TaxTMI 
TaxTMI 
2007 (12) TMI 241
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....ot applicable at all. 2. That the Assessing Officer has no valid material to have any reason to believe that the income has escaped assessment under section 147 of the IT Act and the reassessment made in furtherance of such invalid assumption of jurisdiction is invalid, non est in law. 3. That there is no nexus between alleged material and the facts of the appellant's case and, therefore, the provisions of section 147 are not applicable at all. 4. That the reference by the Assessing Officer to the Valuation Cell in the year 2000 invoking the provisions of section 131(d) of the Act for valuation of agricultural land at village Mandoaoli sold is without jurisdiction and so the valuation report obtained in furtherance of such invalid jurisdiction is not admissible in law and cannot be made the basis for reopening an assessment under section 147 of the Income-tax Act." 4. The assessee, an individual, was carrying on business of finance and investment etc. He had agricultural land in village Mandoli in Delhi as ancestral property. During the year under consideration the assessee had shown capital gain on account of sale of agricultural land at village M....
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....t by the Departmental Valuation Officer at a higher figure than that of the sale consideration received and disclosed by the assessee. Looking to the facts of the case the Assessing Officer was totally justified in issuing notice under section 148 in view of the fact that according to the report of the Departmental Valuation Officer the value of land sold was much more than that declared by the appellant. Hence this ground of appeal stands dismissed." 5. Before us, while support ground No. 4, the learned counsel for the assessee submitted that reference made by the Assessing Officer to the Valuation Officer, in this case, is illegal because the same was made when no proceedings were pending before the Assessing Officer. In this regard he invited our attention to the valuation report available at pages 52 to 64 of the paper book. We have considered the entire relevant material. As per the report of Valuation Officer, reference was made to the valuation officer on 31-3-2000. The Assessing Officer thereafter recorded reasons for reopening the assessment on 11-3-2002. The reasons for assessment year 1999-2000 are as under : "This is a case of individual. The assessee is bei....
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.... Officer and on the basis of reasons recorded by the Assessing Officer, is totally null and void as the same is not tenable in the eye of law. In support of this argument, the learned counsel for the assessee placed reliance on the following decisions : (1) Dr. Arjun D. Bharad v. ITO [2002] 83 ITD 774 (Nag.); (2) CIT v. Nevendram Ahuja [2007] 290 ITR 453 (MP); (3) Smt. Rina Sen v. CIT [1999] 235 ITR 219 (Pat.). 6. The learned DR on the other hand submitted that the reference can be made under section 131 against any person even though proceedings may not be pending against him. According to him, the reference was valid and therefore the reopening based on the report of Departmental Valuation Officer is fully justified. On facts the learned DR submitted that a notice was issued under section 131 to the assessee vide letter dated 26-11-1998, in response to which the assessee submitted reply dated 3-12-1998. According to him, therefore, the proceedings against the assessee commenced from the issuance of notice dated 26-11-1998 and thus the reference being subsequent to this letter, the same cannot be treated to be invalid. The learned DR also placed relia....
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....has been given power under section 131(1)(d) to issue commission, but such power can be exercised only when the assessment proceedings are pending before him. As in the case of Civil Courts, the power to issue commission etc. can be exercised only when civil suit/proceedings are pending before such courts. Similarly, under the Income-tax Act, the Assessing Officer can exercise such powers when the assessment proceedings are pending before him. The nature of the activities and functions for which the power is exercised, like discovery and inspection of record, summoning of witnesses or any other person or to compel production of books etc., can be exercised by a Civil Court during the trial of a suit or during the pendency of other proceedings before such Civil Court and similarly such powers are to be, exercised by the Assessing Officer for making assessment effectively. Hence the object and the purpose behind giving such power to the assessing authorities and other authorities discharging quasi-judicial functions, shows the nature of functions and the nature of proceedings in which such powers are to be exercised. Certain other authorities have been given power under section 131(1....
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...." that any income has been concealed or is likely to be concealed by any person or class of persons even though no proceeding with respect to such person or class of persons is pending before him or any other income-tax authority, the authorities specified in section 131(1) of the Act can do so only if a proceeding is pending before them. The proceeding with the meaning of section 131(1) of the Act must, therefore, be an independent proceeding pending from before and it is only in connection with that proceeding that commission can be issued." 7.5 In the case of Dr. Arjun D. Bharad (supra), the Nagpur Bench of the ITAT has considered the issue in detail. After following the decision in the case of Bhola Nath Majumdar v. ITO [1996] 221 ITR 608 (Gau.) and several other authorities, the Bench has observed as under : "In the light of legal position emanating from the various judicial pronouncements, the basic conditions precedent for issue of commission under section 131(1)(d) are that there must be a proceeding pending before the Assessing Officer and that the Assessing Officer must form a judicial opinion having regard to the relevant material/evidence produced by the ass....
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....ating to the assessment year 1990-91 was not valid and consequently the valuation report of the Departmental Valuation Officer received in pursuance of the invalid commission could not be made use of." 7.7 In view of the above authorities, it is clear that if the reference is made to the Departmental Valuation Officer by the Assessing Officer prior to the commencement of proceedings then the reference cannot be treated to have been made during the pendency of the proceedings and as such the validity of the reference cannot be legally justified. Consequently, the reopening of the assessment made on the basis of such reference can also not be justified. 7.8 The learned DR has made reference to certain authorities. In our considered opinion, in view of direct authorities to which have made reference as above, these authorities are either not applicable or are distinguishable. 7.9 In the case of Prem Hotel (supra), the Assessing Officer wanted to determine the fair market value of the capital asset for the purpose of Chapter IV. Therefore, he made reference to the Departmental Valuation Officer. The assessee challenged the reference on various grounds. It was found that the as....
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....mission/reference to the Departmental Valuation Officer. Hence, on facts this case is distinguishable. 7.12 Here, it may be observed that there may be some decisions in favour of the department and even if the authorities cited on behalf of the department may support the case of the department, however, it is a settled legal position that if there are two possible views then the one favourable to the assessee should be followed, unless there is any direct authority of the Jurisdictional High Court, as held by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In that case the Hon'ble Apex Court has made following observations : "If the court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty." 7.12-1 In the case of Virtual Soft Systems Ltd. v. CIT [2007] 289 ITR 83, the Hon'ble Supreme Court has observed that where the predominant majority of the High Courts have taken a certain view of the interpretation of a certain p....
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....y other material except the valuation report. Thus, it is clear that the Assessing Officer has not made any judicial application of mind for reopening the assessment. He made no enquiry from the assessee or from any other source nor examined the books of account of the assessee before doing so. On these facts, the making of reference to Departmental Valuation Officer by the Assessing Officer was without any basis as there was no material before him to justify the action taken by him. 8.3 In view of the above facts, the reference made to the Valuation Officer was itself illegal and consequently non est. When the reference itself is illegal and non est in law, the report submitted in such reference, cones-quently, cannot be relied upon to initiate reassessment proceedings. It was so held by the Hon'ble Rajasthan High Court in the case of Brig. B. Lall v. ITO [1981] 127 ITR 308.In the case of Bhagwandas Jain v. Dy. CIT [2000] 246 ITR 632, the Hon'ble M.P. High Court, after following the decision of Hon'ble Rajasthan High Court in the case of Brig. B. Lall (supra), held that reopening of the assessment on the basis of valuation report is not valid. In that case notice da....
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....cost of acquisition of the asset and the cost of any improvement thereto." 8.8 On examination of the above provision, it is clear that the capital gain is to be computed by deducting from the 'full value' of the consideration received or accruing as a result of the transfer of the capital asset i.e., the cost of acquisition and expenditure incurred in connection with the transfer are to be deducted from the full market value of the asset. The expression 'full value of the consideration' does not mean 'market value' or 'fair market value' of the asset transferred. Hence, capital gain tax cannot be computed and levied with reference to the market value determined on the basis of valuation report. 8.9 In the case of CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC), the Hon'ble Supreme Court of India, while considering a similar provision contained in section 12B(2) of the Income-tax Act, 1922, has observed as under :- "The expression 'full value of the consideration for which the sale, exchange or transfer of the capital asset is made', appearing in section 12B(2) of the Indian Income-tax Act, 1922, does not mean the ....
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.... substituting the full value of consideration by the fair market value as stated by the Departmental Valuation Officer in his report for computation of capital gains was not valid." 8.12 There is another aspect of the matter. The valuation report is an expert opinion at the most. In relation to the transaction of transfer such report cannot be treated to be proof of the fact that there is some under hand dealing and consideration has passed more than what is disclosed. 8.13 In the case of Britannia Industries Ltd. (supra), the Hon'ble Calcutta High Court has held that in case of transfer of asset, no capital gain tax can be taxed over and above the capital gain shown and disclosed by the assessee unless there is evidence that there has under statement by the assessee and more consideration has passed than disclosed. The Hon'ble Court has also held that on the basis of valuation report, the Assessing Officer cannot assume jurisdiction under section 148. The observations of the Hon'ble Court are reproduced as under :- "Although section 52(2) of the Income-tax Act, 1961 has been omitted from the statute the fact remains that in case of transfer of assets no ....