The Judgment of the Court was delivered by
N.N Mathur, J.:— This application under Section 256(2) of the Income Tax Act, hereinafter referred-to as ‘the Act’, has been filed at the instance of the Revenue seeking mandamus to the Tribunal for drawing up statement of case and refer the following question of law:
“Whether on the facts and in the circumstances of the case, the ITAT is justified in not upholding the cost of construction as estimated by the D.V.O at Rs. 19,89,000/- which was based on the scientific CPWD rates as against the PWD rates of the State based on order X-3 which is meant for determining the rent of the building?”
2. The respondent-assessee constructed a hotel building during the period between 1.10.81 to 15.10.84 As per his say, he maintained regular books of account for construction of the hotel building. The expenses of the construction were completely vouched except the expenses to the extent of Rs. 71,000/-. They were not supported by vouchers because the nature of the expenses was such that the maintenance of the vouchers was not practicable. The respondent-assessee filed an yearwise break up of the day to day expenses incurred as per details below:
S/o.
Assessment Year
Amount
1.
1980–1981
225.00
2.
1981–1982
12,562.71
3.
1982–1983
39,967.50
4.
1983–1984
2,13,480.52
5.
1984–1985
5,90,956.50
6.
1985–1986
7,75,276.80
TOTAL:
1632469.03
3. This expenditure included Rs. 2,36,425/- towards cost of furniture, room cooler, air coolers, water coolers, deep freezer and super-phone. The assessee showed cost of construction of the hotel at Rs. 13,58,193/- as per the books of account regularly maintained. On receipt of the return, the Assessing Officer under Section 55A with a view to ascertain fair market value of the capital, referred the valuation of the building to the District Valuation Officer, who estimated the cost of the hotel building at Rs. 19,89,000/- on the basis of the CPWD rates with certain additions and alterations. On receipt of the notice by the Assessing Officer as to why the cost of construction of the hotel building be not taken as estimated by the District Valuation Officer. The respondent filed a report of the registered valuer, who estimated the cost of the building at Rs. 15,61,608/- worked out on the basis of X-3 circular issued by the Public Works Department of the State Govt. In the course of the assessment proceedings, the respondent also filed another report of the registered valuer, who estimated the cost of building at Rs. 16,80,906/- on the basis of working the cost on itemwise basis at the rates worked out by the State PWD from time to time for the purpose of tenders for construction of building in the State. The Assessing Officer estimated the cost of the building at Rs. 19,89,000/- as estimated by the Department Valuation Officer based on the CPWD rates. Thus, the Assessing Officer made an addition of Rs. 6,30,807/- as unexplained investment in the hotel. The assessee preferred an appeal against the said addition before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) accepted the cost as worked by the Registered Valuer on the itemwise basis at the rate of each item issued by the State PWD. In the opinion of the C.I.T, as the construction account maintained is subject to full verification both with regard to the material and labour used and the construction made, the Assessing Officer was justified in rejecting the cost of construction shown as per the books of account. On scrutiny of the record, the C.I.T also found that the reference was made to the Valuation Officer both under Sec. 16A of the Wealth Tax Act and Section 55A of the Income tax Act. In the opinion of the CIT, since the Assessing Officer was to see the adequacy of the investment made in the construction of the hotel building, the reference made both under Sec. 16A of the Wealth Tax Act and Sec. 55A of the Income Tax Act was unauthorised. The C.I.T also held that the report given by the Department Valuation Officer being technical in nature, can serve as a guide for determining the actual cost of construction. On appreciation of material on record, the CIT arrived at the conclusion that in the facts of the case, the Valuation report prepared by the Registered Valuer showing the cost of the hotel building at Rs. 16,80,906/- is more authentic. The respondent-assessee filed second appeal before the Income Tax Appellate Tribunal, Jaipur Bench, against the order of the C.I.T (Appeals) challenging the estimated cost of Rs. 16,80,906/- on valuation report on itemwise basis as against Rs. 13,92,043/- declared by the assessee in its books. The department also filed an appeal against allowing the relief in addition on account of lower estimated cost of building. The assessee also filed a cross objection. The Tribunal held that if the books of account do not show any serious infirmity, they should be accepted. However, in the instant case, since the assessee had procured the report of the Registered Valuer, the Tribunal directed that the same may be adopted. The Tribunal also observed that the Registered Valuer had rightly adopted the rates of Rajasthan P.W.D The department filed an application under Sec. 256(1) of the Income Tax Act to the Tribunal requesting that the question of law arises out of the order of the Tribunal dated 29.11.1994 and the same may be referred to this court. The Tribunal by order dated 20.03.1996 rejected the application on the ground that no question of law arises out of the order of the Tribunal.
4. It is contended by Mr. Sandeep Bhandawat, learned counsel for the Revenue, that the Tribunal has committed an error in not considering that it had already referred a similar question of law under Sec. 256(1) of the Income Tax Act before this court in the case of Commissioner of Income Tax v. D.B Income Tax (1). Learned counsel has placed before us a copy of the order in D.B Income Tax Reference No. 32/96, wherein this court by order dt. 24.4.98, in view of the question of law referred by the Tribunal in Income Tax Reference No. 115/95, directed to make a reference to the same question of law, which is as under:
“Whether on the facts and in the circumstances of the case, the ITAT was legally justified in not accepting the valuation made by the D.V.O as per C.P.W.D rates, prescribed in Board's instruction No. 1671 and adjusted with the cost index applicable for Jodhpur City?”
5. Mr. Suresh Ojha, learned counsel appearing for the respondent assessee, submits that no fact has been brought before this court as to how the desired question of law arises out of the order of the Tribunal and how the Tribunal has erred in not making a reference. It is also submitted that in the D.B Income Tax Reference No. 115/95 (supra), the cost was based on the basis of PWD rates of the State but in the instant case, valuation of the cost of the building is not solely based X-3 circular of the Rajasthan Govt. but the cost of the building has been estimated on the basis of the cost of each item of construction and otherwise referred and used in construction. It is also submitted that the Tribunal, on principle, held that if the books do not show any serious infirmity, they should be accepted. In the instant case, the Tribunal did not interfere with the order of the C.I.T (Appeals) as the assessee himself had procured the valuation of the Registered Valuer based on the rates of the Rajasthan P.W.D It is also submitted that the finding of the Tribunal is based on appreciation of material on record and, as such, no question of law arises from the order of Tribunal.
6. We have considered the rival contentions. At the first instance, we are in agreement with the view of the C.I.T (Appeals) that in the facts of the case, the Assessing Officer was in error in making reference to the Assessing Officer to the Valuation Officer under Sec. 55A of the Act to ascertain the fair market value of the hotel building. Section 55A of the Act reads as follows:
“Reference to Valuation Officer.
55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer.
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value;
(b) in any other case, if the Assessing Officer is of—
(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or
that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do,
and where any such reference is made, the provisions of sub-Sections (2), (3), (4), (5) and (6) of Section 16A, clauses (ha) and (i) of sub-Section (1) and sub-Sections (3A) and (4) of Section 23, sub-Section (5) of Section 24, Section 34AA, Section 35 and Section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-Section (1) of Section 16A of that Act.”
7. A plain reading of the provision shows that an Assessing Officer with a view to ascertain the fair market value of a capital asset, has a discretion to refer to the Valuation Officer only in the eventualities provided in the said provision. One of the eventualities is where the value of the asset as claimed by the assessee is in accordance with the assessment made by the registered valuer and in the opinion of the Assessing Officer, the value so claimed is less than its fair market value. Thus, in a case where value of the asset is claimed by the assessee on the basis of regular books of account maintained for the purpose of construction of the asset and not on the basis of the valuation of the registered valuer, it will not be open for the Assessing Officer to make a reference to the District Valuation Officer unless the Assessing Officer forms an opinion that having regard to the nature of the asset and other relevant circumstances, it is necessary to do so. Thus, the powers under Sec. 55A cannot be exercised in a routine manner. For invoking sub-clause (ii) of clause (b) of Sec. 55A, the Assessing Officer is required to form an opinion on the basis of material on record that reference to the District Valuation Officer for ascertaining the fair market value of the asset is necessary having regard to the nature of the asset and other relevant circumstances. It is also necessary to record as to why it is necessary to adopt such a course.
8. If the account of the expenses of the construction of the asset are maintained regularly in the books of account and an assessee also produces the vouchers, there should be no reason not to accept the same for assessing the value of the assets. It is unfair and against the public policy to proceed on the assumption that the assessee is dishonest and he must have submitted an incorrect account of expenses. In case, the assessee has not maintained the regular books of account of construction of asset and he relies upon the reports of the registered valuer, it will be open for the Assessing Officer under the provisions of Sec. 55A of the Act to refer to the District Valuation Officer for valuation of the asset. In that event also, there cannot be a straight jacket formula that it is only the report of the District Valuation Officer based on the CPWD rates, which should be accepted or it is only the report of the registered valuer based on the rates provided by the public works department of the State, which should be preferred. The cost of construction varies from place to place depending upon the local conditions. The Assessing Officer is required to assess the value of the asset on appreciation of material before him. It may be pointed out that the CPWD rates are based on the Instruction No. 1671. Para 4 of the instructions says that the data collected by valuation Cell is in the nature of broad guidelines and in its applications to individual case, may vary on the facts of a particular case. Thus, it is ultimately for the Assessing Officer to appreciate the material on record and satisfy as to the correct valuation of the asset. A reference to the District Valuation Officer would arise only in a case where the Assessing Officer is not satisfied with the account of construction produced by the assessee or where such account is kept and the assessee relies on the valuation report of the registered valuer. In a case where the Assessing Officer does not agree with the account submitted by the assessee with respect to the cost of construction, there must exist some strong reasons to disagree.
9. In view of the aforesaid, the question, whether the valuation made by the District Valuation Officer as per the CPWD rates prescribed in the Board's Instruction No. 1671 or the valuation made by the registered valuer as per the rates provided by the public works department of the State Government should be acce-pted, does not arise. The Tribunal has arrived-at the conclusion that the cost based on itemwise basis is the proper method to work-out the cost. Thus, the question of law sought to be referred, does not arise from the order of the Tribunal. Thus, in our opinion, the cost of construction that has been arrived-at by the Tribunal in the instant case is wholly based on relevant considerations and appraisal of material on record. In our opinion, no statable question of law arises from the order of the Tribunal.
10. Consequently, this Reference Application fails and is hereby dismissed.