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Income-Tax Officer And Others v. Santosh Kumar Dalmia.
Summary of the Opinion
Factual and Procedural Background
For the assessment year 1973–74 the assessee sold land with a building at 65, G.T. Road, Howrah. The conveyance deed recorded the consideration at Rs. 2,00,000 and the assessee disclosed capital gains of Rs. 13,000; the assessment was completed on that basis. Subsequently, an investigation led the Department to obtain a report from a departmental valuer (dated April 29, 1977) estimating the market value of the property on the date of sale at Rs. 5,92,000. Based on that valuation the Income-tax Officer recorded reasons to believe that income of Rs. 3,79,000 had escaped assessment by reason of failure to disclose the correct consideration and initiated proceedings under section 147(a) and issued a notice under section 148.
The court of first instance, by judgment and order dated March 11, 1993, quashed the notice under section 148 and any consequent reassessment, concluding there was no prima facie evidence that the assessee had received a higher price than disclosed. The Revenue appealed. The record also shows (as argued by the Revenue) that a reassessment order was passed by the Assessing Officer on March 20, 1982, and that the notice under section 148 was dated May 9, 1987 (as stated in the opinion).
Legal Issues Presented
- Whether the reasons recorded by the Assessing Officer furnished a rational nexus or prima facie material to believe that any income chargeable to tax for the assessment year had escaped assessment by omission or failure of the assessee to disclose fully and truly all relevant facts (i.e., whether reopening under section 147/148 was justified).
- Whether a departmental valuer's estimate of market value can, by itself, constitute sufficient material to form a belief that the assessee in fact received a higher consideration than recorded in the instrument of transfer.
- Whether the existence of an assessment/reassessment order made pursuant to the notice deprives the writ court of jurisdiction to entertain a challenge to the validity of the notice under section 148.
Arguments of the Parties
Revenue's Arguments
- The reopening was effected by notice dated May 9, 1987 under section 148, and an order of reassessment was passed by the Assessing Officer on March 20, 1982; accordingly, the assessee had remedies available under the Act and the jurisdictional issue was decided by the Assessing Officer — therefore the proper remedy lies before the appellate authorities under the Act rather than by writ.
- The Income-tax Officer had recorded reasons (based on the valuer's report) to believe that the market value exceeded the declared consideration, justifying reassessment.
Assessee's Arguments
- The notice under section 148 and any consequent reassessment were invalid because there was no prima facie material to show that the assessee had received a higher consideration than recorded in the sale deed; the reassessment was challenged in a writ petition.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| K.P Varghese v. ITO, [1981] 131 ITR 597 | That section 52(2) cannot be applied unless the Department can show in fact that the assessee received a higher consideration than recorded in the instrument of transfer. | The court relied on this authority to hold that the departmental valuer's estimate alone did not establish that the assessee actually received a higher consideration and therefore could not justify reopening the assessment. |
Court's Reasoning and Analysis
The court first rejected the Revenue's contention that the existence of an assessment/reassessment order ousted the writ court's jurisdiction. The court held that an Income-tax Officer cannot assume jurisdiction by wrongly deciding jurisdictional facts; if the notice under section 148 (the condition precedent for reassessment) is invalid, the reassessment cannot stand and the writ court may interfere regardless of whether a reassessment order was passed.
The court then examined whether the reasons recorded by the Assessing Officer provided a rational nexus for belief that income had escaped assessment due to non-disclosure by the assessee. The Assessing Officer's sole material for such belief was the departmental valuer's estimate of market value. The court analyzed the evidentiary value of a valuer's estimate and concluded:
- Valuation is a matter of opinion; it varies between valuers and properties and depends on facts and circumstances.
- A valuer's report is effectively a statistical hypothesis and leaves wide room for error on either side; it is not a factual finding that the assessee actually received a higher consideration than recorded in the instrument.
- Section 52(2) can be invoked only where it is shown that the consideration was understated or that the full value of consideration was actually larger than shown, and the burden of proving understatement or concealment lies on the Revenue.
- Applying the principle from K.P. Varghese (supra), unless the Department shows in fact that the assessee received higher consideration than recorded, section 52(2) does not apply.
Because there was no material other than the valuer's estimate to indicate actual suppression or concealment of consideration, the Assessing Officer lacked the necessary prima facie material to form a belief justifying reopening under section 147/148. The learned judge below reached the same conclusion and was correct to quash the notice; consequently any assessment made pursuant to that notice could not stand.
Holding and Implications
Holding: The appeal by the Revenue is dismissed and the High Court upheld the court of first instance. In particular, the court ordered that the notice under section 148 of the Income-tax Act and the assessment order made pursuant to that notice shall stand set aside and quashed.
Implications: The direct consequence is that the reassessment initiated by the impugned section 148 notice is invalidated and cannot be relied upon against the assessee. The opinion emphasizes that a departmental valuer's estimate, without additional material showing actual receipt of a higher consideration, is insufficient to justify reopening an assessment under section 147/148. The court made no order as to costs. The opinion does not purport to lay down a broader new precedent beyond applying established principles (notably K.P. Varghese) to the facts of this case.
Bench: Ajit Kumar Sengupta, J. (authoring judgment); Nure Alam Choudhury, J. agreed.
Ajit Kumar Sengupta, J.:— This appeal by the Revenue is directed against the judgment and order dated March 11, 1993, passed by the court of first instance quashing the notice under section 148 of the Income-tax Act, 1961, and consequent reassessment, if any, for the assessment year 1973–74. The learned judge, after considering the recorded reasons, came to the conclusion that there was no prima facie evidence at all to show that the assessee has received a higher price than disclosed.
2. The reasons which have been recorded by the Income-tax Officer are as follows:
“During the assessment year 1973–74, the assessee has sold its land with building at 65, G.T Road, Howrah, for a consideration of Rs. 2,00,000 as per conveyance deed and disclosed income under the head ‘Capital gains’ at Rs. 13,000 and the assessment was completed accordingly. But subsequently, it was found on investigation that the market price of the said property was much more than the price shown in the sale deed. Hence, the case was referred to the Departmental valuer for ascertaining the correct and proper valuation of the property. The valuer, in his report dated April 29, 1977, estimated the market value of the property at Rs. 5,92,000 on the date of sale.
I have, therefore, reasons to believe that for failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment, the income of Rs. 3,79,000 under the head ‘Capital gains’ has escaped assessment. Hence proceedings under section 147(a) are initiated.
Issue notice under section 148 and make a note in the Register.”
3. Mr. Moitra, the learned advocate appearing for the Revenue, has submitted that after the reopening was made by the notice dated May 9, 1987, under section 148 of the said Act, the order of reassessment was also passed by the Assessing Officer on March 20, 1982, and, accordingly, the assessee could avail himself of the remedy provided under the said Act.
4. He has drawn our attention to the assessment order where the Income-tax Officer rejected the assessee's contentions regarding the reopening of the assessment under section 147 of the said Act. According to Mr. Moitra, since the question of jurisdiction has been rightly or wrongly decided by the Income-tax Officer, the remedy lies before the appellate authority under the Act.
5. We are unable to accept this contention. It is immaterial whether the Income-tax Officer has rejected the contentions of the assessee on the existence of the jurisdictional facts. He cannot assume jurisdiction by deciding jurisdictional facts wrongly. If the Income-tax Officer did not have any jurisdiction to issue the impugned notice, the writ court can always interfere irrespective of the fact whether the assessment pursuant to such notice has been made or not. If the notice issued under section 148 of the said Act, which is the condition precedent for making reassessment is quashed, then the reassessment cannot stand and that is why the learned judge after quashing the notice under section 148 of the said Act also directed that if any assessment order has been passed pursuant to the said notice, the same would also be set aside and quashed. That apart, the assessee also challenged the said order of reassessment in the writ petition. If the notice goes, so also does the order of reassessment.
6. The only question is whether the reasons recorded by the Assessing Officer furnish a rational nexus for the belief that any part of the income chargeable to tax for the assessment year in question escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all relevant facts necessary for the said assessment. As indicated earlier, the basis on which the Income-tax Officer proceeded is the valuation report of the valuer who estimated the market value on the date of the sale. The estimate of the valuer cannot be taken as a fact for holding the belief that the assessee in fact obtained higher consideration than declared in the instrument of transfer.
7. Section 52(2) of the Income-tax Act can be invoked only where the consideration for the transfer of the capital asset has been understated by the assessee or the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee and the burden of proving understatement or concealment is on the Revenue.
8. In K.P Varghese v. ITO, [1981] 131 ITR 597, the Supreme Court has observed that unless it can be shown by the Department that in fact the assessee has received higher consideration than recorded in the instrument of transfer, section 52(2) cannot be applied.
9. In any event, the question of valuation is a matter of opinion and valuation differs from valuer to valuer, property to property, depending on the facts and circumstances of each case. The valuer's report is after all a statistical hypothesis that leaves wide room for error on either side. It is no useful material for rational belief as to suppression of rear consideration that passed in a transaction. In this case, apart from the valuation report which was relied upon by the Income-tax Officer, there was no material before him to come to the prima facie conclusion that the assessee has received a higher consideration than what has been stated in the deed. The valuer's report could be at best a reason to believe that the consideration shown falls short of the market value. The question is not what the market value is, the question is whether the assessee has concealed any part of the consideration and whether the assessee has received a higher price than recorded in the instrument of transfer. Unless that fact is established and there is some material for a tentative conclusion that there was such suppression and the assessee did not disclose the full consideration, the assessment cannot be reopened. In our view, the learned judge, on the facts of this case, came to a correct conclusion. In that view of the matter, this appeal fails and is dismissed. The notice under section 148 of the Act and the assessment order made pursuant to the said notice shall stand set aside and quashed.
10. There will be no order as to costs.
Nure Alam Choudhury, J.:— I agree.
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