(Delivered by Justice Ferdino I. Rebello, Chief Justice) These three appeals have been preferred by the Revenue against three different orders passed by the ITAT, Lucknow in the appeals filed by the assessee respondents - M/s. Lucknow Public Educational Society.
Income Tax Appeal No. 156 of 2009, which relates to Assessment Year 2002-2003, was admitted by order dated 29.03.2010 on the following substantial questions of law:-
"1. Whether while referring the property to valuer in pursuance to powers conferred under Section 142-A of the Income Tax Act, it shall be necessary for the assessing authority to record reason with regard to reliability of books of accounts or books of accounts should be rejected with precondition for reference to valuer.
2.Whether the word used in sub-section (1) of Section 142-A of the Income Tax Act, i.e. 'required to be made means satisfaction to be recorded by assessing officer by assigning reason before referring a property to valuer and in the absence of any recorded satisfaction or reason', the reference to valuer shall not be sustainable?"
Income Tax Appeal No. 136 of 2007, which relates to Assessment Year 2003-2004, was admitted by order dated 03.12.2007 on the following substantial question of law:-
"The Income Tax Appellate Tribunal further erred in law in not correctly appreciating the provisions of Section 142A of the Act introduced with retrospective effect from 15.11.1972 correctly as there are no pre-conditions stipulated in this section, e.g. that Assessing Officer has to invoke provisions of Section 145 of the 'Act' for a reference to be made to the Valuation Officer.
In Income Tax Appeal No. 93 of 2008, which relates to Assessment Year 2004-2005, following substantial question of law arises for consideration:-
"Whether the Hon'ble Tribunal has erred in law in holding that for a reference to the Valuation Officer under Section 142A to be valid, it is necessary that the Assessing Officer must first reject the books of accounts in terms of Section 145 (3) of the Income Tax Act, 1961?
A few facts may be set out in respect of the appeal for the Assessment Year 2004-2005. The respondent-assessee in all the aforesaid appeals is the Lucknow Public Educational Society. It is a Society registered under the Societies Registration Act, 1860. During the Assessment Year 2004-2005, the assessee Society also stood registered under Section 12A of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). The main activity of the assessee Society is running of schools in the city of Lucknow. The assessee Society was constructing a building at Sahara Estates, Jankipuram, Lucknow. During the course of the assessment proceedings, the Assessing Officer made a reference to the Valuation Officer for estimating the cost of construction of the said building. The Valuation Officer submitted the valuation of the cost of construction. The Assessing Officer took this valuation for the purposes of valuing the asset and made an addition to the total income as declared by the assessee - Society for the Assessment Year 2004-2005. An appeal was preferred by the assessee Society, which was allowed by the Commissioner of Income Tax (Appeals) - II, Lucknow, by order dated 28.06.2007 who deleted the impugned addition on the ground that even if the excess cost of construction represented income from undisclosed sources but since the entire income of the society was fully applied for charitable purposes, such undisclosed income would still be exempt from tax. The Revenue, aggrieved by the order of the CIT (A), preferred an appeal before the Income Tax Appellate Tribunal, Lucknow (ITAT). The appeal preferred by the Revenue was dismissed by the ITAT on the ground that the issue is covered by the decision of the Tribunal in IT No. 265/L/2007 for the Assessment Year 2003-2004 in the case of the assessee wherein it is held that without rejecting the books of accounts which are audited, the Assessing Officer cannot resort to estimation. It is against this order that Income Tax Appeal No. 93 of 2008 has been filed. All the aforesaid facts have been stated in this appeal. Other two appeals have been preferred on similar facts and against similar orders of the ITAT.
On behalf of the appellant- Revenue, it is submitted that it is not necessary for the Assessing Officer to reject the valuation report as submitted by the assessee before resorting to Section 142A of the Act. Section 142A of the Act, it is submitted, confers power of the Assessing Officer, if he is satisfied with the valuation done in terms of the books of accounts submitted by the assessee, to direct the valuation of the assets to be done as set out in Section 142A of the Act.
On the other hand, on behalf of the assessee, it is submitted that the Tribunal was right in holding that without rejecting the books of accounts, it would not be open to the Assessing Officer to have ordered the Valuation Officer to value the property in terms of Section 142A of the Act.
To correctly appreciate the issue, we may gainfully reproduce Section 142A of the Act, 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, jewelery or other valuable article referred to in Section 69A or Section 69B or fair market value of any property referred to in sub-section (2) of Section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.
(2)The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under Section 38A of the Wealth Tax Act, 1957 (27 of 1957).
(3)On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment:
Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where 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.
Explanation.-- In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957)."
The Section was inserted by the Finance (No.2) Act, 2004 with effect from 15.11.1972 to confer power on the Assessing Officer, to refer the matter to the Valuation Officer which earlier had not been conferred.
Earlier, there was a provision being Section 55A to ascertain the fair market value of a capital asset for the purposes of Chapter IV. The issue as whether the Valuation Officer under Section 55A of the Act could be appointed for valuation of an asset if in the opinion of the Assessing Officer the amount expected in making the investment exceeds the amount recorded on the books. The issue of referring to the Valuation Officer, came up for consideration before the Supreme Court in the case of Amiya Bala Paul Vs. Commissioner of Income Tax, Shillong, (2003) 262 ITR 407 (SC). The Supreme Court, after considering the scope and ambit of Section 55A of the Act, was pleased to hold that it would not apply to proceedings under Section 69B of the Act. Apparently, it appears that Section 142A of the Act was introduced to cover this omission.
The question before us is whether the Tribunal was right in taking a view that in the absence of rejecting the books of accounts which are audited, the Assessing Officer cannot resort to estimation. Reference has been made to some authorities, which we shall now refer to.
In K.K. Seshaiyer Vs. Commissioner of Income Tax, (2000) 246 ITR 351 (Mad), the case before the Madras High Court was in respect of the Assessment Year 1978-79 before Section 142A was introduced. The issue referred for consideration was whether the Tribunal was right in ignoring the valuation of the house property submitted by the assessee and instead adopting a sum as the valuation of the property by calling for a report of the District Valuation Officer? The learned Madras High Court held that in the absence of the Tribunal recording that the books of account maintained by the assessee are not credible, it would not be open to call for a report of the District Valuation Officer.
In Commissioner of Income Tax Vs. Star Builders, [2007] 294 ITR 338 (Guj), the question before the Gujarat High Court was whether the Tribunal was right in deleting the addition made under Section 69A of the Act based on the report of the Valuation Officer? Reliance was placed on the judgment of the Supreme Court in Amiya Bala Paul (supra) to hold that reference can be made to the Valuation Officer for the purpose of Section 55 (A), 131, 133 (6) and 142 (2) and not for the purpose of finding out the cost.
Next, we come to the judgment of the Rajasthan High Court in the case of Commissioner of Income Tax Vs. Hotel Joshi, (2000) 242 ITR 478 (Raj). This was a case in respect of Assessment Years 1980-81 to 1985-86 before introduction of Section 142A. In the said case, the assessee had constructed a hotel building for which he had maintained regular books of account. All the amounts were vouched except some amount which was not supported by vouchers. During the course of the assessment proceedings, the assessee also filed the report of a registered valuer, who had estimated the cost of the building. The Assessing Officer, however, estimated the cost based upon the report of the Departmental Valuation Officer and, consequently, made an addition. In appeal preferred by the assessee, the CIT (A) held that the report of the Departmental Valuation Officer submitted by the assessee has been more authentic. However, the CIT (A) held that the Assessing Officer was justified in rejecting the cost of construction as shown in the books of account maintained by the assessee. The CIT (A) further held that the reference made both under Sections 16A of the Wealth Tax Act and Section 55A of the Act was unauthorised and that the report given by the Department Valuation Officer, being technical in nature, can serve as a guide for determining the actual cost of construction. Appeals were filed both by the assessee and the revenue (department) before the Tribunal. The Tribunal held that if the books of account do not show any serious infirmity, that should be accepted. The assessee, in the said case, had procured the report of the registered valuer and, therefore, the Tribunal directed the same to be accepted. This order was the subject matter in appeal before the Rajasthan High Court. The High Court thereon proceeded to hold that it would be unfair and against the public policy to proceed on the assumption that the assessee is dishonest and he must have submitted an incorrect account of expenses. The Court further held that in case the assessee had not maintained the regular books of account of construction and relied upon the reports of the registered valuer, it would be open for the Assessing Officer to refer to the Departmental Valuation Officer for valuation of the asset. The Court then proceeded to hold that a reference to the Departmental Valuation Officer would arise only in a case where the Assessing Officer was not satisfied with the accounts of construction produced by the assessee or where such account was kept and the assessee relied on the valuation report of the registered valuer.
Now, we come to a judgment of the Uttarakhand High Court in the case of the Commissioner of Income Tax & Anr. Vs. Bhawani Shankar Vyas, [(2009) 311 ITR 8 (Uttarakhand). The question before the High Court was whether the Income Tax Appellate Tribunal was justified in holding that without rejecting the books of account, the Assessing Officer was not justified in making reference to the Departmental Valuation Officer, ignoring the retrospective effect of the provisions of Section 142A of the Act? Section 142A was inserted by the Finance Act, 2004 with retrospective effect from November 15, 1972. The High Court, after considering various judgments, was of the view that the Income Tax Appellate Tribunal was not justified in holding that without rejecting the books of account, the Assessing Officer was not empowered in making reference to the Departmental Valuation Officer. The Court proceeded to hold that it was not mandatory for the Assessing Officer to reject the books of account first before making reference under Section 131 (1) (d) of the Act or calling for a report of the valuer under Section 142A of the Act.
Our attention was also invited to a judgment of this Court in the case of Sunder Carpet Industries Vs. Income Tax Officer & Anr., [(2010) 324 ITR 417 (All)]. On the consideration of this judgment, we find that the question framed for consideration was whether the notice issued under Section 142A and under Section 148 of the Act can be quashed? It is in this context that the Court had examined the case whether there was material on record to arrive at a belief that there was escaped assessment. The Court proceeded to hold that the investment made in the constructions of the building, if not recorded in the books of account, falls under Section 69 of the Act. It disagreed with the decision of the Delhi High Court in the case of CIT Vs. Aar Pee Apartments P. Ltd., [2009] 319 ITR 276, and was of the view that the reference made to the Departmental Valuation Cell for the purposes of determination of the investment in the construction of building cannot be said to be without the authority of law.
Reference was also made to an unreported judgment in the case of the Commissioner of Income Tax-I, Aayakar Bhawan, Lucknow Vs. M/s. Rohtas Projects Ltd., Income Tax Appeal No. 26 of 2006, decided on 23.02.2006. In the said case, the Court found that the Tribunal had not considered the provisions of Section 142A of the Act which was introduced by Finance Act No. 2 of 2004 with retrospective effect. This again really has not answered the issue.
The issue for consideration is, whether the Assessing Officer, under Section 142A (1), can refer a matter to the Valuation Officer, for the purpose of making an estimate of such value. Under sub-section (3) of Section 142A, it is provided that on receipt of the report of 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. Would the language of Section 142A mean that before proceeding to call for a report of the Valuation Officer, the books of accounts must be rejected.
The judgment in Bhawani Shankar Vyas (supra) also came up for consideration before the Supreme Court in the case of Sargam Cinema Vs. Commissioner of Income -Tax, [2010] 328 ITR 513 (SC)], wherein the Supreme Court has held that the Assessing Authority cannot refer the matter to the Departmental Valuation Officer without first rejecting the books of account. Once that be the law as declared by the Supreme Court, it is not possible for us to consider the contention advanced on behalf of the revenue.
For the aforesaid reasons, the questions of law as framed would not arise and, consequently, all the appeals are dismissed.