HIGH COURT OF UTTARAKHAND AT NAINITAL INCOME TAX APPEAL NO. 125 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. INCOME TAX APPEAL NO. 153 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. INCOME TAX APPEAL NO. 126 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. 2 INCOME TAX APPEAL NO. 127 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. INCOME TAX APPEAL NO. 131 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. INCOME TAX APPEAL NO. 156 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. 3 INCOME TAX APPEAL NO. 158 OF 2007 Commissioner, Income Tax, Dehradun & another ………………….Appellants. Versus Shri Bhawani Shankar Vyas …………….Respondent. Mr. Arvind Vashisth, Advocate for the appellants. Mr. M.C. Agrawal, Advocate with Mr. S.K. Posti, Advocate for the respondent. 18th November, 2008 Coram - Hon’ble Prafulla .C. Pant, J. Hon’ble Sudhanshu Dhulia, J. [Per - Hon’ble Sudhanshu Dhulia, J. (Oral) In all these appeals filed under Section 260A of the Income Tax Act, 1961, the facts and issues are the same although the appeals themselves pertain to different assessment year. For this reason, all these appeals are being disposed of by this common judgment and order since the substantial questions of law involved in all these appeals are common. The leading appeal in the present bunch of appeal is bearing no. ITA 125 of 2007 which is directed against the judgment and order dated 23.2.2007 passed by the Income Tax Appellate Tribunal (hereinafter referred to as ITAT) whereby the said Authority has allowed the appeal of the assessee and has set aside the order of the 4 Assessment Officer as well as that of the learned Commissioner, Income Tax (Appeal) (hereinafter referred to as CIT (A). Heard the counsel for the parties and perused the record. Brief facts of the case are as follows: For the assessment year 1998-1999 the assessee Shri Bhawani Shankar Vyas, Proprietor of M/s Shiva Sanitary Store had filed its return declaring an income of Rs. 90,350/-. The case was processed under Section 143 (1) on 14.5.1999. The case was then fixed for scrutiny and notices issued by the concerned Income Tax Officer on 27.8.1999 which was served upon the assessee on 31.8.1999. The assessee is proprietor of M/s Shiva Sanitary Store and has disclosed income from purchase and sale of sanitary items. For the said assessment year the assessee had filed two balance sheets, (A) for M/s Shiva Sanitary Store and (B) for M/s Hotel Gangore. Notice under Section 142 (1) was issued by Income Tax Officer on 26.7.2000 which was served upon the assessee on the same date. In this notice information was sought from assessee on various aspects of his income. Subsequently, a notice under Section 143 (3) dated 31.10.2000 was served on the assessee and he was required to furnish detalils along with evidence in respect of electric equipment of Rs. 2,49,057/-, furniture and fixture of Rs. 3,30,876/-, fire saver at Rs. 6,875/- and telephone equipment of Rs. 52,100/- as shown in the Balance Sheet of M/s Hotel Gangore as on 31.3.1998. 5 The assessee was also requested to give the complete detail of building construction shown at Rs. 14,00,805.77/- in the balance sheet as on 31.3.1998. Thereafter, the Income Tax Officer referred the matter to the Valuation Cell. The Valuation Officer in his valuation report as against the valuation declared by the assessee for the entire period as Rs. 21,36,643.77, had given the value of Rs. 56,55,000/-. Opportunity was given to the assessee to substantiate the difference between the assessee’s valuation and valuation of the valuation officer. In reply, the assessee through his valuer (Govt. approved valuer) M/s BLT Associates submitted letter dated 11.12.2000 wherein he objected to various aspects of valuation report submitted by the Valuation Officer. The valuer submitted his para-wise comment on assessee’s objection vide his letter dated 25.1.2001. Again a copy of this letter was forwarded to assessee vide letter dated 29.2.2001. The main objection of the assessee was that while working out the cost of the said property, rates of UPPWD (short for Uttar Pradesh Public Works Deptt.) should be applied whereas the Valuation Officer has adopted the rates of CPWD. Besides citing certain order passed by learned CIT (A) and ITAT, the assessee placed reliance on the decision of the Allahabad High Court in the Case of CIT v. Raj Kumar -182 -ITR- 336, in which it was held that the estimated cost of construction should be taken at UPPWD rates and not at CPWD rates. Opportunity for cross-examining the Valuation Officer in respect of his report was also given to 6 the assessee. After examining the factual matrix in great detail and largely relying upon the report of the Valuation Officer, the Assessment Officer has come to the conclusion that the assessment has to be made on an income of Rs. 24,97,710/- (for the assessment year 1998-99). Consequently notices under Sections 271 (1) (c) and 271 E of the Income Tax Act were issued to the assessee. The said assessment order was passed by the Income Tax Officer on 28.3.2001, as against Rs. 90,350/- as disclosed by the assessee. Aggrieved by the assessment order the assessee filed an appeal before the CIT (A). The CIT (A), however, agreed with the Assessment Officer and rejected all the reports which was submitted by the assessee such as the report of the Minicipal Engineer as well as by the Govt. approved valuers and then after examining the report of the departmental Valuation Officer though agreeing largly with the correctness of the report, it recorded that this was somewhat on the higher side considering the facts that it was CPWD rates and not UPPWD rates which were applied. Accordingly, the CIT (A) reduced the valuation by 15 per cent to arrive at the cost of construction as per UPPWD rates. Thereafter he considered the higher rates applied by the Assessing Officer regarding raw materials and a difference of Rs. 1,86,235/- was worked out by him. It allowed a further deduction of 5 per cent on account of availability of raw materials at cheaper rates. Thus, certain relief was granted to the assessee by the CIT (A) to the extent that the CIT (A) worked out an addition of Rs. 9,91,553/-. The assessee, all the same, 7 challenged the addition of Rs. 9,91,553/- by taking specific ground to the following effect: “1. That the learned CIT (Appeals)is not justified and has erred in confirming/maintaining following additions which being erroneous and uncalled for under the facts & circumstances of the case be kindly deleted and the income as returned on the basis of books of accounts be kindly accepted. (A) as unexplained investment in construction of Hotel Gangour building - Rs. 9,91,552 (2) That the learned CIT (Appeals) is not justified and has erred in maintaining an addition of Rs. 9,91,553/- as unexplained investment in construction of hotel building on estimate basis by rejecting the actual cost as per books of accounts and supported by three different reports of cost of construction given by qualified engineers.” The Revenue, on the other hand, also challenged the order of CIT (A) on the ground that the learned CIT (A) has erred in law as well as on facts in deleting the addition of Rs. 7,93,597/- made on account of unexplained investment in construction of property. ITAT in its judgment has allowed the appeal of the assessee and has rejected that of the Revenue. On the question of law, the Tribunal has said that it was wrong on the part of the Assessing Officer to have straight away 8 made a reference to the departmental valuation officer without rejecting the report and the books of accounts submitted by the assessee. In other words, the logic adopted by the Tribunal is that the Income Tax Officer though had powers to make a reference under Section 142A or 131 (1) (d) of the Act, asking for the report of departmental valuer, but the same could only be done after he had formally and categorically rejected the reports and books of accounts submitted by the assessee. In the absence of such categorical rejection the view of the Tribunal is that the calling for the reference itself is bad. Apart from this, the Tribunal has given its finding on the accounts submitted by the assessee. Tribunal has come to the conclusion that in the present case the assessee has filed three valuation reports including a certificate of Engineer, all of which were examined by the Tribunal. On careful perusal of the order of the assessment officer and that of the learned CIT (A), the Tribunal came to finding that the books of accounts, valuation reports, etc. submitted by the assessee were proper and both the Assessment Officer as well as the CIT (A) has committed an error in not relying upon them. The Tribunal, therefore, expressed its inability to concur with the finding of the departmental authorities in estimating the cost of construction as done by them. The substantial questions of law on which the appeals were admitted are as follows: “1. Whether the ITAT was justified in holding that without rejecting the books of 9 account, the A.O. was not justified in making reference to the departmental Valuation Officer, ignoring the retrospective effect of the provisions of Sec. 142A of the I.T. Act? 2. Whether it is mandatory to reject the books of account before making reference U/S 131 (1) (d)?” Since the Tribunal is the last fact finding forum, we refrain from interfering with this finding of fact as recorded by the Tribunal. Findings of the Tribunal on a pure question of facts are not liable to be interfered by the High Court, if it is seen that the Tribunal had examined all the available evidence which were produced before it by the parties. After reading the judgment and order of the Tribunal, we also find that the Tribunal has recorded an independent finding as to the correctness and genuineness of the documents and books of accounts, including the assessment reports submitted by the assessee and has found them to be correct. Having said this, however, we have to give our opinion on the question of law framed by this Court which is primarily whether the assessment officer was right in calling for a reference under Section 142 A of Income Tax Act or under Section 131 (1) (d) of the Income Tax Act without first rejecting the book of accounts submitted by the assessee. On this question of law the assessee has placed before us ruling of Commissioner of Income Tax v. Pratapsingh Amrosingh Rajendra Singh and Deepak 10 Kumar reported in (1993) 200 ITR 788 wherein the Division Bench of Rajasthan high Court has held that in case where proper books of accounts are maintained and there is no dispute that the assessee has maintained proper books of accounts, it is the books of accounts which have to be relied upon and not the valuation report. The valuation report can be taken into consideration only when the books of accounts are not reliable or are not supported by proper vouchers and Income Tax officer is of the opinion that no reliance can be placed on such books of accounts and there must be a finding by the Assessing Officer that the books of accounts maintained by the assessee are defective or are not reliable. We do not see how this judgment could help the assessee being clearly distinguishable on facts, inasmuch as in the present case the Assessing Officer has clearly expressed his views on the correctness and certain aspects of the accounts submitted by the assessee. In the assessment order, it has clearly been stated as follows: “In view of the above deficiencies in the books of A/cs of the assessee exposed by me and in view of assessee’s failure to produce stock register, I conclude that assessee’s books are such as true and correct income of the assessee cannot be deduced by me, however, I restrict myself to rejecting of the books only to the extent of disallowance of expenditure claimed by the assessee in the P/L/A/c.” 11 Moreover, the judgment of Rajasthan High Court predates the amendment brought in the Income Tax Act in the year 2004 whereby Section 142 A was inserted, which we will discuss shortly. Suffice would it be to say that where the Income Tax Officer while making his assessment had doubts on the correctness of the accounts submitted by the assessee, in such a condition, in our considered view, after perusal of the relevant provisions of the Act, we find that the income tax authority was perfectly justified in making a reference to a departmental valuer without formally or categorically rejecting the books of accounts submitted by the assessee. This view is further strengthened by Section 142 A which was inserted in the Act by the Finance Act of 2004 with retrospective effect from 15.11.1972. Section 142 A is being reproduced below: “142A. (1) For the purpose of making an assessment or reassement under the Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, 12 have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:” Under Section 142 A of the Income Tax Act, full powers have been given to the assessee officer to call for a report from valuation officer. Therefore, the view taken by the Tribunal to this extent was not in accordance with law as it has not fully appreciated the ambit and scope of Section 142 A of the Income Tax Act. This is also the view taken by the Lucknow Bench of Allahabad High Court in Commissioner of Income-Tax –I v. Rohtas Projects Ltd. reported in 2006-(154) - Taxman-0088 –All. Therefore, in view of the clear position stated in Section 142 A of the Act, there was absolutely no anomaly in the Assessing Officer calling for a report from the Valuation Officer. It has further been argued before us that the method of accounting as given under Section 145 also gives this power to the Assessing Officer and when he is not satisfied with the correctness or completeness of the accounts of the assessee or when the method of accounting has not been regularly followed by the assessee, the assessing officer may make an assessment in a manner provided in Section 144 of the Income Tax Act. 13 A perusal of Section 144 of the Act makes it clear that the powers have been given to the said assessing officer to determine the sum payable by the assessee after taking into account all relevant material which the assessing officer has gathered and after giving the assessee an opportunity of being heard make an assessment of total income or loss to the best of its judgment and determine the sum payable by the asseessee. Therefore, the perusal of Section 144 read with Section 145 and Section 142 A as well as Section 131 (1) (d) of the Income Tax Act, we are of the considered view that ITAT was not justified in holding that without rejecting the books of accounts the Assessing Officer was not justified in making reference to the departmental Valuation Officer. For the same logic, we also hold that it is not mandatory for the Assessing Officer to reject the books of account first before making reference under Section 131 (1) (d) of the Act or calling for a report of valuer under Section 142 A of the Act. In the light of the discussion made above, we allow the appeal of the Revenue to the extent that the substantial questions of law raised by them in their appeal are answered in their favour. All the same, for the reasons stated above, we do not find any reason for interfering with the finding of fact recorded by the Tribunal, particularly in view of the fact that the Tribunal has independently dealt with the factual matrix. 14 For the foregoing reasons, the appeal is allowed on the questions of law. All the connected appeals are also decided accordingly. No order as to costs. (S. Dhulia, J.) (P.C. Pant, J.) 18th November, 2008 Avneet