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N.K. Gopalan Vs. Ninth Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Nagpur
Decided On
Judge
Reported in(1984)10ITD477(Nag.)
AppellantN.K. Gopalan
RespondentNinth Wealth-tax Officer
Excerpt:
.....let out or is fetching if already let out. resort is also made to an estimate by an expert on the basis of value of the land and building. it is usual to value the properties by more than one method so as to cross check and adopt an average. this is resorted to when there is great disparity between the valuation arrived at by different methods.(p. 668) the value ascertained by averaging the products of these methods has in turn been accepted by the wto while completing the assessments. it cannot, therefore, be said that the wto committed an error in accepting the value returned by the assessee in this behalf. events which have happened subsequently cannot also render the assessments made as erroneous, inasmuch as the wto could not have anticipated the sale of the property, or for that.....
Judgment:
1. These two appeals relating to the assessment years 1977-78 and 1978-79 by the assessee arise out of the combined order of the Commissioner under Section 25(2) of the Wealth-tax Act, 1957 ('the Act') setting aside the assessments made for these two years and directing the WTO to redo the same after 'duly revaluing the building at No. 15, Kalasipalayam, Bangalore, after giving due opportunity to the assessee'. The facts in this regard are briefly as follows.

2. The wealth-tax assessments for both these years were completed on 30-1-1981 computing the net wealth at Rs. 4,02,070 for 1977-78 and Rs. 4,42,996 for 1978-79. One of the assets included in the net wealth in both these years was an immovable property at No. 15, Kalasipalayam, Bangalore. The assessee had declared the value of this property at Rs. 5,16,500 and Rs. 5,05,032, respectively, for these two years on the basis of the report of a registered valuer, who had estimated its market value in December 1976 at Rs. 5,28,000 by averaging the products of the land and building and rent capitalisation methods. The WTO, while accepting the value of the super structure as declared by the assessee on the basis of the registered valuer's report, however, enhanced the value of the land on which the property is situated by Rs. 21,888. He, thus, determined the value of the building at Rs. 5,38,388 for 1977-78 and Rs. 5,54,388 for 1978-79. The assessee did not object to the enhancement effected by the WTO in the value of the site.

3. It would appear that the very same property was sold by the assessee in October 1979 for Rs. 9 lakhs. On a reference made to the departmental Valuation Officer under Section 16A(5) of the Act, the market value of the property as on 31-3-1979 was estimated by him at Rs. 10,29,000. With reference to these data the Commissioner came to the conclusion that there was undervaluation of this property in the assessments made for these two years. He, therefore, considered the assessments made by the WTO for these two years as erroneous insofar as they were prejudicial to the interests of the revenue within the meaning of Sub-section (2) of Section 25 and issued a notice to the assessee on 21-12-1982 to show cause why the assessments should not be set aside with a view to enabling the WTO to adopt the market value in respect of the property in question while redoing the assessments in this behalf.

4. During the course of these proceedings, it was submitted before the Commissioner that the construction of the building extended over the period 1968 to 1977 involving a total cost of Rs. 4,48,359 as at 31-3-1977 inclusive of the cost of site, fittings, furnitures, etc. It was submitted that as against the actual cost as mentioned above, the registered valuer had estimated the value of the building as on 31-3-1977 at Rs. 5,25,000. A reference was also made to the value of gold per gram that prevailed on the relevant valuation dates as a guideline in this regard and it was argued that the steep rise in the value of real estate took place only during the period 1978-79. As regards the market value of Rs. 10,29,000 adopted in the wealth-tax assessment for 1979-80 on the basis of the order of the departmental Valuation Officer under Section 16A(5), it was submitted that the same had subsequently been reduced by the AAC in appeal to Rs. 8,82,000.

With reference to these factors and submissions, it was contended that the value estimated in respect of this property by the WTO on the basis of the registered valuer's certificate for the assessment years 1977-78 and 1978-79 was quite fair and reasonable and, therefore, the same did not require upward revision as considered by the Commissioner.

5. The Commissioner did not accept the above submissions. According to him, the property was partly let out and partly used for the assessee's own business as on 31-3-1977 and it was fully let out as on 31-3-1978.

He was of the opinion that the value of the property on the basis of the rent capitalisation method as on the relevant valuation dates would be much higher than the value adopted by the WTO. He did not consider that the trend set by fluctuations in gold value could be accepted as a correct guide for determining the value of real estate. He, therefore, came to the conclusion that the market value of the building adopted by the WTO in the above assessments was very low and, accordingly, set aside the same and directed the WTO to redo the assessments after duly revaluing the said building after taking the above factors into account. The assessee is in appeal before us against the orders of the Commissioner.

6. On behalf of the appellant the following submissions were made by the learned representative, Shri H.N. Khincha. Primarily the Commissioner was wrong in assuming jurisdiction under Section 25 and setting aside the assessments. Section 25(2) of the 1957 Act corresponding to Section 263 of the Income-tax Act, 1961 ('the 1961 Act') confers on the Commissioner the power of revision if he considers that an order passed by the WTO is erroneous insofar as it is prejudicial to the interests of the revenue. According to the representative, the section requires that two conditions should be satisfied in order to entitle the Commissioner to set aside an order passed by the WTO. Such conditions are: (1) that the order proposed to be revised is erroneous and (2) that such order has resulted in prejudice to the interests of the revenue. The satisfaction of these two conditions is essential for setting aside the order proposed to be revised. With reference to the above requirements of the section, the learned representative submitted that the primary requirement for assuming jurisdiction under Section 25(2), namely, that the order passed by the WTO should be erroneous is absent in this case, inasmuch as the WTO had accepted the value returned in respect of this property based on the registered valuer's certificate, who in turn arrived at the value on the basis of one of the well known methods of valuation, namely, averaging the values arrived at with reference to the land and building method and rent capitalisation method. In this connection, he drew our attention to the judgment of the Karnataka High Court in Smt.

S. Neelaveni v. CWT [1980] 125 ITR 665, wherein it was held by the Hon'ble Karnataka High Court that it is usual to value the properties by more than one method so as to cross-check and adopt an average. He, therefore, submitted that the method of averaging the values arrived at on the basis of the land and building and rent capitalisation methods is one of the conventionally accepted methods for arriving at the market value of a property when there is great disparity between the value arrived at by different methods and the Court had also given its seal of approval for such a method. He, therefore, contended that the registered valuer estimated the value of the property at Rs. 5,25,000 by averaging the values arrived at on the basis of land and building and rent capitalisation methods and since the WTO had only accepted the same, it cannot be said that the WTO had committed an error in doing so, particularly when such a method of valuation had also the approval of the Karnataka High Court in the above-mentioned decision. He, therefore, submitted that there was no error apparent in the action of the WTO in this behalf so as to entitle the Commissioner to assume jurisdiction under Section 25(2). He also submitted that the facts that the very same property was sold in October 1979 for Rs. 9 lakhs and the departmental valuer had valued the property as at 31-3-1979 at Rs. 10,29,000 on the basis of a reference made to him under Section 16A(5) are totally extraneous to the issue, inasmuch as these events took place subsequent to the valuation date and, therefore, they cannot form part of the record of the proceedings of the WTO at the time he passed the orders and by the same token they cannot be taken into consideration by the Commissioner for the purpose of invoking his jurisdiction under Section 25(2). In this connection, he relied on the decision of the Calcutta High Court in Ganga Properties v. ITO [1979] 118 ITR 447.

7. On behalf of the revenue the following submissions were made by the learned departmental representative, Shri M. Mani. The assessments were completed on 30-1-1981. The property in question was sold for Rs. 9 lakhs in October 1979. Normally speaking, this information should have been available to the WTO and in any case, the same would form part of the record of proceedings. Since the very same property had been sold for Rs. 9 lakhs within a short time of the valuation dates for a much higher figure than adopted by the WTO in the wealth-tax assessments, the Commissioner had a prima facie case to reopen the proceedings under Section 25 and direct the WTO to redo the assessments in the light of these facts as also the fact that the departmental Valuation Officer had valued the very same property as on 31-3-1979 at Rs. 10,29,000 on the basis of a reference made to him under Section 16A(5). He also submitted that the Commissioner had not suggested any definite figure of valuation in this behalf and since he had only set aside the assessments to consider the matter of valuation afresh in the light of these factors, there was no violence done to the requirements of Section 25.

8. In reply, the representative of the assessee submitted that the sale of the property in October 1979 did not form part of the record of proceedings and in any event, there was a difference of one and a half years between this date and the last of the valuation dates. He also brought to our notice that as regards the valuation adopted for the assessment year 1979-80 on the basis of the departmental valuer's report, the same had been reduced on appeal to Rs. 8,82,000. In any case, he submitted that there was a spurt in the value of properties after 31-3-1978 and, therefore, the same cannot be adopted as a measure for determining the value of the property as on the respective valuation dates under consideration.

9. We have carefully considered the submissions made in this behalf on either side as also given our considered thought to the various decisions cited in this behalf. We agree with the submission made on behalf of the appellant that the primary requirements for the assumption of jurisdiction by the Commissioner under Section 25(2) are absent in this case. As mentioned on behalf of the appellant, the value of the property was declared on the basis of the registered valuer's report, according to which, the value was determined by averaging the values of the property with reference to land and building and rent capitalisation methods. This method has been accepted as one of the well recognised methods of valuation in vogue and the same also had the approval of the Karnataka High Court in the case of Smt. S. Neelaveni (supra). In fact, the following passage appearing in this decision is quite revealing in this context: ...There are several methods adopted in determining the market value of a particular property at a particular time. The best evidence in regard to the market value would be the value of the property itself if it has been subject of purchase near about the valuation date.

The next best evidence would be the value fetched for a similar property in the vicinity at about the same time. In the absence of such evidence resort is made to determine the value by capitalising the rent which the property would fetch if let out or is fetching if already let out. Resort is also made to an estimate by an expert on the basis of value of the land and building. It is usual to value the properties by more than one method so as to cross check and adopt an average. This is resorted to when there is great disparity between the valuation arrived at by different methods.(p. 668) The value ascertained by averaging the products of these methods has in turn been accepted by the WTO while completing the assessments. It cannot, therefore, be said that the WTO committed an error in accepting the value returned by the assessee in this behalf. Events which have happened subsequently cannot also render the assessments made as erroneous, inasmuch as the WTO could not have anticipated the sale of the property, or for that matter the valuation placed upon the same by the approved valuer. In any case, the materials relating to the sale of the property as also the valuation report of the approved valuer came into existence after the respective valuation dates and, therefore, they cannot form part of the record of the proceedings of the WTO at the time he passed the order. In this connection the following excerpts in the headnote of the decision in Ganga Properties' case (supra) are quite relevant: Therefore, the materials which were not in existence at the time the assessment was made and came into existence afterwards cannot form part of the record of the proceedings of the ITO at the time he passed the order and cannot be taken into consideration by the Commissioner for the purpose of invoking his jurisdiction under Section 263(1), for he is not acting as an appellate authority but exercises only a revisional jurisdiction. (p. 448) The provisions of Section 25(2) of the 1957 Act are in pari materia with Section 263 of the 1961 Act and, therefore, the observations of the High Court relating to Section 263 are equally applicable to this section. In any case, the sale of the property for Rs. 9 lakhs has absolutely no relevance as it took place in October 1979, nearly one and a half years after the last of the valuation dates and the same cannot furnish a good measure for determining the market value of the property as on the relevant valuation dates under consideration. What has to be decided while considering the propriety or correctness of a proceeding under Section 25(2) is whether the Commissioner had rightly assumed jurisdiction under that provision with reference to the facts and circumstances existing as on the date of the assessment. Considered in the light of the above-mentioned decisions and the facts and circumstances obtaining in this case, we are of the opinion that the WTO's action in accepting the registered valuer's report while completing the wealth-tax assessments cannot be considered to be erroneous. We are, therefore, unable to sustain the order of the Commissioner under Section 25(2). Accordingly, we cancel the same.


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