TaxTMI 
TaxTMI 
2015 (8) TMI 472
X X X X Extracts X X X X
X X X X Extracts X X X X
....admitted for adjudication, vide order dated April 24, 2003, on the following substantial questions of law : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the proceedings for reassessment for the assessment year 1989-90 were validly initiated ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in confirming the cost of acquisition as on April 1, 1974, as adopted by the Assessing Officer ?" 3. We will first take up question No. 1 as we perceive that the answer to the said question is crucial and would settle the controversy. The answer to question No. 2 would be required only if we hold that the reassessment proceedings were validly initiated. 4. The basic facts as noticed by the Tribunal may be noted : (i) The two appellants-assessees, along with other co-owners of pro perty No. 19, Barakhambha Road, New Delhi, entered into an agreement dated March 7, 1973, with M/s. Kailash Nath and Associates ("the builder", for short) for construction of a multi storied building at the cost of the builder. (ii) Under the agreement, rights in land were to be transferred....
X X X X Extracts X X X X
X X X X Extracts X X X X
....55(2)(b)(i) of the Act would be applicable as the appellants-assessees had entered into the transaction with the builder on March 7, 1973, is not raised and argued. We, therefore, proceed in these two appeals as well as the appeals relating to the assessment year 1990-91 on the premise that the fair market value as on April 1, 1974, would be the basis for computing the capital gains. 8. Income-tax returns for the assessment year 1989-90 filed by the appellants-assessees were taken up for scrutiny assessment by issue of notice under section 143(2) of the Act. In the course of the assessment proceedings, the appellants-assessees filed a valuation report of a Government approved valuer asserting that the fair market value as on April 1, 1974, was Rs. 356 per square feet. The aforesaid valuation report has been placed on record and states that the property was developed into flats and, hence, selling price method was adopted. On the aforesaid basis, the gross value of the entire property as on April 1, 1974, was computed at Rs. 4,90,68,800. The Assessing Officer passed the assessment orders dated November 27, 1990, in the case of the two appellants-assessees and on the issue in ques....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s on April 1, 1974. The implication was that the valuation of the property as on April 1, 1974, should have been made as a residential property. These assertions were stated in response to the letter of objection filed by the appellants-assessees. The appellants-assessees protested by making detailed written submissions on the merits and questioning the reopening. The Assessing Officer did not accept the objections and passed the assessment orders taking the value of the property as on April 1, 1974, at Rs. 222.96 per square feet as against Rs. 356 per square feet at the time of the original assessment. 11. Before we examine question No. 1, it would be appropriate to refer to the reasons recorded by the Assessing Officer for issue of reassessment notice as the question raised is whether the reopening is bad and illegal for want of satisfaction of the jurisdictional pre-conditions. Copy of the "reasons to believe" recorded by the Assessing Officer, were never communicated. These are not quoted in the assessment order or the appellate orders including the order of the Tribunal. In the grounds of appeal, the appellants-assessees have referred to the order-sheet entry dated Decem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the meaning of the fore going proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but- (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. Explanation 3.-For the purpose of assessment or reassessment under this section, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words 'reason to believe', and it follows from the 'information' received by the Income-tax Officer. The information is not the realisation, the information gives birth to the realisation." Referring to the decision in Jindal Photo Films Ltd. [1998] 234 ITR 170 (Delhi), the Full Bench held (page 14 of 256 ITR) : "Thus, the court held that even under the newly substituted sec tion 147, with effect from April 1, 1989, an assessment could not be reopened on a mere change of opinion. Yet again in Foramer's case [2001] 247 ITR 436 (All), a Division Bench of the Allahabad High Court has held that if a notice under section 147/148 was issued after the coming into force of the amended Act, the latter shall be attracted. However, it is observed that (page 444) : 'Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istakes as contained in section 154 of the Act. The power of rectification of mistake conferred upon the Income-tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue." Thus, the distinction between the power of reo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason to believe', Parliament reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549, dated October 31, 1989 (see [1990] 182 ITR (St.) 1, 39), which reads as follows : '7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression "reason to believe" in section 147.-A number of representations were received against the omission of the words "reason to believe" from section 147 and their substitution by the "opinion" of the Assessing Officer. It was pointed out that the meaning of the expression, "reason to believe" had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression "has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion." 17. We have narrated the facts in detail and also quoted the relevant portion of the original assessment orders in which reliance was placed and the valuation report submitted by the appellants-assessees was accepted. We have also noted the reasons recorded by the Assessing Officer for reopening the assessment and his reply or show-cause notice dated September 26, 1994, stating that the Government approved valuer's report relied upon the commercial rates as on April 1, 1974, whereas the property in question at that time was residential. However, what is material and consequential are the reasons to believe. They have to be read and we have to determine whether it is a case of change of opinion. The reasons to believe simply but obsequiously rely upon the assessment order for the assessment year 1990- 91 to observe that the cost of acquisition as shown by the assessees was wrong. In other words, the plea and stand of the Revenue was that erroneous and incorrect computation was made, relying upon the reasoning in the assessment orders for the assessment year 1990-91. 18. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ived after completion of assessment, though reference to the DVO had been made before or during the course of the assessment proceedings. Reference was made to section 148 as it existed before and after April 1, 1989, and it was observed (page 89 of 253 ITR) : "Up to March 31, 1989, two conditions were required to be fulfilled to confer jurisdiction on the Assessing Officer to act under section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under assessed or assessed at too low a rate or has been made the subject of excessive relief. After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the pro visions of sections 148 to 153. He may assess or reassess the income which has escaped assessment. It is to be noted that section 147 as it stands with effect from Apr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). In Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), a true concept of the 'information' was elaborately dealt with by the apex court. It was observed that by its inherent nature the fact has concrete existence. It requires no further authority to make it significant. Its quintessential value lies in its definitive vitality." 21. The aforesaid observations of the Division Bench of the Delhi High Court have to be read in the light of the ratio decidendi as expounded by the Supreme Court in the case of Kelvinator of India Ltd. (supra), the decisions of the Full Benches of the Delhi High Court in Kelvinator of India Ltd. (supra) and Usha International (supra), which prohibit and bar "change of opinion" as a ground for reopening. It is noteworthy that the Full Bench of this court in Kelvinator of India Ltd. (supra) referred to the aforementioned extract from Bawa Abhai Singh (supra) but distinguished the quote, asserting that it was not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate proceeding under section 147 of the Act. 22. The decision in the case of Asst. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....apital gains as claimed were taken on record. It was in these peculiar facts, specifically noticing the averments made in the assessment order, that reopening was upheld. In the said case, the Assessing Officer had duly applied his mind while recording reasons to believe. The decision in the case of Dhariya Construction Co. (supra) was distinguished on the ground that the Supreme Court in the said case had deprecated mechanical and robot like reliance on the DVO's report to hold that the reasons to believe must be based on independent application of mind by the Assessing Officer. The facts in Mahashay Chunnilal (supra) were somewhat identical but there is one substantive distinguishing factor that the report of the DVO was per se tentative and vague. The Assessing Officer had proceeded on the said ambiguous valuation report without appreciating its contents and noticing that the DVO's report itself lacked substance and basis. 24. In view of the aforesaid position, we answer the substantial question of law No. 1 in I. T. A. No. 224 of 2002, Prabhu Dayal Rangwala v. CIT and I. T. A. No. 227 of 2002, Indulata Rangwala v. CIT relating to the assessment year 1989-90 in favour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discounted value was taken as the value of the commercial space/flat on per square feet basis on April 1, 1974. 27. On the other hand, the Assessing Officer had relied upon the valuation report of the DVO who had estimated the value of the property on the basis of a sale instance, i.e., sale consideration paid for the property located at 15, Curzon Road, New Delhi, sold on April 14, 1973. He adopted the land rate at Rs. 1,061 per square yard as on March 7, 1973, and at Rs. 1,116 per square yard as on April 1, 1974. The cost of acquisition, i.e., the fair market value on the said basis was computed at Rs. 222.96 per sq. feet. 28. The Commissioner of Income-tax (Appeals) upheld the estimation of the fair market value of the property adopted and applied by the Assessing Officer relying on the DVO's report. The said finding has been affirmed by the Tribunal, observing that what was sold in the assessment year 1990-91 was commercial space but what was existing as on April 1, 1974, was a residential building. The property, as existing on April 1, 1974, had undergone a change. The Tribunal held that the DVO in his report had rightly relied upon and based his valuation on the sal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arch 7, 1973, enclosed as annexure P-1, the property was to be vacated by the tenants at the cost of the owners. The fact that the property was occupied by the tenants as on April 1, 1974, would be a relevant factor which would depreciate the value. Thus, we agree with the Revenue that the valuation report relied upon by the assessee did not give fair and correct market value of the property as on April 1, 1974. The computation made by the valuer, relied upon by the assessee at Rs. 356.15 per square feet cannot be accepted as correct. 30. On the other hand, the DVO's report was based upon a specific sale instance relating to sale deed dated April 19, 1973, in respect of property No. 15, Curzon Road, New Delhi. On this basis, the fair market, value on per square feet basis as on April 1, 1974, was computed at Rs. 222.96. 31. It is noticeable that the assessee himself, during the course of the assessment proceedings before the Assessing Officer, possibly realised the adversity and error in relying upon the said report and as an alternative submission had stated : "(iii) Without prejudice to the above, he states that the assets transferred by him in the above year are his....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No other transaction was relied upon. The valuation or estimation has to be fair and reasonable and not based upon surmise and conjecture. The property in question was owned by several assessees including Dwarka Das Rukmani Devi, Raj Gopal Rangwala and Mahabir Parshad. The said co-owners have accepted the said valuation report. It was stated at the Bar that the said persons had not filed any objections to the valuation made. Therefore, even if an order of remand is passed, the Valuation of the DVO, which has been adopted and applied by the Assessing Officer, it is apparent, would be again applied. We are, therefore, not inclined to pass a futile order of remand. This would be undesirable. 35. The decision in the case of Naveen Gera (supra) is inappropriate. The said decision holds that section 142A of the Act has no retrospective effect and was not applicable to assessments made on or before September 30, 2004. This is not the issue or controversy in the present case. The sale transaction in the said case was between the assessee and a company in which the son of the assessee was one of the directors. Another issue related to the scope of assessment under section 153A of the Act....