Deputy Commissioner of Income Tax Circle 1(I), Kanpur v Shubham Industries
Income Tax Appellate Tribunal
LUCKNOW
29 June 2006
Misc. Appeal Nos. 147 and 148 (Lucknow) of 2005
The Judgment was delivered by : B. R. M1TTAL (JUDICIAL MEMBER)
The Department has filed these two Misc. Applications under section 254(2) of the Income-tax Act, 1961, in ITAT’s order dated 9-11-2004, passed in ITA Nos. 1399 and 1400/Alld 1998 for the assessment years 1995-96 and 1996-97.
2. The Department has stated in the above application that the ITAT has dismissed the appeals filed by the Department in view of the decision pronounced by the Apex Court in the case of Smt Amiya Bala Paul v. CIT 2003 Indlaw SC 4912003 Indlaw SC 491. It is stated in the applications that the reference to the Valuation Cell on investment made by the assessee in the construction of the property situated at 185-B, Dada Nagar, Kanpur, for determining the cost of construction in the property was proper and justified. Therefore, the order of the Tribunal requires rectification in dismissing the appeals filed by the Department on the basis of the above decision of the Apex Court, namely, Smt. Amiya Bala Paul’s case (supra). In the applications, the Department has placed reliance on the following decisions:-
(i) Addl CIT v. India Tin Industries (P.) Ltd. 1986 Indlaw KAR 451986 Indlaw KAR 45 (Kar.).
(ii) CIT v.S. Teja Singh 1958 Indlaw SC 54 (SC).
(iii) Maneklal Vallabhdas Parikh & Sons v. CIT 1967 Indlaw GUJ 30 (Guj.).
3. During the course of hearing of the applications, the ld. D.R. submitted that the Assessing Officer was competent to make a reference to the Valuation Cell to ascertain the value of the investment in the above property in view of section 142A of the Income-tax Act, 1961. He submitted that the said section has been inserted by the Finance Act, 2004, effective from 15-11-1972. He submitted that the order of the Tribunal dated 9-11-2004, be recalled and the additions made by the Assessing Officer on the basis of the DVO’s report be confirmed. On the other hand, the ld. Authorized Representative of the assessee submitted that the cases cited by the Department in the Misc. Applications are not relevant. He further submitted that the Assessing Officer made a reference to the DVO under section 131(1) of theIncome-tax Act, 1961, and the Apex Court has held in the case of Smt. Amiya Bala Paul(supra) that a reference to the DVO under section 131(1)(d) of the Act is not legal. Hence the addition made by the Assessing Officer on the basis of the DVO’s report is not justifiable. He further submitted that the order passed by the Tribunal is a self-contained order and, therefore, there is no mistake, which could be rectified in the applications filed by the Department under section 254(2) of the Income-tax Act, 1961.
4. We have carefully considered the submissions of the ld. Representatives of the parties and have also perused the earlier order of the Tribunal dated 9-11-2004, alongwith the applications filed by the Department and the earlier orders of the authorities below. We observe that the above property No. 185-B-Dada Nagar, Kanpur, was under construction from December, 1994 to September, 1996, and the total investment in the said building was stated by the assessee at Rs. 20, 10, 760. The year-wise investment declared by the assessee is as under:-
| Period | Year-wise Investment |
| 12/94 to 3/95 | Rs. 10, 13, 662 |
| 4/95 to 3/96 | Rs. 8, 99, 649 |
| 4/96 to 9/96 | Rs. 97, 449 |
| Total | Rs. 20, 10, 760 |
We observe that the Assessing Officer made a reference to the DVO to value the total cost in the building and the DVO estimated the total cost of the building at Rs. 27, 91, 300. The years-wise estimate made by the DVO is as under:-
| Period | Estimated year-wise investment |
| 12/94-3/95 | 14, 07, 281 |
| 4/95 – 3/96 | 12, 48, 848 |
| 4/96 – 9/96 | 1, 35, 171 |
| Total | 27, 91, 300 |
We observe that the assessee also filed the valuation report of the Government approved valuer, who valued the investment in the said building at Rs. 17, 08, 000 from December, 1994 to 30-3-1996, i.e., in the assessment years 1995-96 and 1996-97. We observe that the Assessing Officer made the addition on the basis of the DVO’s report was Rs. 3, 93, 620 for the assessment year 1995-96 and addition at Rs. 3, 49, 149 in the assessment year 1996-97 under section 69B of the Act. The said additions were made by the Assessing Officer in the assessment years 1995-96 and 1996-97by taking the difference in the cost of construction disclosed by the assessee and the cost estimated by the DVO. We further observe that the First Appellate Authority reduced the cost of investment in the above premises to Rs. 21, 83, 330 as against Rs. 27, 91, 300 considered by the Assessing Officer for all the three assessment years i.e., the assessment year in which the investment was made by the assessee for construction of the above premises. We further observe that the ld. CIT(A) has not given up the break-up of investment in the cost of construction of the property for each of the assessment year i.e., assessment years 1995-96, 1996-97 and 1997-98, while estimating the aggregated cost of investment in the property at Rs. 21, 83, 330 as against Rs. 20, 10, 760 disclosed .by the assessee.
5. In the appeals before the Tribunal, the Tribunal considered the above facts and has held that the reference made by the Assessing Officer to the DVO under section 131(1)(s)of the Income-tax Act, 1961, to estimate the cost of construction of the above property is not legal as per the decision of the Apex Court in the case of Smt. Amiya Bala Paul (supra). In the above case, the Apex Court has held that the Departmental Valuer cannot be called upon by the Assessing Officer to estim ate the cost of construction of the property under section 131(1) of the Act, and, if any, report is submitted by the DVO, it cannot be relied upon by the Assessing Officer in estimating the cost of construction as the said report cannot be said to be a valid report. The Tribunal has also relied upon the decision of the jurisdictional High Court in the case of Dr. Avinesh Kumar Agarwal, 2003 Indlaw ALL 167, wherein also it was held that the reference to the DVO under section 131(1) of the Act for estimating the cost of construction was an invalid reference. The Tribunal has held that no addition can be made on the basis of the DVO’s report, which has been obtained under section 131(1) of the Act. In the light of the above findings of the Tribunal, the Department has filed application and has stated that in view of the amendment made by the Finance Act, 2004, by inserting section 142A of the Act, which is effective from 15-11-1972, the DVO’s report, obtained by the Assessing Officer under section 131(1) of the Act be deemed to be a valid report and as such the addition made by the Assessing Officer be confirmed. At the outset, we may state that the cases relied upon by the Department, as mentioned in the applications and stated hereinabove (supra), we observe that the said cases are not relevant as the facts and the issues involved in all these cases are not before us. However, we are also of the considered view that the DVO’s report obtained by the Assessing Officer under section 131(1)(d) of the Act, could not be said to be a report obtained by the Assessing Officer under section 142A of the Act. The section 142A of the Act, which has been inserted by Finance (No.2) Act, 2004 reads as under:-
Estimate by Valuation Officer in certain cases :
“142A. (1) For the purposes of making an assessment or reassessment 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, leave all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).
(3)
On perusal of the above section, it is evident that the Assessing Officer for the purposes of making the assessment or reassessment under this Act to estimate, inter alia, the value of an immovable property can call upon the Valuation Officer to make an estimate of such value and report the same to him. Subsection (2) further provides that 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. Thus, it is evident that to obtain a valid DVO’s report, it is necessary that the reference must have been made by the Assessing Officer to estimate the value, inter alia, of an immovable property for the purpose of assessment or reassessment under the Act as per section 142A(1) of the Act, particularly when the Apex Court has already held in the case of Smt. Amiya Bala Paul (supra) that the Assessing Officer has no valid power to call upon the DVO under section 131(1) of the Act, to estimate the cost of construction of the property and the report, if any submitted by the Departmental Valuation Officer on a reference made to him under section 131(1) of the Act, cannot be relied upon by the Assessing Officer in estimating the cost of construction, as the said report is not a valid report. The similar view has also been taken by the jurisdic-tional High Court in the case of Dr. Avinesh Kumar Agarwal (supra). We further observe that the section 142A of the Act does not contain any provision that the report obtained by the Assessing Officer from DVO on a reference under section 131(1) of the Act could be deemed to be the report obtained on a reference made under section 142A(1) of the Act. In view of the above, we hold that the addition made by the Assessing Officer on the basis of the DVO’s report obtained under section 131(1) of the Act could not be relied upon by the Assessing Officer for making the addition in the investment of the property in question under section 69B of the Income-tax Act, 1961, for both the assessment years, as the said report was an invalid report. Accordingly, the Tribunal has rightly decided the appeals by confirming the orders of the CIT(A). Therefore, we hold that there is no mistake apparent from the said order of the Tribunal dated 9-11-2004, and accordingly, both the miscellaneous applications filed by the Department are rejected.
6. Before we part with these Misc. Applications, it may be stated that the similar applications filed by the Department on identical issues and facts have been considered by the Tribunal in the case of ITO v. Jag Mohan Agarwal [M.A. No. 32 (Luck.) of 2005 arising out of ITA No. 569/Luck./02 for the assessment year 1998-99], in the case of ITO v. Jagdish Kumar Agarwal [M.A. No. 50/Luck. of 2005 arising out of ITA No. 105/ Luck./02 for the assessment year 1998-99] and also in the case of Smt. Pramila Awasthi [M.A. Nos. 82 (Luck.) of 2005 dated 3-6-2005], and in the case of Smt. Sunita Chaurasia [M.A. No. 77/Luck./2005 dated 20-5-2005], and the same have been dismissed by the Tribunal holding that the Assessing Officer had not obtained the valuation report under section 142A of the Income-tax Act, 1961 but obtained the valuation report on a reference made under other provisions of the Act and, therefore, the Assessing Officer was not justified to make the addition on the basis of the DVO’s report as the said report(s) was not legally obtained and as such no reliance could be placed thereon as per decision of the Apex Court in the case of Smt. Amiya Bala Paul (supra).
7. In the result, both the applications filed by the Department are dismissed.
Per S. V. Mehrotra, Accountant Member.-In these miscellaneous applications, the Department has sought rectification of Tribunal’s order dated 9-11-2004 on the ground that in view of insertion of section 142A with retrospective effect from 15-11-1972, the reference made by the Assessing Officer to DVO was proper and due to non-consideration of section 142A, a mistake has crept into the order of Tribunal. Ld. Judicial Member is of the view that since section 142A of the Act does not contain any provision that the report obtained by the Assessing Officer from DVO on a reference under section 131(1) of the Act could be deemed to be the report obtained on a reference made under section 142A( 1) of the Act, therefore, the same could not be relied upon by the Assessing Officer for making the addition in the investment of property in question under section 69B of the Act as the said report was an invalid report.
2. After deliberate consideration of the issue, I am unable to persuade myself to agree with the view taken by the ld. Judicial Member and being in respectful disagreement with the same, proceed to give my reasoning as under :
3. The short point for consideration is whether report obtained by the Assessing Officer can be relied upon or not in view of the provisions of section 142 A inserted by Finance (No. 2) Act of 2004
or not. Under Chapter IV of the Income-tax Act, dealing with computation of capital gains, the Assessing Officer is entitled to make reference to the Valuation Officer under section 55A of the Act with a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter. The Assessing Officer referred the valuation of property to DVO by invoking his powers under section 131 (1)(d) of the Act. The Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul (supra), inter alia, held that the power of the Assessing Officer under sections 131(1) and 133(6) is distinct from and does not include the power to refer a matter to the Valuation Officer under section 55A. It was held that the power to refer any dispute to a Valuation Officer were already available in sections 131(1), 133(6) and 142(2), there was no need to specifically empower the Assessing Officer to do so in certain circumstances under section 55A. It was held that section 55A having expressly set out the circumstances under and the purposes for which a reference can be made to a Valuation Officer, there was no question of the Assessing Officer invoking the general powers of enquiry to make a reference under different circumstances and for other purposes. It was held that such a reference cannot be supported by reference to section 131(1) of the Act read with order XXVI, rule 9 of the CPC, since the consequence of a reference to a Valuation Officer under section 55A of the Act and of a commission issued under section 75 read with order XXVI rule 9 of the Code are different.
4. The Finance (No.2) Act, 2004 with retrospective effect from 15-11-1972 inserted section 142A which reads as under :
“142A. Estimate by Valuation Officer in certain cases.-(1) For the purposes of making an assessment or reassessment 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 reassessment:
Provided that nothing contained in this section shall apply in respect of an assessment made on or before 30-9-2004, and 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.”
5. The memorandum explaining provisions in the Finance (No. 2) Bill, 2004 (268) ITR 198 (statute) reads as under:
“Estimates by Valuation Officer in certain cases :
For determining the cost of construction of properties, an Assessing Officer has been taking the assistance of a Valuation Officer by exercising his power vested in him under section 131 of the Income-tax Act, which provides that the Assessing Officer shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit. One such power is of “issuing commission” provided under clause (d) of sub-section (1) of the said section which inter alia empowers the Court “to make a local investigation” and also “to hold a scientific, technical or expert investigation”. The authority of Valuation Officer was created under the Wealth-tax Act by Taxation Laws (Amendment) Act, 1972, with effect from 15-11-1972. The scope of power under section 131 vested in an Assessing Officer to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a matter of different legal interpretation.
With a view to remove any doubt in this regard, it is proposed to insert a new section 142A, with retrospective effect from 15-11-1972, so as to clarify that Assessing Officer has and always had the power to make a reference to the Valuation Officer.
Sub-section (1) of proposed section provides that 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 for the purposes of making any assessment or reassessment, the Assessing Officer may require the Valuation Officer to make an estimate of the same and report to the Assessing Officer.
Sub-section (2) of the proposed section provides that the Valuation Officer to whom such a reference is made under subsection (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957.
Sub-section (3) of the proposed section provides that 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.
As the intention of inserting new section 142A retrospectively is not to unsettle the cases already decided (except in cases where a re-assessment is required to be made under section 153A), it is proposed to provide a proviso to the new section to the effect that the provisions of the same shall not apply in respect of an assessment made on or before 30-9-2004 and where such assessment has become final and conclusive on or before that date.
The amendment will take effect retrospectively from 15-11-1972.”
6. The proviso to section 142A takes out from the purview of this section all the concluded assessments on or before 30-9-2004 and consequently it applies to all pending assessments. This section has been incorporated in Chapter XIV dealing with procedure for assessment. It is a part of enquiry to be made before the assessment is made. This is a procedural section and since it has specifically been made retrospective in operation, it is deemed to be in existence for all times from 15-11-1972.
7. In this regard, I may quote from the Principles of Statutory Interpretation by the Hon’ble justice G.P. Singh, Eighth Edition 2001 wherein at page 405 it has been observed as under:
“(iii) Statute dealing with procedure – In contrast to statutes dealing with substantive rights, statutes dealing with merely matters of procedure are presumed to be retrospective unless such a construction is textually inadmissible. As stated by LORD DENNING: ‘The rule that an act of Parliament is not to be given retrospective effect applies only to statutes which affect vested rights. It does not apply to statutes which only alter the form of procedure or the admissibility of evidence, or the effect which the courts give to evidence.’ If the new Act affects matters of procedure only then prima facie it applies to all actions pending as well as future. In stating the principle that ‘a change in the law of procedure operates retrospectively and unlike the law relating to vested right is not only prospective, the Supreme Court has quoted with approval the reason of the rule as expressed in MAXWELL: “No person has a vested right in any course of procedure. He has only the right of prosecution or defense in the manner prescribed for the time being by or for the Court in which the case is pending, and if, by an Act of Parliament the mode of procedure is altered, he has no other right than to proceed according to the altered mode’.”
8. In my opinion, non-reference of section 131(1)(d) in the newly inserted section 142 A is of no consequence because as already noted earlier, it is a procedural section only. This section has been incorporated in the Act in order of overcome the consequences as obtaining after the decision of the Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul (supra). As noted earlier, in Amiya Bala Paul’s case (supra) the Hon’ble Supreme Court had held that since section 55A has specifically been incorporated, therefore, powers under section 131(1)(d) or 133(6) could not be utilized. In line with this reasoning of the Hon’ble Supreme Court, Legislature introduced separate section in the Chapter dealing with procedure of assessment in order to set at rest all legal disputes. But at the same time, by inserting the proviso also in the section took out of its purview the concluded assessments.
9. Here, the principles of purposes construction as laid down in Heydon’s case have to be applied. It has to be found out as to what was the law before the insertion of present section 142 A and what was the mischief or defect for which the law did not provide. It has to be examined what was the remedy that the Act had provided and what is the reason of the remedy. The rule is that Courts must adopt that construction which shall suppress the mischief and advance the remedy. It is well settled principles of judicial interpretation that interpretation which advances the object of legislation is to be followed. If we apply these principles, it is clear that section 142A has been brought on statute in order to regularize the references made by the DVO in all pending proceedings.
10. In this regard, I may also refer to the decision of the Hon’ble Bombay High Court in the case of CIT v. May & Baker India (P.) Ltd. 1991 Indlaw MUM 5839. In this case the question as framed before the Hon’ble Bombay High Court was whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 5, 34, 000 (being the difference between Rs. 8, 65, 000 and Rs. 3, 31, 000) also accrued as liability during the previous year under the payment of Gratuity Act, 1972. The facts of the case were that the assessee was a company. The assessment year involved was 1973-74 for which the previous year ended on 31-12-1972. The Payment of Gratuity Act, 1972, came into force some time in October, 1972. According to the assessee, it became liable to pay gratuity to its employees under the statute for the first time during the previous year. It made a provision of Rs. 8, 65, 000 in respect of its gratuity liability. The break-up of the amount was Rs. 3, 31, 000 as the gratuity liability of the previous year and the remaining sum of Rs. 5, 34, 000 as liability of the past years. The assessee claimed the aforesaid provision as deduction on revenue account. The Assessing Officer allowed the assessee’s claim to the extent of Rs. 3, 31, 000 only and disallowed the claim for the balance amount of Rs. 5, 34, 000. Following the Allahabad High Court decision in the case of Madho Mahesh Sugar Mills (P.) Ltd. v. CIT 1972 Indlaw ALL 53, the Appellate Assistant Commissioner accepted the assessee’s claim that the entire gratuity liability had accrued during the previous year as the liability had arisen under the Payment of Gratuity Act, 1972, which had come into force during the previous year only. The Tribunal dismissed the revenue’s appeal for more or less identical reasons. Section 40A(7) was introduced in the Income-tax Act, with retrospective effect from 1-4-1973, by the Finance Act, 1975, on 12-5-1975. Since the assessment order and the appellate order of the Appellate Assistant Commissioner were completed long before the insertion of sub-section (7) in section 40A and even the order of the Tribunal was passed on 24-3-1975, this provision was not, rather could not have been considered by any of the authorities below. For considering whether and to what extent the provisions of section 40A(7) inserted with retrospective effect are attracted to the assessee’s claim for deduction, so many aspects of the matter will require examination. This, according to him could not be legally done at the reference stage. After considering the detailed submissions, the Hon’ble High Court observed as under:
“We have considered the rival contentions carefully. It is not in serious dispute that the liability in respect of gratuity has, both in respect of the year under reference as well as for the past year, accrued during the previous year as thePayment of Gratuity Act, under which the liability arose, itself came on the statute book in October, 1972, i.e., during the previous year.
The only question that requires consideration, therefore, is whether the Department can or cannot press into service the provisions of section 40A(7) before this court in reference proceedings in support of its contention that the provision for gratuity is not an allowable deduction. In our judgment, it is not really necessary to go into a larger question in this case. The question of deduction in respect of gratuity liability was, admittedly, considered by the departmental authorities and the Tribunal under section 37. The disallowance was made by the Income-tax Officer on the footing that gratuity liability for past years did not accrue or arise during the previous year. The disallowance was deleted by the Appellate Assistant Commissioner and the Tribunal also on the sole ground that such a liability had arisen during the previous year. Having regard to the facts and circumstances of the case and in particular the fact that the provision came on the statute book with retrospective effect after the departmental authorities as well as the Tribunal had passed their respective orders, the question should be reframed to bring out the real controversy before the authorities below and then answered. It will then be for the Tribunal to pass such orders as are necessary to dispose of the case conformably to such judgment. The proper question, in our opinion, is :
‘Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 5, 34, 000 (being the* difference between Rs. 8, 65, 000 and Rs. 3, 31, 000) also accrued as a liability during the previous year under the Payment of Gratuity Act, 1972 ?’
We reframe the question accordingly. As stated by us above, there is not much dispute between the parties that so far as the liability is concerned, the statute having come into force during the previous year itself, it has to be held that the entire liability including the aforesaid amount of Rs. 5, 34, 000 accrued during the previous year, Accordingly, we answer the reframed question in the affirmative and in favour of the assessee.”
11. Thus, the Hon’ble High Court though agreed that the liability for payment of gratuity had accrued in view of the provisions of Payment of Gratuity Act, it directed the Tribunal to decide the issue in accordance with law after taking into consideration certain provisions which had come on the statute book which were applicable in the year under reference. Therefore, if at the reference stage, the Hon’ble High Court held that if a provision had been incorporated with retrospective effect it has to be given due effect.
12. In my humble opinion if it is held that non-reference of section 131(1)(d) will not validate the references made earlier then the proviso to section 142 A will become redundant. It is well settled law that no law is brought in by legislation which is redundant. Therefore, in my humble opinion, it is to be held in all such cases where assessment have not attained finality, the references to Valuation Officer will be deemed to be under section 142A and not under section 131(1)(d).
13. In view of the aforementioned discussion, I am respectfully not in agreement with the reasoning given by the learned J.M. for dismissing the miscellaneous applications filed by the Department on this legal issue. I, therefore, allow these miscellaneous applications and hold that Assessing Officer was justified in considering the DVO’s report.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
Since there is a difference of opinion between the Members of the Bench, we state the following point of difference and refer the same to the Hon’ble President of the Income-tax Appellate Tribunal, with a request that the following question may be referred to a Third Member:-
“Whether on the facts and in the circumstances of the case, the ld. Judicial Member is justified in dismissing the application(s) filed by the Department for recall of order dated 9-11-2004, passed in ITA Nos. 1399 & 1400 Alld/1998 or the ld. A.M. is justified in allowing the application(s) filed by the Department to recall the order dated 9-11-2004, in above appeals?”
Per S. V. Mehrotra, Accountant Member. – In my view the following question be referred :-
“Whether on the facts and in the circumstances of the case, in view of the newly inserted provisions of section 142A with retrospective effect from 15-11-1972 by the Finance (No.2) Act, 2004, the order dated 9-11-2004, passed in ITA Nos. 1399 & 1400/Alld/1998 should not be recalled as held by the ld. J.M. or be recalled as held by the ld. A.M.?”
THIRD MEMBER ORDER
Per Pradeep Parikh, Vice President. – Since there is a difference of opinion between the members who heard these applications, the matter was referred to the Hon’ble President under section 255(4) of the Income-tax Act, 1961 (the Act). Vide intimation dated 24-11-2005, the Hon’ble President has been pleased to nominate me as the Third Member and hence I proceed to resolve the point/s of difference arising in the said applications. The point of difference as proposed by the ld. J.M. is as follows:-
“Whether on the facts and in the circumstances of the case, the ld. Judicial Member is justified in dismissing the application(s) filed by the Department for recall of order dated 9-11-2004, passed in ITA Nos. 1399 & 1400/Alld/1998 or the ld. A.M. is justified in allowing the application(s) filed by the Department to recall the order dated 9-11-2004, in above appeals ?”
The ld. A.M. has preferred to couch the difference in the following words:-
“Whether on the facts and in the circumstances of the case, in view of the newly inserted provisions of section 142A with retrospective effect from 15-11-1972 by the Finance (No.2) Act, 2004, the order dated 9-11-2004, passed in ITA Nos. 1399 & 1400 /Alld/1998 should not be recalled as held by the ld. J.M. or be recalled as held by the ld. A.M. ?”
In substance, there is no difference in the above two questions. However, since the two learned members have not agreed on the framing of the question itself, I propose to reframe the question as follows which will bring out the point of difference quite succinctly:-
“Whether on the facts and in the circumstances of the case, the applications filed by the Department should be dismissed or the same should be allowed by recalling the order of the Tribunal in view of the provisions of section 142A of the Income-tax Act, 1961 ?”
2. A brief background leading to the above controversy will not be out of place here. The assessee constructed a building during the period December, 1994 to September, 1996, in which a total sum of Rs. 20, 10, 760 was shown to have been invested. The Assessing Officer referred the matter to the Departmental Valuation Officer (DVO) who estimated the cost of construction at Rs. 27, 91, 300. As a result, the Assessing Officer made an addition of Rs. 3, 93, 620 in assessment year 1995-96 and of Rs. 3, 49, 149 in assessment year 1996-97 under section 69B of the Act. In the first appeal, the CIT(A) reduced the cost of construction to Rs. 21, 83, 330 and granted consequential relief to the assessee. Being aggrieved by this reduction, the department preferred appeals to the Tribunal for the two years under consideration. The assessee did not prefer any appeal. The Tribunal vide its order dated 9-11-2004, dismissed the appeals of the revenue holding that the Assessing Officer cannot refer the matter to the valuation cell for estimating the cost of construction. In doing so, the Tribunal had followed the judgment of the Supreme Court in the case of Smt. Amiya Bala Paul (supra).
3. Subsequently, section 142A was inserted in the Act by the Finance (No.2) Act, 2004. Since the said provision was given retrospective effect from 15-11-1972, the Department filed the present miscellaneous applications under section 254(2) of the Act contending that by virtue of the said provision, since the action of the Assessing Officer to refer the matter to the valuation cell stands validated, the order of the Tribunal suffers from a mistake apparent on record and hence needs rectification. The ld. J.M. in his order proposed the dismissal of the departmental applications. The gist of his reasoning is that to obtain a valid report from the DVO the reference must have been made under section 142 A. The report obtained under section 131(1) cannot be deemed to have been obtained under section 142A and hence the report obtained under section 131(1) cannot be termed as a valid report as held in the case of Smt. Amiya Bala Paul (supra). On the other hand, the ld. A.M. held the reference made by the Assessing Officer under section 131(1) to be valid. His reasoning is that “non-reference” of section 131 (1 )(d) in the newly inserted section 142A is of no consequence because it is merely a procedural section. According to him, a separate section was incorporated keeping in line with the reasoning of the Supreme Court as was the case with section 55A. But at the same time, by inserting the proviso, it took out of its purview the concluded assessments. The ld. A.M. finally concluded that the proviso to section 142 A cannot be rendered redundant merely on account of non-reference of section 131(1)(d) in section 142A.
4. After apprising about the facts, the ld. D.R. stressed upon the applicability of section 142A since it had a retrospective operation with effect from 15-11-1972. It was contended that since the appeals filed by the department were pending as on 30-9-2004, the assessment cannot be said to have been finalized and hence the provision was applicable. In support of the argument that an assessment is deemed to pending till the Tribunal decides the appeal, the ld. D.R. relied on the judgment of the Gujarat High Court in the case of CIT v. Mayur Foundation 2004 Indlaw GUJ 283. Further, it was contended that the speech of the Finance Minister can be relied upon to throw light on the object and purpose of the particular provisions introduced by the Finance Bill. For this proposition, the judgment of the Supreme Court in the case of Kerala State Industrial Development Corpn. Ltd. v. CIT 2002 Indlaw SC 19322002 Indlaw SC 1932 was relied upon. It was argued that the Memorandum explaining the provisions of the Bill clearly spelt out the object and purpose of section 142A as per which it was to be applicable to all assessments pending as on 30-9-2004 and hence section 142A was applicable to the present case as well.
5. The learned counsel firstly relied on the judgment of the Allahabad High Court in the case of Dr. Avinesh Kumar Agarwal (supra) to contend that reference made under section 131(1) was not valid. Next judgment relied upon was that of the Punjab & Haryana High Court in the case of CIT v. Krishan Lal Dua 2005 Indlaw PNH 432005 Indlaw PNH 43 to contend that section 142A was inapplicable except in cases where reassessment was to be made under section 153 A of the Act. In substance, the argument of the learned counsel was that since the reference was under section 131(1) and not under section 142A, the latter had no applicability and hence in terms of the ratio laid down in the case of Amiya Bala Paul (supra) the reference was invalid and hence the order of the Tribunal contained no mistake rectifiable under section 254(2) of the Act.
6. Since it was an important legal issue which was being debated, I also sought the help of other counsel present in the court as amicus curie. Shri Kanchan Kaushal extended his help for which I am thankful. His contention was that section 142A was applicable only for the purpose of estimating the value of the assets referred to in sections 69, 69A and 69B of the Act. Hence, before applying section 142A, it was incumbent that the conditions for applying the provisions of sections 69, 69A or 69B are fulfilled. Unless the conditions mentioned in those sections are fulfilled, section 142A cannot have any applicability. It was further contended that the proviso has to be applied in to and that it cannot be split. Therefore, the contention was that the proviso to section 142A was applicable only in case of a reassessment to be made under section 153A and not otherwise. It was also his contention that since there was no reference to section 131 in section 142A, the latter was not applicable where reference was made under section 131 of the Act. Mr. Kaushal’s final argument was that if section 131 has to be read in section 142A, then it was a moot question as to why the new provision was made applicable only with effect from 15-11-72 even when section 131 was on the statute book prior to 15-11-1972.
7. I have duly considered the rival contentions and have carefully perused the proposed orders of my two learned brothers. After due consideration, I am inclined to agree with the view taken by the ld. Accountant Member (A.M.). At the outset, it may be mentioned that I am in total agreement with the reasoning of the ld. A.M. However, in addition, I proceed to give additional reasons and also to elaborate the reasons given by the ld. A.M.
8. First, let me deal with the decisions relied upon on behalf of the assessee. The first decision relied upon is that of the Allahabad High Court in the case of Dr. Avinesh Kumar Agarwal (supra). This judgment was rendered in September, 2003, i.e., before the insertion of section 142A, and hence, the law declared in the case of Amiya Bala Paul (supra) was followed. There cannot be any dispute over that. However, in the present case we are concerned with the issue whether the law laid down in the case of Amiya Bala Paul (supra) still applies in the light of the insertion of section 142A. In my view, the judgment of the Allahabad High Court cannot help us to resolve the controversy with which we are presently concerned.
9. The next judgment relied upon is that of Punjab & Haryana High Court in the case of Krishan Lal Dua (supra). In this case, the assessment was completed under section 143(1)(a) on 31-3-1995. There was no appeal against this assessment, nor was there any further assessment under section 143(3) of the Act. It was in the light of this fact that the High Court held that as per the proviso to section 142A, since the assessment had become final before 30-9-2004, section 142A could not be pressed into service. No doubt, in the case before the Punjab & Haryana High Court, the case was reopened under section 147 on the basis of the DVO’s report by issuing notice on 29-5-1997. Further, section 142A can be used for both, for assessment as well as for reassessment. But the two situations have to be distinguished. Once when a case is reopened under section 147, for the purpose of making reassessment, the Assessing Officer can refer the matter of valuation to the DVO after reopening the assessment. This is one aspect of the matter. On the other hand, in the case of Krishan Lal Dua (supra), the case was reopened on the basis of the DVO’s report. This is altogether a different aspect of the matter where section 142A cannot be pressed into service, and hence the judgment of the Punjab & Haryana High Court. Therefore, this judgment is of no avail to the assessee.
10. Another argument raised in connection with the same judgment was that section 142A cannot be used except for the purpose of making reassessment under section 153A. An argument to this effect was also separately raised by Mr. Kaushal stating that the entire proviso has to be read in totality and that it cannot be split into pieces. I do agree that the proviso has to be applied in to However, only for the purpose of understanding the true purport of the proviso, let us split it in the following manner:
“Provided that-
nothing contained in this section shall apply in respect of an assessment made on or before 30-9-2004, and 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 straight proposition of Mr. Kaushal is that section 142A can be applied only where reassessment is to be made under section 153 A, and according to him that is what the High Court has also said. In my view, Mr. Kaushal has misread the provision and consequentially the observations of the High Court also. What the proviso provides for is that section 142 A will not disturb those assessments which have become final on or before 30-9-2004. But section 142A can certainly disturb those cases where reassessments are to be made under section 153A even where assessments have become final and conclusive on or before 30-9-2004. As an illustration, if in a given case, the assessment has become final, say on 1-9-2004, then section 142A cannot be pressed into service. Now in the same case, if a search has taken place, say on 1-10-2004, which entails reassessment, then section 142A can certainly be pressed into service and the assessee cannot take the shelter of the proviso by contending that assessment in his case had become final before 30-9-2004. This, in my opinion, is the true purport of the proviso and the High Court has also meant the same thing. Thus, to say that section 142A applies only in case of reassessments under section 153 A is too much an over-simplification of the provision. Accordingly, this argument is rejected. Neither of the judgments relied upon by the assessee can help resolve the controversy.
11. The next important argument of the assessee is that section 142A can be applied only when reference is made under that section and not where reference is made under section 131(1). The absence of reference to section 131 in section 142A has lead to this argument. This is quite a superficial way to read the provision. It cannot be disputed that section 142A is a procedural provision. It does not affect any vested right of the assessee. It only deals with the powers of the Assessing Officer to make enquiry for the purpose of assessment. The doubt was whether as a part of such enquiry, whether the Assessing Officer had the power to make a reference to the Valuation Officer. In the case of Amiya Bala Paul (supra), the Supreme Court held that section 131 cannot be said to include such power because where required, like section 55A, a specific provision was made. With a view to remove this doubt, the Legislature enacted section 142A and gave it a retrospective effect from 15-11-1972. This only means that section 142A is deemed to be on the statute book from 15-11-1972. In other words, right from the fifteenth day of November, 1972, the Assessing Officer had the power to make reference to the Valuation Officer. Obviously, since section 142A was not actually on the statute book till it was inserted by the Finance Act, 2004, the power could not have been exercised by making a specific reference to section 142A, but now when section 142A is inserted and when the Legislature has clarified that the said provision is deemed to be on the statute book since 15-11-1972, the exercise of the power by the Assessing Officer by reference to any other section does not affect any of the vested rights of the assessee. To further clarify the point, after the insertion of section 142A with retrospective effect, it cannot be disputed that the Assessing Officer had the power since 15-11-1972. If the same power is exercised with reference to section 131, the action of the Assessing Officer cannot be held to be invalid. A Five-Judge Constitution Bench of the Supreme Court in the case of L. Hazari Mal Kuthiala v. ITO 1960 Indlaw SC 311 observed at page 16 of the report that exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory. Similarly, in the case of Pournami Oil Mills v. State of Kerala 1986 Indlaw SC 13 the Supreme Court at page 61 of the report observed that it is a well-settled principle of law that where the authority making an order has power conferred upon it by the statute to make an order made by it and an order is made without indicating the provision under which it is made, the order would be deemed to have been made under the provision enabling the making of it. In my opinion, the same rule will apply with regard to exercise of power also. Thus, I agree with the ld. A.M. that though the power of reference may have been exercised under section 131 and though section 142A does not refer to section 131, still section 142A shall operate since it has retrospective operation from 15-11-1972.
12. The next argument that why it is effective from 15-11-1972 even though section 131 was on the statute book prior to that date is hardly relevant. The simple reason is that under subsection (2) of section 142A, reference has to be made to the Valuation Officer who exercises powers under section 38A of the Wealth-tax Act, 1957. This authority was created from 15-11-1972. Hence, the effect of section 142A from 15-11-1972 and not before that.
13. The remaining argument about conditions of sections 69, 69A etc. to be fulfilled prior to applying section 142A is not at all relevant. Firstly, that is not a part of the difference I am called upon to resolve. Secondly, those sections are mere rules of evidence and do not in any way affect the substantial rights of the parties.
14. In the final analysis, I agree with the view taken by the ld. A.M. The matter may now be placed before the regular Bench to dispose it of in accordance with the majority opinion.
ORDER
B.R. Mittal, Judicial Member. – There was a difference of opinion between the Members of the Bench and the following question was referred to the Third Member for his opinion:-
By the Judicial Member :
“Whether on the facts and in the circumstances of the case, the ld. Judicial Member is justified in dismissing the application(s) filed by the department for recall of order dated 9-11-2004, passed in ITA Nos. 1399 and 1400/Alld/1998 or the ld. A.M. is justified in allowing the application(s) filed by the department to recall the order dated 9-11-2004 in above appeals?”
By the Accountant Member :
“Whether on the facts and in the circumstances of the case, in view of the newly inserted provisions of section 142A with retrospective effect from 15-11-1972 by the Finance (No.2) Act, 2004, the order dated 9-11-2004, passed in ITA Nos. 1399 & 1400/Alld/1998 should not be recalled as held by the ld. J.M. or be recalled as held by the ld. A.M.?”
2. However, the ld. Third Member has reframed the question to ring out the point of difference between the Members constituting Division Bench as under:-
“Whether on the facts and in the circumstances of the case, the applications filed by the department should be dismissed or the same should be allowed by recalling the order of the Tribunal in view of the provisions of section 142A of the Income-tax Act, 1961 ?”
3. The Hon’ble Vice President, Shri Pradeep Parikh, sitting as Third Member, by his opinion dated 29-6-2006 has concurred with the view of the Accountant Member who has allowed the miscellaneous applications filed by the department.
4. Therefore, in accordance with the majority view, the issue stands declared in favour of the department. Accordingly, both the miscellaneous applications filed by the department are allowed.
5. In view of the above, we recall Tribunal’s order dated 9-11-2004 passed in ITA Nos. 1399 & 1400/Alld/1998 for assessment years 1995-96 and 1996-97 and direct the Registry to fix aforesaid appeals for hearing before the Bench after giving notices to both the parties.
