B INDIRA DEVI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal, Cochin Bench, has referred the following question of law under Section 256(2) of the IT Act, 1961 (for short 'the Act'), at the instance of the assessee, pursuant to the direction issued by this Court in the judgment dt. 14th July, 1994 in OP No. 58 of 1985 :

(2.) THE applicant is an individual, who is an assessee under the Act. The assessment year concerned is 1977 -78. The AO referred the question of cost of construction of a building constructed by the assessee during the relevant accounting period ended on 31st March, 1977, to the Executive Engineer, Valuation Cell, Thiruvananthapuram. The said officer had valued the cost of construction of the building at Rs. 3,53,000, as against the cost of construction of Rs. 2,09,094 furnished by the assessee in her return. Based on the valuation made by the Executive Engineer, the AO sought to take the difference between the cost of construction of the building valued by the Executive Engineer and that admitted by the assessee, amounting to Rs. 1,43,906 as unexplained investment of the assessee. The AO had also furnished a copy of the valuation report of the Executive Engineer along with the pre -assessment notice, and called for objections from the assessee. The assessee had filed her objections and also produced a valuation report of a registered valuer in support of her case. The AO then forwarded the objections furnished by the assessee to the Executive Engineer for his remarks and later, after considering the valuation report and the objections taken by the assessee, adopted the cost of construction at Rs. 3,15,498. Based on the said valuation, the difference came to only Rs. 1,06,400. The AO treated the said amount as assessee's unexplained investment and brought the same to tax. Being aggrieved by the said assessment, the assessee filed appeal before the AAC, Thiruvananthapuram. A contention was taken in the appeal that the reference of the question of cost of construction of the building by the AO to the Executive Engineer, Valuation Cell, Thiruvananthapuram, was without jurisdiction. The first appellate authority considered the said question in para. 3 of the appellate order. The first appellate authority accepted the contention of the assessee that there is no provision as such in the Act for reference of the cost of construction of a building except for the purpose of determining the capital gain contained in Section 55A of the Act. The first appellate authority, however, held that the provisions of Section 142(2) of the Act gave sufficient power to the AO to make such enquiry as he considers necessary for the purpose of obtaining full information in respect of the income or loss of any person, According to the first appellate authority, this power conferred under Section 142(2) of the Act enables the AO to refer the cost of construction of the building to the departmental valuer, since the AO does not have the expertise to arrive at the cost of construction independently. The first appellate authority, accordingly, rejected the contention of the assessee that the AO has no jurisdiction to refer the question of cost of construction of the building to the Executive Engineer, Valuation Cell. This finding of the first appellate authority was affirmed by the Tribunal in its appellate order dt. 26th Oct., 1983, at p. 12. We find that the Tribunal has also rested its conclusion with reference to the provisions of Section 142(2) of the Act relied on by the first appellate authority.

(3.) COUNSEL for the applicant submitted that the provisions of Section 55A of the Act, which provides for reference of the question of valuation by the AO to the departmental valuer arises only for arriving at the fair market value of the property for the purpose of capital gains tax and that there is no question of using the said provision for any other purpose. Counsel, in support of the said contention, relied on the decision of this Court in CIT v. Dr. C. Ashok Nambiar : [2000]245ITR37(Ker) . Standing counsel further submitted that there is no provision in the Act enabling the AO to refer the question of cost of construction to find out as to whether there is any unexplained investment. He also submitted that the reliance placed on the provisions of Section 142(2) of the Act by the two appellate authorities are not justified.