SURESH SHENOY v. WEALTH TAX OFFICER — 1983 DIGILAW 146 (KER)

Judgment :- 1. The petitioner is an assessee to Wealth Tax. He is a partner in two firms, namely M/s. New Guna Shenoy Co. and Sasidhara Shenoy & Bros. For five years, 1978-79 to 1982-83, the 1st respondent Wealth-tax Officer, A-Ward, Ernakulam referred the question of valuation of the petitioner's properties, to the 2nd respondent Valuation Officer to assess the net wealth of the petitioner. The 2nd respondent requested the petitioner to furnish certain details as per Notice dated 20-12-1982 (Ext. P1). The petitioner filed objections, before the 2nd respondent, Ext. P2 dated 2-3-1983, and Ext. P3 dated 15-3-1983. The Valuation Officer effected a preliminary valuation report dated 28-2-1983 (Exts. P4 and P4 (a)) which was served on the petitioner on 1-3-1983. The petitioner was directed to file his objection to the estimate of valuation on or before 10-3-1983 as is seen from Para 7 at page 43 of the counter-affidavit of the 2nd respondent. The petitioner took time. Time was granted upto 25-3-1983. In the meanwhile, by notice dated 19-3-1983 evidenced by Ext.PS, the Valuation Officer replied to the petitioner stating his views regarding the objections raised by the petitioner in Ext. P2 and Ext.P3. The petitioner filed his objections, Ext. P6, on 21-3-1983. The 2nd respondent passed the final Valuation Report evidenced by Ext. R2(a) and Ext. R2(b), (R2(A) and R2(B)) on 21-3-1983 itself and later communicated the same to the petitioner. In the meanwhile, the petitioner filed this O. P. on 18-3-1983 praying for the issue of a writ of certiorari to quash Ext. P1 notice dated 20-12-1982 and also the provisional valuation report, Exts. P4 and P4A. Notice was ordered in the O. P. on 21-3-1983. When the O. P. was pending in this court, the final valuation report was effected by the 2nd respondent evidenced by Exts. R2(A) and R2(B) dated 21-3-1983. The petitioner has filed a petition, CMP. No. 16023 of 1983, praying to quash Exts. R2(A) & (B) also. 2. This court passed an order in CMP. No. 11165 of 1983 and other connected petitions on 11-5-1983 to the following effect: "Heard counsel on both sides. The assessment of the petitioners will be completed only after considering all objections filed by the petitioners. Subject to these observations these C. M. Ps. are dismissed. Post the Original Petitions for hearing on 13-6-1983." The 1st respondent has filed a detailed counter-affidavit dated 15-6-1983. The assessment of the petitioners will be completed only after considering all objections filed by the petitioners. Subject to these observations these C. M. Ps. are dismissed. Post the Original Petitions for hearing on 13-6-1983." The 1st respondent has filed a detailed counter-affidavit dated 15-6-1983. The 2nd respondent has filed a detailed affidavit ' along with annexures dated 24-6-1983. A reply affidavit has been filed by the petitioner. 3. Mr. C. M. Devan, counsel for the petitioner, raised many grounds to assail the initiation of proceedings by the Wealth-tax Officer referring the matter of valuation of the petitioner's assets to the Valuation Officer and also the procedure adopted by the 2nd respondent in effecting the provisional and final valuation reports-Exts. P4 and P4A and Exts. R2A & B. The main points raised are: 1. The 2nd respondent has failed to act judicially and fairly in passing Exts. P4 & P4(a) and also Exts. R2(A) and R2(B). 2. In the facts and circumstances of this case, the 2nd respondent has totally failed to apply his mind to the matters in issue and in any view of the matter, Exts. R2(A) and R2(B) were passed in undue haste and without observing the rules of natural justice and fair play. 3. Reliance is placed by Revenue on S.16A (1) (b) (i) & (ii) of Wealth Tax' Act to initiate the proceedings to refer the valuation to the 2nd respondent. There is no basis or material to invoke the said provisions. The 1st respondent has acted at his ipse dixit and has also failed to give effect to the circulars No . F. No. 6/8/68 WT. dated 20-9-1968 and F. No. 6/11/68 dated 3-7-1969. This being a juris dictional issue, the 1st respondent has acted illegally and without jurisdiction. Counsel for the Revenue Sri. P. K. R. Menon sought to sustain the orders impugned and also the procedure adopted by the respondents. 4. After hearing both sides, it turned out that the matter can be disposed of on Point No. (2) urged by the petitioner. It is common ground that the petitioner filed Ext. P6 objections on 21-3-1983. In the the final valuation report (Exts. R2(A) & (B)) the above objections have no doubt been adverted to. Along with Ext. 4. After hearing both sides, it turned out that the matter can be disposed of on Point No. (2) urged by the petitioner. It is common ground that the petitioner filed Ext. P6 objections on 21-3-1983. In the the final valuation report (Exts. R2(A) & (B)) the above objections have no doubt been adverted to. Along with Ext. P6, the petitioner filed an annexure wherein details of five sales which have taken place near about the properties which are to be valued, are furnished. The extent of the properties, survey number, document number, its location, and the consideration mentioned are all mentioned. Four of them are sale-deeds by private parties. One of them is the award passed in land acquisition proceedings dated 11-6-1980 (See pages 18 and 19 of 2nd respondent's counter affidavit). The 2nd respondent has discussed the objection in the following way in para 8.3.3. (see page 20 of the 2nd respondent's counter affidavit): "The contention that the land values adopted are excessive cannot be sustained. The sale instances given by the assessee in his objection are not the real sales reflecting the market rates of Ernakulam. There may be strey cases of sales which may be tenated property sold to the same tenant or disposed of to near relations or gifted to wife or children. Set against these sale instances, there is a long list of sale instances which approximates to the market rates of land in these localities relating to the areas for my valuation. The reference to valuation is received from the Wealth-tax Officer. From the very fact that the WTO has taken up this case for valuation, it is clear that he was not satisfied with the earlier considerations 8.3.4. The comparable sales quoted are correct and the steep rise in unit rate of land is not my creation, but actually based upon the statistical data available in this office for uniform application to all suitable cases of valuation. Because a few sales instances have been quoted which are pitched low, it cannot be concluded that they are the correct sales. 8.3.5. Because a few sales instances have been quoted which are pitched low, it cannot be concluded that they are the correct sales. 8.3.5. The valuation of the various theatre buildings are also based on the construction costs of such theatre building relevant to the period of valuation The rates are consistent with the specification followed for the buildings and hence do not call for any change (Emphasis supplied) It is common ground that the "long list of sale instances" referred to in para 8.3.3., the "statistical data available in the office", as also the rates with the specification followed for the buildings, etc. referred to in Para 8.3.4. and 8.3.5. were never put to the assessee at anytime before passing Exts. R2(A) and R2(B) final orders. On the face of it, failure to do so, violates the principles of natural justice. Moreover, the conclusion of the 2nd respondent to the effect that "the sale instances given by the assessee, are not the real market value of Ernakulam" ."There may be stray cases of sales which may be tenanted property sold to the same tenant or disposed of to near relatives or gifted to wife or children", was arrived by totally ignoring the fact that one of the documents relied on by the assessee in the annexure to the objection filed on 21-3-1983, is the Land Acquisition Proceedings of the G. C. D. A. and the award dated 11-6-1980. That is an award passed by a public authority. It has to be presumed that the amount awarded in L. A. proceedings represented the market value at the relevant date unless there are cogent materials to the contra. To say casually that the property (even the one acquired by the Greater Cochin Development Authority) did not reflect the market rates of Ernakulam or that the'sales maybe of tenanted property sold to the same tenant, or disposed of to near relations or gifted to wife or children, is really a non-application of the mind by the 2nd respondent in the facts and circumstances of this case. Nothing has been ascertained or said about the other four documents also referred to in the annexure. It is unknown as to why they are discarded. It is obvious that the 2nd respondent has acted mechanically. He did not apply his mind to the vital aspects arising in the case. The observations contained in para 8.3.3. Nothing has been ascertained or said about the other four documents also referred to in the annexure. It is unknown as to why they are discarded. It is obvious that the 2nd respondent has acted mechanically. He did not apply his mind to the vital aspects arising in the case. The observations contained in para 8.3.3. are of a general and sweeping nature, lacking in precision or application of the judicial mind and perhaps disposing of arbitrarily the materials placed by the petitioner before the 2nd respondent 5. The provisions of S.16(A) of the Wealth Tax Act are relevant in this context: "16A. (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, the Wealth-tax Officer may refer the valuation of any asset to a Valuation Officer (a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Wealth-tax Officer is of opinion that the value so returned is less than its fair market value; (b) in any other case, if the Wealth-tax Officer is of opinion (i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do. (4) Where the Valuation Officer is of opinion that the value of the asset is higher than the value declared in the return made by the assessee under S.14 or 15, or where the asset is not disclosed or the value of the asset is not declared in such return or where no such return has been made, the Valuation Officer shall serve a notice on the assessee intimating the value which he proposes to estimate and giving the assessee an opportunity to state, on a date to be specified in the notice, his objections either in person or in writing before the Valuation Officer and to produce or cause to be produced on that date such evidence as the assessee may rely in support of his objections. (5) On the date specified in the notice under sub-section (4), or as soon thereafter as may be, after hearing such evidence as the assessee may produce and after considering such evidence as the valuation Officer may require on any specified points and after taking into account all relevant material which he has gathered, the Valuation Officer shall, by order in writing, estimate the value of the asset and send a copy of his order to the Wealth-tax Officer and to the assessee " A reading of S.16-A, clauses (4) & (5) leaves no room for doubt that the 2nd Respondent-Valuation Officer-while exercising the powers referred to above, exercises a quasi-judicial function. He has to act judicially. He should act fairly and bonafide, as is the case, with all statutory functionaries. If so, he should take into account only relevant materials, and eschew from consideration irrelevant materials. It should be borne in mind that the Wealth Tax Officer has no power to alter the value of the assets as estimated by the Valuation Officer. The assessing authority is bound by the report of the Valuation Officer. (S. 16(A)(6) of the Act). The only remedy of the aggrieved assessee is to file an appeal from the order of the Wealth Tax Officer, wherein the report of the Valuation Officer can also be challenged. As stated, the Valuation Officer functions as a "quasi-judicial authority" in exercise of the powers vested in him under S.16-A(4) & (5) of the Wealth Tax Act. The decision of the Allahabad High Court reported in Bireshwar Mookerji v. Inspecting Assistant Commissioner of Wealth-tax ((1982) 135 ITR. 29) at pages 33 & 34 and of Delhi High Court in Werger & Co. and others v. D.V.O. (1978) 115 ITR. 648 at pp. 655, 656 & 657 are instructive in this regard. The duties enjoined on such quasi-judicial authorities have been stated by the Supreme Court in the decision reported in Kraipak v. Union of India (AIR 1970 SC. 150 at pp. 156 & 157) and there is no need to repeat what has been stated in the said decision. Suffice it to say, that even a statutory authority, should exercise his powers in accordance with law. He should act fairly, bona fide, honestly and with due care and caution, since the exercise of power by such authorities affect persons with civil consequences. Suffice it to say, that even a statutory authority, should exercise his powers in accordance with law. He should act fairly, bona fide, honestly and with due care and caution, since the exercise of power by such authorities affect persons with civil consequences. Can it be said that the 2nd respondent when he passed Ext. R2(A) & (B) did so, bearing in mind the above norms? From the facts stated above, it is clear that the 2nd respondent acted arbitrarily and not "fairly" and also did not conform to the principles of natural justice in passing Ext. R2 (A) and R2(B). The facts also disclose that the 2nd respondent acted casually, mechanically and without a proper application of the mind. In passing Exts. R2(A) and R2(B), in the way he did, the 2nd respondent has totally failed to observe the normal and minimal norms which should have been adhered to, in the exercise of quasi-judicial functions. The portions quoted from his final Report Ext. R2(A) and R2(B), refer red to as Paras 8.3.3., 8.3.4. and 8.3.5. demonstrate that the 2nd respondent has failed to act in accordance with law. 6. Counsel for the Revenue conceded that the above aspects adverted to above were never put to the assessee (petitioner). It is so evident from Exts. R2(A) & (B) and also the counter affidavit filed by the 2nd respondent himself. The decision reported in Ponkunnam Traders v. Additional Incometax Officer (83 ITR. 508) (affirmed in 102 ITR. 336 D.B.), is instructive in this context. In that case the material relied on by the officer was the assessment of the assessee for the previous year. It was held that eventhough the relevant material relied on by the Income Tax Officer was the assessment of the assessee (himself) for the previous year, they should be put to the assessee. Failure to do so, was held to be a violation of principles of natural justice. The following extract from the decision reported in Ponkunnam Traders case (83 I.T R.508 at pp. Failure to do so, was held to be a violation of principles of natural justice. The following extract from the decision reported in Ponkunnam Traders case (83 I.T R.508 at pp. 510 and 511) are apposite and may be usefully referred to, in construing S.16-A (4) & (5) of Wealth Tax Act: "The contention of the assessee is that he was entitled to notice under S.142 (3) of the Act of the materials gathered by the Income-tax Officer and to have his say about them, and as no such notice was given or his explanation heard, the order of assessment is void to the extent objected to by him. S.142 reads: "(1) For the purpose of making an assessment under this Act the Income-tax Officer may serve on any person who has made a return under S.139 or upon whom a notice has been served under sub-section (2) of S.139 (whether a return has been made or not) a notice requiring him, on a date to be therein specified, (i) to produce, or cause to be produced, such accounts or documents as the Income-tax Officer may require, or (ii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Income-tax Officer may require: (2) For the purpose of obtaining full information in respect of the income or loss of any person, the Income-tax Officer may make such enquiry as he considers necessary. (3) The assessee shall, except where the assessment is made under S.144, be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry under sub-section (2) and proposed to be utilised for the purpose of the assessment." Counsel for the revenue contended that it was only in respect of the materials gathered by the Income-tax Officer as a result of his enquiry under sub-section (2) of S.142 that he was bound to give the assessee an opportunity of being heard, that the knowledge of the Income-tax Officer of the previous return submitted by the assessee was sufficient material for a best judgment assessment and such knowledge cannot by any stretch of imagination be regarded as materials gathered on the basis of enquiry within the meaning of S.142 (3), and, so, no opportunity of being heard in respect of that material was required. I think that when an Income-tax Officer gathers materials from a source other than the records relevant to the year of assessment, he has gathered materials on the basis of enquiry within the meaning of S.142 (3), and, therefrom, he will be bound to give an opportunity to the assessee in respect of the materials so gathered. In this case the assessee may have a thousand explanations to offer as to why he could not make the same profit in the year in question as in the previous year." And at page 512, Mathew, J. as he then was, held: "Although the Income-tax Officer was entitled to use his knowledge of the previous return by the assessee, that must have been put to the assessee and his explanation asked for." I should state, that the above salutary, principles laid down by this court were totally ignored by the 2nd respondent. The 2nd respondent has not acted fairly either. I am not expressing any opinion about the averments regarding the haste with which the 2nd respondent passed Exts. R2 (A) & (B) detailed in Para.4 of the reply affidavit dated 27-6-1983 and Para.2 of the petition, C.M.P. No. 16023 of 1983. In the light of the above, I hold that Exts. R2 (A) & (B) final valuation report of the 2nd respondent, cannot stand. They were passed in violation of the principles of natural justice and so were void and infirm. I declare that Exts. In the light of the above, I hold that Exts. R2 (A) & (B) final valuation report of the 2nd respondent, cannot stand. They were passed in violation of the principles of natural justice and so were void and infirm. I declare that Exts. R2 (A) & (B) are null and void. They are quashed. The other points raised by the petitioner are left open. 7. The 2nd respondent is at liberty to make a fresh final valuation report "denovo" in accordance with law and after affording the petitioner a reasonable opportunity to put forward his objections. The 2nd respondent will supply all the materials which he proposes to rely, to the petitioner within three weeks from the date of receipt of this judgment. Apart from the objections now filed, the petitioner can file additional objections, if any, and also tender all the materials on which he proposes to rely, to substantiate his contentions within three weeks from the date of receipt of the communication from the 2nd respondent. In view of the complicated questions involved for adjudication, the petitioner, if he so desires, may also be heard. The final valuation report itself will be completed, as far as possible, within two months from the date of receipt of this judgment. 8. The O. P. is disposed of as above. There will be no order as to costs. A carbon copy of this judgment may be supplied to the counsel for the petitioner and also to the counsel for the Revenue, on usual terms.