1999 (8) TMI 44 - HC - Income Tax

Assessing officer's power to seek DVO valuation of house construction costs for assessment upheld despite wrong section cited

The dominant issue was whether the AO had legal competence to refer to the Valuation Cell/DVO for estimating the cost of construction of a house property ... Interpretation Of Taxing Statutes - Computation of income from capital gains - Legal competence of the Assessing Officer to refer the matter to the Departmental Valuation Officer/Cell to evaluate the cost of construction, for the purpose of assessment proceedings. - Whether, the Tribunal erred in law by holding that the Assessing Officer cannot refer the matter to the Valuation Cell for estimating the cost of construction of the house property. - HELD THAT:- It is clear that the Income-tax authorities while exercising various jurisdictions under the Act enjoy the power of a civil court as provided in the Code of Civil Procedure, 1908, for certain purposes including for issue of commission. In our view, it would always be open to the assessing authority to seek expert opinion about cost of construction of a building which can broadly be termed as issuing commission for the purpose. By virtue of section 131 of the Income-tax Act, section 75 of the Civil Procedure Code, comes in aid of the income-tax authorities while carrying on their functions under the provisions of the Act. It will have the same nature as that of machinery provision, namely, to aid and facilitate the levy, quantification of the tax liability under the charging provision of the Act. There is no doubt about the legal position that section 55A of the Income-tax Act is meant for the purposes of assessing the capital gains, which is obviously different from valuing cost of construction of a building. It is rightly submitted by learned counsel for the assessee that for the purpose of capital gains the prevailing market value of the property may be relevant and not the cost of construction. In our view, nothing jurisdictional is involved about it and the two decisions relied upon on behalf of the assessee themselves amply clarify the legal position. In the case of Hotel Amar [1992 (9) TMI 84 - ORISSA HIGH COURT], it has been held that a reference cannot be made to the Valuation Officer under section 55A of the Act in reassessment proceedings, but at the same time it was held that a report obtained under section 55A can be used as a piece of evidence which would be rebuttable. Similarly, in the case of Jindal Strips Ltd. [1978 (12) TMI 43 - PUNJAB AND HARYANA HIGH COURT], a Full Bench of the Punjab and Haryana High Court though has held that section 55A of the Act applied to the matters relating to capital gains only, but in reassessment proceedings the assessing authority is competent to call for report of the Valuation Officer under section 133(6) of the Act. Hence, merely wrong mention of the provisions of law, namely section 55A, in the requisition I calling for the report of the Valuation Officer would not vitiate the report. From the above two decisions relied upon by the assessee it is clear that the assessing authority has power to call for report about the cost of construction from the Valuation Officer and while doing so, if the provision of law has been wrongly mentioned, it would be wholly immaterial, e.g., while calling for the valuation report about the cost of construction section 55A is mentioned, it would not make any difference so long as the report is regarding cost of construction, as such power vests under another provision. Thus, we are of the view that the assessing authority would be quite competent to call for the report on the valuation of the cost of construction from the Valuation Officer in view of the provisions under sections 131, 133(6) and 142(2) of the Income-tax Act. These are the enabling machinery provisions which vest ample powers in the assessing authority, any wrong mention of provision on the requisition memo will not be material. Our answer to the question referred is in the affirmative, that is to say, the Tribunal erred in holding that the Assessing Officer cannot refer the matter to the Valuation Officer for estimating the cost of construction of the house property. Issues Involved:1. Legal competence of the Assessing Officer to refer the matter to the Departmental Valuation Officer for estimating the cost of construction of house property.2. Applicability of Section 55A of the Income-tax Act for purposes other than computation of income from capital gains.3. Interpretation and application of Sections 133(6) and 142(2) of the Income-tax Act.4. The role of machinery provisions in tax statutes and their interpretation.Detailed Analysis:1. Legal Competence of the Assessing Officer to Refer the Matter to the Departmental Valuation Officer:The primary issue was whether the Assessing Officer (AO) could refer the matter to the Departmental Valuation Officer (DVO) to estimate the cost of construction of a house property. The Tribunal had previously held that such a referral was not permissible, relying on earlier judgments and interpretations of the Income-tax Act. The judgment reviewed the Tribunal's reliance on previous cases, including decisions from the Andhra Pradesh and Punjab & Haryana High Courts, which had held that valuation reports under Section 16A of the Wealth-tax Act could not be used in income-tax assessments. The Tribunal also referenced Section 55A of the Income-tax Act, which it interpreted as applicable only to capital gains proceedings.2. Applicability of Section 55A of the Income-tax Act:The Revenue argued that Section 55A, which allows for the valuation of a capital asset to ascertain its fair market value, should be interpreted broadly to include the valuation of construction costs. However, the judgment clarified that Section 55A is specifically for capital gains under Chapter IV of the Act and does not directly apply to the assessment of construction costs. The court acknowledged that while Section 55A is not directly applicable, other provisions could enable such a referral.3. Interpretation and Application of Sections 133(6) and 142(2) of the Income-tax Act:The Revenue also cited Sections 133(6) and 142(2) as enabling provisions. Section 133(6) allows the AO to require any person to furnish information relevant to any inquiry or proceeding under the Act, which could include a valuation officer. The judgment supported this interpretation, noting that the term 'person' is inclusive and can encompass a valuation officer. Section 142(2) permits the AO to make necessary inquiries to obtain full information regarding the income or loss of any person, which could logically include obtaining a valuation report.4. The Role of Machinery Provisions in Tax Statutes:The judgment emphasized the distinction between charging provisions and machinery provisions in tax statutes. Charging provisions must be strictly construed, while machinery provisions, which facilitate the implementation of charging provisions, should be interpreted more liberally to effectuate the purpose of the Act. The court cited several precedents supporting this view, including decisions from the Supreme Court, which held that machinery provisions should be broadly construed to ensure the workability of the Act.Conclusion:The court concluded that the AO is competent to refer the matter to the DVO for estimating construction costs, based on the enabling provisions of Sections 131, 133(6), and 142(2) of the Income-tax Act. The judgment clarified that the machinery provisions provide the necessary authority for such referrals, and any incorrect citation of the provision (such as Section 55A) does not invalidate the referral. The court answered the referred question in the affirmative, indicating that the Tribunal erred in its interpretation.