SHRI V SELVARAJ vs. THE DEPUTY COMMISSIONER OF INCOME

The present appeal i.e., ITA No.92/2018 is arising out of the order dated 22.9.2017 passed in ITA.No.1710/Bang/2013 (Mr.V.Selvaraj v. The Deputy Commissioner of Income Tax) by the Income Tax Appellate Tribunal, 'B' Bench, Bangalore.

The facts of the case in ITA No.92/2018 reveal that the appellant before this Court is an individual engaged in the business of extraction and sale of iron ore in the name and style of M/s Sun Minerals at Chikkanayakanahalli in Tumakuru District, State of Karnataka and also carries out agricultural activities.

The appellant in respect of the assessment year, which is under challenge before this Court i.e., 2008-2009, has filed a return of income on 28.1.2010 declaring the total loss of Rs.1,05,57,700/-. The assessing officer has assessed the tax on a total income of the appellant at Rs.8,55,52,040/- by passing an order under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act of 1961). The order was passed on 30.12.2009.

The appellant, being aggrieved by the assessment order, has preferred an appeal before the Commissioner of

The learned counsel for the appellant has stated before this Court that the appellant's premises was searched in connection with the search in respect of Fiza Group cases on 7.2.2008. However, no search warrant was issued in the name of the appellant. The search was carried out under Section 133A in respect of the business place of the appellant. It has been further stated that there was a search in the residential premises of the appellant purported to be under the warrant of authorization in the name of one Sri.B.M.Farook of Fiza Group and the appellant as the person to search. The said Farook was neither a partner or an associate of the appellant nor any office of the said person was situated in the residential premises of the appellant to conduct a raid in his premises. On account of the search, which took place on 7.2.2008, the assessing officer

It has been stated that the core issue before this Court is that the search was illegal and there was no basis or reason to conduct such search. Hence, all the proceedings which took place subsequently are bad in law.

The appeal has been admitted to consider the following substantial questions of law; 1. Whether the Tribunal was justified in law in not considering the value of the closing stock at Rs.5,96,74,794/- as per financial statement and thus no addition as unexplained investment was required on the basis of the books furnished and consequently passed a perverse order on the facts and circumstances of the case?

Whether the Tribunal was justified in law in confirming the addition of Rs.8,55,52,040/- as unexplained investment in raising iron ore by ignoring the explanation and also the financial statements and consequently passing a perverse order on the facts and circumstances of the case?

Without prejudice, whether the entire addition of Rs.8,55,52,040/- can be made in the impugned assessment year 2008-09 when the statement relied upon by the revenue clearly admits a position that the cost has been

Whether the Tribunal was justified in law in rejecting the loss returned by the appellant at Rs.1,05,57,700/- without assigning any reason and consequently passed a perverse order on facts and circumstances of the case?

Whether the Tribunal erred in law in not holding that consent cannot confer jurisdiction and income has to be determined on the basis of facts and consequently passed a perverse order on facts and circumstances of the case?

Whether the Tribunal was justified in law in not holding that the reference to the valuation officer under the provisions of Section 142A of the Act by the search officer as regard to the estimation of cost of extraction of ore is Ultra Vires the provision of Section 142A of the Act and further without prejudice not ignoring such valuation report as having material errors and is made in violation of the principles of natural justice on the facts and circumstances of the case?"

The undisputed facts of the case reveal that the appellant is a mining contractor and was operating the mines belonging to one Balaji Produce Company Group, a registered partnership firm, over the mines taken on lease from the Government of Karnataka. The appellant was excavating the mines for over two years and collected the excavated iron ore and as he was not able to sell the iron ore extracted for want of necessary permits either from the lease holders or from the Government, the mined ore was stocked in the mining area and

During the course of search, the Income Tax Department has obtained a valuation certificate from a person, who is said to be a Registered Valuer, wherein the stock of the mines was valued at Rs.11,10,01,980/-. The records of the case reveal that the assessing officer has accepted the figure as shown in the valuation report as the correct value of the stock as on 31.3.2008 for the purposes of computation of income of the appellant. The assessing officer also relied upon the statement given by the appellant under Section 132(4) dated 31.3.2008 accepting the valuation of Rs.11,10,01,980/- as the cost of the excavated iron ore. The assessing officer, after accepting the creditors to the extent of Rs.2,54,49,940/- out of the total creditors of Rs.6,03,61,592/-, has treated the balance amount as Rs.8,55,52,040/- as unexplained investment and brought the same to tax.

Learned counsel for the appellant has vehemently argued before this Court that the valuation report cannot be considered as a basis for valuing the closing stock. It has been

This Court has carefully gone through the assessment order. As stated in his order, one Sri K Nagabushan, a Mines Engineer, who is also a Registered Valuer was requested to carryout valuation of the iron ore stock lying at the mines of the assessee. It has also been stated that the Mines Engineer conducted a professional survey of the mines and stock and submitted a valuation report on 18.3.2018. The valuation of the stock as per the valuation report was estimated at Rs.11,10,01,980/-. The assessing authority accepted the

The assessing officer also relied upon the statement given by the appellant under Section 131, dated 31.3.2008, wherein the appellant confirms the statement given under Section 132(4) on 14.3.2008 and accepted the valuation of Rs.11,10,01,980/- as per the valuation report.

The appellant has objected to the assessing officer adopting the valuation given in the report of the Registered Valuer for the purposes of assessing the income of the appellant.

A Specific question of law has been framed by this Court in respect of the aforesaid issue i.e., substantial question law No.6 and specific grounds have also been raised in the memo of appeal in respect of the aforesaid issue.

The basic question, which arises before this Court is, whether the assessment order passed on a valuation report is opposed to the provisions of the Act of 1961, if the same has not

The undisputed facts of the case makes it very clear that the authorized officer, who is not the assessing officer, during the course of search, has got the stock of iron ore valued by a Registered Valuer and obtained a certificate from the said Valuer. There is no provision in law for an officer, who is conducting search (authorized officer), to make such a reference for the purpose of getting valuation of stocks owned by an assesssee.

Sub-section (9D) of Section 132 introduced w.e.f., 1.4.2017 reads as under;- "(9D) The authorised officer may, during the course of search or seizure or within a period of sixty days from the date on which the last of the authorisations for search was executed, make a reference to a Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the said officer within a period of sixty days from the date of receipt of such reference."

The aforesaid statutory provision of law makes it very clear that an investigation officer is authorized to refer to Valuation Officer, referred to under Section 142A, only when he

The statutory provision as contained under sub- section (1) of Section 142A of the Act of 1961 reads as under;

The aforesaid statutory provision of law makes it very clear that the legislature has consciously avoided authorizing an investigation officer to make a reference to a Valuation Officer and it is only, the assessing officer, who has got such power.

Section 142A of the Act of 1961 empowers the assessing officer, for the purpose of assessment or reassessment, to make a reference to the Valuation Officer, if he is not satisfied with the accounts provided by an assesssee. As per Explanation to Section 142A, the 'Valuation Officer' has the same meaning as defined in clause (r) of Section 2 of the Wealth Tax Act, 1957 (hereinafter referred to as 'Wealth Tax Act').

In the present case, the moot question that arises for consideration before this Court is, whether the person, who has valued the stock in trade i.e., stock of iron ore, was a person, who is a Valuation Officer, as defined under clause (r) of Section 2 of the Wealth Tax Act.

As per definition in Section 2(r) of the Wealth Tax Act, 'Valuation Officer' means, a person appointed as a Valuation Officer under Section 12A of the Wealth Tax Act and includes a Regional Valuation Officer, a District Valuation Officer, and an Assistant Valuation Officer. In other words, all these four categories of persons, namely Regional Valuation Officers, District Valuation Officers, Valuation Officers and Assistant Valuations Officer, would come under the definition of a

Section 12A of the Wealth Tax Act reads as under;

The aforesaid provision of law makes it very clear that the assessing officer can only take cognizance and act upon a report, which is furnished by a Valuation Officer appointed under Section 12A of the Wealth Tax Act. Section 12A of the Wealth Tax Act refers to Rule 3A of the Wealth Tax Rules, 1957, which deals with the jurisdiction of various types/categories of Valuation Officers and the same is reproduced as under;

The aforesaid statutory provision of law as contained under Rule 3A of the Wealth Tax Rules, makes it very clear that in the present case valuation of the stock of iron ore could have

It is pertinent to note that the Regional Valuation Officers, District Valuation Officers, Valuation Officers and Assistant Valuation Officers are all officers appointed by the Central Government. A Registered Valuation Officer is not an officer appointed by the Central Government and would come under the category of a Valuation Officer or even an Assistant Valuation Officer.

A Valuer, who is registered under Section 34AB of the Wealth Tax Act shall be called as a Registered Valuer. A Registered Valuer can appear on behalf of an assessee before the assessing officer under the provisions of Section 34AB of the Wealth Tax Act. A person who is registered as a Registered Valuer cannot be a Valuation Officer.

Section 16A of the Wealth Tax Act empowers the assessing officer to make a reference to a Valuation Officer, in a case, where the assessing officer is of the opinion that the fair market value of the asset exceeds the value of the asset as

In the present case, the facts of the case reveal that the appellant has disclosed the closing stock of iron ore at Rs.5,96,74,794/- as against the valuation of Rs.11,10,01,980/- obtained by the authorized officer. The same fact could have led the assessing officer to believe that the appellant has suppressed the value of the asset in the return of income filed by him and the proper course of action would have been to get a valuation report done by the aforesaid Valuation Officers. If the stock in trade comes under the purview of Section 142(2A) of the Act of 1961, the aforesaid Valuation Officer is the person authorized to value the same and by no stretch of imagination, the assessing officer could have relied upon the Valuation Report furnished by a Registered Valuer to the authorized officer for the purpose of framing the assessment.

In the considered opinion of this Court, the assessing officer gravely erred in relying upon the valuation report

The provisions of the Wealth Tax Act and the Rules applicable for the assessment year 2008-2009 are governing the field and therefore, substantial question of law No.6 has to be answered in favour of the appellant and against the respondent/revenue by deleting the addition of income, which was added based upon the valuation report of the Registered Valuer.

In view of this Court answering substantial question of law No.6 in favour of the assessee and against the revenue, the substantial questions of law Nos.2, 3, and 5, which revolves around substantial question of law No.6 are also answered in favour of the assessee and against the revenue. Insofar as the other substantial questions of law i.e., No.1 and 4, the issue involved therein is left open and not pressed by the appellants.

Resultantly, the appeal is allowed. The order dated 22.9.2017 passed by the Income Tax Appellate Tribunal in ITA NO.1710/BANG/2013 is set aside. Consequently, the connected appeal i.e., ITA 36/2019 is also allowed. The order dated 14.9.2018 passed by the Income Tax Appellate Tribunal in MP No.41/BANG/2018 arising out of ITA No.1710/BANG/2013, is set aside.