ORDER
J. Sudhakar Reddy, A.M.
1. All these appeals filed by the assessees are directed against the orders of the CIT(A), dt. 4th May, 1999 (ITA Nos. 573 to 576/Hyd/1999) and 5th Nov., 2002 (ITA Nos. 948 to 951/Hyd/2002) and relate to asst. yr. 1995-96. Though these appeals relate to different assessees, the issues are common. For the sake of convenience, these appeals are heard together and disposed of by this common order.
2. ITA Nos. 573 to 576/Hyd/1999 are filed against the original assessment orders passed by the AO under Section 143(3) and ITA Nos. 948 to 951/Hyd/2002 are filed against reassessment orders passed for the same assessment year. The brief facts of the case are as follows.
3. Late Shri B. Paparaju was one of the co-owners of an immovable property admeasuring 36 grounds and 1,703 sq.ft., along with a building known as “Dinrose Estate” situated at Nos. 73 to 76, Anna Salai, Chennai. This property had been acquired on 24th Feb., 1979, by late Shri B.V. Gopalakrishna, father of Shri B. Papa Raju, for a consideration of Rs. 11,50,000. Shri B.V. Gopalakrishna died on 28th April, 1980. The property got devolved on late Shri B. Paparaju, his brother, Shri B.V. Raju, Smt. Radhamma and Smt. Y. Rajyalakshmi. The share of Shri B.V. Raju was further divided between himself and his two sons, Shri B.V. Krishna Jayant and Shri B.V. Naveen Krishna. The assessees before us were four of the co-owners of the property. The property was held jointly. It was stated that they were trying to dispose of the property and that the Department of Telecommunications published an advertisement for purchase of land in or around Anna Salai on 7th Feb., 1993, and also on 20th Feb., 1994. The co-owners of the property were residents of Hyderabad. They entered into a memorandum of understanding with M/s Sri Ram Vilas Services Ltd. and M/s Amalgamations Ltd., on 22nd May, 1994, for relinquishing the tenancy rights and handing over vacant possession of the property. Accordingly, an amount of Rs. 1,30,000 was paid to M/s Sri Ram Vilas Services Ltd. and Rs. 2,60,000 was paid to M/s Amalgamations Ltd. for relinquishment of tenancy rights. Shri B.V. Gopalakrishna, while purchasing the property from one Shri J.D. Italia, had not paid the entire sale consideration and the balance part of the sale consideration had to be paid by the legal heirs. Shri B.V. Gopalakrishna had also taken a loan from M/s Indian Bank and the loan was outstanding. One of the tenants, M/s Sri Ram Vilas Services Ltd., had advanced an amount of Rs. 50,00,000 to the assessees to enable them to repay the loan and obtain the title deed from the bank. The loan was given at an interest rate of 18 per cent per annum.
4. One company by name Tele Data Informatics Ltd. of Chennai, was approached by the assessees for arranging transaction for purchase of the property by the Department of Telecommunications as M/s Tele Data Informatics Ltd. had been regularly undertaking some work with the Department of Telecommunications and as they enjoyed a reputation and acquaintance with the Department. As a result of the services rendered, the co-owners had entered into an agreement of sale on 26th Oct., 1994, with the Department of Telecommunications. As per the agreement of sale, the vendee had to pay the vendors consideration at the rate of Rs. 22,75,000 per ground of 2,400 sq.ft. In the said agreement, payments that had to be made to the tenants, M/s Sri Ram Vilas Services Ltd. and M/s Amalgamations Ltd., for surrendering their tenancy rights were mentioned. The gross sale consideration amounted to Rs. 8,19,00,000. It was claimed that the co-owners had incurred expenditure on payment of compensation to the tenants (direct payments by the Department of Telecommunications to the tenants as per the agreement), expenditure on demolition, payment of brokerage to the agent and interest to the tenants for the late payment of compensation as well as interest payment to Indian Bank on the loan, and interest payment to Shri J.D. Italia.
5. The market value of the property as on 1st April, 1981, was taken at Rs. 3,85,000 by the assessees on the basis of an instance of sale which was recorded in the guidelines register maintained by the Sub-Registrar, Triplicane, Chennai. On this market value, indexed cost of acquisition was claimed. The assessees admitted capital gain for the asst. yr. 1995-96. The assessees filed returns in August, 1995, for the asst. yr. 1995-96 declaring total income as nil after setting off brought forward losses of earlier years.
6. During the original assessment proceedings, the AO disallowed the claim of commission paid to Tele Data Informatics Ltd. as well as the claim of interest payment to Indian Bank and to Shri J.D. Italia. These three claims, which were rejected by the AO as well as the CIT(A), are the issues in ITA Nos. 573 to 576/Hyd/1999.
7. The AO issued a notice under Section 148 on 12th March, 1999, for reopening of the completed assessments in all these cases and this notice was served on the assessees on 13th March, 1999. Another notice under Section 148 was issued to the assessees on 19th April, 1999, and this was served on the assessees on 22nd April, 1999. In the reassessment proceedings, the AO adopted the market value of the property as on 1st April, 1981, at Rs. 39,063 per ground as declared by the assessees in their WT returns and revised the capital gains. Aggrieved by this reassessment, which was confirmed by the CIT(A), the assessees have filed ITA Nos. 948 to 951/Hyd/2002.
ITA Nos. 573 to 576/Hyd/1999 :
8. The learned counsel for the assessees submitted that the Department of Telecommunications is one of the customers of Tele Data Informatics Ltd. (hereinafter referred to as TDIL), that the said company had an approach with the said Department and that they liaisoned and helped the assessees in procuring the purchaser for the property belonging to them. He submitted that for the services rendered by TDIL, the assessees paid commission of Rs. 25,00,000 to the said company and this was claimed as an expenditure incurred in connection with the transfer of the property and thus deductible from the capital gains.
9. The learned counsel referred to pp. 2 to 5 of the assessment order and submitted that the AO had stated that the IT authorities recorded a statement from Shri K. Padmanabhan, one of the directors of TDIL, on 25th Jan., 1996, and that Shri Padmanabhan expressed his ignorance about the receipt of Rs. 25,00,000. It was also mentioned that no specific services were rendered by the said company to the assessees. The AO, he submitted, also referred to a statement recorded by the Department on 29th Jan., 1996, from Shri N. Shakti Vel, another director of TDIL which is at pp. 140 and 141 of the paper book filed by the assessee and Shri Shakti Vel accepted that he had rendered services to the assessees for the purpose of sale of property belonging to the assessees which is situated on Anna Salai, Chennai. The AO, on the ground that Shri Shakti Vel was not able to explain the exact nature of services rendered by the company, disallowed the claim of the assessees. The learned counsel submitted that the CIT(A) held that the payment was not made for any specific services rendered by the company as one of its directors, Shri K. Padmanabhan, expressed ignorance about the transaction in his statement recorded on 25th Jan., 1996, and on the ground that the other director, Shri Shakti Vel, did not properly explain the services rendered by the company to the assessees. He submitted that during the course of assessment proceedings and the appeal proceedings, copies of depositions obtained by the Department from Shri K. Padmanabhan and Shri N. Shakti Vel, were not furnished to the assessees. He stated that the Bench of the Tribunal had directed the Department to issue copies of these sworn depositions and that the same were furnished and are now made part of the paper book at pp. 137 to 149. On receipt of copies of the sworn depositions, the learned counsel for the assessees filed additional grounds submitting that the statement recorded from Shri K. Padmanabhan was not validly recorded.
10. The learned counsel further submitted that the amount of Rs. 25,00,000 was paid by the co-owners in connection with the sale of the property to the Department of Telecommunications and in this connection, he relied on the statement of Shri Shakti Vel, recorded on 29th Jan., 1996, by the Asstt. Director of Investigation under Section 131, wherein Shri Shakti Vel had clearly stated that he had received Rs. 25,00,000 from Shri B.V. Raju and Smt. B. Subhadra through a cheque drawn in favour of TDIL for the information supplied by him to Shri B. Paparaju about the intention of the Department of Telecommunications to purchase property and also for assisting in various procedures for the sale of the said property. He also brought to the notice of the Bench that Shri Shakti Vel had stated that he had incurred an expenditure of Rs. 3,00,000 in the process. He also referred to the portions of the statement wherein Shri Shakti Vel stated that his company was developing software for Madras Telephones and he met the General Manager (Development) who intimated that they were interested to buy property at Mount Road (Anna Salai) and that such information was passed on to the co-owners.
11. Referring to the reliance of the Department on the statement of Shri K. Padmanabhan recorded on 25th Jan., 1996, the learned counsel submitted that Shri K. Padmanabhan, who had earlier stated that he did not know Shri Paparaju or Shri B.V. Raju or anyone and that he did not deal with the transaction, when confronted by the Department with the receipt for Rs. 25,00,000 issued by the company, admitted that the other director might have transacted with Shri B.V. Raju and others. This statement led the Department to contact Shri Shakti Vel, the other director. He submitted that it can only be said that one of the directors, Shri K. Padmanabhan, did not possess knowledge about the transaction and the other director, Shri Shakti Vel, knew about the transaction. He vehemently contended that the statement of Shri K. Padmanabhan does not give any indication that the transaction itself was not existent.
12. Alternatively, the learned counsel submitted that the statement of Shri K. Padmanabhan, a copy of which was furnished by the Department, shows that it does not contain the signature of the person who recorded the statement. He referred to a letter filed by the learned_ Departmental Representative on 4th Dec, 2003, before the Tribunal enclosing an affidavit of Shri Section Balasubramanyam, Addl. GIT, who had stated that he had recorded the statements of Shri K. Padmanabhan and Shri M. Mani, labour contractor, in January, 1996, when he was working as Asstt. Director of IT, Unit 3(1), Chennai. He submitted that the same cannot be admitted as the affidavit does not contain the signature of Shri Section Balasubramanyam and as the affidavit does not have a date of execution and also as the affidavit has not been verified by the deponent. He submitted that the affidavit has to be ignored as it is defective.
13. The learned counsel referred to the copy of the summons issued to Shri K. Padmanabhan which is dt. 24th Jan., 1996, and submitted that the summons issued to Shri K. Padmabhan are not valid. He submitted that the summons issued under Section 131 of the IT Act, 1961, on 24th Jan., 1996, mentioned that the summons were issued in the case of Shri Padmanabhan himself and not in connection with the assessment of some other person. Thus, he argued that the summons were not issued in connection with the assessment proceedings of the assessees. He further submitted that the ADI, Inv., Unit 3(3), Madras, could examine Shri Padmanabhan as a witness only if the AO issued a commission to him under Section 131. He submitted that no such commission was issued by the AO at Hyderabad to the ADI at Chennai and this is evident from the fact that nothing is mentioned in the summons issued to Shri K. Padmanabhan or in the so-called affidavit filed by the ADI, Shri Section Balasubramanyam. Thus, he submitted that the authorities did not follow the procedure laid down for issue of commission as required under Section 131 r/w Order 26 Rule 9 of CPC. He relied on the judgment of the Hon’ble Madhya Pradesh High Court in the case of Umashankar Mishra v. CIT (1982) 136 ITR 330 (UP) and submitted that the provisions of Section 292B of the IT Act, 1961, do not come to the rescue of the Revenue in respect of provisions which are governed by the CPC. He reiterated that the person before whom the sworn statement was recorded had to sign the statement at the time of administering oath as well as at the time of closure of the statement and in the absence of any of these signatures, that in the absence of a valid affidavit being filed by Shri Balasubramanyam, the rules of CPC have not been followed by the Revenue and that Section 292B of the IT Act does not come to its rescue as it provides exceptions to procedures mentioned under the IT Act and not procedures which are governed by the provisions of CPC. He, therefore, submitted that the statement recorded from Shri K. Padmanabhan and relied upon by the Revenue is not legally valid and non est in law.
14. The learned counsel further submitted that the statement of Shri K. Padmanabhan only suggests that he does not possess knowledge about the transaction, that the AO was in possession of the receipt dt. 11th Sept., 1995, issued by TDIL to the assessees much before the date of recording of statement from Shri K. Padmanabhan, that TDIL had received the cheque and recorded the same in its annual accounts, that TDIL had shown this amount as its income and filed its return and paid taxes on this, that Shri K. Padmanabhan was a signatory to the annual accounts as a director and that it cannot be true that he had denied the receipt of this amount when the bank transaction and the annual accounts, IT return, etc. of the company, TDIL, of which he is a director, speak otherwise. Thus, he submitted that the claim of the assessees should be allowed.
15. The learned counsel also submitted that none of the co-owners was related in any way with TDIL or its directors and that the provisions of Section 40A(2) are not applicable to this case.
16. As regards the interest of Rs. 9,24,112 paid to Indian Bank and Rs. 4,80,055 paid to Shri J.D. Italia, the learned counsel submitted that the AO as well as the CIT(A) was of the view that the assessees had claimed these interest payments under Section 24 of the IT Act, 1961. He referred to p. 136 of the paper book filed by him and submitted that insofar as the interest paid to Shri J.D. Italia is concerned, the amount related to the period after 31st March, 1994. He submitted that the total amount paid was Rs. 19,15,000 and that as per the balance sheet as at 31st March, 1994, the balance was only Rs. 14,34,945 which was claimed as expenditure. He submitted that the interest related to the period after relinquishment of tenancy rights by the tenants and that this was evident from the copy of agreement entered into with Madras Telephones which clearly stated that the tenants had relinquished the tenancy rights and handed over vacant possession of the property only on 26th March, 1994. Thus, he submitted that the interest related to the period after the tenants vacated the premises and that the same was not allowable under Section 24, that the assessees had not made such a claim under the head “Income from house property”, that the expenditure was incurred in connection with the transfer and that the deduction from the capital gains was allowable.
17. Referring to the claim for interest paid to Indian Bank, the learned counsel submitted that the AO was wrong in holding that the interest was not allowable as what was adopted was market value as on 1st April, 1981, and as all these factors were taken into consideration while arriving at the cost of the asset as on 1st April, 1981, and that the assessees claimed expenditure in addition to fair market value adopted as the cost price as on 1st April, 1981. He contended that the AO was wrong in holding that the interest expenditure incurred on monies borrowed by pledging the assets gets embedded in the cost estimated as on 1st April, 1981, by way of indexation of inflation. He submitted that there is no restriction in the provisions of the IT Act for allowance of interest on borrowed funds when the indexed rate is adopted for cost price. He further contended that the interest paid to Indian Bank that was claimed as a deduction pertained to a period after 31st March, 1994. In this connection, he drew the attention of the Bench to p. 136 of the paper book and submitted that the amount of Rs. 9,24,111 was payable as on 31st March, 1994, from the total amount of Rs. 40,00,000 paid. He submitted that this figure of Rs. 9,24,111 was interest accrued as payable after the surrender of tenancy rights by the tenants. Thus, he prayed that this expenditure of Rs. 9,24,111 may be allowed.
18. The learned Departmental Representative, on the other hand, controverted the submissions of the learned counsel for the assessees and submitted that the expenditure claimed as commission/brokerage was said to have been paid to the company, TDIL, that there was no agreement between the assessees and the said company and that there was no evidence of any services rendered by the company to the assessees in connection with the transfer. He relied heavily on the statement of one of the directors of TDIL, Shri K. Padmanabhan, and submitted that Shri Padmanabhan had categorically stated through his reply to question No. 8 that nothing normally happened in the company without his knowledge and at the same time he denied knowledge about the transaction between his company and the assessees, He also referred to the statement of the other director, Shri Shakti Vel, who was examined under Section 131 on 29th Jan., 1996, and submitted that Shri Shakti Vel could not state the specific services rendered by the company in the transaction entered into by the assessees with the Department of Telecommunications regarding the sale of property. The only service, he submitted, was that the knowledge obtained by Shri Shakti Vel that Madras Telephones Department was looking for property, was passed on to the assessees. He referred to the sale deed executed by the assessees, wherein it was stated that in response to advertisements published in leading newspapers, the owners had responded and submitted that the narration in the registered sale deed was contrary to the statement of Shri Shakti Vel. He further submitted that the statement of Shri Shakti Vel was recorded four days after that of Shri Padmanabhan, that this statement was made after due consideration by the assessees and that the statement of Shri Shakti Vel should not be relied upon. He submitted that the sale deed does not disclose the role of the company, TOIL. He referred to the P&L a/c of TDIL for the period 1st April, 1994 to 31st March, 1995, which is at p. 9 of the paper book filed by. the Revenue as well as computation of income for the relevant assessment year which is at p. 10 of the paper book and submitted that the receipt of Rs. 25,00,000 was not recognised as income by that company during the relevant assessment year. He further submitted that this income was recognised by TDIL in its balance sheet for the asst. yr. 1996-97, i.e., for the period 1st April, 1995 to 31st March, 1996. He submitted that on a query from the Bench he had gathered information from the AO at Chennai and as per the information which is filed before the Bench by way of paper book, TDIL had taxable income for asst. yr. 1995-96, that for the asst. yr. 1996-97 it had positive income only by inclusion of this amount of Rs. 25,00,000 and that by postponing recognition of income, TDIL had reduced its tax liability substantially. This, he argued, proves that TDIL had given an accommodation entry. He vehemently contended that mere existence of an agreement or a payment does not bind the AO to hold that the payment was made for the purposes of the assessees’ business. For this proposition, he relied on the judgment of the Hon’ble Supreme Court in the case of Lachminamyan Madan Lal v. CIT (1972) 86 ITR 439 (SC), and in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT (1967) 63 ITR 57 (SC). He also relied on the judgment of the Hon’ble Calcutta High Court CIT v. Precision Finance (P) Ltd. (1994) 208 ITR 465 (Cal) for the proposition that mere payment by way of account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. He also relied on the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Transport Corporation of India Ltd. (2002) 256 ITR 701 (AP). He relied on the judgment of the Hon’ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) and submitted that this is a mere arrangement for tax avoidance. He submitted that there was no nexus between the payment and the sale transaction and that the AO had rightly disallowed the payment. He prayed that the orders of the AO and the CIT(A) on this issue may be upheld.
19. Making his submissions on the claim of the assessee for interest payment to the bank and the former owner, Shri J.D. Italia, the learned Departmental Representative submitted that these payments were not incurred in connection with the transfer and thus they could not be allowed. He also submitted that the interest goes to increase the cost of the asset and that the AO was right in holding that once there was an adoption of fair market value as on 1st April, 1981, all other expenses could not be allowed.
20. We have carefully considered the submissions of both sides and read all the papers on record as well as the case law cited. In our considered opinion, the claim of the assessees for expenditure of Rs. 25,00,000 being payment by way of commission/brokerage to TDIL should be allowed as an expenditure incurred in connection with the transfer. The undisputed fact is here that TDIL had good acquaintance and is undertaking certain works with Madras Telephones Department. It is also not disputed that the assessees paid the amount through crossed cheque, that the amount had been shown as income by TDIL and that they had paid tax on this income. At this point, it is relevant to observe that TDIL, being a company, pays tax at the flat rate which is maximum marginal rate of 35 per cent and the assessees pay tax at a maximum rate of 20 per cent as in their case it is tax on long-term capital gains. If indexation of cost is taken into account, it can be seen that there is a long-term capital loss in the assessees’ case as computed by them resulting in ‘nil’ tax. On the other hand, the balance sheets filed by TDIL show that for the financial year ending 31st March, 1995, the profit is Rs. 6,74,049 and the profit for the period ending 31st March, 1996, is Rs. 60,40,945. Thus, this is a case where the Revenue had gained by way of tax due to this payment as TDIL paid 35 per cent of this amount by way of tax and the assessees had shown a loss and at best, the disallowance goes to reduce the loss. So, the arguments of the learned Departmental Representative that the assessees saved tax and that this is a tax saving device, etc., are not based on facts and thus they cannot be accepted.
21. Coming to the statement of Shri K. Padmanabhan, we find that he has been a signatory to the annual accounts of TDIL, that the amount of Rs. 25,00,000 was shown as income received by way of cheque in its annual accounts and that the company had higher profits in that year because of receipt on account of commission income, Under these circumstances, we do not know how Shri K. Padmanabhan could state that they had not received any money or plead ignorance of the transaction. In any event, when he was confronted with a receipt, he submitted that the other director would be knowing about the transaction and the other director, Shri Shakti Vel, had admitted to the transaction. He also mentioned in reply to question No. 8 that his company incurred expenditure of Rs. 3 lakhs on this transaction. In reply to question No. 7 and question No. 9, he mentioned that this amount was paid for information as well as guidance to comply with various procedures. As for the summons under Section 131 issued to Shri K. Padmanabhan, we find that the person taking the sworn statement had not signed either at the time of administering oath or at the time of conclusion of the statement. Furthermore, in an affidavit filed before the Tribunal, there is neither verification nor date of execution of the affidavit by Shri Balasubramanian, affirming that he was the person who had in fact recorded the statement of Shri &. Padmanabhan. When a sworn affidavit is filed before this Tribunal, the officer should have taken minimum care. Due to these defects, we find force in the arguments of the learned counsel for the assessee that the statement of Shri K. Padmanabhan cannot be taken cognizance of. The submission of the Revenue that TDIL had shown this receipt as income in the asst. yr. 1996-97 instead of the asst. yr. 1995-96 does not affect the case on hand as it is for the Revenue to bring to book TDIL for postponing the receipt if it feels it has a good case on this ground.
22. Thus, under the facts and circumstances of this case, we hold that the commission/brokerage had been genuinely paid in connection with the transfer of the asset and that there is no loss to the Revenue whatsoever as the recipient is taxed at a higher rate, and that it has to be allowed in the hands of the assessees as expenditure incurred in connection with transfer. This ground of the assessees is, therefore, allowed.
23. Coming to the interest payments made to Indian Bank and Shri J.D. Italia, we find that M/s Indian Bank and Shri J.D. Italia had a lien on the property and without settling the legal rights of these parties, the assessees could not get free title to sell the property. The interest payments relate to the period after 31st March, 1994, i.e., after the assessees had got vacant possession of the property. The same had not been claimed under Section 24 of the Act. We hold that they are clearly relatable to the transfer of the asset and that they are allowable as expenditure incurred in connection with the transfer. The encumbrances and rights of the bank and Shri J.D. Italia had necessarily to be settled by the assessees.
24. It is relevant to observe that interest of Rs. 33,08,055 had to be paid by the assessees to the tenants for surrender of tenancy rights over and above the amount of compensation payable to them. The CIT(A) in para 4.1 at p 14 of his order has held that the assessees are entitled to the deduction for the reasons mentioned therein. He has held that the compensation amount was payable as per the terms of agreement with Telecommunications Department, that the payments were made directly by the Telecom Department and that the interest expenditure was incurred wholly and exclusively in connection with the transfer of the property, that the basic liability was with the assessees and that without clearing the liability the assessees could not discharge their obligation, etc. The Revenue has accepted the order of the CIT(A) on this count. For the same reasons, the interest paid to Indian Bank and Shri J.D. Italia should be allowed as facts and circumstances of all these payments are alike.
25. Thus, we hold that the ground of the assessees for allowance of Rs. 9,24,111 being interest paid to Indian Bank and the ground of the assessee for allowance of Rs. 4,80,055 being interest paid to Shri J.D. Italia should be allowed.
26. These appeals are thus allowed.
ITA Nos. 948 to 951/Hyd/2002 :
27. All these appeals arise out of reassessment proceedings. The undisputed facts are that the AO issued a notice under Section 148 on 12th March, 1999, for reopening the assessments completed under Section 143(3) on 31st March, 1998. A second notice under Section 148 was issued on 19th April, 1999, on the ground that the first notice was defective, without dropping the proceedings initiated under the first notice. The issue that was considered in the reassessment proceedings was the market value of the property sold by the assessees as on 1st April, 1981. The assessees challenged the reassessment proceedings as well as the basis on which the AO arrived at the fair market value of the property as on 1st April, 1981.
28. The learned counsel for the assessees submitted that the AO had originally issued a notice under Section 148 on 12th March, 1999, and again issued another notices under Section 148 on 19th April, 1999. He submitted that the reasons for such notice as mentioned in the order sheet, which had not been communicated to the assessees, were reproduced by the CIT(A) at p. 7 of his order in the case of Smt. B. Subhadra and the following were the reasons for reopening the assessments :
(a) The assessees produced a certificate from the Sub-Registrar, Tiruvallicane, Madras, in which it was stated that the value of the property as on 1st April, 1981, amounted to Rs. 3,85,000 per ground.
(b) During the course of assessment proceedings an Evasion of Tax petition was received in which it was alleged that the certificate obtained from the Sub-Registrar’s office and produced before the Department was not correct.
(c) Verification was made by making a reference to the Sub-Registrar through the ADI, Madras, and the Sub-Registrar had given a reply that the value of the property sold by the assessees as on 1st April, 1981, was Rs. 1,10,000 per ground.
On this ground the AO reopened the assessments. The learned counsel submitted that the assessees had filed returns on 8th April, 1999/16th April, 1999, in response to the notice under Section 148 dt. 12th March, 1999, and requested the AO to treat the returns as those filed in response to notice under Section 148 dt. 19th April, 1999. In the new returns, he submitted, the assessees declared the same income as declared in the returns filed originally.
29. The learned counsel submitted that during the course of reassessment proceedings, the AO issued a show-cause notice mentioning that he would estimate the market value as on 1st April, 1981, on the basis of the value of the property determined for wealth-tax purposes. The AO proposed to revise the capital gains considering the market value as on 1st April, 1981, at Rs. 39,063 per ground. The learned counsel submitted that the assessees had submitted detailed explanation before the AO, He further stated that the AO had completed the regular assessment based on an instance of sale vide document No. 740/80 (at pp. 103 to 109 of the paper book), wherein an adjoining land of 1,309 sq. ft. was sold for Rs. 2,11,48(5 which worked out to Rs. 3,87,740, per ground of 2,400 sq. ft., that after the assessment proceedings were completed, the AO contacted the Sub-Registrar, Triplicane, Chennai, and the Sub-Registrar, vide his letter dt. 8th Oct., 1998, which is at p. 99 of the paper book, sent a copy of the guideline register. The Sub-Registrar had mentioned that “the higher value in col. 5 may be taken as the value as on 1st April, 1981”. In col. 5 the original figure of Rs. 1,10,000 was rounded off subsequent to an instance of sale of an adjoining property and a higher figure of Rs. 2,11,480 was substituted. The learned counsel further submitted that the assessees, during the course of assessment proceedings, had filed a copy of the guideline register maintained by the Sub-Registrar, Triplicane, and this was the same as that which was obtained by the AO. He vehemently contended that there was no difference whatsoever in the copy of the guideline register obtained by the AO and the copy of the guideline register submitted by the assessees after obtaining a certified copy of the same from the Sub-Registrar. He contended that the enquiry made by the AO through his letter dt. 8th Oct., 1998, addressed to the ADI III, Chennai, had not thrown up any fresh information. He further submitted that the AO once again approached the Sub-Registrar, Triplicane, and the Sub-Registrar, vide his letter dt. 26th Nov., 1999, which is at p. 100 of the paper book, mentioned that the value per ground as on 1st April, 1981, as per the guideline register was Rs. 1,10,000 and again sent the same extract of the guideline register wherein the figure of Rs. 1,10,000 was rounded off and where the sale instance based on document No. 740/80 was recorded. The AO had again addressed a letter to the Sub-Registrar seeking clarification and the Sub-Registrar had clarified that the rate per ground was Rs. 3,87,580.37 in the year 1980 itself, vide his letter dt. 7th March, 2000, which is at p. 101 of the paper book.
30. The learned counsel vehemently contended that the Sub-Registrar had made it clear that the market value per ground as on 1st April, 1981, was Rs. 3,87,580.37 and not Rs. 1,10,000, that the AO had committed no error in the regular assessment and that there was no escapement of income. He thus submitted that the reopening of the assessment was not validly made. He reiterated that there was no difference in the information on record of the AO at the time of completion of regular assessment and the information obtained by the AO after the completion of the regular assessment. He submitted that the assessees request to the AO to drop the reassessment proceedings on these grounds was rejected.
31. The learned counsel for the assessee vehemently contended that the AO was wrong in considering the values determined for wealth-tax purposes as the fair market value for determination of capital gains. He referred to p. 47 of the paper book which is copy of letter dt. 13th March, 2001, filed by Smt. Subhadra before the AO making submissions on this count. He submitted that the following facts were available on record before the AO at the time of completion of the original assessment :
(1) Wealth-tax assessment proceedings in the case of the assessees for asst. yr. 1981-82 and later assessment years.
(2) The fact that the assessees were co-owners of the property situated at R.S. Nos. 97, 73 to 76, Anna Salai, Chennai.
(3) The fact that the said property was in the occupation of the tenants and that the said property was sold for a total consideration of Rs. 8.19 crores to Telecom Department.
(4) The fact that the property was acquired by the assessees prior to 1st April, 1981, and that, therefore, the assessees had an option to adopt either the cost or market value of the property as on 1st April, 1981.
(5) The fact that the property is in the jurisdiction of Sub-Registrar, Triplicane, Chennai, and that the said authority maintained a register for the purpose of determining stamp duty.
(6) The AO was in possession of a copy of the guideline register as well as a copy of the sale deed evidencing sale of an adjoining property which showed that the fair market value of the property was around Rs, 3,85,000 per ground.
(7) The fact that the assessees claimed deduction of the cost of the asset based on indexation and that the assessees relied on the guideline register as well as the sale price mentioned in the three sale deeds filed before the AO during the course of original assessment proceedings.
The learned counsel vehemently contended that with all this information available on the record of the AO during the regular assessment proceedings, based on which the AO had completed the regular assessment proceedings by agreeing to the claim of the assessees as to the fair market value as on 1st April, 1981, there was no fresh information whatsoever on record of the AO at the time of issuing notice under Section 148 empowering him to reopen the assessment proceedings under Section 147.
32. The learned counsel referred to the letter of the Sub-Registrar addressed to the ADI, Chennai, and submitted that the higher market value which worked out to Rs. 3,87,580 per ground was confirmed. He submitted that the letter of the Sub-Registrar dt. 26th Nov., 1999, which created some confusion, was obtained only after the reopening of the assessment. He contended that – (a) there was no information whatsoever in the possession of the AO other than what was available with him at the time of the completion of the original assessment proceedings; (b) the CIT(A) was wrong in justifying the reopening on the basis of letter No. 493/99, dt. 26th Nov., 1999, of the Sub-Registrar [para 4.12 on p. 9 of the order of the CIT(A)] as this letter was received after the issue of notice under Section 148; and (c) the reopening was invalid. He relied on the following case law for his proposition that the reopening was bad in law :
(i) CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del)(FB)
(ii) Kaira District Co-operative Milk Producers Union Ltd. v. Asstt. CIT (1996) 220 ITR 194 (Guj)
(iii) VXL India Ltd. v. Asstt. CIT (1995) 215 ITR 295 (Guj)
(iv) Jindal Photo Films Ltd. v. Dy. CIT (1998) 234 ITR 170 (Del)
(v) Vipan Khanna v. CIT (2002) 255 ITR 220 (P&H)
(vi) CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC)
(vii) Jai Marwar Co. (P) Ltd. v. Asstt. CIT (2003) 79 TTJ (ITAT) 178 : (2003) 131 Taxman 191 (Jd)(Mag)
33. On the issue of reopening of assessment, the learned counsel for the assessees further contended that the original notice under Section 148 was issued on 12th March, 1999 and was served on the assessee on 13th March, 1999, that the assessment should have been completed on or before 31st March, 2001, that the reassessment proceedings were completed only on 21st March, 2002, and that the reassessment was bad in law. He submitted that the original notice under Section 148 dt. 12th March, 1999, had not been dropped or withdrawn or cancelled, that without dropping or cancelling or withdrawing the original reassessment notice, it was not correct to issue a fresh notice under Section 148 which was issued on 19th April, 1999, and that the second notice was bad in law. For the proposition that the assessment cannot be reopened once again when it had already been reopened, he relied on the following decisions :
(i) Smt Nilofer Hameed and Anr. v. ITO (1999) 235 ITR 161 (Ker)
(ii) Trustees of HEH The Nizam’s Supplemental Family Trust v. CIT (2000) 242 ITR 381 (SC).
Thus, he submitted that the second notice issued was bad in law, that the assessment was completed with reference to the first notice and it was barred by limitation. He submitted that the CIT(A) had dropped the revisionary proceedings under Section 263 and it should be inferred from such action that there was no error in the assessment order based on the material available on record.
34. On facts, the learned counsel argued that the AO was wrong in adopting a value of Rs. 39,063 per ground by ignoring the correct market value as on 1st April, 1981, which was based on a sale document recorded by the Sub-Registrar. He submitted that the word “value” mentioned in the WT Act, 1957, and the words “market value” mentioned in Section 55 of the IT Act, 1961, are not the same and that in case the assessing authority held that both were same as the market value was only Rs. 3,87,580 and as this was based on evidence, the proper course for the Revenue would have been to initiate proceedings under the WT Act for understatement of wealth. He submitted that the valuation of property contemplated under the WT Act is governed by Section 7 of the WT Act, that net wealth is defined in Section 2(m) of the WT Act and that the determination of value is governed by the rules laid down in Sch. III to the WT Act. He vehemently contended that the value arrived at as per Sch. III to the WT Act is not the general market value, as can be seen from Section 7 of the WT Act which uses the term “value” but not “market value”. He argued that it is a well, known fact that under the WT Act market value is not taken while for arriving at the cost of acquisition under Section 55(2)(b) of the IT Act, the term used is “fair market value of the asset”. He submitted that “fair market value” is not defined under the IT Act and for the definition he referred to Black’s Law Dictionary, 6th Edn., and read out the same. Thus, he submitted that the value as per the WT Act and the fair market value as per the IT Act are two different things. He submitted that there is no reference to WT Act in Section 55 of the IT Act and a plain reading of Section 55 shows that the market value is to be determined as on 1st April, 1981, and the same should be adopted. He, therefore, submitted that the value under the WT Act has no relevance whatsoever and should not be adopted for income-tax calculation. For this proposition, he relied on the following case law :
(i) Addl. CIT v. Smt. Indira Bai (1985) 151 ITR 692 (AP)
(ii) Order of the Tribunal dt. 26th Dec, 2002, in ITA No. 19/Hyd/2002 in the case of Vijayalakshmi V. Gadgil v. Asstt. CIT
(iii) Smt. Vasavi Pratap Chand v. Dy. CIT (2004) 89 ITD 73 (Del)
He submitted that the AO and the CIT(A) relied on the decision of the Bangalore Bench of the Tribunal in the case of D.N. Prasanna Kumar v. Asstt. CIT (1997) 60 ITD 109 (Bang). He submitted that the said decision is distinguishable on facts as that assessees got a valuation report prepared by a registered valuer as on 1st April, 1981, and there were many discrepancies in such report and on those facts the Tribunal held that in the absence of any other valuation whatsoever, the value as per the WT return should be adopted.
35. Concluding his arguments, the learned counsel submitted that the assessees had submitted three instances of sale showing the rate at which sales were effected during the relevant period as well as a certified copy of the guideline register from the Sub-Registrar’s office, that these three documents showed that the market value of the property was Rs. 3,87,580 per ground, that the Sub-Registrar himself had clarified to the AO after direct correspondence between the AO and the Sub-Registrar that the fair market value as on 1st April, 1981, was only Rs. 3,87,580, that this amount after due verification was adopted by the AO in the original assessment proceedings and that the appeals of the assessees should, therefore, be allowed and the reassessment orders quashed.
36. The learned Departmental Representative, on the other hand, vehemently controverted the arguments of the learned counsel for the assessees. He submitted that the assessees had not furnished a copy of the guideline register as obtained from the Sub-Registrar, Chennai, to the AO as the document produced by the assessees before the AO contained only one line mention on the assessees letter of January, 1995, addressed to the Sub-Registrar and that in this one line the Sub-Registrar did not mention clearly as to what was the value of the property as on 1st April, 1981. He submitted that the subsequent letter dt. 8th Oct., 1998, obtained by the Investigation Wing at Chennai, mentioned the higher value as fixed by the guidelines cell and the value encircled in col. 5 was shown at Rs. 1,10,000 which was higher than the other value of Rs. 70,000. He submitted that the subsequent letter of the Sub-Registrar, Chennai, showed that the value was much less.
37. The learned Departmental Representative contended that the AO initiated proceedings under Section 147 based on the higher value appearing in the Sub-Registrar’s letter dt. 8th Oct., 1998, which was much less than the value shown by the assessees. He referred to the extract forwarded by the Sub-Registrar and submitted that the value was not actually guideline value but some sale instances for which it was not mentioned as to whether the sale was a comparable sale or not. He referred to the encircled value of Rs. 1,10,000 in the copy of the guidelines register and submitted that this value was much less than the reported value of Rs. 3,85,000. Thus, he argued that the AO had reason to believe that income chargeable to tax had escaped assessment, that this belief was formed by the AO on the basis of subsequent facts which came to light and that the argument that there was a mere change of opinion was wrong in law. He vehemently contended that what was required for reopening of assessment was existence of certain grounds which led the AO to believe that there was an underassessment. The issue whether these grounds were adequate or not, in other words, the sufficiency of these grounds, was not a justiciable issue. For this proposition, the learned Departmental Representative relied on the decision of the Hon’ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO and Ors. (1999) 236 ITR 34 (SC).
38. The learned Departmental Representative relied heavily on the judgment of the Hon’ble Gujarat High Court in the case of Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT (1999) 236 ITR 832 (Guj) and submitted that the legal position has changed after the amendment to Section 147 w.e.f. 1st April, 1989, that the assessment was reopened within 4 years and that the AO had power to do the same. He also relied on the following case law :
(i) ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)
(ii) Phool Chand Bajrang Lal and Anr. v. ITO and Anr. (1993) 203 ITR 456 (SC)
(iii) CIT v. Jamnadas Dwarkadas & Co. (1994) 209 ITR 1 (Bom)
(iv) Bawa Abhai Singh v. Dy. CIT (2002) 253 ITR 83 (SC)
(v) Swaraj Engine Ltd. v. Asstt. CIT (2003) 260 ITR 202 (P&H)
39. The learned Departmental Representative vehemently contended that there was no change of opinion leading to the reopening of assessment and that the reassessment was based on the subsequent facts which had come to light indicating that the earlier information submitted by the assessees was not correct. He submitted that the Hon’ble Supreme Court in various decisions held that reappraisal of facts in the light of subsequent information may lead to a belief on the part of the AO that income chargeable to tax had escaped assessment. He relied on the following case law :
(i) CIT v. T.S.PLP. Chidambaram Chettiar (1971) 80 ITR 467 (SC)
(ii) CIT v. P.V.S. Beedies (P)Ltd. (1999) 237 ITR 13 (SC)
(iii) ITO v. Selected Dalurband Coal Co. (P) Ltd. (1996) 217 ITR 597 (SC)
(iv) Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC)
(v) A. China Subbarayudu v. CIT (1988) 172 ITR 278 (AP)
(vi) IAC v. VIP Industries (1991) 191 ITR 661 (SC)
(vii) ITO v. Purushottam Das Bangur and Anr. (1997) 224 ITR 362 (SC)
He also relied on the recent decision of this Bench of the Tribunal in the case of Hansa Footwear ITA No. 275/Hyd/2003, order dt. 29th Aug., 2003.
40. He also referred to the decision of Full Bench of the Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (supra), and submitted that the opinion expressed therein was that if there is reason to believe for the AO after the date of completion of assessment, it may be a sound foundation for exercising powers under Section 147 r/w Section 148 of the Act. In this connection, he referred to the judgment of the Hon’ble Supreme Court in the case of Phool Chand Bajrang Lal (supra).
41. He further vehemently contended that no comparable instances of sale were quoted by the assessee before the AO during the original assessment proceedings. He submitted that tenanted property cannot in any way be compared to undivided share in land and that the decision of the Hon’ble Supreme Court in the case of Appropriate Authority and Anr. v. Kailash Suneja and Anr. (2001) 251 ITR 1 (SC) and decisions of other High Courts make it clear that the rent capitalization method is the correct method for determining the market (value) of property in the case of tenanted property. Thus, he submitted that the so-called comparable sale instances quoted by the assessees in the reassessment proceedings have no meaning. He further relied on the following case law :
(i) CIT v. Panchanan Das (1979) 116 ITR 272 (Cal)
(ii) Addl. CIT v. Smt. Indira Bai (supra)
(iii) Subhkaran Chowdhury and Ors. v. IAC (1979) 118 ITR 777 (Cal)
(iv) CIT v. Anup Kumar Kapoor (1980) 125 ITR 684 (Cal)
(v) CIT v. J.V.K. Rao (2003) 258 ITR 90 (Mad)
(vi) D.N. Prasanna Kumar v. Asstt. CIT (supra)
(vii) Smt. Urmila Ranka v. CED (2003) 262 ITR 321 (Raj)
(viii) Appropriate Authority and Ors. v. Lytton Hotel (P) Ltd. (2003) 130 Taxman 524 (Cal)
(ix) U.P. Jal Nigam v. Kalra Properties AIR 1996 SC 1170
(x) Chimanlal Hargovinddas v. SLAO AIR 1988 SC 1652
He relied on the judgment of the Hon’ble Andhra Pradesh High Court in the case of Indira Bai (supra) and submitted that if rental method was adopted for the property in question, which was a tenanted and litigated property all along, the value of the property would be even less than the value adopted by the AO as per wealth-tax valuation. He referred to the calculation submitted to the AO which is at p. 94 of the assessee’s paper book and argued that the AO’s decision to apply the rates as per wealth-tax records, which were comparable to the rate arrived at after considering reasonable increase over the cost of acquisition, was proper. He vehemently contended that the values given by the Sub-Registrar were unreliable as different values were given aft different points of time and as the comparable sale instances quoted by the Sub-Registrar and the assessees are all values of undivided shares in small pieces of land which are not comparable with the assessees’ property which is a big piece of land with old structure in which tenants had tenancy rights and where there were litigations as well. He submitted that there was no evidence or reason to believe that property values in Chennai increased more than ten times between 1979 and 1981. He heavily relied on the decision of the Bangalore Bench of the Tribunal in the case of DM Prasanna Kumar (supra) and submitted that the issue of adopting market value as on 1st April, 1981, for the purpose of computing capital gains is in accordance with law.
42. Referring to the judgment of the Hon’ble Andhra Pradesh High Court in the case of Indira Bai (supra), the learned Departmental Representative submitted that the Hon’ble High Court has stated that the value shown in wealth-tax assessment would not constitute estoppel for the purpose of computing capital gain under the IT Act and that it had not said anywhere that the values under the WT Act are not relevant factors to be taken for such calculation. He distinguished that judgment by submitting that the Hon’ble High Court referred to the specific circumstance that the value of property had gone down between 1954 and 1957 and also the fact that there was no certainty as to whether the valuation returned by the assessee was accepted by the Department,
43. On the issue of the reassessment being time-barred, the learned Departmental Representative submitted that the first notice issued under Section 148 on 12th March, 1999, was issued without approval of the Jt. CIT which is mandatory, that the notice issued on 12th March, 1999, was a defective notice and that the same should be ignored as bad in law. While admitting that if the first notice is taken into consideration the reassessment should have been completed within two years from the end of the financial year in which the notice was served on the assessee as per Section 153(2) which required the reassessment to be completed on or 31st March, 2001. He pleaded that the mandatory approval of the Jt. CIT had not been obtained for the first notice and that the defective notice should be ignored. He also submitted that the assessees filed return in response to the notice on 16th April, 1999, and that in response to the second notice issued on 19th April, 1999, the assessee requested the AO through letter dt. 10th May, 1999, that the return filed on 16th April, 1999, may be treated as a return filed in response to the second notice. He submitted that the assessees were well aware of the fact that the second notice was valid, that they had never objected to it, that no specific ground regarding time-barring of the case had been taken, that the assessment was completed well within the time based on the second notice and that the order of the CIT(A) should be upheld.
44. Joining the issue, the learned counsel for the assessees submitted that the issue of time-barring is a legal issue and can be contended at any stage. To a query from the Bench, he agreed that there was no specific ground raised by the assessees on this issue. He submitted that once a notice was issued, the same could not be ignored on the ground that it was defective. He relied heavily on the order of Hyderabad Bench ‘B’ of the Tribunal dt. 11th Nov., 2003, in GTA No. 2/Hyd/1997 in the, case of Biological E. Ltd. v. Asstt. CIT, wherein the Bench rejected, on similar ground, the assessee’s contention that the notice had not been issued legally, and by relying on the decision of the Hon’ble Supreme Court in the case of CIT v. Jai Prakash Singh (1996) 85 Taxman 407 (SC), the Bench held that bearing in mind the spirit of Section 292B of the IT Act/Section 41C of the GT Act, the notice cannot be invalidated. The learned counsel further relied on the following case law :
1. Parameswara Ballakurya v. Commr. of Agrl IT (1987) 164 ITR 536 (Ker)
2. Vijaya Trading Co. v. ITO (1985) 13 ITD 526 (Nag)
3. Vanaja Textiles Ltd. v. CIT and Anr. (2001) 249 ITR 374 (Ker)
4. CIT v. Anand & Co. (1994) 207 ITR 418 (Cal)
5. CIT v. Jai Prakash Singh (supra)
6. Gouri Kumari Devi v. CIT (1959) 37 ITR 220 (Pat) 1. Asstt. CIT v. M. Mani (1997) 63 ITD 393 (Coch)
45. We have heard rival contentions and considered all the papers on record, the orders of the authorities below and the propositions laid down in the case law relied upon by both the parties. In our considered opinion, the assessees should succeed in their appeals. We have necessarily to hold that there was no information whatsoever with the AO after the completion of the original assessment and before the issue of the notice under Section 148; the AO had no basis whatsoever for forming the belief that income chargeable to tax had escaped assessment as existence of a reason is a must though the sufficiency of the reason cannot be gone into.
46. The AO before issuing notice under Section 148, recorded the reasons as under (extracted by the CIT(A) in his order in the case of Smt. B. Subhadra) :
“The assessee, Smt. B. Subhadramma has filed return of income for the asst. yr. 1995-96 on 28th Aug., 1995, declaring an income of Rs. 1,06,374. The return was initially processed under Section 143(1)(a). Subsequently, assessment was completed under Section 143(3) on a total income of Rs. 30,42,270. The assessee has shown long-term capital gains on the sale of property bearing R.S. 97/1, Block 3, Dinrose Estate, Mount Road, Madras. The property was purchased in the year 1979, for a sum of Rs. 13,16,160. At the time of purchase, two tenants were occupying the said premises. The total sale consideration of the property consisting of 36 grounds amounts to Rs. 8,19,00,000. Out of this, the tenants’ share amounts to Rs. 3.90 crores.
At the time of filing the evidence, the assessee has produced a certificate from the Sub-Registrar office, Tiruvallicane, Madras, in which it is stated that the value of the property as on 1st April, 1981, amounts to Rs. 3,85,000 per ground. During the assessment, an EOT petition was received in which it was alleged that the said certificate obtained from the Sub-Registrar office and produced before the Department was not correct. Verification was made by making reference to the Sub-Registrar through the ADI, Madras. The reply received from the Sub-Registrar revealed that the value of the property sold by the assessee is valued at Rs. 1,10,000 per ground. As there is difference in market value given in the original certificate produced by the assessee and the subsequent market value certificate gathered by independent enquiry from Sub-Registrar, the difference in value per ground of land amounts to Rs. 2,75,000. Hence, income which was chargeable to tax has escaped the assessment for the asst. yr. 1995-96.
The above calculation was made basing on the certificate issued by the Sub-Registrar, Tiruvallicane, Madras. The market value is adopted at Rs. 1,10,000 and the tenants were paid substantial amounts as they were occupying the above premises since 1950. The assessee has purchased the property along with tenants, the tenants’ compensation was paid amounting to Rs. 3.90 crores. To arrive at market value of the property, the market value has to be reduced proportionately to the compensation paid out of the sale consideration of Rs. 8.19 crores. This will be considered while making the reassessment.
Whereas I have reason to believe that the income in respect of which the assessee is assessable to tax for the asst. yr. 1995-96 has escaped assessment within the meaning of Section 147 of the IT Act, 1961,……………”
The CIT(A), at para 4.12 on p. 9 of his order, held as follows :
“4.12 In the present case, the assessment was reopened under Section 147 of the Act on the basis of the information received from the office of the Sub-Registrar, Chennai, through his letter No. 493/99, dt, 26th Nov., 1999*, i.e., after completion of the regular assessment under Section 143(3) of the Act on 31st March, 1998. It must be mentioned here that in the said letter, which was issued in response to a reference made by the AO, the Sub-Registrar stated the following :
‘The guidelines value for R.S. No. 97/Part, Mount Road, as on 1st April, 1981, was Rs. 1,10,000 per ground. The true extract of the guidelines register being the evidence is enclosed for your ready reference.
The value furnished on 18th May, 1995, Rs. 3,85,000 per ground not found in the records of our office.
The actual Government guidelines value as on 1st April, 1981, for R.S. No. 97/Part of Mount Road, is Rs. 1,10,000 per ground.
(emphasis, italicized in print, supplied)
Keeping in view the facts of the case and the judicial decisions, I am of the opinion that the AO was fully justified in reopening the assessment under Section 147 and no legal infirmity was there in such of the AO.”
(* Underlining, italicised in print, is ours)
These extracts clearly show that the letter of the Sub-Registrar, Chennai, bearing No. 493/99, dt. 26th Nov., 1999, triggered the issual of notice under Section 148. The notices under Section 148 were issued on 12th March, 1999 and 19th April, 1999. Thus, the reasons for issual of notices are based on information that was received after the issual of notices. This clearly shows that there was no information whatsoever obtained by the AO after completion of the original assessment proceedings under Section 143(3) on 31st March, 1998, and the issual of notices under Section 148 on 12th March, 1999/19th April, 1999. We do not see how a letter dt. 26th Nov., 1999, can be a basis for issual of notice on 12th March, 1999. The learned Departmental Representative refers to EOT petition. The EOT petition was received during the course of original assessment proceedings as is evident from the note of the AO. So, this cannot be information that formed the basis for reopening the assessment. The learned Departmental Representative relies on the letter of the Sub-Registrar to ADI, Chennai, dt. 8th Oct., 1998. In this letter also, there is no fresh information and it is the same guidelines value register extract as submitted by the assessee during original assessments proceedings. The higher value at col. 5 was Rs. 2,11,480 for Ext. 1,309. Thus, there was no fresh information whatsoever with the AO before issuing notice for reopening.
47. The letters issued by the Sub-Registrar consequent to repeated enquiries made by the AO do not show any variance. In the copy of guidelines register originally furnished, it was stated as below :
“The higher value in col. 5 may be taken as the value as on 1st April, 1981.”
In the letter dt. 7th March, 2000, the Sub-Registrar clarified as follows :
“In the true extract of guideline register enclosed herewith it can be seen that Rs. 1,10,000 mentioned in col. 5 is rounded off and Rs. 2,11,480 Ext. 1,309, DOC No. 740/80 is mentioned. So, for Mount Road, the value is Rs. 3,87,741 ground in the year 1980 itself.
As per document No. 740/1980 the extent of land is 6 grounds and 425 sq. ft., i.e., 14,825 sq. ft. out of which 53/600th share is sold for Rs. 2,11,480. Actual value per ground is calculated as follows :
14,825 x 53 Rs. 2,11,480
---
600
1,309.54 Rs. 2,11,480
1 ground, i.e., for 2,400 sq. ft.
2,11,480
-------- x 2400
1,309.54 Rs. 3,87,580.37"
So, the value of Mount Road, per ground is Rs. 3,87,580.37 in the year 1980, itself and not less than this value for the financial year 1981, i.e., on 1st April, 1981, should be adopted."
Even to the letter dt. 26th Nov., 1999, the Sub-Registrar, while stating that the value per ground was Rs. 1,10,000, had enclosed an extract of the guidelines register, wherein Rs. 1,10,000 was rounded off and “Rs. 2,11,480, Ext. 1309, Doc. No. 740/80” was shown. The rounding off of a figure means that the same has been replaced by a fresh figure. Thus, the letter dt. 26th Nov., 1999, was an error which the same Sub-Registrar on a further enquiry by the Revenue clarified in letter No. 493/99, dt. 7th March, 2000. This final letter is not disputed by the Revenue and it is the result of a repeated and thorough enquiry by the Department through its various wings. Thus, there is ultimately no change whatsoever in the stand taken by the Sub-Registrar, Triplicane, and also there is no difference whatsoever between the copy of the guidelines register filed by the assessee during the course of regular assessment proceedings and the copy of such register and fair market values obtained by the AO as per-the final reply of the Sub-Registrar consequent to repeated enquiries made by the Department.
48. In the reasons for reopening of assessment recorded by the AO, it was mentioned that during the assessment, an EOT petition was received in which it was alleged that the said certificate obtained from the Sub-Registrar’s office and produced before the Department during the course of original assessment proceedings was not correct. Thus, it cannot be said that during the course of original proceedings the AO had not taken a conscious decision despite a specific petition catching down on the certificate produced by the assessee. Thus, in the facts and circumstances of this case, we hold that the AO has taken a conscious decision in the face of an EOT petition and accepted the certificate given by the Sub-Registrar. Now, the question is whether the AO can review his own decision and not only reject the certificate of the Sub-Registrar in toto (not even accepting the Rs. 1,10,000 value) but also adopt a totally new basis, i.e., values declared under the WT Act. The answer is a definite “no” as it is well-settled that an AO is a quasi-judicial authority and has no “power of review”.
49. Thus, as the reopening was not based on any information, received by the AO before issual of notice under Section 148 and after completion of regular assessment under Section 143(3), the same should be held as bad in law. It is true that sufficiency of reason cannot be gone into by the Courts but in this case there is no reason at all.
50. Regarding the change in the position of law after 1st April, 1989, the Full Bench of Hon’ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (supra), has held as follows (as per headnote) :
“The scope and effect of Section 147 as substituted w.e.f. 1st April, 1989, by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989, as also of Sections 148 to 152 have been elaborated in Circular No. 549, dt. 31st Oct., 1989. A perusal of Clause 7.2 of the said circular makes it clear that the amendments have been carried out only with a view to allay fears that the omission of the expression ‘reason to believe’ from Section 147 would give arbitrary powers to the AO to reopen past assessments on a mere change of opinion. It is, therefore, evident that even according to the CBDT, a mere change of opinion cannot form the basis for reopening a completed assessment.”
In this judgment, the decision of the Hon’ble Gujarat High Court in the case of Praful Chunilal Patel (supra) has been dissented from. This view was upheld by the Hon’ble Supreme Court in CIT v. Foramer France (2003) 264 ITR 566 (SC) at 567, as per headnote (v) which reads as under :
“(v) on the facts, the notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the same before and after amendment by the Direct Tax Laws (Amendment) Act, 1987, of Section 147.”
We respectfully follow the decision of Full Bench of Hon’ble Delhi High Court and uphold the contention of the assessees in this regard and hold that the AO reopened the assessments on a mere change of opinion. On the other arguments of the assessees that the assessment order is time-barred, etc., we hold that the first notice issued on 12th March, 1999, was bad in law as it was issued without the approval of the Jt. C1T. Thus, the second notice should be taken as the valid notice and hence the argument of the assessees on this ground fails.
51. The next issue to be considered is as to whether the values adopted under the WT Act have to be adopted under the IT Act.
52. Rule 3 of Sch. III of the WT Act. 1957, reads as follows:
“PART B
IMMOVABLE PROPERTY
Valuation of immovable property
3. Subject to the provisions of Rules 4, 5, 6, 7 and 8, for the purposes of sub-Section (1) of Section 7, the value of any immovable property, being a building or land appurtenant thereto, or part thereof, shall be the amount arrived at by multiplying the net maintainable rent by the figure 12.5 :”
Section 55(2)(b)(i) of the IT Act, 1961, reads as follows :
“55(2) For the purposes of Sections 48 and 49, ‘cost of acquisition’, -……..
(b) in relation to any other capital asset, –
(i) where the capital asset became the property of the assessee before the 1st day of April, 1981 means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee;”
The provisions of the WT Act as seen above are not part materia to the provisions under the IT Act. The rules of valuation under both the enactments are different and are for different purposes.
The term “fair market value” is not defined under the IT Act. In Black’s Law Dictionary, the term is defined as follows :
“The amount at which the property would change hands between the willing buyer and the willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.”
There is a difference in the terms “fair market value” and “value”. For the purpose of valuation under the WT Act, it is mandatory to follow Sch. III. In most of the cases, the values so arrived at by applying Sch. III are totally different from the fair market value. This is particularly true for flats and apartments rented out in large metropolitan cities (e.g., Marine Drive, Mumbai). Thus, we hold that the “value” as per WT Act is different from “fair market value” under the IT Act. The Hon’ble Andhra Pradesh High Court in the case of Smt. Indira Bai (supra), held that the value shown in the wealth-tax assessment would not constitute estoppel for the purpose of computing capital gains under the IT Act.
53. Hyderabad Bench ‘A’ of Tribunal in its order dt. 26th Dec, 2002, in ITA No. 19/Hyd/2002 in the case of Smt Vijaya Lakshmi v. Gadgil, held in para 28 of the order as follows :
“……… the value returned for wealth-tax purposes is not, to our mind, conclusive of the matter mainly because that was a valuation made under a different statutory rule, even though the assessee had not indicated as to how exactly the value of Rs. 4 lakhs was arrived at and in terms of which statutory rule. At any rate, if there had been any understatement for wealth-tax purposes, that is a separate matter and it cannot be held as conclusive in the income-tax proceedings, which are separate and distinct.”
Similar is the view taken by the Tribunal, Delhi Bench, in the case of Smt. Vasavi Pratap Chand (supra). We respectfully follow this decision as a plain reading of Sch. III of the WT Act as well as Section 55 of the IT Act shows that they are not the same and the values arrived at under the WT Act are as per certain rules framed under the WT Act and in most cases they are different from ‘fair market value’. Therefore, the adoption by the AO of the values arrived at under the WT Act for the purpose of computing capital gains under the IT Act is wrong in law. The decision of the Bangalore Bench of the Tribunal in the case of D.N. Prasanna Kumar (supra) is not applicable to the facts of the case as in that case there was no other value than the value declared under the WT Act, available and the registered valuer’s valuation report was considered defective and not reliable, whereas in this case three instances of sale were cited.
54. On facts, the AO has adopted the value declared by the assessees under the WT Act. He has rejected the value as claimed by the assessees. He has also rejected the value given by the Sub-Registrar, Triplicane, Chennai. As already stated, on a careful consideration of each of the letters and correspondence obtained from the Sub-Registrar, it is clear that the Sub-Registrar has originally and finally stated that the value is Rs. 3,87,580 per ground. The instances of sale relied upon by the Sub-Registrar for arriving at this value as well as those relied upon by the assessees are the same and these three sale instances are not controverted by the Revenue. There is no other value available with the AO to substantiate his claim that the value would be something less than Rs. 3,87,580 due to tenants occupying the property, etc. Recourse was not taken to Section 55A. Neither the AO nor the CIT(A) had embarked upon an exercise to arrive at the fair market value when they stated that the value might be something less for the reasons mentioned by them, So, there appears to be no choice but to go by the instances of sale. The Hon’ble jurisdictional High Court in the case of MRO & LAO v. Sri Sri Sri Jagannadhaswamyvari Temple, Palakonda (Appeal No. 1654 of 1988, dt. 26th March, 1992), held that “When the rates in the basic value register have been fixed on areawise, without any scientific data, the values mentioned in the basic value register cannot be treated as comparable values of market value at the relevant time”. In this case, the value given by the Sub-Registrar is supported by registered sale documents. The letter dt. 7th March, 2000, bearing No. 493, is based on scientific data and thus that case does not come to the rescue of the Revenue. Simply rejecting a claim without a counter-exercise does not give the desired result. Reference to valuation cell was a good option which was not done. Thus, the only evidence that can be relied upon by this Bench is the instances of sale filed by the assessees by way of three sale deeds that had been executed at that time in the adjoining arrears and the view of the Sub-Registrar, Chennai, especially when we have held that the values under the WT Act cannot be adopted for the purposes of arriving at the fair market value for the purpose of computing capital gain under the IT Act. Only the aforesaid value can, therefore, be adopted as fair market value as on 1st April, 1981. The claim of the assessees was accepted by the AO in the original assessment proceedings despite a petition against the acceptance of the same. Thus, we hold that the AO has erred in adopting a rate of Rs. 39,063 in the reassessment proceedings and that on the facts and circumstances of the case, fair market value as on 1st April, 1981, should be taken at Rs. 3,85,000 per ground.
55. In the result, these appeals of the assessees are allowed both on law and on facts.
56. In the result, all the appeals of the assessees are allowed.