SIKANDER COTTON OIL AND GEN MILL vs. CIT, BATHINDA

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ITA/776/2008HC Punjab & HaryanaPHHC01080801200802 July 2014Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE RAJAN GUPTA4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the substantial question of law is answered in favour of the assessee and against the revenue. The Court referred to its own decision in CIT v. Shri Dharam Pal Aggarwal, which in turn relied on Supreme Court judgments in CIT v. George Henderson & Co. Limited and CIT v. Gillanders Arbuthnot & Co., and a Delhi High Court judgment in CIT v. Smt. Nilofer I. Singh. These precedents established that a reference under Section 55A of the Act to the DVO for ascertaining the fair market value of a capital asset for computing capital gains was unjustified. Consequently, the appeal filed by the assessee was allowed. The operative direction was to allow the appeal, implying the Tribunal's order was set aside.

What were the facts?

The assessee, Sikander Cotton Oil and General Mills, a firm engaged in cotton ginning, filed its return for AY 1995-96. The assessment was initially completed under Section 143(3) of the Income Tax Act, 1961. Subsequently, proceedings under Section 147 were initiated based on a Valuation Officer's report valuing the sale of land and machinery at Rs. 47,28,000/-, significantly higher than the sale consideration of Rs. 20,00,000/-. The Assessing Officer referred the matter to the Departmental Valuation Officer (DVO) during the Section 143(3) proceedings. After the Section 147 proceedings concluded with additions, the assessee's appeals before the CIT(A) and the Income Tax Appellate Tribunal (ITAT) were dismissed. The assessee then filed an appeal before the High Court.

What were the issues?

1. Whether the Tribunal's order is unsustainable on the true and correct interpretation of Section 147 of the Act, particularly when it was passed pursuant to the report of the Valuation Officer after the completion of assessment under Section 143(3)? (Mixed question of law and fact, concerning Section 147). Assessee's contention: The recourse to Section 147 was based on the DVO's report, and in light of this Court's decision in CIT v. Shri Dharam Pal Aggarwal, the reference to the DVO under Section 55A was unjustified, making the entire action unsustainable. Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 260A,Section 147,Section 143(3),Section 55A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No. 776 of 2008 Date of decision: 2.7.2014 Sikander Cotton Oil and General Mills ....Appellant. Versus Commissioner of Income Tax, Bathinda, Punjab ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE JASPAL SINGH. PRESENT: Mr. Pankaj Jain, Sr. Advocate with Mr. Divya Suri, Advocate for the appellant. Mr.Gaurav Singh Hooda, Advocate for the respondent. Ajay Kumar Mittal, J.

1.

This appeal has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 30.5.2008, Annexure A.4 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”) in ITA NO.70/ASR/2003, for the assessment year 1995-96, claiming following substantial question of law:- “Whether on the true and correct interpretation of section 147 of the Act, the Tribunal order is unsustainable which is in pursuance to the report of the Valuation Officer after the GURBAX SINGH 2014.08.12 16:14 I attest to the accuracy and integrity of this document High Court Chandigarh completion of the assessment under Section 143(3)?”

2.

A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The assessee is a firm having three partners. With effect from 13.10.1987, it is engaged in the business of ginning of cotton. The return of income at a loss of ` 3,38,005/- was filed on 31.10.1995 which was processed under section 143(1) (a) of the Act on 29.3.1996. The assessment was concluded under Section 143(3) of the Act at a net loss of ` 3,42,020/- on 27.3.1998 making therein the additions amounting to ` 2,23,833/-. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was allowed vide order dated 11.2.1999. The assessee in pursuance to the agreement to sell dated 3.12.1987 with Rajasthan Financial Corporation purchased land, building and machinery for an amount of ` 10,00,000/-. In pursuance to the subsequent agreement dated 19.4.1994 with Sanjay Industries Gharsana, the above said land and machinery was sold for ` 20,00,000/-. The Assessing Officer referred the matter to the Departmental Valuation Officer (DVO) during the proceedings under section 143(3) of the Act and completed the assessment proceedings. Proceedings under Section 147 of the Act were initiated on 19.4.1999, Annexure A.1 on the basis of the report of the Valuation Officer vide letter dated 24.3.1998 that the estimated fair market value on the date of sale was ` 47,28,000/-. Thereafter, the assessee filed return of income at a loss on 8.12.1999. Copy of the valuation report was provided to the assessee on 13.9.2000 in pursuance to which objections were filed on 17.10.2000 and the proceedings were concluded at an amount of ` 30,90,000/- vide order GURBAX SINGH 2014.08.12 16:14 I attest to the accuracy and integrity of this document High Court Chandigarh dated 18.3.2002, Annexure A.

2.

The assessee filed appeal before CIT(A) which was dismissed vide order dated 7.10.2002, Annexure A.

3.

Aggrieved by the order, the assessee approached the Tribunal. Vide order dated 30.5.2008, Annexure A.4, the Tribunal dismissed the appeal. Hence the present appeal by the assessee.

3.

Learned counsel for the appellant submitted that recourse to section 147 of the Act was taken on the basis of report of the DVO. According to the learned counsel, in view of the decision of this Court in ITA No.463 of 2010 (Commissioner of Income Tax III, Ludhiana v. Shri Dharam Pal Aggarwal, Prop. Shakti International, K-59, Sarabha Nagar, Ludhiana) decided on 5.3.2014, provisions of section 55A of the Act are not applicable and the reference to the DVO was unjustified.

4.

The primary question that arises for consideration in the appeal is whether the Assessing Officer was justified in making a reference to the DVO under Section 55A of the Act for ascertaining the fair market value of the capital asset which was transferred.

5.

The matter is no longer res integra. This Court in Shri Dharam Pal Aggarwal's case (supra) dealt with the issue and following the judgments in CIT and another v. George Henderson & Co. Limited, (1967) 66 ITR 622 (SC) and CIT v. Gillanders Arbuthnot & Co. (1973) 87 2014.08.12 16:14 I attest to the accuracy and integrity of this document High Court Chandigarh

6.

In view of the above, the substantial question of law is answered in favour of the assessee and against the revenue. The appeal stands allowed. (Ajay Kumar Mittal) Judge July 02, 2014 (Jaspal Singh) ‘gs’ Judge GURBAX SINGH 2014.08.12 16:14 I attest to the accuracy and integrity of this document High Court Chandigarh

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