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Kanaiyalal J. Chinai Vs. Eighth Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)6ITD332(Mum.)
AppellantKanaiyalal J. Chinai
RespondentEighth Wealth-tax Officer
Excerpt:
assessment completed without waiting for valuation officer's report, therefore, commissioner was justified in set asiding the case.there can be no bar on the commissioner exercising his revisional powers to remedy a mistake and/or under-assessment found by him in the order of the wealth tax officer. as the assessment made without proper jurisdiction was liable to be challenged by the assessee as not valid in law, in this sense it was prejudicial to the interests of the revenue and was, therefore, liable to be revised.1. these five appeals filed by the assessee, kanaiyalal j. chinai, huf, are directed against the consolidated order under section 25(2) of the wealth-tax act, 1957 ('the act'), passed by the commissioner, in the assessee's case for the assessment years 1970-71 to 1974-75.....
Judgment:
Assessment completed without waiting for valuation officer's report, therefore, Commissioner was justified in set asiding the case.

There can be no bar on the Commissioner exercising his revisional powers to remedy a mistake and/or under-assessment found by him in the order of the Wealth Tax Officer. As the assessment made without proper jurisdiction was liable to be challenged by the assessee as not valid in law, in this sense it was prejudicial to the interests of the revenue and was, therefore, liable to be revised.

1. These five appeals filed by the assessee, Kanaiyalal J. Chinai, HUF, are directed against the consolidated order under Section 25(2) of the Wealth-tax Act, 1957 ('the Act'), passed by the Commissioner, in the assessee's case for the assessment years 1970-71 to 1974-75 (both inclusive). As the order of the Commissioner is challenged on identical grounds for all the assessment years and involves basically the same set of facts, these appeals are consolidated and disposed of by one single order for the sake of convenience.

2. The common grounds of appeal, drawn up by the assessee, are 13 in number and are discursive, but can actually be summarised in the following three propositions : 1.. That the CWT had erred in law in basing his action under Section 25(2) of the Wealth-tax Act, 1957, on the valuation reports of the departmental valuers which did not form part of the record or proceedings before the WTO at the time the latter passed the orders of assessment.

2. That inasmuch as the orders of assessment passed by the WTO on 3-3-1979 were in breach of Section 16A(6) of the Act, they were without jurisdiction and void ab initio and non est in law and, consequently, the CWT could have no jurisdiction to exercise his power under Section 25(2) of the Act to revise such an order which is non est and void ab initio.

3. That the CWT erred in stating that the assessment orders have been made by the WTO without considering whether the value of certain properties, declared by the assessee, was correct having regard to the nature of properties, etc., and without making necessary enquiries. That, on the other hand, the WTO, while completing the assessments, in question, had taken into consideration all the relevant material necessary for valuation and had acted in accordance with law in accepting the value returned by the assessee as per the valuation made by the Registered Valuers.

Finally, it is urged that since the CWT had erroneously assumed jurisdiction under Section 25(2) with reference to the valuation reports of the departmental valuers and ignoring the fact that the WTO had exercised his discretion properly and in accordance with the law, the order of the CWT deserves to be set aside.

The assessee-HUF, whose wealth consists of immovable and movable properties, had, for the assessment years 1970-71 to 1974-75 (both inclusive), declared the value of the immovable properties as on the relevant valuation dates as per the valuation reports of a Registered Valuer. In the course of the assessment proceedings, however, the WTO being of the opinion that the value so returned by the assessee was less than the fair market value of the properties in question, referred the valuation of the said immovable properties to the Department's Valuation Officer. However, since the report of the Department's Valuation Officer was not forthcoming, the WTO completed the wealth-tax assessments in the assessee's case for the aforesaid assessment years, on 3-3-1979. For the purpose of this assessment, the WTO adopted the values of the immovable properties of the assessee as per the valuation reports furnished by the assessee with the remarks that he was doing so 'subject to the department's valuation report'.

3.1 These assessments, made by the WTO, came under the scrutiny of the CWT, who found that the WTO had taken the value of the assessee's 1/4th share in the immovable properties at Kochrab, Ahmedabad, as declared by the assessee on the basis of the valuation report also furnished by the assessee, and that, while accepting such value of the said property the WTO had not considered the basis adopted by the assessee's valuer for the valuation of the properties in question, and whether the valuation so made by the assessee's valuer was the true valuation having regard to the nature of the property, the situation of the property and the prevalent market price on the date of valuation. The CWT observed that the value so adopted by the WTO without properly going into the facts and making necessary enquiries had resulted in underassessment of wealth and, therefore, he came to the conclusion that the wealth-tax assessment orders are erroneous insofar as they are prejudicial to the interests of the revenue. He also noted that the WTO had made a reference to the Department's Valuation Officer under Section 16A of the Act, but had completed the assessments before receipt of the report of the Valuation Officer, and this was also erroneous. The Commissioner, therefore, issued to the assessee-HUF a notice calling upon it to show cause why assessments, which have not been made in accordance with the law and on proper facts, should not be set aside and the WTO be directed to make a fresh assessment. In response to this notice, it was contended before the CWT that completion of a wealth-tax assessment by the WTO in breach of the mandatory provisions of Section 16A(6) does not give rise to a presumption that the WTO had adopted the value without considering the other aspects of the valuation ; submissions were also made as to the merits of the valuation.

3.2 The Commissioner considered these submissions and came to the following conclusions : (i) That the WTO having made a reference under Section 16A(1) of the Act in respect of the immovable property situated at Kochrab, Ahmedabad (in which the assessee holds 1/4th share), it was incumbent on the WTO to complete the assessment only after receipt of the report from the Department's Valuation Officer, as required by Section 16A(6) of the Act, and that the failure of the WTO to do so constituted violation of the said statutory provisions and, therefore, erroneous insofar as it is prejudicial to the interests of the revenue.

(ii) That the valuation report, dated 22-5-1972, furnished by the assessee had several defects in it and the WTO should have made necessary enquiries and sought clarification in order to determine the correct value of the property instead of accepting the value as declared by the assessee and making the assessments in a routine and stereotype fashion. That in this sense also the assessment orders are erroneous insofar as they are prejudicial to the interests of the revenue.

3.3 The Commissioner derived support for these conclusions from the following decisions of the Supreme Court : The Commissioner, accordingly,.set aside the assessment orders, for the assessment years 1970-71 to 1974-75 (both inclusive), in the assessee's case with direction to the WTO to make fresh assessments for the same assessment years, according to law and after giving reasonable opportunity to the assessee.

It is this order of the Commissioner that is now challenged in appeal before us.

4. Shri S.E. Dastur, the learned counsel for the assessee, reiterating the grounds of appeal, set out above (para 2), framed the following four propositions : (i) That the Commissioner erred in law in revising the orders of the WTO only on the basis of the valuation reports of the Departmental Valuation Officer which came after the assessment orders, sought to be revised, were made by the WTO. He submitted that it is the record, as it stood, at the time the impugned order was made by the WTO that can be considered by the Commissioner in assuming jurisdiction under Section 25(2). For this proposition, Shri Dastur relied on the Calcutta High Court decision in Ganga Properties v. ITO [1979] 118 ITR 447. He also cited several decisions of the Tribunal that the aforesaid decision of the Calcutta High Court has been followed to strike down the revisional order of the Commissioner.

(ii) That the Commissioner's revisional powers under Section 25(2) cannot be exercised when the WTO himself can achieve the same results by applying the relevant provisions of the Act available to him. Thus, for instance, in the case of the assessee, the WTO could have remedied the alleged under-assessment by recourse to either Section 17(1)(b) or even to Section 35 of the Act.

(iii) That the WTO had, while making the assessments, fully applied his mind to the valuation report furnished by the assessee and, therefore, the Commissioner was not justified in stating that the WTO had made the assessments without considering the relevant aspects of the valuation and in a 'routine and stereotype manner'.

(iv) That since reference under Section 16A(1) was already made by the WTO, the assessments completed by him before receiving the valuation report of the departmental valuer must be treated as the assessments made without jurisdiction and if the assessments themselves were made without jurisdiction, the Commissioner could not assume jurisdiction under Section 25(2) to revise such assessment orders.

5. Proceeding further, Shri Dastur submitted that, as the WTO completed the wealth-tax assessments in question, on 3-3-1979 without waiting for the valuation report of the department's valuer, because the said assessments would be barred by limitation on 31-3-1979, he, therefore, had no alternative but to complete the assessments in the manner he had done, that is, 'subject to the Valuation Officer's report'. He added that, as a matter of fact, the WTO's orders of assessment were beneficial to the interests of the revenue and not prejudicial as held by the CWT ; if at all, they were prejudicial to the assessee.

6. We have carefully considered all the propositions made by the learned counsel for the assessee, vis-a-vis, the facts and circumstances of the case and the relevant judicial decisions. We have also heard the learned departmental representative, Shri Vaze, who strongly relied on the order under Section 25(2) passed by the WTO, and we have come to the following conclusions : (1) As for the first proposition, suffice it to say that contrary to what is stated by and on behalf of the assessee, the Commissioner has not based [emphasis provided] his action under Section 25(2) on the valuation report of the Department's Valuation Officer. On the other hand, the Commissioner himself has critically examined the valuation report (furnished by the assessee), which was before the WTO when the latter made the wealth-tax assessments in question.

This is clear from para 9 of the order of the CWT, relevant portion of which reads as follows : In the Valuation- Report dated 22-5-1972 filed for assessment years 1972-73 to 1974-75 by Shri B.J. Sujitra, the assessee's valuer has valued the said plot of land at values ranging between Rs. 95 to Rs. 120 per sq. yard whereas the sale instance given is of Chinai Baug Co-op. Housing Society registered on 24-6-1971 at Rs. 141.25 per sq.

yard. No reasons are given by the assessee's valuer for adopting the value at Rs. 95 and Rs. 120 per sq. yard when the sale instance quoted is at Rs. 141.25 per square yard, which is a sale of a part of this land. Thus, the Wealth-tax Officer has erred in accepting the Valuation Report filed by the assessee without proper scrutiny.

In view of the afo resaid observation of the CWT, the ratio decidendi in the case of Ganga Properties (supra) does not apply to the assessee's case. For the same reasons, the decision of the Gujarat High Court in the case of Chelabhai Bhanabhai Prajapati [1974] 33 STC 147 cited by Shri Dastur also will not apply to the instant case.

Apart from the aforesaid factual aspect of the Commissioner's order, it may be pointed out that the Supreme Court has held that the jurisdiction of the Commissioner to proceed under Section 33B of the 1922 Act (which is in pan materia with Section 263 of the Income-tax Act and Section 25(2) of the Wealth-tax Act), is not dependent on the fulfilment of any condition precedent. All that he is required to do, before reaching his decision and not before commencing the enquiry, is that he must give the assessee an opportunity of being heard and make or cause to make such enquiry as he deems necessary C1T v. Electro House [1971 ] 82 1TR 824 (SC). It goes without saying that such enquiries' may bring forth facts and evidence to justify action under Section 25(2).

(2) The second proposition advanced by Shri Dastur assumes that the action under Section 35 or Section 17(1)(b) by the WTO and action under Section 25(2) of the CWT are mutually exclusive. Shri Dastur did not refer to any specific provision of law in this behalf, nor did he cite any case law under the 1961 Act on the point. He, however, referred to the decision of the Bombay High Court in Manordas Kalidas v. CST [1969] 24 STC 521. That decision, it may be pointed out, is clearly distinguishable inasmuch as, in that case, the Court found, as a matter of fact, that the Assistant Commissioner of Sales Tax had in exercise of his revisional powers initiated proceedings for bringing to charge the escaped turnover-This is certainly not the case of the assessee before us.

The Commissioner has not assumed jurisdiction to make a reassessment in the case of the assessee.

On our part, we may refer to the decision of the Madras High Court in Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 which, in our view, effectively meets the argument of Shri Dastur. In that case, their Lordships of the Madras High Court have, in terms, held that the availability of the powers vested in the ITO by Section 35 did not bar recourse to the jurisdiction vested in him by Section 34 (page 565 of the 42 ITR). If this is the legal position with regard to the same officer exercising jurisdiction under two different Sections, there can be no bar to the Commissioner, an authority superior to the ITO/WTO, exercising his revisional powers to remedy a mistake and/or under-assessment found by him in the order of the ITO/WTO. (3) For his third proposition, Shri Dastur relied on the following observation of the WTO in the assessment order, for the assessment year 1970-71 : It is from the valuation reports dated 25-4-1968, the land 1380 sq.

yd. attached to the Chinai Niwas Bungalow and Farm House are not taken into consideration and not shown as in 1972-73 assessment year.

It is obvious that this is only a repetition by the WTO of what is stated in the valuation report furnished to him on behalf of the assessee and does not represent any application of mind to the facts so stated, much less a qualitative evaluation of the facts. This is borne out by the very next sentence in the assessment order which reads as follows : The value of the same is taken as per valuation report dated 1-9-1971 filed in 1972-73 at Rs. 1,24,200.

Similarly, the WTO's observation in the assessment order for the assessment year 1972-73 that: It is seen from the valuation report dated 22-5-1972, the sale registered in the office of the Sub-Registrar of Ahmedabad was Rs. 141.25 per sq. yd. even though the owner got Rs. 95.25 because there being an intermediate party, ...

is obviously a paraphrase of what the assessee's valuer says in his report. Here again the next sentence of the WTO is : However the values are adopted as per V.R. dated 22-5-1972 subject to the department's valuation report.

(4) This brings us to the last and, apparently, the most important argument on behalf of the assessee ; for it is indeed a serious legal infirmity in the wealth-tax assessments made by the WTO in this case that the WTO who had referred the valuation of the assessee's immovable properties to the Department's Valuation Officer, hastened nevertheless to complete the relevant assessments without waiting for the valuation report of the Valuation Officer, as required under Section 16A(6). This legal infirmity, in our opinion, far from militating against the action of the Commissioner under Section 25(2) justifies and strengthens it; for, an assessment made without proper jurisdiction, is liable to be challenged by the assessee as not valid in law and in this sense it is certainly prejudicial to the interests of the revenue. This aspect of the revisional powers of the Commissioner is explained by their Lordships of the Supreme Court and the revisional order passed by the Commissioner has been upheld in the case of Rampyari Devi Saraogi (supra). As a matter of fact, the Commissioner in passing his order under Section 25(2), in the present case, has rightly relied on the aforesaid decision of the Supreme Court as well as that in the case of Smt. Tara Devi Aggarwal (supra). We may add that the principles governing the exercise of the revisional powers by the Commissioner are clearly explained by their Lordships of the Delhi High Court in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375. In the light of the Supreme Court decision, cited above, their Lordships of the Delhi High Court have stated as follows : . . . These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return.

The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil Court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil Court in the absence of any rebuttal. The civil Court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word 'erroneous' in Section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in Section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.

This is precisely what the Commissioner has done in the case of the asses-see before us. Confronted with this aspect of the case, Shri Dastur argued that, in that case, the Commissioner ought to have cancelled the assessment orders instead of setting them aside and directing the WTO to make the assessments afresh. This argument is untenable for the simple reason that the revisional powers of the Commissioner, which are intended to remedy the orders of his subordinates which are erroneous insofar as they are prejudicial to the interests of revenue, are wide and entitle him to 'pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment'.

7. In view of the facts and circumstances of the case and the legal position explained above, we uphold the orders under Section 25(2) passed by the Commissioner for the assessment years 1970-71 to 1974-75, in the case of the assessee and dismiss the appeals. Before parting with this case, we may mention the last submission of Shri Dastur that, if at all, the assessment orders of the WTO were prejudicial to the assessee and not to the revenue. This argument is also untenable because the assessee, who maintains that the valuation submitted by him was a correct valuation, cannot plead that there was prejudice to him if the assessment is made on the basis of such valuation.


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