C.I.T. LUDHIANA vs. NABHA SOLVES (P) LTD.

The Income Tax Appellate Tribunal, Chandigarh Bench (in short “the Tribunal”) has referred for opinion of this Court the following questions of law arising out of its order dated 26.4.1993 in ITA No. 828/Chandi/88 relating to the assessment year 1984-85:- “1. Whether, on the facts and in the circumstances of the case, the I.T.A.T. was right in law in upholding the order of the first appellate authority deleting the addition of Rs.4,36,780/- made as income from undisclosed sources on account of difference between the cost of construction declared by the assessee and that -2- estimated by the DVO?

Whether, on the facts and in the circumstances of the case, the I.T.A.T. was right in law in upholding the order of the first appellate authority deleting the disallowance of interest attributable to borrowed money utilized for purchase of machinery which was not put to use during the year under consideration?”

Learned counsel for the revenue fairly states that question No.2 is covered against the revenue in view of the judgment of the Hon'ble Supreme Court in Deputy Commissioner of Income-Tax v. Core Health Care Ltd., (2008) 298 ITR 194 (SC). Accordingly, we answer the said question in favour of the assessee and against the revenue.

We have heard the learned counsel for the parties on question No.1. 4. Briefly the facts may be noticed. The assessee is a private limited company and filed return on 30.10.1984 for assessment year 1984-85 declaring an income of Rs.1,04,490/-. The assessee raised certain construction in the factory building and the Assessing Officer referred the matter to the Valuation Cell. The Departmental Valuation Officer (in short “the DVO”) estimated the cost of construction at Rs.8,89,540/-. The assessee also got the services of a registered valuer who estimated the cost at Rs.4,56,900/- but the Assessing Officer adopted the valuation made by the DVO. On that basis, addition of Rs.4,36,780/- to the income was made. On appeal, the CIT (A)

The Tribunal while adjudicating the matter against the revenue recorded that there was no justification for the Assessing Officer to refer the case of the assessee to the Valuation Cell as the building was still under construction. It was also recorded that the construction of two units of the factory building was mixed up and separate details were not available. The Tribunal had relied upon the decision of Madras High Court in CWT v. S. Venugopalan Konar and others [(109) ITR 520] to delete the addition.

Learned counsel for the revenue submitted that even incomplete construction had the valuation and, therefore, the Tribunal was not justified in holding that in case of incomplete construction, the reference to DVO was premature and that the judgment of Madras High Court in S. Venugopalan Konar's case (supra) was distinguishable as the issue considered therein was different. Learned counsel for the revenue has sought to draw support from the insertion of Section 142A in the Act w.e.f. 15.11.1972. 7. On the other hand, learned counsel for the assessee submitted that the case related to the assessment year 1984-85 during which period there was no specific provision on the basis of which -4- reference could be made to the DVO. According to him, the reference made by the Assessing Officer to the DVO could be said to one under Section 55A of the Income Tax Act, 1961 (in short “the Act”). According to the learned counsel, as there was no provision on the basis of which reference could be made to the DVO, the said reference was bad in view of the decision of the Apex Court in Smt. Amiya Bala Paul v. Commissioner of Income-Tax, (2003) 262 ITR 407 (SC). Learned counsel further submitted that even if reliance is placed on Section 142A of the Act which has been inserted by Finance (No.2) Act, 2004 w.e.f. 15.11.1972, the assessments which stood completed on or before 30.9.2004 and where such assessment had become final and conclusive on or before that date, valuation in those cases could not be referred to DVO in view of the proviso. In support of his submissions, learned counsel has placed reliance on the judgment of this Court in Commissioner of Income-Tax v. Krishan Lal Dua (2005) 277 ITR 477 (P&H), Delhi High Court in Commissioner of Income-Tax v. Sudhish Kumar, (2005) 276 ITR 563, Calcutta High Court in Income Tax Officer and others v. Kajaria Investment and Properties P. Ltd., (2008) 297 ITR 45 (Cal.) and Allahabad High Court in Commissioner of Income Tax v. Smt. Shashi Agarwal, (2007) 210 CTR (All) 205. Learned counsel further submitted that even if the judgment of Madras High Court in S. Venugopalan Konar's case (supra) was not applicable, yet there was no material before the Assessing Officer to reject the valuation declared by the assessee by appointing registered valuer.

We have given our thoughtful consideration to the respective submissions made by the learned counsel for the parties.

It would be advantageous to refer to Section 142A of the Act as inserted by Finance (No.2) Act, 2004 w.e.f. 15.11.1972 which reads thus:- “142A. Estimate by Valuation Officer in certain cases.- (1) For the purposes of making an assessment or re-assessment 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 re-assessment: 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 -6- 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.”

A plain reading of sub-section (1) makes it clear that for making an assessment or reassessment under the Act, an estimate is required to be made in respect of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other value article referred to in section 69A or section 69B is required to be made, the Assessing Officer may refer the matter to the Valuation Officer for estimating the said value and reporting the matter to him. Sub-section (2) stipulates that the Valuation Officer to whom the reference is made under sub-section (1) shall, have all the powers similar to Section 38A of the Wealth Tax Act, 1957 while dealing with such reference. According to sub-section (3), the Assessing Officer on receipt of report from the Valuation Officer may take the same into consideration while making assessment or reassessment after providing an opportunity of being heard to the assessee. However, a proviso has been added, according to which this section shall not apply in respect of an assessment made on or before 30.9.2004 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. The amendment is inserted retrospectively from 15.11.1972. 11. The question regarding the applicability of Section 142A of the Act was subject matter of consideration before this Court in Krishan -7- Lal Dua's case (supra) wherein the assessment had become final on 31.3.1995 and the same was not liable to reassessment under Section 153A of the Act, it was held that Section 142A of the Act would not be applicable as the proviso was attracted. The Allahabad High Court in Smt. Shashi Agarwal's case (supra) had held that where the Tribunal had passed the order before the cut off date prescribed under the proviso to Section 142A of the Act and the appeal under Section 260A of the Act being maintainable before the High Court only on substantial question of law, therefore, it could not be said to be continuation of the assessment proceedings within the meaning of proviso to Section 142A of the Act. The Assessing Officer, thus, had no power to refer the matter to the DVO. Similar view has been taken by Delhi and Calcutta High Courts.

In view of the above, we hold that Section 142A of the Act is not attracted to the facts of the present case and, thus, no reliance can be placed upon that. Once that is so, then as laid down by the Apex Court in Smt. Amiya Bala Paul's case (supra), the reference made by the Assessing Officer to the DVO was not justified. Consequently, the addition sought to be made on the basis of report of the DVO cannot legally be done.

Accordingly, question No.1 referred to above is also answered against the revenue and in favour of the assessee. (ADARSH KUMAR GOEL) JUDGE July 7, 2010 (AJAY KUMAR MITTAL) gbs JUDGE