Vildirect: IncomeTax-caselaws-1997-VIL-109-ITAT-PAT

1997-VIL-109-ITAT-PAT

Equivalent Citation: [1999] 237 ITR (A. T.) 27, ITD 63, 181,

Income Tax Appellate Tribunal PATNA

Date: 13.05.1997

SHANTI COMPLEX.

INCOME-TAX OFFICER.

BENCH

Member(s) : R. D. AGRAWALA., V. K. SINHA., ABDUL RAZACK.

JUDGMENT

Per Shri V.K. Sinha A.M. -- This is an appeal filed by the assessee and across appeal filed by the Department. Both are being disposed of by a common order for the sake of convenience.

2. The dispute relates to an addition of Rs.1,37,400 made by the Assessing Officer for unexplained investment in construction of a building under section 69 of the Act. The assessee constructed a hotel complex called "M/s. Shanti Complex" and the investment shown during the year was Rs.95,440. It is mentioned in the assessment order that the total cumulative investment up to the year was shown at Rs.9,94,522, but this figure has been challenged by the ld. counsel for the assessee as incorrect and the correct figure is stated to be Rs.5,02,656. The assessee admittedly did not maintain proper books of account for the construction and, therefore, the Assessing Officer referred the question of cost of construction to the Departmental Valuation Cell. According to the Valuer's Report, the estimated cost of construction was Rs.12,08,000. On the other hand, the assessee filed a Report from a Registered Valuer, according to which, the cost of construction was Rs. 5,06,000 only. The assessee submitted various objections to the valuation by the Departmental Valuer but the Assessing Officer rejected them saying that they were the same which were made before the Valuation Cell. He, accordingly, estimated the investment up to the year at Rs.12,08,000. The pro rata investment in this year was taken at 19.32% of Rs.12,08,000 i.e., Rs.2,33,144 as against Rs.95,440 shown by the assessee. The difference of Rs.1,37,404 was added to the assessee's income for the year as "Income from undisclosed sources".

3. The CIT(A) went into the matter in a greater detail. He summarised the objections to the report of the Valuation Cell and made out a comparative chart of the valuation as per Departmental Valuer and as per Registered Valuer as under:

"3. Before me, the A.R. has reiterated the objections taken before the ITO and has also assailed the valuation made by the Valuation Cell on other grounds which are summarised below:

(i) The construction was conducted under the personal supervision of the Managing Partner Sri Jitendra Kumar Singh who had practical and personal knowledge of construction being a contractor earlier.

(ii) Estimate of itemwise consumption of materials was not given by the Valuation Officer.

(iii) The materials used in construction was available at cheaper rate at Gaya. Bricks and labour were also available at cheaper rates.

(iv) No details of wood work was given in the valuation made by the Valuation Cell.

(v) The partners had also agricultural lands and trees of Sal, Sisham, etc., owned by them, wood of which was used to a large extent.

(vi) Construction in ground floor was on old foundation. Ground floor had only shops and there were no toilets.

(vii) The second floor consisted of only some pillars and one unfinished room of 21' X 11' which had been valued by the Valuation Officer at Rs.2,18,396 as against Rs.22,421 estimated by the approved Valuer.

(viii) Exorbitant rate for services have been taken, Electrical and sanitary fittings are of ordinary type.

4. The valuations made by the registered valuer and the Departmental Valuer show the following comparative position:

Shanti Complex.

Ground Floor.

---------------------------------------------------------------------------------

As per Departmental Valuer As per Registered Valuer

Rs. Rs.

Construction Cost 5,87,361 Construction cost 2,63,786

(including services (including services)

@ 15%)

Less: Self supervision

@ 7.5% 44,052 @ 10% 25,000

-------------- ----------

5,43,309 2,37,407

First Floor:

As per Departmental Valuer As per Registered Valuer

Cost 5,26,645 3,23,645

Less: Self supervision For personal supervision

7.5% 39,498 10% 32,365

------------- -----------

4,87,147 2,91,280

Less: Old materials 25,000 20,315

------------- -----------

4,62,147 2,70,965

Second Floor

Cost (including

services) 2,46,915 24,801

Less: Less:

Self supervision Self supervision

@ 7.5% 18,519 @ 10% 2,480

-------------- ----------

2,28,396 22,421"

-------------- ----------

4. Thereafter, the CIT(A) allowed relief on certain grounds. He observed that the rates adopted by the Valuation Cell were the same for the ground floor and the first floor, and allowed a reduction of 15% for the first floor. He also accepted the contention that the second floor consisted only of some pillars and an unfinished room and, therefore, could not be valued at Rs.1,89,366. He reduced the same by 50%. Regarding services, since the ground floor consisted of shops with no sanitary facilities, he reduced the estimate to 7.5% against 15% adopted by the Valuation Officer. Regarding the first floor, for one block, he reduced the estimate for services to 22.5% from 32.5%. Similarly, for the first floor, another block and the second floor the estimate of services was reduced to 15% against 27.5% adopted by the Valuation Officer. According to the ld. counsel for the assessee, the total relief allowed by the CIT(A), for cumulative cost, up to that year, was about Rs.2,50,000.

5. The assessee is now in appeal before us for the addition sustained by the CIT(A) whereas the Department is in appeal before us for the relief allowed by the CIT(A).

6. The ld. counsel for the assessee reiterated the same arguments and emphasised that the cost for second floor, retained by the CIT(A), was still excessive as the actual construction was only of one room 21 X 11 and some pillars of 7' height each. Our attention was invited to a photograph, which was made available at the earlier stages also. According to him, the registered valuer has rightly taken the valuation at Rs.22,421 only. The ld. counsel further emphasised that the foundation was an old one, built in 1974-75, for Rs.30,000 only. Thereafter, further construction had been done from assessment years 1982-83 to 1988-89. The Valuation Cell had not given any credit for lower cost of foundation in the assessment year 1974-75.

7. The ld. counsel also stated that initially the assessment was completed under section 143(1) of the Act but was re-opened under section 143(1)(b) which was not permissible.

8. The ld. D.R., on the otherhand, submitted that excessive relief had been allowed by the CIT(A). Our attention was invited to a paper book, containing Building Cost Index of Delhi as on 13-3-1984, prepared bv C.P.W.D., and cost indices for various places over the plinth area rates on 1-10-1976, approved by the C.P.W.D. He submitted that proper adjustment had been made for the fact that construction was at Gaya where the material was cheaper, since such an adjustment was built in the system. He further submitted that it was not possible to verify the assessee's contention that old foundation had been used for the ground floor, since neither the foundation had been dug for that purpose nor the old Plans had been produced before the Valuation Cell. Regarding reopening under section 143(1)(b), he submitted that it was in order relying on the decision of the Karnataka High Court in Om Trading Co. v. Second ITO [1991] 188 ITR 641/59 Taxman 101.

9. We have considered the rival submissions carefully. As far as preliminary objections are concerned, we hold that re-opening under section 143(1)(b) was an order in view of the decision of the Karnataka High Court in Om Trading Co.'s case. We now proceed to consider the issue on merits.

10. The salient feature in the controversy is that the assessee was a contractor himself but did not maintain regular books of account for the construction of the shopping complex. In such circumstances, the Assessing Officer was justified in referring the cost of construction to the Valuation Cell. Our conclusion is further strengthened by the decision of the Rajasthan High Court in CIT v. Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar [1993] 200 ITR 788/[1992] 64 Taxman 585, relevant extract from which is reproduced below:

"We have considered the matter. In respect of the investment which is made in the property, there can be only two methods to find out the correct position (i) when proper books of account are maintained, and (ii) valuation report. If the assessee has maintained proper books of account and all details are mentioned in such books of account, which are duly supported by vouchers and no defects are pointed out and the books are not rejected, the figures shown therein have to be followed. The valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the Income-tax Officer is of the opinion that no reliance can be placed on such books of account. It is true that the Income-tax Officer has no option but to rely on the valuation report, which is a document prepared by an expert and is admissible."

11. We have to see whether the estimate, made by the Valuation Cell, is reasonable and whether the relief allowed by the CIT(A) is reasonable. The CIT(A) has given a comparative chart of the valuation by the Valuation Cell and by the Registered Valuer. However, there is one factor due to which two cannot be compared on. The Valuation Cell has proceeded on the basis of the plinth area rates, which takes into account the quantity of material and labour in a specified unit of area. On the otherhand, the Registered Valuer has taken the quantities involved in the construction, ie., the cubic content of the pillars, No. of bricks and so on. It is further stated in the Registered Valuer's report that the P.W.D. rates have been adopted, whereas the Valuation Cell has adopted C.P.W.D. rates as duly adjusted for Gaya. In our opinion, it is better to proceed on the basis of plinth area rates, which are verifiable and are not in dispute, whereas the quantities involved in construction, as adopted by the Registered Valuer, are not verifiable.

12. After going through the reasoning of the CIT(A), we are of the opinion that the reliefs allowed by him cannot be reduced. On the other hand, some additional relief are deserved. The deduction allowed for self-supervision should be taken at 10% instead of 7.5%, adopted by the Valuation Cell, considering that the partners of the firm were themselves conversant with the process, having been contractors earlier. In our opinion, no further relief for rates of material at Gaya or labour at Gaya is admissible, since the schedule of rates has already taken into account. No evidence was made available for trees on agricultural land utilised by the partners, and so no relief can be allowed for that purpose either. However, benefit should be given for old foundation on the ground floor. We find from the report of the Valuation Cell that salvage value of old structure has been taken into account to the extent of Rs.50,800. This shows that an earlier building did exist and the earlier building could not have been made without a foundation. We would, therefore, allow an ad hoc relief of Rs.1 lakh for the earlier foundation, which would have been made at the rates prevailing in 1974-75. Lastly, for the second floor, the relief allowed by the CIT(A), by reducing the estimated cost to 50% of Rs.1,89,366 is not adequate. Considering the nature of construction, we direct that this estimate should be reduced by 75%. No further relief is due for rates of services beyond what is given by the CIT(A). The Assessing Officer is directed to modify the assessment and compute the pro rata difference on cost of construction for this year accordingly. The difference should be sustained as an addition.

13. In the result, the assessee's appeal is partly allowed and the Departmental appeal is dismissed.

Per Shri Abdul Razack, Judicial Member -- I have studied the order prepared by my ld. Brother, Accountant Member and with due respect to him I am unable to affirm his views. My views are different. I shall spell out the same in the forthcoming paragraphs. Though my ld. Brother has brought out succinctly the facts surrounding the dispute; yet for a little more clarify I shall repeat, but very briefly.

2. The assessee laid foundation for construction of a hotel complex in the assessment year 1974-75. From assessment years 1975-76 to 1981-82, no construction was done. The effective construction started from the assessment year 1982-83 and continued till assessment year 1988-89. The previous year of the assessee is financial year, that is to say; from 1-4-1985 to 31-3-1986. During that period, the assessee spent a sum of Rs.95,440 on construction and declared the same before the Assessing Officer. The Assessing Officer wanted to know the actual amounts spent by the assessee on construction of the hotel complex during that period and he perhaps, thought that since the Departmental Valuation Cell which is functioning under section 16A and section 55A, for determining the fair market value of properties and assets, under the Wealth-tax Act as well as under the Income-tax Act respectively, the matter for knowing the real and actual cost of construction should be referred to Departmental Valuation Officer (DVO). Keeping this in mind, the Assessing Officer made a reference to the DVO to ascertain the cost of construction made by the assessee. Here, I would like to say that there is no express statutory provision or rule either under the Income-tax Act or the Rules framed thereunder empowering, enabling or authorising the Assessing Officer to refer to DVO or to any other expert for ascertaining the cost (or value) of construction of any building or property. I also did not find any instruction, norms, guidelines, etc., in this regard from any authority. Yet the Assessing Officer asked the DVO through letter dated 3-11-1987 to determine the cost of construction done by the assessee in respect of the hotel complex for assessment years 1974-75 and 1983-84 to 1986-87 (pl. refer to page 20 of paper book). The DVO estimated the total value of construction of the hotel complex at Rs.12,08,000 as against Rs.5,02,656 (and not Rs.9,94,522) incurred by the assessee. The Assessing Officer formed an opinion that 19.32% of Rs.12,08,000 as certified bv the DVO was invested by the assessee in the financial year ending 31-3-1986 as against disclosed expenditure of Rs.95,440. According to the said percentage taken by the Assessing Officer, an addition to the extent of Rs.1,37,404, as unexplained investment during the previous year relevant to the year under appeal, was stated to have been made by the assessee in the construction of the said hotel complex, and the same was added to the returned income, as income from undisclosed sources. Though the Assessing Officer has not stated that the addition is made bv him under section 69 of the Act; yet it is assumed by my ld. Brother that it is added under section 69 of the Act. I do not dispute this and I also assume so. I, therefore, proceed to examine the impugned addition in the light of the provisions of section 69 of the Act.

3. In my view when an assessee discloses a particular amount as being spent on construction of a building then it is the fundamental duty of the Assessing Officer to collect, during the course of assessment proceedings, all details from the assessee; such as copy of plan of the building, sectional drawings, quantitative details of sand, cement, steel, bricks, stones and various other materials used and consumed in the process of construction with its relative value; and amounts spent by the assessee towards wage/labour payments on various works like, civil, carpentry, sanitary, electrical and so on. After having collected such details, the Assessing Officer has to examine with the evidence in possession of the assessee, apply his mind and then to arrive at a decision whether or not the assessee has correctly disclosed the amounts spent for construction of the building. Needless to say that this enquiry is part of assessment process and, thus, a quasi-judicial function. Such quasi-judicial function in my view cannot be abdicated, surrendered, assigned or delegated to or in favour of third persons or strangers until and unless specifically authorised by law. To my mind and knowledge, I reiterate, there is no specific power or authorisation given to the Assessing Officer either under the Income-tax Act or the Rules. In such a situation, the Assessing Officer cannot refer the matter to the DVO and ask him to determine the cost of construction on which basis he can make an addition, under the deeming provisions of section 69 of the Act to assessee's income from some undisclosed sources.

4. The only power an Assessing Officer has under the Income-tax Act, 1961 for reference to the DVO is as contained in section 55A of the Act and that is for the purpose of ascertaining the fair market value of a capital asset for the purpose of levying capital gain as found in Chapter IV-E of the Act. This authorisation under section 55A to the Assessing Officer for making a reference to the DVO cannot be invoked or utilised by him for other collateral purposes, i.e., to say for the purpose of making additions under the deeming provisions of section 69 which is contained in Chapter V of the Act.

5. My ld. Brother has justified the reference to the DVO on the strength of certain observations of their Lordships of the Rajasthan High Court in Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar's case. With respect, these observations to my mind lend support to the facts of that case only and do not lay down an absolute legal proposition that if no account books of construction activity are maintained by an assessee or if maintained are rejected, then the opinion of the DVO on the cost of construction should be the basis for making addition as undisclosed income of the assessee from some undisclosed sources under section 69 of the Act. Their Lordships of the Rajasthan High Court in the said case of Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar were not considering whether the Assessing Officer is authorised or empowered for making reference to the DVO for ascertaining and taking the opinion of the estimated, probable or actual cost of construction by the assessee. In my opinion, therefore, the observations of their Lordships of Rajasthan High Court have no relevance at all with regard to the power of Assessing Officer in seeking opinion of the DVO on the cost of construction. The Full Bench of the Hon'ble Patna High Court in a recent judgment rendered on 11-11-1993 in the case of CIT v. Smt. Kamla Devi Rathi [1995] 213 ITR 177/82 Taxman 348 have laid down that a decision is, an authority for what it decides and not what can logically be deduced therefrom. This decision of the Hon'ble Rajasthan High Court is, therefore, distinguishable and has no application to the facts of this case, to which I have adverted to.

6. Whether or not books are maintained by an assessee in respect of the construction undertaken; yet, I think it is the fundamental and imperative duty of an Assessing Officer either to accept or to reject the disclosed cost of construction. In the event of the Assessing Officer not accepting the disclosed amount spent on construction then he should have cogent and tangible evidence and material in his possession. The report, opinion or certificate of the DVO, in my view, is not dependable and cogent evidence as per law. The DVO is not authorised by law to tender such opinion.

7. Cost and value are the two different concepts. The value of an article or thing may be say "X" amount, but an assessee may purchase it for a lesser amount for variety of reasons. In such a case, the cost to such purchaser assessee will be lesser than the real market value. It is common knowledge that Doctors, Lawyers, Chartered Accountants, Engineers, Architects and lot of other persons occupying high posts and status in society (which I refer them as Big People) get substantial concessions and reductions in the purchase price of several commodities, article and things in the market compared to other common citizens or lesser mortals (whom I refer as Small People). The cost of articles or things to such Big People will be less compared to the cost of the same article to Small People. I pose a question to my sale can the Assessing Officer make addition under any deeming provision of Income-tax Act in the case of Big People on the ground that market price/value of a particular article or thing is opined by an expert to be more than what was spent while purchasing? The answer obviously will have to be "No".

8. The Valuation Cell of the Department was established after the insertion of section 16A in the W.T. Act by virtue of Tax Laws (Amendment) Act, 1972, w.e.f. 1-1-1973 for the purpose of determining fair market value of properties belonging to assessee and declared in the wealth-tax returns. The provisions of section 55A were also inserted in the Income-tax Act by the said Tax Laws (Amendment) Act, 1972. The purpose of insertion of this provision in Income-tax Act was to determine and ascertain the fair market value of a capital asset for the purpose of levy of capital gains tax in accordance with the provisions contained in Chapter IV-E of the Act.

9. The DVO is a trained expert for tendering opinion on 'valuation' aspects of any referred property or asset in accordance with the provisions either of section 16A of the Wealth-tax Act or under section 55A of the Income-tax Act. The DVO is not trained nor he is an expert in tendering opinions on the 'cost' aspects of any property or asset. It is the job of an cost analyst, and the DVO is not a cost analyst. How can than a matter be referred by the Assessing Officer to the DVO for obtaining his opinion on the 'cost' aspect of a particular property/asset. Assuming that the Assessing Officer can under the guise of his 'powers of enquiry' take an opinion from an expert (DVO). But, the question is, can he (Assessing Officer) subject the assessee to tax on the basis of such an opinion of the DVO and, further, expose the assessee to additional levies and imposts, including penalties and prosecutions, under various provisions of Income-tax Act, 1961? -- If the answer is in the affirmative than I think such a power is arbitrary, oppressive and unreasonable offending Articles 14 and 21 of the Constitution of India and cannot be allowed to be exercised as has been authoritatively laid down by their Lordships of the Supreme Court in the illiminating and landmark Judgment rendered in the case of Smt. Maneka Gandhi v. Union of India AIR 1978 SC 597.

10. A cursory look at the report submitted by the DVO consisting of 2 pages and which is placed at pages 21 to 22 of the paper book clearly shows that it is more a valuation report, than a report or an opinion on the cost aspects of construction. I, therefore, do not wish to give any credence and discuss the merit of it. Even, this copy of the report of the DVO was not given to the assessee and he had to make an application on 4-2-1988 and pay money for obtaining such a report which is adverse to him and being used by the Assessing Officer for making addition under the deeming provisions of section 69 of Income-tax Act, 1961. These facts are mentioned at page 22 of the paper book filed in this appeal. The Assessing Officer has brushed aside the objections raised by the assessee that the opinion given by the DVO was imaginary and incorrect. The assessee brought out the anomalies in the report of the DVO and also supported his case by obtaining another report from a private registered valuer which is placed at pages 23 to 32A of the assessee's paper book. The Assessing Officer has not applied his mind to the facts and figures furnished by the expert Registered Valuer of the assessee.

11. It is well-settled law that valuation reports given by experts are nothing but opinions and I reiterate, it is not fair, just and equitable to subject the assessee to tax on the basis of such opinions under the deeming provisions contained in the Income-tax Act, 1961 without there being on record any corroborative, cogent and tangible evidence that the assessee did spend more than what is declared. In the instant case, nothing is on record to sustain any addition.

12. In my view, therefore, the entire addition is required to be deleted and I direct deletion of the same.

13. In the result, the assessee's appeal is allowed and the departmental appeal is dismissed.

STATEMENT OF CASE TO THE HON'BLE PRESIDENT, INCOME-TAX APPELLATE TRIBUNAL, IN THE ABOVE MENTIONED I.T. APPEALS FOR REFERENCE TO THIRD MEMBER AS PER SUB-SECTION (4) OF SECTION 255 OF THE INCOME-TAX ACT, 1961.

As we have differed in our views on the controversies involved in the above-mentioned LT. Appeals we refer below given two points for determination by the Third Member in accordance with the provisions of sub-section (4) of section 255 of the Act and we request the Hon'ble President for making suitable reference:--

"1. Whether, on the facts and in the circumstances of the case, the Assessing Officer was justified in refering the matter to the Departmental Valuation Officer (DVO) for ascertaining the cost of construction of the hotel complex called "Shanti Complex" constructed by the assessee?

2. If the answer is in the affirmative to the above question, then whether on the basis of such report/opinion of the DVO, the Assessing Officerwas justified in making addition in terms of section 69 of the Income tax Act, 1961?"

THIRD MEMBER ORDER

1. Under sub-section (4) of section 255 of the Income-tax Act, 1961, the Hon'ble President of the Appellate Tribunal has appointed me as a Third Member for my opinion in respect of the aforesaid appeals to the decision of which the two learned Brothers constituting the original Bench could not agree. The points of difference for the opinion of the Third Member are these:--

"1. Whether, on the facts and in the circumstances of the case, the Assessing Officer was justified in referring the matter to the Departmental Valuation Officer (DVO) for ascertaining the cost of construction of the hotel complex called "Shanti Complex" constructed by the assessee?

2. If the answer is in the affirmative to the above question, then whether on the basis of such report/opinion of the DVO, the Assessing Officer was justified in making addition in terms of section 69 of the Income tax Act, 1961?"

2. Appeals were fixed for hearing and both sides heard in detail with the aid of the relevant case records.

3. To be stated succinctly, the controversy involved relates to an addition of Rs.1,37,400 made by the Assessing Officer towards unexplained investment in the construction of a building by the assessee under section 69 of the Income-tax Act, 1961 (hereinafter referred to as "the Act" for brief).

4. The assessee constructed a hotel complex in the name and style "M/s. Shanti Complex' for which investment during the year under consideration was shown at Rs.95,440, the cumulative figure of investment up to that point of time standing at Rs.9,94,522 as mentioned in the assessment order but claimed by the learned counsel for the assessee to stand at Rs.5,02,656.

5. It is an admitted position that proper books of account in respect of the construction in question were not maintained by the assessee which led to a reference by the Assessing Officer to the Departmental Valuation Cell for the determination of the cost of construction. The Departmental Valuation Officer (hereinafter referred to as Valuation Officer) reported this figure at Rs.12,08,000 which far exceeds the figure of Rs.5,06,000 claimed by the assessee on the strength of a report submitted by him from a Registered Valuer.

6. Various objections were taken by the assessee before the Assessing Officer but the same were brushed aside by him on the ground that "they were the same which were made before the Valuation Officer at the time of the inspection of the building and later on and no new material have been brough on record". Eventually, the up to date investment was taken by him at Rs.12,08,000 as estimated by the Valuation Officer, the pro rata investment for the accounting period under consideration worked out at 19.32% thereof taken at Rs.2,33,144 as against a much smaller figure of Rs.95,440 shown by the assessee. This resulted in an addition of Rs.1,37,404 under the head "Income from undisclosed sources". The Ld. CIT(A) going into great details of the matter allowed elief to the assessee on certain points, as a result of which, the total investment in the property stood reduced by Rs.2.5 lakhs, as pointed out by the learned Accountant Member in his order.

7. Both the assessee as well as the department feeling aggrieved preferred appeals before the Tribunal.

8. While the learned Accountant Member who originated the appeal order allowed the assessee's appeal partly by granting and entitling them to some more relief in the estimated cost of construction and dismissed the departmental appeal, the learned Judicial Member allowed the assessee's appeal in full. The departmental appeal met the same fate at both ends.

9. A few other relevant facts are that the assessee before us are contractors and secondly they did not maintain regular books of account for the construction of the shopping complex. Also in support of their claim of investment made during the year in a sum of Rs.95,440 and up to date cost of construction detailed out hereinbefore the assessee had submitted report dated 7th November, 1987 from M/s. Dhody & Dhody of Gaya, Bihar, copy of which is available at pages 23 to 28 of the assessee's paper book on file.

10. Going through the assessment order, it is noticed that without reference to the Registered Valuer's report submitted bv the assessee, the Assessing Officer referred the case to the Valuation Officer for estimating the investment made in the construction. The report when received was accepted by the Assessing Officer without any reference of the one submitted by the assessee. While as per the assessee, a reference to the Valuation Officer in these circumstances was not legally-tenable, in the submission of the department, the Assessing Officer was well within his legal competence to have done so.

11. Reference in this respect has been firstly made to section 55A of the Act, but a position taken on behalf of the assessee that the sole provision entitling in the Income-tax Law an Assessing Officer to make a reference could be made use of only with a view to ascertain the 'fair market value' of a 'capital asset' for the purposes of Chapter IV of the Act, which dealt with "computation of income from capital gains". As against this, it was submitted on behalf of the department that the office of the Valuation Officer was created by a Parliamentary Legislation, viz., section 16A contained in Wealth-tax. Act, 1957, making him as part and parcel of Income-tax Department. He was not a stranger to the administration of the Direct Tax Laws. Even under the Income-tax Act he could be appointed as a Commissioner by virtue of the provisions of clause (d) of sub-section (1) of section 131 vesting the various income-tax authorities with the power to 'issue commissions'. This has been seriously opposed on behalf of the assessee on the count that in income-tax proceedings, the Valuation Officer had no legal relevance. Considering the matter carefully, while there is no dispute that the language of section 55A of the Income-tax Act, suggests that a reference to a Valuation Officer was envisaged only for ascertainment of the 'fair market value' of a capital asset for the purpose of Chapter IV of the Act it is not the last word on the subject in the Income-tax Act as is clear from the following further facts.

12. As stated above, section 131 dealing with the powers of the income-tax authorities regarding discovery, production of evidence, etc., in clause (d) thereof vests such authorities including an Assessing Officer of whatever rank he may be to issue commissions, for the purposes of Income-tax Act. These powers are the same as are vested in a Court under the Code of Civil Procedure, 1908 when trying a civil suit. The Assessing Officer while completing an assessment exercises quasi-judicial functions as has been held by the High Court of Bombay in the case of Dinshaw Darabshaw Shroff v. CIT [1943] 11 ITR 172 and is expected to confirm to the elementary rules of judicial procedure. It is pertinent to state here that this is in addition to the specific powers with which he is vested under section 131 in the matter of discovery, production of evidence, etc., as per which he would exercise the same jurisdiction as conferred by the Code of Civil Procedure in a Civil Court, inter alia, in the matter of issuing commissions. In this connection, reference could also be advantageously made to the provisions of sub-section (6) of section 133 of the Act which permits an Assessing Officer as follows:--

"133. Power to call for information.-- The (Assessing Officer), the Deputy Commissioner (Appeals), the (Deputy Commissioner) or the Commissioner (Appeals) may, for the purposes of this Act,--

(1)................................................................

(2)................................................................

(3)................................................................

(4)................................................................

(5)................................................................

(6) Require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the (Assessing Officer), the Deputy Commissioner (Appeals), the (Deputy Commissioner), or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the (Assessing Officer), the Deputy Commissioner (Appeals), the (Deputy Commissioner) or the Commissioner (Appeals), will be useful for, or relevant to, any proceedings under this Act."

13. Turning to the facts of the instant case, consider the plight of the Assessing Officer before whom a claim is lodged by an assessee stating a figure having been invested qua a particular investment. He himself is not an expert, in most of the cases neither a construction engineer nor an architect and perhaps having no background whatsoever of a Civil Engineer. Prima facie he is not satisfied with the assessee's claim which he wants to have verified. Why cannot he refer the matter for such verification to a Departmental Valuation Officer. No doubt, he can also request a private valuer or a valuer approved by the CBDT or a Departmental Valuation Officer for such job. One should not feel irked by the mere fact that a Departmental Valuation Officer appointed under the relevant provisions of the Wealth-tax Act, 1957, to which I would make a reference little later, is assigned this task. if the term "Departmental Valuation Officer" has to be taken as an anathema in the implementation of the provisions of the income-tax Act, I wonder how would its mention under section 55A of the same Act would be legally permissible, the entire Income-tax Act not defining the term in any manner. Stopping here for a moment, I would hop on to the relevant provisions of the Wealth-tax Act, 1957 more particularly when the Explanation appended to section 55A of the Income-tax Act accords the same meaning to the term "Valuation Officer" as appearing in clause (r) of section 2 of the Wealth-tax Act, 1957.

14. "Valuation Officer" as per clause (r) of section 2 of the Wealth-tax Act means a person appointed as a Valuation Officer under section 12A of the Act. Under section 12A of the same enactment, the Central Government may appoint as many Valuation Officers as it thinks fit. What is the role of a Valuation Officer in the implementation of the provisions of Wealth-tax Act not being germane to the present controversy is intended to be skipped over by me.

15. After dealing with the relevant provisions pertaining to office of the Valuation Officer and his appointment I would immediately proceed to refer here to the legal provisions relating to the institution of a Registered Valuer as it is quite significant for our purposes.

16. Clause (oaa) of section 2 of the Wealth-tax Act, inserted by the Taxation Laws (Amendment) Act, 1972 w.e.f. 15th of November, 1972 defines a "Registered Valuer" a person registered as a Valuer under section 34AB of the same Act.

17. Coming to section 34AB found in Chapter VII-B of the Wealth-tax Act dealing with Registered Valuers, at the outset, it may be stated that the Legislature has seemingly prescribed a rigorous procedure for their appointment. A register has to be maintained by the Chief Commissioner or Director General in which the names and addresses of the Registered Valuers would be entered. Legislature itself has prescribed the qualifications which the Registered Valuers are supposed to possess. Certain restrictions on the practice of persons registered as "Registered Valuers" have also been imposed by section 34AC. Further, they have also been enjoined upon to furnish certain particulars in certain cases and have also been made subject to the liability of being removed from the register abovestated in the event of certain contingencies. It is also important to mention that the Registered Valuers have been authorised to attend before any wealth-tax authority and even before the Appellate Tribunal, the final fact-finding body in the implementation of Direct Tax Laws in the country in connection with any matter relating to the valuation of an asset in pursuance of section 34AA of the Wealth-tax Act. All these rigours would mean that a Registered Valuer is a qualified person, not a stranger or a man from the street, has been vested with certain powers by a Parliamentary Legislation and correspondingly subjected to certain liabilities. If one ventures to make a comparison between a "Valuation Officer" on the one hand, and "registered Valuer" on the other hand, often he would be justified in saying that two are the species of same genus, one of the main differences being that while a Valuation Officer for all practical purposes is an Officer of Income-tax Department, a Registered Valuer is not and is entitled to practice and advice privately. However, this difference would not make him either a lesser mortal or put him on a lower pedestal qua the quality of his opinions though given to private citizens subject, of course, to their acceptance by an income-tax authority or the Appellate Tribunal or the higher judicial forum of the High Courts or the Supreme Court. The only other difference between the two classes of experts that incidentally comes to my mind that while the report of a Valuation Officer is binding under sub-section (6) of section 16A of the Wealth-tax Act on a Wealth-tax Officer (none else) no such binding character is attached to the report of a Registered Valuer.

18. In the wake of the aforesaid facts any statutory provisions, it is difficult to frown at the Assessing Officer in referring the matter to the Valuation Officer for ascertaining the cost of construction of the Hotel Complex of the assessee. For this, no separate constructions or guidelines required to be followed by an Assessing Officer, necessarily ought to exist. In this connection, reference to the view taken by the High Court of Rajasthan in the case of Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar, is well taken as per which in a case where an assessee has not maintained proper books of account in respect of any investment made in property duly supported by vouchers, a valuation report of an expert could be called for. No doubt, if books of account have been properly maintained wherein all details have been recorded by an assessee supported by vouchers/documents and no defects are pointed out and the books are not rejected, the result shown by them is bound to be accepted. It is equally true that as held by various judicial pronouncements including Smt. Kamla Devi Rathi's case, a decision is an authority for what it decides and not what logically could be deduced therefrom, with all perspicacity at my command, I would say that the ratio of Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar's case, is applicable on all fours to the facts of the present case, since, if this authority, in the absence of maintenance of proper account books by the assessee, suggests the alternative method of obtainment of a valuation report by the Assessing Officer, his legal authority to obtain such a report stands inherently approved by it.

19. As far as the difference between 'cost' and 'valuation' is concerned, they can differ primarily for the reason that while the valuation of an asset is its market value on a particular date in the particular part of the country or town, its cost to a citizen may be less or more depending upon his resourcefulness, wisdom and caution used by him in making the purchases in a discrete/callous manner, as the case may be, yet it Is not as if a Valuation Officer ceases to be an expert in ascertaining the cost of an asset. Valuation on a particular date, he would arrive at in the normal manner by considering the plot, area, the magnitude and the quality of construction made thereon, etc., while, if the cost of a project is intended to be claimed at a figure lower than at which it is valued, it being within the special knowledge of an assessee, in law it is he who is required to plead the relevant facts and that is why, inter alia, the Valuation Officer is obliged both in law and in equity to provide an oppurtunity of being heard to the concerned assessee. Any mitigating or extenuating circumstances which favour the assessee would, thus, be taken care of by the Assessing Officer. In my considered opinion, the Valuation Officer in this background would, therefore, be able to arrive at the valuation as well as the cost of an asset with equal competence.

20. I have gone through the order passed by my learned Brothers very carefully but find myself in agreement more with the reasonings accorded to this aspect of the matter (covered by point No. 1 of the reference) with the learned Accountant Member.

21. Proceeding further, it may be pointed out that, as also stated earlier, the Assessing Officer de hors the assessee submitting report of a Registered Valuer, referred the matter to the Valuation Officer without making any specific comment on such report. Needless to say that in law it would have been a shed better, if the reason about the dissatisfaction with the assessee's stand as to the cost of construction was recorded by the Assessing Officer at least minimally. However, although reference on the facts and in the circumstances of the case, to the Valuation Officer has been found to be justified, yet there is something more than what meets the eye and the relevant facts as are being unfolded, do cry for a legal answer.

22. After the report of the Valuation Officer was received by the Assessing Officer, the assessee made certain objections as are contained in the assessment order. The Assessing Officer over-ruled these objections in the following manner:--

"The above statements of the assessee have been examined. The statement made before me are the same which were made before the Valuation Officer at the time of inspection of the building and later on and no new material have been brought on record. The assessee could not make out the case such as the huge difference in the investment shown by it and determined by the Valuation Officer. I, therefore, reject the assessee's contention and take the investment made by the assessee as under:"

23. In this connection, special mention is required to the use of the word 'same' by the Assessing Officer in the extracted portion of his order. The report of the Departmental Valuation Officer is found at pages 36 to 38 of the paper-book Col. 3.3 of the valuation report read as under:--

"Name of the assessee's representative present (if any) at the time of inspection."

The report against this column simply contains the name of Shri Jitendra Mohan Singh, does not contain even a distant whisper about the nature of objections made by Shri Singh. The reticence of the assessee's case/stand/plea before the Departmental Valuation Officer as is evident from the document prepared by him results in my inability to appreciate as to how and from where the Assessing Officer could be said to justify the observations made by him extracted above that "the statement made before me are the same which were made before the Valuation Officer at the time of inspection of the building and later on, no new materials have been brought on record". Primary evidence in law, inter alia, is that what one hears, what one seens or say what one reads, all my himself. it is inconceivable to think that the Assessing Officer would be present at the time of inspection of the building by the Valuation Officer and, therefore, had the opportunity of hearing/objections of the assessee. Similarly, in the absence of any narration of this aspect of the matter, such objections could also not come to the notice of the Assessing Officer by studying and examining the contents of the valuation report. In that situation, the conclusion drawn by him that the objections made by the assessee were the same which were made before the Valuation Officer is non-sequitur and cannot be given any credence.

24. Not only this, I feel confronted with another legal dilemma. The report obtained by the assessee from a Registered Valuer referred to supra was very much before the Assessing Officer. He has not only preferred the report of the Valuation Officer over the report of the Registered Valuer but has totally ignored the latter report. There is no quarrel that the report of an expert only acts as a opinion before a judicial or quasi-judicial/statutory authority to whom it is submitted and who is entitled to prefer one over the other in a case where there are more reports than one on the same subject, but this power is not arbitrary or absolute. It has to be exercised with circumspection and guided by the settled principles on the issue. The appreciation of such documents is open to judicial scrutiny by a higher judicial forum and, therefore, necessarily requires the decision of the authority backed by proper and sound reasoning. In the case in hand, this is totally missing so much so that there is not even a reference to the Registered Valuer's report. As pointed out, the law does not admit of any substantial difference between the two experts, namely, a Valuation Officer and a Registered Valuer. One is not superior to the other; nor inferior. Both are statutory creations and are to perform functions provided by the relevant statute. In such a circumstance, both in law and equity it was the bounded duty of the Assessing Officer to take into consideration the report of the Registered Valuer also effectively and arrive at his own conclusion. Needless to say even at the cost of repetition that, since, the reference to the Valuation Officer had not been made a WTO under section 16A of the Wealth-tax Act, 1957, the same was not at all binding on him as envisaged by sub-section (6) thereof. It is also interesting to mention that the Assessing Officer has treated the report of the Registered Valuer as that of a private valuer as is evident from the following narration:--

"Total investment has been taken by Valuation Officer at Rs.12,08,000 whereas it has been determined by private valuer at Rs.5,06,000 during the year under consideration. The assessee has shown investment of Rs.95,440 which comprises 90.32% at pro rata basis I take the investment made by the assessee during the year at 19.32 of Rs.12,08,000, i.e., Rs.2,33,144 as against Rs.95,440 shown by the assessee, the difference i.e., Rs.1,37,404 is added back as income of the assessee from undisclosed sources."

25. The use of the word 'Private' to the extent that the Registered Valuer is not a Government Officer nor on the pay-roll of the Income-tax Department may be justified but not further. The demeaning of the report of the Registered Valuer by the Assessing Officer, as the above language suggests, is wholly unjust, unwarranted and uncalled for. It is the report of an expert appointed under the provisions of Wealth-tax Act after a rigorous procedure is followed in making such an appointment. It is not a spurious document or something from 'anybody' from the street. The legal value and sanctity which it carried ought to have been accorded to it by the learned Assessing Officer who totally ignored it, accepted the report of a coordinate authority, namely, Valuation Officer appointed by the department, lock stock and barrel and that too without any demur. As a quasi-judicial authority, the Assessing Officer should have arrived at a conclusion with fair hearing to the assessee and proper consideration of material placed and relied by him, in which he has failed. Interestingly even the report of the Valuation Officer patently adverse to the interest of the assessee was not supplied by the Assessing Officer to him for which he had to make an application on 4-2-1988 and pay money for its obtainment, as observed in para 11 of the order of the learned Judicial Member. This too amounts to a procedure which is both unfair and inequitable and the cumulative effect of all these factors enable anyone to peep in his mind that he had no regard for the report of the Registered Valuer while felt bound by the report of the Valuation Officer. Such a procedure followed, manifestly decimated the evidentiary value of the report of the Valuation Officer and its acceptance by the Assessing Officer untenable in law.

26. On this part of the dissent between my two learned Brothers, I am, therefore, inclined to agree with the learned Judicial Member that in the peculiar circumstances of this case, there is no cogent or tangible material to come to a conclusion that the assessee spent more than what they claimed for the relevant construction.

27. My opinion on Point No. 1, therefore, accords with the view taken by the learned Accountant Member, while on point No. 2, it corresponds to the view taken by the learned Judicial Member.

28. The matter would now go back to the regular Bench for being disposed of according to the majority opinion.

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