COMMISSIONER OF INCOME TAX Vs. CHANDARA PRABHA PATERIA

JUDGEMENT

(1.) THIS is a reference made by the Tribunal referring for our answer the following questions of law

(2.) THE facts briefly stated are that for the asst. yr. 1972-73, the ITO computed the capital gains earned by the assessee on sales of three houses. Two houses were sold for Rs. 20,000 and Rs. 30,000. THE third house was sold for Rs. 48,000. THE ITO estimated the fair market value of the first two houses at Rs. 1,15,000 as against Rs. 50,000 shown in the sale deeds. THE fair market value of the third house was estimated at Rs. 1,86,000. THE ITO did not obtain the approval of the IAC as required by s. 52(2) in respect of the first two houses for which the fair market value was estimated at Rs. 1, 1 5,000. THE ITO obtained the approval of the IAC in respect of the fair market value of the third house. THE ITO completed the assessment and taxed the assessee under s. 52 (2). THE CIT by order dated 17th December, 1977, revised the assessment order passed by the ITO on the ground that there was omission on his part to take the approval of the IAC in respect of the estimate of valuation of two houses. In appeal filed by the assessee against the order of the CIT, the Tribunal held that the omission to take the approval of the IAC under s. 52(2) did not make the order of the ITO prejudicial to the Revenue and, therefore, the CIT had no power of revision.

(3.) A reading of s. 52(2) will show that if the ITO is of the opinion that the fair market value of a capital asset transferred by an assessee exceeds the full value of the consideration declared by the assessee by an amount of not less than fifteen per cent. of the value so declared, the full value of the consideration of such capital asset, with the previous approval of the IAC, will be taken to be its fair market value. Now, the provision requiring the approval of the IAC to the estimate made by the ITO is, in our opinion, a provision for the benefit of the assessee. The object behind this provision is that if the ITO finds that the fair market value exceeds fifteen per cent. of the value declared by the assessee, some higher authority should apply its mind and give approval to the estimate of the ITO before the assessee is made liable on that basis. Omission on the part of the ITO to observe this provision would cause prejudice to the assessee in that the assessment would be made against him without the safeguard of the approval of the IAC. The learned standing counsel, however, submitted that because of this omission, the order of assessment would be set aside in the assessee's appeal and, theref ore,the omission would also be prejudicial to the Revenue. After an assessment is made without following the requirement of s. 52(2) of taking the approval of the IAC, the assessee may accept the assessment. If that is the position, obviously no prejudice to the Revenue is occasioned. Further, if the assessee files an appeal and does not dispute the order of assessment on the ground of non-compliance of the requirement of s. 52(2), again no question of prejudice to the Revenue arises. Now, even in an appeal where the point is taken that the omission of the approval by the IAC made the order of assessment invalid, the appellate authority will not merely set aside the assessment order but would remand the case to the ITO for taking approval of the IAC, i.e., for complying with the requirement of s. 52(2). In other words, the appellate authority would do the same thing which the CIT can do in revision. Thus, the Revenue's interest is safeguarded in all eventualities and it cannot be said that the omission to follow the procedure of obtaining the approval of the IAC as required by s. 52(2) would result in prejudice to the Revenue. Examining the position from all these angles we agree with the Tribunal that the CIT had no power of revision, for, the omission to take the approval of the IAC did not make the assessment order passed by the ITO prejudicial to the interest of the Revenue.