C. S. Shastri v Wealth Tax Officer/Income Tax Officer and Another

Income Tax Appellate Tribunal

MADRAS-B BENCH

19 April 1991

The Judgment was delivered by SHRI T. V. RAJAGOPALA RAO, JUDICIAL MEMBER

Per Shri T. V. Rajagopala Rao, Judicial MemberThe assessee is common and the points involved in these appeals are also common. These appeals are by the assessee for the assessment years 1973-74, 1978-79, 1982-83 and 1983-84. The appeals for the assessment years 1973-74 and 1978-79 arise out of the orders of the Commissioner (Appeals)-IX, Madras, dated 1-3-1989. The appeals for the assessment years 1982-83 and 1983-84 arise out of the consolidated order of the Commissioner (Appeals)-IX, Madras, dated 10-7-1989. For the assessment years 1973-74 and 1978-79 reassessments were made, whereas for the assessment years 1982-83 and 1983-84 the appeals arose out of the original assessments. For the assessment years 1973-74 and 1978-79 the assessments were first completed by the assessment orders passed by the Wealth-tax Officer dated 31-3-1983 and they were set aside by the Commissioner (Appeals) under his order dated 21-12-1983 with a direction to refer the valuation of the three immovable properties mentioned below to the departmental valuation officer as per the provisions of section 16A of the Wealth-tax Act :– 1. Land at Ambathur

2. Pallikarnai property, and

3. Greenways Road property

The assessee besides having movable properties had also got immovable properties both agricultural and non-agricultural in nature. The important point that is to be kept in mind is that apart from the three properties with regard to which a reference under section 16A of the Wealth-tax Act is directed to be made by the Commissioner (Appeals), the assessee had other movable and immovable properties also as part of its assets for the assessment years 1973-74 and 1978-79. References to the Valuation Cell, Madras, were made to value the above properties by the Wealth-tax Officer on 21-10-1986 and again on 12-8-1987. A preliminary valuation report was prepared by the Valuation Cell under section 16A(4) with regard to the Ambathur property as well as Pallikarnai property on 17-3-1988. With reference to Greenways Road property the Valuation Cell had prepared a preliminary report under section 16A(4) on 12-3-1988. In the reference it was requested that the valuation of these properties should be made not only for the assessment years 1973-74 and 1978-79, but, inter alia, also for the assessment years 1982-83 and 1983-84. The preliminary reports of the Valuation Cell dated 17-3-1988 and 12-3-1988 respectively for the above properties pertained to the assessment years 1973-74 and 1978-79 as well as for the assessment years 1982-83 and 1983-84. However, with regard to Ambathur and Pallikamai properties the final reports of the Valuation Cell under section 16A(5) were passed by the Valuation Cell both dated 17-6-1988. With regard to Greenways Road property the final valuation report under section 16A(5) was passed on 17-4-1988. Copies of the preliminary valuation reports under section 16A(4) and copies of the final valuation reports dated 17-6-1988 and 7-4-1989 were all filed before us. It is significant to note that the same valuation at which these three properties were respectively shown in the preliminary reports were also adopted in the final reports. For the sake of better appreciation and clarification we may provide the following table disclosing the particulars of the properties, the declared value for each of the assessments under consideration, the value given to them in the preliminary reports as well as in the final reportsDeclared Extent Preliminary Final Report

(acres) Report dt. dt. 17-6-1988

7-3-1988

Rs. Rs. Rs

1 2 3 4

Ambathur

Property

1973-74 2, 50, 000 8.65 4, 71, 000 4, 71, 000

1978-79 1, 75, 000 5.95 7, 38, 300 7, 38, 300

1982-83 1, 15, 730 3.84 8, 40, 900 8, 40, 900

1983-84 1, 15, 730 3.84 8, 67, 400 8, 67, 400

Pallikarnai

Property

1973-74 3, 20, 000 44 12, 05, 700 12, 05, 700

1978-79 1, 80, 000 25.97 41, 28, 800 41, 28, 800

1982-83 not declared 25.97 65, 22, 600 65, 22, 600

1983-84 – do – 25.97 1, 14, 20, 000 1, 14, 20, 000

Greenways Rd. Preliminary Final Report

Property Report dt. dt. 17-4-1988

11-3-1988

1973-74 5, 00, 000 7, 00 18, 07, 500 18, 07, 500

1978-79 5, 40, 000 5.74 58, 37, 300 58, 37, 300

1982-83 Claimed as 5.11 73, 44, 500 73, 44, 500

agricultural

1983-84 -do- -do- 96, 63, 900 96, 63, 900

It is essential to note that as far as the assessments for 1973-74 and 1978-79 are concerned, since they are made under the directions of the Commissioner (Appeals) as per his appellate order dated 21-12-1983. They have to be completed within four years from the end of the financial year in which the order of the learned Commissioner (Appeals) was passed in order to be within time under section 17A(3) of the Wealth-tax Act. That means the assessments for those two assessment years were to be made latest on or before 31-3-1988. However, though the last day of limitation for passing fresh assessment for 1973-74 and 1978-79 was fast nearing, the Valuation Cell did not pass its final report under section 16A(5). The Wealth-tax Officer without waiting for the final report of the Valuation Cell under section 16A(5), completed the assessments for 1973-74, 1978-79, 1982-83 and 1983-84 by his separate assessment orders dated 17-3-1988. As already stated the final reports for the above three properties were received from the Valuation Cell on 17-6-1988 and 12-4-1988, that is much later to the passing of the assessment orders. It is contended for the assessee that there was no possibility to hear the assessee prior to the conclusion of assessments. However, it may be noted that the values of the three properties (Ambathur, Pallikarnai and Greenways Road) were adopted for these four assessment years as per the preliminary valuation reports dated 17-3-1988 and 12-3-1988 respectively

2. Having been aggrieved against the assessments dated 17-3-1988 the assessee went in appeal before the Commissioner (Appeals) for each of these four assessment years. It was contended on behalf of the assessee that once reference has been made under section 16A it is incompetent for the Wealth-tax Officer to complete the assessments except in conformity with the estimate made by the valuation officer under section 16A(5). It was further contended that the jurisdiction of the Wealth-tax Officer is ousted once a reference is made under section 16A(1). It was also contended that if the valuation officer failed to make a report within the time limit prescribed under law, the department has to face the consequences. It was further contended that since the valuation reports for these properties were not secured within 31-3-1988, the Wealth-tax Officer lost jurisdiction to make the assessments for 1973-74 and 1978-79. It was further argued that assuming without admitting the Wealth-tax Officer had jurisdiction to make assessments in respect of the remaining properties he will have to go by the returned values of the properties which were the subject-matter of reference with reference to which a valuation report was not received. It is further argued that time limits are built into the Act so as to provide a safeguard to the assessee to avoid long drawn out proceedings. Therefore it would not be proper to merely set aside the assessments instead of cancelling the assessments. Therefore it is ultimately requested of the learned Commissioner (Appeals) that the assessments for the assessment years 1973-74 and 1978-79 may be cancelled. Having evaluated the arguments advanced before him the Commissioner (Appeals) held in his impugned order, covering 1973-74 and 1978-79, stated that the system of valuation of properties had been incorporated in the Act to see that proper valuation of properties are made. He further held that in case the assessments have been completed without taking the valuation report of the valuation officer it will be proper to set aside the order to see that the Wealth-tax Officer incorporates the value made by the valuation officer. He, therefore, set aside the assessments with a direction to the Wealth-tax Officer to substitute the valuation made by the Wealth-tax Officer with the values suggested by the valuation officer, regarding the properties which were referred for valuation according to the directions given by the Commissioner (Appeals). Thus he had set aside the assessment orders for the assessment years 1973-74 and 1978-79 with a direction to redo the assessments as per his orders

3. In the appeals for the assessment years 1982-83 and 1983-84 it was contended before the Commissioner (Appeals) that once a reference was made under section 16A(1) the Wealth-tax Officer’s jurisdiction to complete the assessments is ousted and the Wealth-tax Officer has to substitute the valuation arrived at by the valuation officer as against the valuation shown by the assessee. Not having received the valuation report before passing the assessment, the assessment order passed by the Wealth-tax Officer is invalid and is illegal. For similar reasons adduced by him the Commissioner (appeals) set aside the assessments for 1982-83 and 1983-84 also with a direction to the Wealth-tax Officer to substitute the valuation made by him by the valuation made in the order under section 16A(5) by the valuation officer

4. We have heard Shri K.R. Prasad, the learned counsel for the assessee, Shri Natarajan, the learned departmental representative and Shri Moorthi, the valuation officer. The learned counsel for the assessee almost reiterated all the contentions which were raised before the Commissioner (Appeals). It was contended that once the reference is made under section 16A(1) the Wealth-tax Officer was ousted of jurisdiction to complete the assessment unless and until he receives the final report of the valuation officer under section 16A(5). Any assessment made without incorporating the values found in the final report under section 16A(5) would not be a mere irregularity but a nullity in law. It was also argued that time limits built into the Wealth-tax Act are for the purpose of protecting the assessee from log drawn process of litigation. These time limits prescribed by section 17A(3) should not be allowed to be set at naught by the appellate authority exercising his powers under section 23(5) of the Wealth-tax Act. It was also contended that if the Wealth-tax Officer having conscious of the legal position and also about the invalidity of the assessment, if any made, without waiting for the final report of the Valuation Cell, under section 16A(5), deliberately flouts and consciously disregards the provisions of law, should he be given second innings to legalise his action, asks the learned counsel. He submitted that from the peculiar facts and circumstances of this case the assessments for all these assessment years deserve to be cancelled instead of being merely set aside. The learned departmental representative argued that simply because a reference is made to the Valuation Cell it does not mean that the powers of the Assessing Officer to complete the assessments are completely lost. With regard to the other properties constituting the assets of the assessee and the valuation of which was not referred to the Valuation Cell, the Assessing Officer had full authority to complete the assessments. The learned departmental representative drew the analogy of an assessee approaching the Settlement Commission under section 22F(2) under Chapter V-A of the Wealth-tax Act. Simply because petition is filed before the Settlement Commission it would not debar the jurisdiction of the Assessing Officer to complete the assessment. So also on the same analogy it is argued that simply because a reference is made to the Valuation Cell it would not debar the jurisdiction of the Assessing Officer to complete the assessment. It was contended that the values adopted in the preliminary reports as well as in the final reports are one and the same for all the three impugned properties. There is no difference of even a single paisa between the values adopted in the preliminary report and in the final reports. Section 16A of the Wealth-tax Act is a machinery provision and in violating the provisions of section 16A the Assessing Officer should be taken to have committed only a procedural irregularity. It should not be allowed to go into the root of the matter so as to make the whole of the assessment proceedings illegal and non est in law. In support of the proposition that the procedural irregularity does not render the whole assessment ab initio void, the learned departmental representative relied on the Karnataka High Court decision in G.R. Steel & Alloys (P.) Ltd. v. CIT 1983 Indlaw KAR 68. The learned departmental representative further submitted that a machinery section bears such an interpretation which should allow the said provision workable and in support of this proposition reliance was placed upon the Privy Council decision in CIT v. Mahaliram Ramjidas 1940 Indlaw PC 20. It was contended that a perusal of the final report of the valuation officer clearly shows that it is the assessee who want only delayed filing his objections before the valuation officer and that fact contributed mainly to the delay caused in finalising the report under section 16A(5) and having been thus a party to the procrastination of proceedings the assessee should not be allowed to take advantage of the delayed final reports under section 16A(5) of the impugned properties. The learned departmental representative also relied on the following decisions :–1. Ganga Properties v. ITO 1979 Indlaw CAL 124 (Cal.)

2. Pradeep Narang v. IAC [1991] 36 ITD 325 (Delhi), and

3. Union of India v. Harbhajan Singh Dhillon 1971 Indlaw SC 446 (SC)

In reply the learned counsel for the assessee Shri Prasad contended that a wealth-tax assessment should necessarily be a single, integrated, whole assessment. It is the net wealth of the assessee as a whole which has to be brought to tax had not assets of the assessee separately. The analogy drawn between the reference made to the valuation officer on the one hand and a petition made before the Settlement Commission under section 22F on the other is improper. In the case of a reference to the Settlement Commission the petition would be filed by the assessee and the Assessing Officer may not be knowing about the proceedings pending before the Settlement Commission. That is the reason why he is at liberty to complete the assessment. However, in this case the Assessing Officer himself referred the question of valuation of the impugned properties to the Valuation Cell and so the Assessing Officer cannot be heard to say that he does not know the pendency of proceedings before the Valuation Officer. Thus the analogy drawn is improper and cannot be accepted. Shri Prasad brought to our notice the Circular No. 96 dated 25-11-1972 seeking to provide explanatory note on the provisions of Taxation Laws (Amendment) Act, 1972 published at pages 1 to 30 of 91 ITR. He particularly brought to our notice that Shri C.S. Sastri, the father manager of the joint family was seriously ill and was admitted into the Apollo Hospital from October 1987. Further the Greenways Road property was acquired in June 1987 under Chapter XX-C of the Income-tax Act and the whole record with regard to that property was held up with the Income-tax Officer and thus the events which are beyond the powers of the assessee compelled it to ask for adjournments for filing the objections before the Valuation Officer. However, the assessee is not at all to be blamed for the delayed final reports. In fact the boot is on the other leg and it is the department which is to be blamed. When the Commissioner (Appeals) passed the appellate order as long back as 21-12-1983 directing the Wealth-tax Officer to refer the question of valuation of the impugned properties to the Valuation Cell, the Wealth-tax Officer did not move his little finger till 21-10-1986. That means he had taken two years and nine months simply to make a reference to the Valuation Cell as per the directions of the Commissioner (Appeals), which is unpardonable and that fact itself contributed for the ultimate receipt of the final report after the limitation is over and hence the assessee should not be blamed for that

5. Thus we have considered the arguments advanced on both sides. We are of the opinion that the arguments advanced by the learned counsel for the assessee cannot be accepted and our reasons are as follows. The main point argued before us is that the learned Commissioner (Appeals) is not correct in just setting aside the assessments with a direction to redo them, incorporating the values of the impugned properties found in the final reports submitted by the Valuation Cell under section 16A(5), instead of cancelling the assessments as null and void. Section 16A is admittedly a machinery section. Section 16A(6) ordains that the Assessing Officer should adopt the valuation suggested by the Valuation Cell with regard to the properties for which a reference was made to the Valuation Cell and for which a final valuation report under section 16A(5) was received from the Valuation Cell. That means with regard to other properties the value of which was not referred to the Valuation Cell the Assessing Officer had complete authority to make an assessment. It is argued by Shri Prasad that if the Assessing Officer wants to complete the assessment even after referring the question of valuation of the impugned properties to the Valuation Officer he can do so provided he adopts the returned value of those properties in his assessment. He argued that section 16A(4) gives power to the Valuation Cell only to signify the tentative figure of valuation which it sought to put on each of the three impugned properties. It is only a preliminary step for inviting the objections of the assessee on the question of valuation of the impugned properties. The report submitted under section 16A(5) is the final report and the values disclosed therein should have been adopted by the Wealth-tax Officer while making the assessment under the mandatory provisions of section 16A(6). Therefore in the absence of the final report figures, being available with the Assessing Officer, he cannot make use of the tentative figures given, in the preliminary report given under section 16A(4), and complete the assessments. In our opinion section 16A comes into play only in the enquiry pending before the Wealth-tax Officer before an assessment is being passed in order to ascertain the real market value of the property. It can be invoked only if the Wealth-tax Officer feels that the returned value of the asset does not represent the market value and the real market value exceeds by 33 1/3% of the returned value or by more than Rs. 50, 000 in value. Thus section 16A is procedural section to be followed during the enquiry before the Wealth-tax Officer. Section 23(4) would disclose that the powers of the first appellate authority is coterminous with the powers of the Assessing Officer for purposes of enquiry. The appellate authority can himself make such enquiry as he thinks fit or cause further enquiry made by the Assessing Officer. Speaking about the powers of the first appellate authority the Andhra Pradesh High Court in the case of P.N. Balasubramanian v. ITO 1975 Indlaw AP 93 held that except it is not open to the first appellate authority to introduce into the assessment new sources of wealth and except that the assessment should be confined to the subject matter of the original assessment, the first appellate authority had got all the powers and his powers are larger than those contemplated under the Civil Procedure Code. His competence is not restricted to examining those aspects of the assessment which only are complained of by the assessee, but ranges over the whole assessment and it is open to him to correct the Assessing Officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. He can revise every process which led to the ultimate computation or assessment. The Hon’ble Supreme Court in CIT v. Kanpur Coal Syndicate 1964 Indlaw SC 77 and the Calcutta High Court in CIT v. Ganga Jamuna 1985 Indlaw CAL 77 at page 230 held that the appellate authority has plenary powers in disposing of an appeal. The scope of his powers is coterminous with that of the Assessing Officer. He can do what the Assessing Officer could do and can also direct the latter to do what the latter failed to do. It is no doubt true that under section 16A(6) the Assessing Officer has to implement the value suggested by the valuation officer over the impugned properties. In this case the Assessing Officer failed to do that duty. The question is whether the appellate authority had the power to direct the Assessing Officer to do his duty under section 16A(6). In our opinion the first appellate authority is competent to direct the Assessing Officer to do his duty under law

6. The matter can be viewed from another angle. If the final reports under section 16A(6) of the impugned properties are considered to be subsequent events, which took place after the assessments the question would be whether the appellate authority while passing the impugned orders is entitled to take cognizance of the subsequent events and in the light of such subsequent events can he pass his impugned orders. In Hasmat Rai v. Raghunath Prasad 1981 Indlaw SC 514 at 1716-17 it is held that during the progress and passage of proceeding from the taxing authority to appellate authority or authorities if subsequent events occur, the appellate authority has to examine and evaluate the same and mould the relief accordingly. This is so because for making the right or remedy claimed by the party just and meaningful as also legally and factually in accord with the current realities, the court can, and in many cases must, take cautious cognisance of events and developments subsequent to the institution of the proceedings provided the rules of fairness to both sides are scrupulously obeyed. In this case the assessee fully participated in the valuation proceedings conducted by the valuation officer. The valuation officer fully considered the objections filed before him in the reports prepared by him under section 16A(5) and therefore the rules of fairness were scrupulously obeyed and followed. In our opinion in order to see that the assessing authority obey statutory provisions of section 16A(6) the appellate authority can take cognisance of the final valuation reports of the properties and direct the Assessing Officer to adopt the values according to those reports. In the Karnataka High Court decision in G.R. Steel & Alloys (P.) Ltd.’s case, which is relied upon by the Revenue, the provisions of section 144B were not followed by the Income-tax Officer while making the assessment even though he wanted to determine the total income by adding more than Rs. 1 lakh to the returned income. The first appellate authority in that case found that the Income-tax Officer did not follow the procedure prescribed by section 144B and hence cancelled the assessment. The Tribunal in further appeal held that non-compliance of the procedure laid down under section 144B would not render the assessment ab initio void and it is only a procedural irregularity and directed the Income-tax Officer to redo the assessment after following the procedure prescribed under section 144B. The Karnataka High Court held on reference that section 144B(4) contained a procedure for completing an assessment and it could not have the effect of invalidating the assessment when not complied with. Therefore the Tribunal was justified in directing the Income-tax Officer to redo the assessment after following the procedure prescribed by section 144B(4). In our opinion the ratio of the Karnataka High Court fully applies to the facts on hand. In this case though a reference is made by the Assessing Officer under section 16A(1) and though he ought to have waited till the receipt of the final report under section 16A(5) and ought to have implemented the values noted therein in his assessment orders under section 16A(6) he failed to do so and the appellate authority directed him to do what he failed to do originally by his impugned order. The question was whether the impugned orders of the first appellate authority are correct. According to the ratio of the Karnataka High Court the direction of the first appellate authority appears to be correct under law since it is agreed on both sides that 16A is only a procedural section. In Pradeep Narang’s case the Delhi Bench ‘B’ of the Tribunal took the view that the failure to make a reference under section 16A of the Wealth-tax Act when the conditions laid down therein for its invocation is held to be only a procedural irregularity which can be rectified on direction from the appellate authority. In the case before the Tribunal (Delhi Bench ‘B’) all the conditions for invoking section 16A were existing. Still reference was not made to the valuation officer. When the matter was carried in first appeal, the Commissioner (Appeals) set aside the assessment order with a direction to redo the assessment after curing the procedural irregularity. In second appeal the Tribunal held the following as per the head note at page 326 :

“There cannot be any dispute that the provisions of section 16A are mandatory and, where the circumstances exist, the WTO has to make a reference to the valuation officer. Where the fair market value, in the opinion of the WTO, exceeds the value of the asset as returned, by more than Rs, 50, 000, the rules and the section require the WTO to make a reference to the valuation officer. Factually, these conditions were satisfied in the instant case. So the failure of the WTO to make a reference had given rise to a grievance and the Commissioner (Appeals) had rightly accepted that the WTO ought to have referred the matter to the valuation officer. The WTO, in failing to refer the matter to the valuation officer, had committed a procedural irregularity. Such procedural irregularities are curable. The Commissioner (Appeals) was, therefore, justified in directing the WTO to cure the irregularity.”

From the above it is clear that the Delhi Bench ‘B’ of the Tribunal held the view that section 16A is a procedural section and that failure to comply with the provisions contained therein is procedural irregularity which is curable. In our view the Delhi Bench ‘B’ decision fully applies to the case on hand and supports the stand taken by the Revenue. In Ganga Properties’ case the case pertains to the question of ascertainment of capital gains. Reference to the valuation officer was made under section 55A of the Income-tax Act. However, on the ground that there is no likelihood of obtaining the valuation report within the limitation time, the Income-tax Officer completed the assessment by observing that on receipt of the valuation report necessary steps will be taken according to the provisions of the Act. Subsequently the order was sought to be revised under section 263. In that case the Calcutta High Court had recognised the power of the Income-tax Officer to act under section 147(b) or section 154 after receiving the copy of the order of the valuation officer under section 16A(6) of the Wealth-tax Act read with section 55A of the Income-tax Act. Though this decision does not directly support the Revenue’s contention it would show that on the basis of the subsequently received final valuation report under section 16A(6) an assessment can be rectified or reopened. In any view of the matter the effect of the impunged order passed by the Commissioner (Appeals) is only to correct the error committed by the Assessing Officer. Instead of correcting the error by the Assessing Officer himself there was a direction by the appellate authority to correct the error. In our view the Calcutta High Court decision supports the case of the Revenue in that regard. In view of what we held the argument of the learned counsel for the assessee that as soon as the reference is made under section 16A(1) the Wealth-tax Officer loses his jurisdiction to frame the assessment cannot be accepted as correct. Utmost it can be said in conformity with what we have held in the previous paras that the assessment framed in violation of section 16A(5) and (6) can be held to be voidable orders of rectifiable orders which the first appellate authority has every right to set aside or correct as the case may be. The argument of Shri Prasad, the learned counsel for the assessee that a wealth-tax assessment should necessarily be a single integrated and whole assessment and it is the net wealth of the assessee and not the assets separately which are to be assessed is to be accepted as correct but nothing turns on the acceptance of this argument in favour of the assessee. So also the argument that according to the decision in K.P. Varghese v. ITO 1981 Indlaw SC 334 (SC) the charging and machinery section makes a complete code also does not have relevance for our purposes though we cannot have any quarrel with the said proposition

7. In the view we take the question who contributed for the belated final order under section 16A(5) for these impugned properties need not be enquired into and a specific finding need not be given on that aspect. In the result we find that the setting aside of the assessment orders dated 17-3-1988 for these four assessment years under consideration by the first appellate authority with a direction to adopt the values given in the final reports of the valuation officer under section 16A(5) is perfectly justified and does not call for any interference from us

8. For the assessment years 1982-83 and 1983-84 ground Nos. 4 and 5 through raised in the appeals, were not pressed before us and hence they are dismissed as not pressed

9. In the result the appeals fail and are dismissed