available in the return, accounts or documents may be allowed and similarly loss, deduction, allowance or relief claimed in the return on the basis of the information available in such return, accounts or documents may be disallowed. In other words, the truth of the statement of income or loss made by the assessee in the return is not verified by the Assessing Officer nor is the assessee required to adduce evidence in support of income or loss before the intimation is sent to the assessee under sub-section (l)(a) of section 143 of the Act. Sub-section(1)(a)(i) of section 143 of the Act, however, makes it clear that such an intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly. Thus, by a statutory fiction the intimation is treated as a notice of demand under section 156 of the Act, so that the provisions of the Act for recovery of demand applicable to the notice of demand under section 156 can be taken recourse to for recovering the amount of tax or interest found due on the basis of the return. This limited statutory fiction cannot convert the intimation to be an assessment.

Sub-section(1)(a)(i) of section 143 of the Act makes it clear that the intimation is without prejudice to the provisions of sub-section (2) of section 143 of the Act. Sub-section (2) of section 143 of the Act states that WDere a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return. Sub-section (3) of section 143 provides that the Assessing Officer shall after hearing such evidence as the assessee may produce or after taking into account relevant material which he has gathered, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment by an order in writing.

Thus, in an assessment made in accordance with the procedure mentioned in sub-sections (2) and (3) of section 143 of the Act, the Assessing Officer does not accept the truth of the statement of income or loss made in the return filed by the assessee without any verification. Instead, he requires the assessee to attend his office or to produce or cause to be produced any evidence on which the assessee relies in support of his return and the Assessing Officer takes into account such evidence and all relevant material which he has gathered and by an order in writing makes an assessment of the total income or loss of the assessee determining the sum payable by the assessee. There is, therefore, a marked difference between an intimation sent under sub-section (1)(a) of section 143 of the Act to the assessee and an assessment made in accordance with the procedure laid down in sub-sections (2) and (3) of section 143 of the Act.

For the aforesaid conclusion, we find support in the decisions of the Allahabad High Court in Pradeep Kumar Har Saran Lal [1998] 229 ITR 46, the Delhi High Court in Apogee International Ltd. [1996] 220 ITR 248 and this court in Kamal Textiles [1991] 189 ITR 339 cited by Mr. Jain. In the aforesaid three decisions, the difference between an intimation sent to the assessee under section 143(1)(a) and an assessment made under section 143(3) pursuant to a notice under section 142 of the Act has been clearly brought out. In Pradeep Kumar Har Saran Lal [1998] 229 ITR 46 as well as in Apogee International Ltd. [1996] 220 ITR 248, the Allahabad High Court and the Delhi High Court, respectively, further held that the intimation under section 143(1)(a) of the Act is treated as notice of demand under section 156 of the Act only for the purpose of making the machinery provisions applicable for recovery of tax found to be due in the intimation under section 143(1)(a)(i) of the Act.

Mr. Choudhary, however, submitted that a reading of sections 246 and 246A of the Act would show that against the intimation under section 143(1)(a), an appeal can be filed before the Deputy Commissioner of Income-tax (Appeals) if the intimation has been issued by the Assessing Officer and, before the Commissioner of Income-tax (Appeals) in case the intimation has been sent by the Deputy Commissioner and this would show that an intimation sent under section 143(1)(a) of the Act to an assessee would operate as an assessment. We are not persuaded by this argument of Mr. Choudhary. As we have seen, there is a marked difference between an intimation sent under section 143(1)(a) of the Act and an assessment made under section 143 of the Act pursuant to the notice under section 142 of the Act and the fact that an appeal is also provided for against an intimation sent to the assessee under section 143(1)(a) of the Act would not make the intimation an assessment.

Mr. Choudhary further submitted that if an intimation is not treated as an assessment even where no notice is served by the Assessing Officer to the assessee within a period of 12 months in accordance with section 143(2) of the Act, then no reassessment proceedings can be initiated under section 147 of the Act in case some income escapes assessment. We are unable to accept the aforesaid submission of Mr. Choudhary. A plain reading of section 147 of the Act would show that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153 of the Act, "assess or reassess" such income. The use of the word "assess" in section 147 of the Act would show that under section 147 of the Act, the Assessing Officer can not only reassess but also assess where he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Therefore, even where no assessment is made under section 143(3) of the Act pursuant to the notice under section 143(2) of the Act and only an intimation is sent, the Assessing Officer can also assess under section 147 of the Act if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year.

In Punjab Tractors Ltd. [2002] 254 ITR 242 (P & H) cited by Mr. Choudhary, the contention that was raised by the assessee was that in the absence of an assessment made by the Assessing Officer under sub-section (3) of section 143 of the Act, a notice for reassessment under section 148 of the Act could not have been issued. While negativing the said contention, the Punjab and Haryana High Court held that an intimation under section 143(1)(a) operates as an order of assessment unless the authority proceeds to give notice under sub-section (2) of section 143 and passes an order under sub-section (3) of section 143 of the Act and that the absence of an order under sub-section (3) of section 143 is not a bar to proceed under section 148 of the Act. The aforesaid judgment of the Punjab and Haryana High Court does not really equate an intimation under section 143(1)(a) with an assessment under section 143(3) pursuant to a notice under section 143(2) of the Act, but has only held that even where only an intimation is sent under sub-section (1) of section 143 and no regular assessment has been made under sub-section (3) of section 143, proceedings for reassessment can be initiated under section 148 of the Act.

In Vipan Khanna [2002] 255 ITR 220 (P & H) cited by Mr. Choudhary, the Punjab and Haryana High Court has clearly held that the new procedure for processing the return under sub-section (l)(a)(i) of section 143 of the Act cannot be equated with framing of the assessment, but has observed that a notice under sub-section (2) of section 143 of the Act cannot be served on the assessee after the expiry of twelve months from the end of month in which the return is furnished and the assessment proceeding under section 143 of the Act comes to an end and the matter becomes final. Hence, this decision does not hold that an intimation becomes an assessment after the expiry of the 12 month period within which a notice under sub-section (2) of section 143 of the Act is to be served on the assessee, but only lays down the law that no assessment can be made by the Assessing Officer under section 143 of the Act after the expiry of the said period of 12 months if no notice is served on the assessee within the said period.

In Panchmahal Steel Ltd. [1994] 210 ITR 723 (Guj) which the Tribunal has relied, before the revised return was filed, a draft order of assessment under section 144B of the Act had been prepared by the Income-tax Officer and the Gujarat High Court in the said judgment has held that since the assessment had been completed, the revised return filed after the completion of assessment, was not a valid revised return under sub-section (5) of section 139. But, in the present case, as we have seen, the assessment process had not been initiated at all under sub-section (2) of section 143 and no assessment had been made under sub-section (1) of section 143 and, therefore, the revised return filed by the respondent was a valid revised return under sub-section (5) of section 139 of the Act.

We are, therefore, of the considered opinion that the view taken by the Tribunal in the impugned order that an intimation under sub-section (l)(a) of section 143 of the Act to the assessee partakes of the character of an assessment, if no action is taken to issue notice under sub-section (2) of section 143 to the assessee within the period of twelve months contempated therein is wholly erroneous in law. In our considered opinion, the intimation dated October 17, 1994, did not partake of the character of regular assessment on completion of the period of twelve months contemplated under sub-section (2) of section 143 of the Act even if no notice was served on the respondent under the said sub-section during the said period of 12 months. Since no assessment was made pursuant to the original return, the respondent could file a revised return under sub-section (5) of section 139 of the Act at any time before the expiry of one year from the end of the relevant assessment year 1994-95, i.e., before March 31, 1996, and as the revised return was filed by the respondent on August 31, 1995, it was a valid revised return under sub-section (5) of section 139 of the Act and the assessment made pursuant to the said revised return by the Assessing Officer was a valid assessment. The conclusions of the Tribunal that the revised return was invalid in law and the assessment made on the basis of such a revised return was also invalid in law, are thus incorrect in law.

For the aforesaid reasons, we hold that the Tribunal was not justified in coming to the conclusion that the assessment made on March 27, 1997, for the assessment year 1994-95 was not a valid assessment. The first substantial question of law as formulated by order dated July 14, 2004, of the court and the first and second substantial questions of law as formulated by order dated January 10, 2005, of the court are accordingly answered in favour of the appellant and against the respondent.

The second substantial question of law as formulated by order dated July 14, 2004, of the court is whether the Tribunal was justified in holding that the Assessing Officer had no jurisdiction to take into account and rely upon the valuation submitted by the Valuation Officer in respect of the house property belonging to the assessee.

On this issue, we find that the Assessing Officer vide his letter dated August 22, 1996, issued a commission under section 131(1)(d) to the Valuation Officer for determining the valuation of cost of construction of Bagria Towers and the Valuation Officer determined the valuation of the cost of construction as on August 31, 1995, as Rs. 21,25,042 and on the basis of the said valuation, the Assessing Officer made an addition of Rs. 12,98,328 on account of unexplained expenditure under section 69 of the Act. The respondent challenged the said valuation of Bagria Towers in appeal before the Commissioner of Income-tax (Appeals) contending inter alia, that a reference can only be made under section 55A of the Act to the Valuation Officer for the purpose of determining fair market value of a capital asset for computing the capital gains and not for determining cost of construction and that no reference could be made to the Valuation Officer under section 131(1)(d) of the Act. The Commissioner of Income-tax (Appeals) rejected the said contentions of the respondent but remmitted the matter to the Assessing Officer with a direction to him to give a reasonable opportunity to the respondent as he found that the Assessing Officer had ignored the objections to the valuation of the property of the respondent and had not given reasonable opportunity to him to present his case properly. In further appeal to the Tribunal by the respondent, the Tribunal held in the impugned order that as per the terms of the commission issued to the Valuation Officer, he was required to submit the valuation report by September 30, 1996, but the valuation was started only in October-November, 1996 by the Valuation Officer and such a valuation beyond the time-limit fixed in the commission issued to him cannot be used as a piece of evidence against the respondent and accordingly, set aside the order passed by the Commissioner of Income-tax (Appeals).

In Smt. Amiya Bala Paul v. CIT [2003] 262 IIR 407 ; [2003] 1 RC 313, the Supreme Court, inter alia, held that the Assessing Officer cannot refer the matter to the Valuation Officer as provided in section 55A of the Act for estimating the investment on construction of a house of the assessee for the purpose of section 69 of the Act because the object of the said section 55A is a reference to the Valuation Officer by the Assessing Officer for determining the fair market value of the asset for the purpose of capital gain only. But after the said judgment of the Supreme Court, section 34 of the Finance (No.2) Act, 2004 inserted a new section 142A in the Act. The said section 34 of the Finance (No.2) Act, 2004 is quoted herein below:

"34. Insertion of new section 142A.-After section 142 of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 15th day of November, 1972, namely:

'142A. Estimate by Valuation Officer in certain cases.-(l) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.

(2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:

Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.

Explanation.-In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (2 of 1957).'"

It is thus clear from section 34 of the Finance (No.2) Act, 2004 quoted 21 above that section 142A shall be deemed to have been inserted with effect from November 15, 1972. The said section 142A inter alia, provides that for the purpose of making an assessment or reassessment under the Act, where an estimate of value of any investment referred to in section 69 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him and thereafter the Valuation Officer will make the valuation and submit a report, and on receipt of the report from the Valuation Officer, the Assessing Officer may, after giving a reasonable opportunity of being heard, take into account such report and make such assessment or reassessment. Thus, power is vested with the Assessing Officer with effect from November 15, 1972, to make a reference to the Valuation Officer for estimating the value of any investment referred to under section 69 of the Act including the investment on any construction made by an assessee.

In the proviso to the newly added section 142A, however, it is stated that nothing contained in this newly added section shall apply in respect of an assessment made on or before September 30, 2004, except in cases where reassessment is required to be made in accordance with the provisions of section 153A. We called upon Mr. Jain, learned counsel for the appellant, and Mr. Choudhary, learned counsel for the respondent to address us on the question as to whether section 142A will apply to the assessment in the present case when the appeal under section 260A of the Act arising out of the said assessment on the issue with regard to valuation of the construction of Bagria Towers made by the Valuation Officer is still pending before this court.

Mr. Jain submitted that the assessment in the present case has not become final and conclusive as yet because the appeal on the very issue regarding valuation by the District Valuation Officer under section 260A of the Act is pending before this court. Mr. Choudhary, on the other hand, submitted that since the assessment order, the first appellate order and the second appellate order have been passed by the Assessing Officer, Commissioner of Income-tax,(Appeals) and the Tribunal before September 30, 2004, section 142A will not apply in the present case. He cited the decisions of the Delhi High Court in CIT v. Sudhish Kumar [2005] 276 ITR 563 and of the Punjab and Haryana High Court in CIT v. Krishan Lal Dua [2005] 277 ITR 477 in support of his aforesaid contention. He also cited the decision of the Supreme Court in R. Rajagopal Reddy v. Padmini Chandrasekharan [1995] 213 ITR 340 in which the Supreme Court has held that section 4(2) of the Benami Transactions (Prohibition) Act, 1988, will not apply retrospectively to pending suits, claims or actions and submitted that section 142A similarly cannot apply to pending cases. He further argued that in any case, the Assessing Officer has not made any reference to the Valuation Officer in this case and has only issued a commission under section 131(1)(d) to the Valuation Officer and, therefore, section 142A will not apply to the present case.

Weare unable to accept the aforesaid submissions of Mr. Choudhary. The Assessing Officer by his letter dated August 23, 1996, had issued a commission under section 131(1)(d) to the District Valuation Officer, Bhopal, to determine the cost of construction of Bagria Towers for the purpose of making an estimate of the investment referred to in section 69 of the Act. Hence, in substance, the Assessing Officer had made a reference to the District Valuation Officer in terms of section 142A of the Act for the purpose of making an assessment under the Act as he was of the view that an estimate of the value of investment made on the construction was required to be made. Since the Supreme Court held in Smt. Amiya Bala Paul [2003] 262 ITR 407 that the Assessing Officer had no such power to make a reference to the Valuation Officer for determining the investment under section 69 of the Act, Parliament has introduced section 142A vesting such power on the Valuation Officer and expressly enacting that the said section 142A shall be deemed to have been in force with effect from November 15, 1972. The reference to the Valuation Officer by the letter dated August 23, 1996, of the Assessing Officer will thus, be a valid reference under section 142A of the Act as if the said section 142A of the Act was in force when the reference was made on August 23, 1996. The language of the proviso to section 142A of the Act makes it clear that the section shall not apply in respect of the assessment made on or before September 30, 2004, and where such assessment has become final and conclusive on or before September 30, 2004. In this case, the assessment may have been made before September 30, 2004, but the same has not become final and conclusive and is still pending in the appeal under section 260A of the Act before the High Court. The Supreme Court has held in Garikapati Veeraya v. N. Subbiah Choudhry, AIR 1957 SC 540 in paragraph 23:

"... the legal pursuit of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding..."

Thus, an appeal is only a continuation of the assessment proceedings. Therefore, the assessment in the present case has not become final and conclusive on or before September 30, 2004, particularly when the very issue with regard to valuation of the investment made on construction of Bagria Towers for the purpose of section 69 of the Act and for the purpose of assessment is still pending before the High Court. In CIT v. Sudhish Kumar [2005] 276 ITR 563 (Delhi) and CIT v. Krishan Lal Dua [2005] 277 ITR 477 (P & H) cited by Mr. Choudhary, the question as to whether the assessment had become final and conclusive on or before September 30, 2004, when the appeal under section 260A of the Act was pending before the High Court had neither been raised nor considered. In R. Rajagopal Reddy v. Padmini Chandrasekharan [1995] 213 ITR 340 (SC) cited by Mr. Choudhary, section 4(2) of the Benami Transactions (Prohibition) Act, 1988 had not been made retrospective and hence the Supreme Court held that the said provision will not apply retrospectively to pending suits, claims or actions. But section 142A of the Act has been made retrospective with effect from November 15, 1972, by section 34 of the Finance (No.2) Act, 2004, subject to exceptions in the proviso to the said section 142A of the Act. Thus, we hold that under section 142A of the Act, the Assessing Officer had the jurisdiction to make the reference to the Valuation Officer to determine the estimate of the value of the construction of Bagria Towers.

For the aforesaid reasons, the appeal is allowed and the impugned order of the Tribunal is set aside and the matter is remitted to the Assessing Officer to comply with the directions of the Commissioner of Income-tax (Appeals) in his order and decide the valuation of the construction and make the assessment afresh after giving reasonable opportunity of hearing to the respondent.

 

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