Prabhu Dayal Rangwala and Others vs Commissioner of Income Tax

Sanjiv Khanna, J.—Prabhu Dayal Rangwala and Indulata Rangwala, husband and wife, individual assessees are appellants in these two sets of appeals, which relate to assessment years 1989-90 and 1990-91. These appeals arise out of a common order passed by the Income Tax Appellate Tribunal (''Tribunal'', for short) dated 14th December, 2001. The final outcome of the two sets of appeals will be antithetical/opposite and, therefore, it would be appropriate to deal with the two sets of appeals for assessment years 1989-90 and 1990-91, separately.

I.T.A. No. 224/2002, Prabhu Dayal Rangwala versus CIT and I.T.A. No. 227/2002, Indulata Rangwala versus CIT (Assessment Year 1989-90)

These two appeals stand admitted for adjudication vide order dated 24th April, 2003, on the following substantial questions of law:-

"1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that proceedings for re-assessment for assessment year 1989-90 were validly initiated?

Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in confirming the cost of acquisition as on 1st April, 1974, as adopted by the Assessing Officer?"

We will first take up question No. 1 as we perceive that answer to the said question is crucial and would settle the controversy. Answer to question No. 2 would be required only if we hold that the reassessment proceedings were validly initiated.

The basic facts as noticed by the Tribunal may be noted:-

(i) The two appellants-assessees, along with other co-owners of property No. 19, Barakhambha Road, New Delhi entered into an agreement dated 7th March, 1973 with M/s. Kailash Nath and Associates (''Builder'', for short) for construction of a multi storied building at the cost of the builder.

(ii) Under the agreement, rights in land were to be transferred-ultimately to the nominees of the builder or cooperative society/limited company to be formed by the prospective owners upon completion of the building.

(iii) In consideration, the co-owners were entitled to allotment of 30% of the built-up space/area in the multi storied building, while 70% of the built-up area belonged to the builder.

(iv) The aforesaid share of 30% and 70%, underwent a change and the co-owners'' share was enhanced to 37% and the builder''s share was reduced to 63% vide agreement dated 19th June, 1981.

(v) The builder and co-owners were free to book flats/commercial space for sale to prospective buyers in the be proposed multi storied building.

(vi) The space/area constituting the co-owners'' share was demarcated as consisting 37% of the ground floor, full first floor, full second floor, full third floor and remainder on the fourth floor.

(vii) The building was completed in 1987, when a completion certificate was obtained.

During the period relevant to the assessment year 1989-90, the two appellant-assessees sold a part of their built-up multi storied area share to third parties. The sale consideration received was offered for tax under the head, capital gains.

The sale consideration received from third parties or the manner and mode of computation of capital gains, is not in question. Determination of the fair market value of the property as on 1st April, 1974, is in issue. Section 55(2)(b)(i) of the Act, as then applicable, postulated that for properties acquired on or before 31st March, 1974, the fair market value as on 1st April, 1974 could, at the option of the assessed, be the cost of acquisition. Father of Prabhu Dayal Rangwala, namely Dwarka Dass, on 2nd December, 1949 had purchased the property. It was a residential house. The property after purchase was used for residential purposes. On 13th November, 1969, the property was converted as belonging to the Hindu Undivided Family. On 27th March, 1971, the property was partitioned in equal shares amongst Dwarka Dass; his wife, Rukmani Devi; and his two sons, Prabhu Dayal Rangwala (i.e. one of the present appellants) and Mahabir Prashad. The said partition was accepted by an order under Section 171 of the Act dated 27th November, 1976.

The issue whether Section 55(2)(b)(i) of the Act would be applicable as the appellant-assessees had entered into the transaction with the builder on 7th March, 1973 is not raised and argued. We, therefore, proceed in these two appeals as well as the appeals relating to assessment year 1990-91 on the premise that the fair market value as on 1st April, 1974 would be the basis for computing capital gains.

Income tax returns for assessment year 1989-90 filed by the appellants-assessees were taken up for scrutiny assessment by issue of notice under Section 143(2) of the Act. In the course of assessment proceedings, the appellants-assessees filed valuation report of a government approved valuer asserting that the fair market value as on 1st April, 1974 was Rs. 356/- per square feet. The aforesaid valuation report has been placed on record and states that the property was developed into flats and hence, selling price method was adopted. On the aforesaid basis, the gross value of the entire property as on 1st April, 1974 was computed at Rs. 4,90,68,800/-. The Assessing Officer passed assessment orders dated 27th November, 1990 in the case of the two appellant-assessees and on the issue in question, i.e. fair market value of the property as on 1st April, 1974, it was identically observed:-

"Copies of sale agreement of direct sale and sale through builder have been filed. Original cost of acquisition as on 1.4.74 as per valuation of Govt. Approved valuer valuing the same at Rs. 356/- per sq. ft." 8. The appellants had also sold built up flats in the period relevant to the assessment year 1990-91 and the issue relating to computation of capital gains arose during the course of scrutiny assessment under Section 143(3) of the Act. The Assessing Officer in the assessment orders for the said year, did not accept the computation of the fair market value of the property as on 1st April, 1974 as claimed by the appellants-assessees relying upon a government approved valuer''s report. The Assessing Officer preferred to rely upon estimation made by the District Valuation Officer (''DVO'', for short) at Rs. 222.96/- per square feet in his report dated 12th March, 1991 under Section 55A of the Act in the case of other co-owners, i.e. Raj Gopal Rangwala and others. In the assessment order relating to assessment year 1990-91, the Assessing Officer observed that the assessment orders for the assessment year 1989-90 were passed on 27th November, 1990, but the DVO''s report dated 12th March, 1991, was subsequent. For various reasons, he held that valuation made by the DVO should be adopted as the fair market value. We shall be dealing with the question of merits of the said addition when we examine the appeals relating to the assessment year 1990-91.

Thereafter, the Assessing Officer for the assessment year 1989-90 issued notice dated 7th December, 1992 for reopening the assessment under Section 148 of the Act. The appellants filed returns under protest and requested for a copy of the reasons to believe. In response, the Assessing Officer wrote letter dated 26th September, 1994, stating that computation of the cost of acquisition @ Rs. 356/- per square feet on the basis of the registered valuer''s report was incorrect as the said valuer had presumed that the same structure/building as sold was in existence as on 1st April, 1974. In fact, the property as on 1st April, 1974 was a residential house and became a commercial property subsequently. The nature of property had changed and was not similar as on 1st April, 1974. The implication was that the valuation of the property as on 1st April, 1974 should have been made as a residential property. These assertions were stated in response to the letter of objection filed by the appellants-assessees. The appellants-assessees protested by making detailed written submissions, on merits and questioning the reopening. The Assessing Officer did not accept the objections and passed assessment orders taking the value of the property as on 1st April, 1974 at Rs. 222.96/- per square feet as against Rs. 356/- per square feet at the time of original assessment.

Before we examine question No. 1, it would be appropriate to refer to the reasons recorded by the Assessing Officer for issue of reassessment notice as the question raised is whether reopening is bad and illegal for want of satisfaction of jurisdictional pre-conditions. Copy of the ''reasons to believe'' recorded by the Assessing Officer, were never communicated. These are not quoted in the assessment order or the appellate orders including the order of the Tribunal. In the grounds of appeal, appellants-assessees have referred to the order sheet entry dated 7th December, 1992, which records the grounds for re-opening under Section 148 read with Section 147 of the Act. These are stated to be ''reasons to believe'' and are reproduced below:-

"7.12.92 The cost of acquisition shown by the assessee is wrong for the elaborate reasons mentioned in the assessment order for the assessment year 1990-91. Issue notice under Section 148 for the assessment year 1989-90". 11. The short question, without going into the merits, is whether the jurisdictional pre-conditions for reopening assessment under Section 147 of the Act are satisfied in the present case or reassessment proceedings were bad on account of ''change of opinion''. "Change of opinion" is not a valid and good ground to reopen regular assessments already made.

Section 147 of the Act as it then existed and applicable on 7th December, 1992, is as under:-

"147. Income escaping assessment.--If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation 1. - Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2. - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but-

(i) income chargeable to tax has been under assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

Explanation 3. - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148."

A Full Bench of this Court in the case of Commissioner of Income Tax Vs. Kalvinator of India Ltd., had examined the aforesaid provision post 1st April, 1989 and opined that reopening on ''change of opinion'' was not permissible even under the aforesaid wider and newly amended Section 147 of the Act. The Full Bench of the High Court elaborated on power of reopening the assessment in the following manner:-

"What would constitute "reason to believe" is no longer res integra.

In Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , the apex court clearly held that once the primary facts are before the assessing authority he requires no further assistance by way of disclosure. It was observed by the apex court that (page 201):

"It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts."

Reference was made to the following excerpt from Indian and Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, :-

"... that he has committed an error when making the original assessment. It is said that, when upon receipt of the audit note the Income-tax Officer discovers or realises that a mistake has been committed in the original assessment, the discovery of the mistake would be ''information'' within the meaning of section 147(b). The submission appears to us inconsistent with the terms of section 147(b). Plainly, the statutory provision envisages that the Income-tax Officer must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words ''reason to believe'', and it follows from the ''information'' received by the Income-tax Officer. The information is not the realisation, the information gives birth to the realisation."

Referring to the decision in Jindal Photo Films Ltd. Vs. The Deputy Commissioner of Income Tax, , the Full Bench held,

"Thus, the court held that even under the newly substituted section 147, with effect from April 1, 1989, an assessment could not be reopened on a mere change of opinion. Yet again in Foramer Vs. Commissioner of Income Tax and Another, , a Division Bench of the Allahabad High Court has held that if a notice under section 147/148 was issued after the coming into force of the amended Act, the latter shall be attracted. However, it is observed that (page 444):

"Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal''s earlier decision in Boudier Christian''s case, it will obviously amount to mere change of opinion, and hence the notice under section 147/148 would be illegal."

We may also notice that a Division Bench of the Gujarat High Court in Garden Silk Mills (P) Ltd. Vs. Deputy Commissioner of Income Tax, , while expressing similar views observed (page 674):

"The reasons recorded by the Assessing Officer which led to the belief about the escapement of assessment disclose that the present case is nothing but mere change of opinion on the facts which were already before the Assessing Officer while making the first assessment to which conscious application of mind is reflected from the proceedings, and allowed in the computation and which has not been disputed by the Revenue.""

The contention of the Revenue that change of opinion would be irrelevant because what the statute mandates was escapement of income was rejected, inter alia, holding:-

"We are, with respect, unable to subscribe to the aforementioned view. If the contention of the Revenue is accepted the same, in our opinion, would confer an arbitrary power upon the Assessing Officer. The Assessing Officer who had passed the order of assessment or even his successor officer only on the slightest pretext or otherwise would be entitled to reopen the proceeding. Assessment proceedings may be furthermore reopened more than once. It is now trite that where two interpretations are possible, that which fulfills the purpose and object of the Act should be preferred."

Thereafter reference was made to Sections 154 and 254(2) of the Act and it was observed:-

"It is a well settled principle of interpretation of statute that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word. It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in section 154 of the Act. The power of rectification of mistake conferred upon the Income-tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake.

It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake.

In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue."

Thus, the distinction between power of reopening and power of Revision under Section 263 of the Act, which applies to erroneous assessments, prejudicial to the interests of the Revenue, was drawn and highlighted.

Referring to Shri Bawa Abhai Singh Vs. Dy. Commissioner of Income Tax, , it was held that change of opinion cannot be a ground to reopen regular assessment, and it was elucidated:-

"It is evident from the afore-extracted portion of the decision that it is not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147 of the Act as was contended by Mr. Jolly."

The aforesaid ratio was approved by the Supreme Court in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, in the following words:-

"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen.

x x x

One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the assessing officer.

We quote hereinbelow the relevant portion of Circular No. 549 dated 31-10-1989, which reads as follows:

"7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression ''reason to believe'' in Section 147.-A number of representations were, received against the omission of the words ''reason to believe'' from Section 147 and their substitution by the ''opinion'' of the Assessing Officer. It was pointed out that the meaning of the expression, ''reason to believe'' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression ''has reason to believe'' in the place of the words ''for reasons to be recorded by him in writing, is of the opinion''. Other provisions of the new Section 147, however, remain the same."

(emphasis supplied)"

Distinguishing the power of review and the power of reopening of assessment, it was observed:-

"We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place." 15. Certain issues and questions had arisen, which were dealt with by a Full Bench of this Court in Commissioner of Income Tax-VI, New Delhi Vs. Usha International Limited, . After examination of the case law, the majority judgment signified and elucidated the following principles:-

"It is, therefore, dear from the aforesaid position that:

(1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion.

(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion".

(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.

x x x

Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion."

We have narrated the facts in detail and also quoted the relevant portion of the original assessment orders in which reliance was placed and the valuation report submitted by the appellants-assessees, was accepted. We have also noted the reasons recorded by the Assessing Officer for reopening the assessment and his reply or show cause notice dated 26th September, 1994, stating that the government approved valuer''s report relied upon the commercial rates as on 1st April, 1974, whereas the property in question at that time was residential. However, what is material and consequential are the reasons to believe. They have to be read and we have to determine whether it is a case of change of opinion. The reasons to believe simply but obsequiously rely upon the assessment order for the assessment year 1990-91 to observe that the cost of acquisition as shown by the assessees was wrong. In other words, the plea and stand of the Revenue was that erroneous and incorrect computation was made, relying upon the reasoning in the assessment orders for the assessment years 1990-91.

In view of the dictum of the Supreme Court in the case of Kelvinator of India Limited (supra), the Full Bench of this Court in Kelvinator of India Limited (supra) and Usha International (supra), the present case would fall in the category of ''change of opinion'' as the ''reasons to believe'' proceed on the premise that the opinion formed in the original assessment orders was wrong or erroneous. A wrong or erroneous opinion is not a good ground for reopening. This would be contrary to the jurisdictional requirements and mandatory pre-conditions which should be satisfied. The said aspect has been highlighted in the aforesaid ratio by the Supreme Court and this Court. Erroneous decisions can be corrected by resort to exercise of power under Section 263 of the Act, which is the appropriate remedy. The said power can be exercised if the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. The error and mistake made by the Assessing Officer/Revenue in the present case is that it did not resort to and exercise power under Section 263 of the Act, but erringly selected to exercise power of reopening under Section 147 of the Act. Exercise of the said power under Section 147 of the Act is faulty and flawed, as jurisdictional pre conditions are not satisfied.

At this stage, we would like to deal with the observations made by the Tribunal and the lower authorities on the question of reopening. The Assessing Officer in the reassessment orders simply recorded that the argument of ''change of opinion'' does not hold good because of the newly amended provisions of Sections 147 and 148 effective retrospectively from 1st April, 1989. The Commissioner of Income Tax (Appeals) did not examine the said issue observing that he had dismissed the appeals on merits for the assessment year 1990-91. The Tribunal in the impugned order observed that the DVO''s report was received subsequent to the completion of assessment for the assessment year 1989-90, on 27th November, 1990 and, therefore, constituted information and thus, reassessment proceedings under Section 147/148 of the Act were justified. The aspect of ''change of opinion'' was not answered.

In Bawa Abhai Singh (supra), reassessment proceedings were upheld as the Assessing Officer had made reference in the ''reasons to believe'' to the DVO''s report, which was received after completion of assessment, though reference to the DVO had been made before or during the course of assessment proceedings. Reference was made to Section 148 as it existed before and after 1st April, 1989 and it was observed:-

"Up to March 31, 1989, two conditions were required to be fulfilled to confer jurisdiction on the Assessing Officer to act under section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under-assessed or assessed at too low a rate or has been made the subject of excessive relief.

After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of sections 148 to 153. He may assess or reassess the income which has escaped assessment. It is to be noted that section 147 as it stands with effect from April 1, 1989, not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre-amended section. The conditions precedent for initiation of action under section 147(a) or 147(b) of the pre-amended situation, is highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are riot present in the amended provision. The only condition for action is that the Assessing Officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended section 147(a) of the Act and the Assessing Officer can under the amended provisions legitimately reopen the assessment in respect of an income which has escaped assessment. Viewed in that angle the power to reopen assessment is much wider under the amended provision and can be exercised even after the assessee has disclosed fully and truly all the material facts. To similar view were the conclusions of this court in Rakesh Aggarwal Vs. Assistant Commissioner of Income Tax, . It is to be noted at this juncture that the twin conditions must be fulfilled if the case is one which is covered by the proviso to section 147 operative with effect from April 1, 1989.

It is to be noted that the decision to initiate proceedings is not to be preceded by any judicial or quasi-judicial enquiry. Reasons which may weigh with the Assessing Officer may be the result of his own investigation and may come from any source that he considers reliable. Formation of his belief is not a judicial decision but is an administrative decision. Nevertheless, he is required to act fairly and judiciously. His belief must have substance and must not be a mere shadow. The expression "information" in the context in which it appears in the pre-amended section 147(b) was held to be instruction or knowledge derived from an external source concerning facts or particulars, or as to the law relating to a matter having a bearing on the assessment. (See Commissioner of Income Tax, Gujarat Vs. A. Raman and Company, . In Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , a true concept of the "information" was elaborately dealt with by the apex court. It was observed that by its inherent nature the fact has concrete existence. It requires no further authority to make it significant. Its quintessential value lies in its definitive vitality."

The aforesaid observations of the Division Bench of the Delhi High Court have to be read in the light of the ratio decidendi as expounded by the Supreme Court in the case of Kelvinator India Ltd. (supra), the decision of the Full Benches of the Delhi High Court in Kelvinator of India Limited (supra) and Usha International (supra), which prohibit and bar ''change of opinion'' as a ground for reopening. It is noteworthy that the Full Bench of this Court in Kelvinator of India Limited (supra) referred to the aforementioned extract from Bawa Abhai Singh (supra) but distinguished the quote, asserting that it was not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate proceeding under Section 147 of the Act.

The decision in the case of Asstt. Commissioner of Income Tax Vs. Dhariya Construction Co., , is not directly applicable. However, the aforesaid decision of the Supreme Court to some extent supports our reasoning. The ratio propounded mandates that the Assessing Officer must independently apply his mind to the valuation report and thereupon form his belief. In the present case, formation of belief is the issue and the reason to believe are a reflection of change of opinion on the ground that the original adjudication in the form of assessment order dated 27th November, 1990 was erroneous and wrong. This cannot be a ground to reopen assessment. The position in M/s. Mahashay Chunnilal Vs. Dy. Commissioner of Income Tax and Others, was identical as in Dhariya Construction Company (supra), wherein the Assessing Officer had relied upon a valuation report, which was per se tentative and vague. Thus, it was observed that ambiguous and unsure valuation report required statement or averment by the Assessing Officer as to the basis and reason why he should proceed and rely on the said report or its contents, while recording the reasons to believe. Reference was made to the decision in the Commissioner of Income Tax XI Vs. Shri Puneet Sabharwal, relying upon an earlier decision in Commissioner of Income Tax Vs. Smt. Suraj Devi, and Commissioner of Income Tax Vs. Naveen Gera, , wherein it was held that the DVO''s report per se may not be sufficient and other corroborative evidence was required. Application of mind by the Assessing Officer was mandatory.

The factual position in ACC Ltd. Vs. District Valuation Officer and Others, was different. The writ petitioner had taken a property on lease for a period of 99 years on 24th April, 1993 and subsequently, residuary interest was transferred by deed of conveyance dated 12th February, 1999. Initially the assessee therein had taken the date of acquisition of property as 12th February, 1999, but in the course of assessment proceedings on 18th November, 2010 submitted that the value of the land should be computed on the basis of the fair market value as on 1st April, 1981. Assessment order was passed shortly thereafter on 29th December, 2010, in which it was observed that reference had been made to the DVO and the valuation given by the assessee was on the higher side. On receipt of the DVO''s report, long-term capital gains would be computed and till then the capital gains as claimed were taken on record. It was in these peculiar facts, specifically noticing the averments made in the assessment order, that reopening was upheld. In the said case the Assessing Officer had duly applied his mind while recording reasons to believe. The decision in the case of Dhariya Construction Company (supra) was distinguished on the ground that the Supreme Court in the said case had deprecated mechanical and robot like reliance on the DVO''s report, to hold that the reasons to believe must be based on independent application of mind by the Assessing Officer. The facts in Mahshay Chunnilal (supra) were somewhat identical, but there is one substantive distinguishing factor that the report of the DVO was per se tentative and vague. The Assessing Officer had proceeded on the said ambiguous valuation report without appreciating its contents and noticing that the DVO''s report itself lacked substance and basis.

In view of the aforesaid position, we answer the substantial question of law No. 1 in I.T.A. No. 224/2002, Prabhu Dayal Rangwala Vs. CIT and I.T.A. No. 227/2002, Indulata Rangwala Vs. CIT relating to assessment year 1989-90 in favour of the appellant-assessee and against the Revenue. Consequently, we need not examine substantial question of law No. 2, which relates to merits.

I.T.A. No. 226/2002, Prabhu Dayal Rangwala versus OT and

I.T.A. No. 225/2002, Indulata Rangwala versus CIT

(Assessment Year 1990-91)

The substantial question of law framed for adjudication in these appeals vide order dated 24th April, 2003 reads:

"Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in confirming the cost of acquisition as on 1st April, 1974, as adopted by the Assessing Officer?" 25. Capital gains under Section 48 of the Act has to be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts, (i) expenditure incurred wholly and exclusively in connection with such transfer; and, (ii) cost of acquisition of the asset and the cost of any improvement thereto. Section 55 of the Act defines the term ''cost of acquisition'' for the purposes of Section 48 and 49 of the Act. The relevant portion of Section 55 of the Act as it existed on 1st April, 1990 is as under:

"55. (1) xxx

(2) For the purposes of sections 48 and 49, "cost of acquisition",-

(a) xxx

(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, 1974], 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, 1974, at the option of the assessee;

xxx"

Section 55(2)(b)(i) of the Act, in the present case, therefore gave option to the appellant assessee to compute the cost of acquisition of the capital asset as on 1st April, 1974. The assessee exercised the said option and in support filed Government approved valuer''s report. The said valuation report estimated the fair market value of the commercial space so sold in the assessment year 1990-91, as on 1st April, 1974 at Rs. 356.15/- per sq. ft. by applying selling price method. To compute the fair market value as on 1st April, 1974, he referred to two agreements between the builder and third parties in the month of October and November, 1981 for purchase of flats in the multi-storied commercial building, the construction of which was to commence. Adjustment in the form of discounted value was taken as the value of the commercial space/flat on per square feet basis on 1st April, 1974.

On the other hand, the Assessing Officer had relied upon the valuation report of the DVO who had estimated the value of the property on the basis of a sale instance, i.e. sale consideration paid for the property located at 15, Curzon Road, New Delhi, sold on 14th April, 1973. He adopted the land rate @ Rs. 1061/- per square yard as on 7th March, 1973 and @ Rs. 1116/- per square yard as on 1st April, 1974. The cost of acquisition, i.e. the fair market value on the said-basis was computed @ Rs. 222.96/- per sq.feet.

The Commissioner of Income Tax (Appeals) upheld the estimation of the fair market value of the property adopted and applied by the Assessing Officer relying on the DVO''s report. The said finding has been affirmed by the Tribunal, observing that what was sold in the assessment year 1990-91 was commercial space but what was existing as on 1st April, 1974 was a residential building. The property as existing on 1st April, 1974 had undergone a change. The Tribunal held that the DVO in his report had rightly relied upon and based his valuation on the sale instance. The cost of acquisition taken @ Rs. 222.96/- per sq. feet was just and fair.

We are in agreement with the finding recorded by the Tribunal that the valuation report relied upon by the assessee did not reflect and cannot be taken as the correct and reasonable estimate of the fair market value of the property as on 1st April, 1974. It is an accepted and admitted position and a finding of fact by the Tribunal that as on 1st April, 1974, the property was a residential house. Thus, we have to compute what was the value of the property as on 1st April, 1974, as a residential house but one could be converted and used for commercial purposes, after obtaining requisite permissions and making due payments. The valuation report relied upon by the assessee under the heading, ''brief description of the property'' records that on the material date, i.e. 1st April, 1974, the property was a residential bungalow but was subsequently developed as a multi-storied commercial building. The said construction had started in June, 1982 and was completed in December, 1987. The construction was carried out at the cost of the builder and consisted of a basement and 12 stories. These facts were noted and stand recorded in the valuation report relied by the appellant assessee. Noticeably, the builder had applied and paid for permissions and conversion of the residential property existing on 1st April, 1974, into and as a commercial property. The report relied upon by the assessee referred to two instances in the form of agreements between the builder and the third parties in, October and November, 1981 for purchase of commercial space in the commercial building for which construction was yet to begin. By 1981, requisite permissions, etc were granted. It had taken almost 7-8 years for permissions/conversion. The said valuation proceeded backwards and computed or estimated the fair market value as on 1st April, 1974 on plinth area method by discounting or reducing the per square feet price mentioned in the two agreements. Thus, the valuation report relied upon by the appellant assessee proceeded on the assumption that as on 1st April, 1974, there was an agreement with the builder for construction of a commercial building and necessary permission, conversion costs, etc. had been granted and paid. Further, the construction was to commence shortly. As per the agreement dated 7th March 1973, enclosed as Annexure P-1, the property was to be vacated by the tenants at the cost of the owners. The fact that the property was occupied by tenants as on 1st April, 1974 would be a relevant factor which would depreciate the value. Thus, we agree with the Revenue that the valuation report relied upon by the assessee did not give fair and correct market value of the property as on 1st April, 1974. The computation made by the valuer, relied upon by the assessee @ Rs. 356.15/- per square feet cannot be accepted as correct.

On the other hand, the DVO''s report was based upon a specific sale instance relating to sale deed dated 19th April, 1973 in respect of property No. 15, Curzon Road, New Delhi. On this basis, fair market value on per square feet basis as on 1st April, 1974 was computed at Rs. 222.96/-.

It is noticeable that the assessee himself, during the course of the assessment proceedings before the Assessing Officer, possibly realized the adversity and error in relying upon the said report and as an alternative submission had stated:-

"(iii) Without prejudice to the above, he states that the assets transferred by him in the above year are his rights in the commercial Flat No. 19, Barakhamba Road, New Delhi. It is the market value of the said right as on 1st April, 1974, which is required to be estimated and deducted out of sale consideration for the purposes of computation of capital gains." 31. Thus, it is apparent that the assessee was himself not satisfied with the valuation report relied upon by him. It was on this basis and reason, that the Assessing Officer had relied upon the valuation report of the DVO.

There is merit in the contention of the assessee that the Assessing Officer had acted contrary to Section 55A of the Act. The DVO''s report was obtained in the assessment proceedings in the case of Dwarka Dass, Rukmani Devi, Raj Gopal Rangwala and Mahabir Parshad. Procedure and reference under Section 55A of the Act was not made in the case of the appellant assessed.

The report of the DVO in the case of the appellant-assessee would not be a binding report under Section 55A of the Act. Normally, we would have remanded the matter to the Assessing Officer but for several reasons, we do not think that this is required. We have reproduced above the alternative submission made by the appellant-assessee before the Assessing Officer agreeing that the fair market value of the property as on 1st April, 1974, if required, may be estimated. The said DVO''s report or estimation made can be considered as an independent material or evidence relevant for ascertainment of the fair market value, though not a binding or conclusive report. The appellate authorities have also not treated the DVO''s report as binding one, but only as a relevant evidence. In nutshell, the DVO''s report which relies upon the sale instance, i.e. sale deed dated 19th April, 1973 of property No. 15, Curzon Road, New Delhi, has been treated as the basis/foundation for computing the fair market value. The said sale deed could well be relied upon by the Assessing Officer for computing the fair market value as on 1st April, 1973. Further, in case the appellant-assessee felt and wanted to rely upon other sale instances, they could have produced the said evidence before the Assessing Officer or before the appellate authorities including the Tribunal. Noticeably, no attempt was made to challenge the said sale instance and the computation made by the Assessing Officer by filing other contemporaneous sale deeds. No other transaction was relied upon. The valuation or estimation has to be fair and reasonable and not based upon surmise and conjecture. The property in question was owned by several assessees including Dwarka Dass, Rukmani Devi, Raj Gopal Rangwala and Mahabir Parshad. The said co-owners have accepted the said valuation report. It was stated at the Bar that the said persons had not filed any objections to the valuation made. Therefore, even if an order of remand is passed, the valuation of the DVO, which has been adopted and applied by the Assessing Officer, it is apparent, would be again applied. We are, therefore, not inclined to pass a futile order of remand. This would be undesirable.

Decision in the case of Naveen Gera (supra) is inappropriate. The said decision holds that Section 142A of the Act has no retrospective effect and was not applicable to assessments made on or before 30th September, 2004. This is not the issue or controversy in the present case. The sale transaction in the said case was between the assessee and a company in which the son of the assessee was one of the directors. Another issue related to scope of assessment under Section 153A of the Act. The issues raised in the present case are entirely different

Prakash Chand Vs. Deputy Commissioner of Income Tax and Another, was a case relating to reopening under Section 147/148 of the Act. Reference was made to the decision of the Supreme Court in Amiya Bala Paul Vs. Commissioner of Income Tax, Shillong, , inter alia, holding that Section 55A of the Act was a specific provision and expressly sets out the circumstances under and the purposes for which a reference can be made to the Valuation Officer. It was observed that the Valuation Officer could not have acted otherwise and the Assessing Officer was wrong in taking recourse to Sections 131(1), 133(6) and 142(2) of the Act. Importantly, it was observed that the assessment proceedings had concluded and, therefore, the Assessing Officer had no jurisdiction to place reliance on the valuation report obtained subsequently and that too when not obtained in exercise of powers under Section 55A of the Act.

In Commissioner of Income Tax Vs. Darshan Singh, , the appeal filed by the Revenue was dismissed observing that reassessment proceedings had been initiated under Section 147 of the Act solely on the basis of the report of the Valuation Officer.

In the case of Commissioner of Income Tax Vs. Vrindaban Real Estate (P.) Ltd. (2013) 213 Taxman 92 (All), reference was made to Dhariya Construction Company (supra) and decisions of the High Court in Darshan Singh (supra) and Prakash Chand (supra) and the reopening of assessment under Section 147 read with Section 148 of the Act was set aside. It was also observed that the Supreme Court in Kelvinator of India Ltd. (supra) had held that the concept of ''change of opinion'' bars an Assessing Officer from having a relook and review an assessment order already passed. In Tulsidas Kilachand Vs. D.R. Chawla and Others, , the assessment year involved was 1968-69 and proceedings were under the Wealth Tax Act, 1957. Reopening under Wealth Tax Act, 1957 was set aside on the ground that mere change of opinion does not confer jurisdiction. In the original proceedings itself the Assessing Officer had ample time to ascertain the correctness of the return.

In view of the aforesaid, we answer the substantial question of law in I.T.A. No. 226/2002, Prabhu Dayal Rangwala versus CIT and I.T.A. No. 225/2002, Indulata Rangwala versus CIT relating to assessment year 1990-91 against the appellant-assessee and in favour of the respondent-Revenue. The appeals are disposed of. In the facts of the present case, there will be no order as to costs.