Paul John vs Commissioner of Income Tax (Appeals) and Another

K. Narayana Kurup, J.—Heard counsel for the petitioner and standing counsel for Income Tax.

The petitioner is one of the co-owners of the building known as "Kandonkulathy Towers", M. G. Road, Ernakulam.

The construction of the building was started during the financial year 1982-83 and the construction was mainly completed by May, 1985. According to the petitioner, he was maintaining correct books of account as regards the building construction. The building is a multi-storeyed office complex. As per the books of account, a total investment of Rs. 52,16,035 was disclosed. The construction was over and the petitioner got the building valued by an Approved Valuer. A detailed valuation was made by the valuer and he estimated the value of the building at Rs. 53,30,672. The building was constructed with financial assistance from the Bank of Baroda. The bank, as financing agency, had conducted periodical valuation of the building by its registered architect who estimated the cost of the building at Rs. 50,45,000. The investments made by the co-owners had been duly included in their respective wealth-tax returns and they have been accordingly assessed. The co-owners have maintained proper and regular books of account duly supported by vouchers, bills, etc., and also the periodical valuation made by the financing bank, namely, Bank of Baroda. These books of account were produced before the assessing authority and the assessing authority did not point out any defect in the books of account. While so, the assessing authority, namely, the second respondent herein, referred the matter to the Valuation Cell of the Income Tax Department seeking to estimate the building by the officers of the Department. Exhibit P-1 is the report filed by the District Valuation Officer wherein the cost of the building is estimated at Rs. 1,30,41,085. On the basis of exhibit P-1 report, the assessments were reopened by issuance of notice u/s 148 of the Income Tax Act, 1961, and the difference in cost was directed to be explained. The petitioner along with the other co-owners objected to the valuation report of the District Valuation Officer. On a detailed consideration of the objection raised, the Department granted a deduction of Rs. 21,15,318 and the investment in the building was fixed at Rs. 1,09,25,767, as per exhibit P-2 order of the Assessing Officer modifying the order of the District Valuation Officer. Since the orders of the Assessing Officer were still without reasoning and illegal, the petitioner along with the other co-owners preferred an appeal before the Commissioner of Income Tax (Appeals), the first respondent herein, who, as per exhibit P-3 order, held that the finding of the District Valuation Officer is wrong as it is not based on any reasoning. Exhibit P-3, the valuation report of the District Valuation Officer, was dubbed as wide of the mark since the additions are primarily based on the ad hoc plinth area rates adopted by the District Valuation Officer. The first respondent further goes on to say that the report of the District Valuation Officer cannot be relied upon and hence, the Assessing Officer has gone wrong in banking on the report to assess the petitioner. In the result, as per exhibit P-3, the first respondent set aside the order of assessment passed against the petitioner with a direction to complete the assessment de novo in accordance with law after making an in-depth analysis of the facts and figures, books of account, bills, vouchers, etc. Exhibit P-3 order of the first respondent has not been challenged by the Department and, hence, it has become final and conclusive.

While so, the Assessing Officer (second respondent), as per the directions of the first respondent, requested the District Valuation Officer to make a detailed valuation to assess the quantity of various items required for the construction of the building. However, the District Valuation Officer refused to make a detailed valuation. Since the District Valuation Officer failed to conduct a fresh valuation as directed by the first respondent, the petitioner filed a detailed representation evidenced by exhibit P-4 before the Commissioner of Income Tax (Administration). While the petitioner, was waiting for some action on his exhibit P-4 representation filed before the Commissioner of Income Tax (Administration), he was served with exhibit P-5 assessment order and demand notice by the second respondent. A perusal of exhibit P-5 makes it clear that the second respondent, assessing authority, proceeded on the basis of the report of the District Valuation Officer which has been described by the first respondent as wide of the mark and being so, it cannot be treated as the basis for assessing the petitioner. Evidently, the first respondent has issued a direction to make a de novo assessment, since the valuation report submitted by the District Valuation Officer is "wide of the mark" and the same contains various infirmities and glaring mistakes. Since the infirmities and glaring mistakes in the valuation report have not been rectified, according to me, it is not open to the second respondent to assess the petitioner on the basis of such a valuation report which has been found to be erroneous. The action of the second respondent in making assessment on the basis of the valuation of the District Valuation Officer which has been found to be vitiated by glaring mistakes is accordingly liable to be set aside.

In the result, I quash exhibit P-5 and there will be a direction to the second respondent to assess the petitioner only on the basis of a valid valuation report free from the infirmities pointed out by the first respondent.

The original petition is allowed as above.