1 HVN IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION WEALTH TAX APPEAL NO. 188 OF 2004 WEALTH TAX APPEAL NO. 188 OF 2004 WEALTH TAX APPEAL NO. 188 OF 2004 WITH WITH WITH WEALTH TAX APPEAL NO. 174 OF 2004 WEALTH TAX APPEAL NO. 174 OF 2004 WEALTH TAX APPEAL NO. 174 OF 2004 WITH WITH WITH WEALTH TAX APPEAL NO. 195 OF 2004 WEALTH TAX APPEAL NO. 195 OF 2004 WEALTH TAX APPEAL NO. 195 OF 2004 WITH WITH WITH WEALTH TAX APPEAL NO. 163 OF 2004 WEALTH TAX APPEAL NO. 163 OF 2004 WEALTH TAX APPEAL NO. 163 OF 2004 WITH WITH WITH WEALTH TAX APPEAL NO. 196 OF 2004 WEALTH TAX APPEAL NO. 196 OF 2004 WEALTH TAX APPEAL NO. 196 OF 2004 The Commissioner of Wealth Tax, Bombay City-I, Aayakar Bhavan, M.K.Road, Bombay 400 020. ... Appellant Versus Versus Versus M/s. Sona Properties Pvt. Ltd. Kasturi Building, J.T.Road, Bombay 400 020. ... Respondent Mr. A.S. Rao with Mr. P.S. Sahadevan for the Appellant. Mr. A.K. Jasani with Mr.S.N. Inamdar for the Respondent. CORAM: F.I. CORAM: F.I. CORAM: F.I. REBELLO REBELLO REBELLO & R.S. MOHITE, JJ. R.S. MOHITE, JJ. R.S. MOHITE, JJ. DATED: APRIL 07, 2008 DATED: APRIL 07, 2008 DATED: APRIL 07, 2008 ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): . All these appeals are being disposed of by this common order as the questions of law in issue are the same. The question of law as framed on behalf of Revenue reads as under : "Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in holding that the Assessing Officer 2 was not justified in re-opening the Assessment on the basis of the valuation report of obtain by him subsequent to the date of completion of assessment?" . The learned I.T.A.T. in the appeals preferred by the Revenue against the order of the Commissioners (Appeals) dismissed the same by a common order, being W.T.A. No. 806 to 810/Mum/98 for the assessment year 1988/89 to 1992/93. As there are differences on facts, we will briefly set out the relevant facts in each of the appeals. 2. W.T.A. No. 188 of 2004 is in respect of the assessment year 1988-89. In that case return of Wealth was filed on 29.7.1988. The assessment under Section 16 (1) was made on 27.3.1992. The reference was made to District Valuation Officer (DVO) on 9.11.1993. The valuation report was received on 29.3.1994. The notice under Section 17 for reopening the assessment was issued on 29.3.1996. The Reference to DVO, thus was made after the completion of assessment. . W.T.A. No. 174 of 2004 is for the assessment year 1989-90. The original assessment under Section 16(1) was made on 27.3.1992. The reference to DVO was made on 9.4.1993. The report from the DVO was received on 29.3.1994. Notice under Section 17 was issued on 3 29.3.1996. The reopening was thus sought based on the report of D.V.O. which was called for after the assessment order was passed. 3. W.T.A. No. 195 of 2004 is in respect of the assessment year 1990-91. The original return was filed on 28.12.1990. It was processed under Section 16(1)(a). On 21.5.1991 the appellant filed a revised return declaring net wealth. On 25.3.1993 the appellant filed another revised return. The assessment was completed under section 16(3) on 31.3.1994. The report from the DVO was called on 9.1.1993. The report was received on 19.12.1994. Therefore, the report was called for during the pendency of the proceedings before the Wealth Tax Officer but the report was received after the order under Section 16(3) was made on 31.3.1994. Notice under Section 17 was issued on 29.3.1996. 4. W.T.A. No. 163 of 2004 is for the assessment year 1991-92. The return was filed on 31.12.1991. The report was called for on 9.11.1993. The DVO submitted his report dated 19.12.1994. The original return was accepted under Section 16(1). The date of the order is not available on the record. At any rate the order ought to have been passed not latter than 31.12.1994. In this case also therefore, the report was called for before the order of assessment but was received subsequent to the order of assessment. 4 . W.T.A. No. 196 of 2004 is for the assessment year 1992-93. The return of wealth was filed on 31.12.1992 and the same was processed under Section 16(1) of the Wealth Tax Act. The assessment under Section 16(1) was completed on 8.11.1994. The report from the DVO was called on 9.11.1993. The DVO’s report was received subsequently. Notice under Section 17(1) was thereafter issued. 5. Thus for the assessment years 1990-91, 1991-92 and 1992-93 the report was called from the DVO during the pendency of the proceedings before the W.T.O. The report was received subsequently to the order passed by the Wealth Tax Officer. . In so far as assessment years 1988-89 and 1989-90 the report was called subsequent to the order of assessment by the Wealth Tax Officer. 6. To answer the question therefore, we will have to answer the following issues : (1) Was it open to the assessing Officer to issue notice under Section 17 for reopening of assessment based on the report of the DVO which was called for after the assessment order was passed in so far as assessment years 1988-89 5 and 1989-90? (2) Can the report called from the DVO before the Assessment order was passed but received after the order was passed, constitute material for "reason to believe" based on which notice under Section 17, could have been issued for reopening the assessments already completed?" . Before answering these issues, it would be necessary to refer to the relevant provisions of Section 16A of the Wealth Tax Act. "Section 16A. Reference to Valuation Officer - (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, where under the provisions of section 7 read with the rules made under this Act or, as the case may; be, the rules made in Schedule III, the market value of any assets is to be taken into account in such assessment, the Assessing Officer may refer the valuation of any asset to a Valuation Officer - (a) in a case where the value of the asset as 6 returned is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so returned is less than its fair market value; (b) in any other case, if the Assessing Officer is of opinion - (i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do. .................................. ................................. (6) On receipt of the order under sub section (3) or sub section (5) from the Valuation Officer, the Assessing Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer." 7 Similarly gainful reference may be made to Section 17 which reads as under : "17. Wealth escaping assessment :- (1) If the Assessing Officer has reason to believe that the net wealth chargeable to tax in respect of which any person is assssable under this Act has escaped assessment for any assessment year (whether by reason of under-assessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and section 17A, serve on such person a notice requiring him to furnish within such period, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable,which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year 8 concerned (hereafter in this section referred to as the relevant assessment year), ant he provisions of this Act shall, so far as may be,apply as if the return were a return required to be furnished under section 14. Provided that where an assessment under sub section (3) of section 16 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any net wealth chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 14 or section 15 or in response to a notice issued under sub section (4) of section 16 or this section or to disclose fully and truly all material facts necessary for his assessment for that assessment year; Provided further that the Assessing Officer shall before issuing any notice under this sub section, record his reasons for doing so. Explanation :- Production before the Assessing Officer of account books or other 9 evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. (1A) No notice under sub section (1) shall be issued for the relevant assessment year :- (a) if four years have elapsed from the end of the relevant assessment year unless the case falls under clause (b). (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees ten lakh or more for that year. Explanation :- For the purposes of sub section (1) and sub section (1A), the following shall also be deemed to be cases where net wealth chargeable to tax has escaped assessment, namely :- (a) where no return of net wealth has been furnished by the assessee although his net 10 wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth tax. (b) where a return of net wealth 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 net wealth or has claimed excessive exemption or deduction in the return." 7. A reading therefore, of the provisions of Section 16A would indicate that for the purpose of making assessment it is open to the Wealth Tax Officer to refer for valuation the property to the Valuation Officer. If the Wealth Tax Officer exercises discretion to call for the report from the D.V.O., the D.V.O. after complying with the procedural formalities as contemplated by sub section 4 and 5 of Section 16A will pass an order in writing estimating the value of the asset and send a copy to the A.O. and to the assessee. The Wealth Tax Officer, concerned, has to proceed to complete the assessment in conformity with the estimate of the Valuation Officer. Section 16A(3) sets out that if the Valuation Officer is 11 satisfied that the valuation of the asset as it has been correctly declared in the return, he shall pass order in writing to that effect and send a copy of the order to the Wealth Tax Officer and to the Assessee. Under Section 16A(4), where the Valuation Officer is of the opinion that the Valuation of the asset is higher than the value declared in the return made by the assessee under section 14 or section 15, or where the asset is not disclosed or the value of the asset is not declared in such return or where no such return has been made, the Valuation Officer shall serve a notice on the assessee intimating the value which he proposes to estimate and giving the assessee an opportunity to state, on a date tobe specified in the notice, his objections either in person or in writing before the Valuation Officer and to produce or cause to be produced on that date such evidence as the assessee may rely in support of his objections. It is thus clear on this procedure being satisfied, the order estimating the value is binding on the Wealth Tax Officer. . The other aspect of the matter on a reading of the provisions is that the report can be called for only when there are proceedings pending before the Wealth Tax Officer. There is nothing in the Wealth Tax Act or Rules which provides that the Wealth Tax Officer can call for a report from the DVO after the order of assessment is completed. That jurisdiction is conferred when he is 12 seized of the matter under Section 16 of the Act. . We may also note that in so far as re-assessment is concerned, in cases covered by section 16(3) there is a limitation. There is no limitation in so far as assessments completed under Section 16(1) of the Act. 9. With that background before answering the issues we may gainfully refer to the law as understood by this court and several other High Courts. . In Tulsidas Kilachand Vs. D.R. Chawla and Others, In Tulsidas Kilachand Vs. D.R. Chawla and Others, In Tulsidas Kilachand Vs. D.R. Chawla and Others, 122 ITR 458 the proceedings were sought tobe 122 ITR 458 the proceedings were sought tobe 122 ITR 458 the proceedings were sought tobe reopened by issuing show cause notice under Section 17(1)(b) of the Wealth Tax Act. After the assessment was competed, the Wealth Tax Officer called for the report from the DVO and based on this issued notice under Section 17(1)(b). A learned Judge of this court noted that the jurisdiction to open assessment orders which had become final can be exercised provided the Officer has reason to believe from the information in his possession that the earlier orders escaped the net wealth chargeable to tax and that mere change of opinion of the succeeding officer is not enough and especially when before passing the assessment order the officer could have easily ascertained the correctness of the statements made in the return. The court noted that in that case the only information available with the Respondent No. 1 is a valuation report and the mere fact 13 that the two valuers have given conflicting reports about the true value of the properties is not sufficient to reopen the assessment under Section 17(1)(b) of the Wealth Tax Act and consequently struck down the notice. . In Smt. Bella Cajeton Travasso Vs. Third Wealth Tax In Smt. Bella Cajeton Travasso Vs. Third Wealth Tax In Smt. Bella Cajeton Travasso Vs. Third Wealth Tax Officer and Ors. 1987 ITR 49 the report Officer and Ors. 1987 ITR 49 the report Officer and Ors. 1987 ITR 49 the report of the DVO was called for after the final assessment order was already passed. A learned Judge of this court was pleased to hold that Section 16A permits calling of a valuation report before the assessment is finalised and that it is not permissible to make reference to the Valuation Officer after it is already finalized. The Petition was partly allowed. The Valuation Officer was permitted to proceed to valuate for the assessment years where the orders had not been passed. This judgement was followed by another learned Single Judge in Shantilal Bhogilal Single Judge in Shantilal Bhogilal Single Judge in Shantilal Bhogilal Jhaveri and Ors. Vs. C.L.Bahtia, Fifth WTO and Ors. Jhaveri and Ors. Vs. C.L.Bahtia, Fifth WTO and Ors. Jhaveri and Ors. Vs. C.L.Bahtia, Fifth WTO and Ors. 1991 ITR 395. 1991 ITR 395. 1991 ITR 395. . In Smt. Uma Debi Jhawar Vs. Wealth Tax Officer and In Smt. Uma Debi Jhawar Vs. Wealth Tax Officer and In Smt. Uma Debi Jhawar Vs. Wealth Tax Officer and Ors. 136 ITR 662 the learned Single Ors. 136 ITR 662 the learned Single Ors. 136 ITR 662 the learned Single Judge of the Calcutta High Court again was dealing with the issue whether the report had been called from the DVO after the assessments has been completed. The learned Judge noted the intent and or purpose for which Section 16A was introduced and held that Section 16A had no relevance and cannot be applied after the assessment is completed and 14 before reassessment is commenced and that the report of the Valuation Officer under Section 16A can neither constitute information within the meaning of S. 17(1)(b) nor provide a reason for the belief that income had escaped assessment due to the assessee’s failure to disclose material facts under Section 17(1)(a). . In Commissioner of Wealth Tax Vs. Ravi Cheloor 178 In Commissioner of Wealth Tax Vs. Ravi Cheloor 178 In Commissioner of Wealth Tax Vs. Ravi Cheloor 178 ITR 640, the issue came up for ITR 640, the issue came up for ITR 640, the issue came up for consideration before the learned Division Bench of Kerala High Court. Considering the provisions the learned Division Bench of the Kerala High Court held that the pendency of assessment proceedings are condition precedent for making reference to Valuation Officer and if a reference is made after the assessment is completed, it would be unauthorised and reopening based solely on this information under section 17(1)(b) for reassessment was equally unauthorised and illegal. . In Commissioner of Wealth Tax Vs. Shriniwasa Sharma In Commissioner of Wealth Tax Vs. Shriniwasa Sharma In Commissioner of Wealth Tax Vs. Shriniwasa Sharma 1993 ITR 587 the learned Division Bench of 1993 ITR 587 the learned Division Bench of 1993 ITR 587 the learned Division Bench of Rajasthan High Court held that it is open to the Wealth Tax Officer to form opinion for making reference to the Valuation Officer under Section 16A of the Wealth Tax Act but after the assessment is completed, the Wealth Tax Officer becomes functious officio and that Reference to valuation officer under Section 16A after the assessment is completed is not possible for initiating reassessment 15 proceedings. . In Commissioner of Wealth Tax Vs. Malhar Rao Tatya In Commissioner of Wealth Tax Vs. Malhar Rao Tatya In Commissioner of Wealth Tax Vs. Malhar Rao Tatya Saheb Holkar, 220 ITR 466 the learned Division Saheb Holkar, 220 ITR 466 the learned Division Saheb Holkar, 220 ITR 466 the learned Division Bench of the Madhya Pradesh High Court was considering the cases where the report under Section 16A was called for after the completion of assessment. On the basis of the said report, notice was issued under Section 17. The learned Division Bench held that the proceedings initiated were manifestly vitiated on account of procedural impropriety. . The Full Bench of Kerala High Court was considering considering considering the issue in Commissioner of Wealth Tax Vs. V. Cleetus the issue in Commissioner of Wealth Tax Vs. V. Cleetus the issue in Commissioner of Wealth Tax Vs. V. Cleetus 213 ITR 14. In that case report 213 ITR 14. In that case report 213 ITR 14. In that case report was called for during the pendnecy of the proceedings. But the report was obtained after completion of assessment. Based on the report, notice was issued under Section 17(1)(b) of the Wealth Tax Act for reassessment. The tribunal held that any reference made under Section 16A cannot lead to reopening of the closed assessment under Section 17(1) as the report submitted by the Valuation Officer would be invalid reference and must be treated as invalid and void in the eye of law. On reference the court held that merely because the order of Valuation Officer reached the Wealth Tax Officer after the completion of assessment proceedings, it does not lose the character of information as envisaged under Section 17(1)(b) of the Act. The court also held that in the case where 16 Assessment proceedings were completed, Wealth Tax Officer can not call for the order of the Valuation Officer. A valuation order subsequently received but called when proceedings were pending can be used as piece of information by the Wealth Tax Officer and it certainly enable the WTO to commence reassessment proceedings under Section 17(1)(b). . In Dr. Karni Singhji of Bikaner Vs. Deputy In Dr. Karni Singhji of Bikaner Vs. Deputy In Dr. Karni Singhji of Bikaner Vs. Deputy Commissioner of Income Tax and another, 237 ITR 505, Commissioner of Income Tax and another, 237 ITR 505, Commissioner of Income Tax and another, 237 ITR 505, the Delhi High Court was considering the case where report was called for during the pendency of the proceedings. The report was received after the assessment order was passed, but the report was considered for issuing notice for reassessment under Section 17(1)(b). The learned Division Bench held that the proceedings for reassssment based on said report were valid. . In Brig. B. Lall Vs. Wealth Tax Officer an In Brig. B. Lall Vs. Wealth Tax Officer an In Brig. B. Lall Vs. Wealth Tax Officer and another another another 127 ITR 308 the learned Division Bench o 127 ITR 308 the learned Division Bench o 127 ITR 308 the learned Division Bench of Rajasthan High Court took a view that reference to Valuation Officer cannot be made where assessment is completed and said report cannot be formed basis for reassessment proceedings. 10. From the provisions of the Act and the judgments which have been set out earlier what emerges is : 17 that it is not open to the Valuation Officer to call for the report of the Valuation Officer after the assessment proceedings are completed and use that report to commence proceedings for reassessment. The law in such cases would be that the jurisdiction conferred on the Valuation Tax Officer is limited to calling for the report when the proceeding are pending and not when the Wealth Tax Officer becomes functious officio. . As we have noted earlier, under Section 16A it is only in the event the Wealth Tax Officer is of the opinion that the Valuation report submitted to him by the registered Valuer does not disclose fair market value, can the report of the D.V.O. be called. It is therefore, a discretion to be exercised in the course of exercise of quasi judicial powers of W.T.O. Such exercise cannot be resorted to after the assessment is completed as it would be without jurisdiction. A report called by an authority having no jurisdiction would be a nullity at law and consequently proceedings based solely on such report considering the requirement of section 17 would be illegal and will have to be quashed. The report of the D.V.O. in such circumstances can not constitute "reason to believe" to reopen a concluded assessment. 11. The position in law in so far as report which was called for but not received during the pendency of the 18 proceedings but received subsequent to the proceeding will have to be treated differently. The Wealth Tax Officer has to in some circumstances, complete the proceedings