2014 (7) TMI 1179 - AT - Income Tax

Reference to DVO - determination of long term capital loss - Held that - Assessing Officer has no power to make reference to the DVO for the impugned assessment year by invoking provisions u/s.55A of the Income Tax Act for determining the Fair Market Value as on 01-04-1981. In this view of the matter, we hold that the CIT(A) was not justified in not accepting the long term capital loss declared by the assessee. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to accept the long term capital loss declared by the assessee. - Decided against revenue

Summary

Issues Involved:
1. Validity of the reference to the Valuation Officer under Section 55A of the Income Tax Act.
2. Determination of Fair Market Value (FMV) as on 01-04-1981 and 22-04-2004.
3. Computation of Long Term Capital Gain (LTCG) versus Long Term Capital Loss (LTCL).

Detailed Analysis:

1. Validity of the Reference to the Valuation Officer under Section 55A:
The primary issue contested by the assessee was the validity of the Assessing Officer's (AO) reference to the Valuation Officer (DVO) under Section 55A of the Income Tax Act. The assessee argued that the AO misinterpreted the provisions of Section 55A(a) and (b) by referring the matter to the DVO. According to the assessee, Section 55A(a) allows the AO to refer the matter to the valuation office only if the value estimated by the assessee is less than its FMV. In this case, the value estimated by the Registered Valuer was higher, not lower. The Tribunal cited the decision in the case of ITO Vs. Mrs. Sangeeta Jeevan Bhonsale and the Hon'ble Gujarat High Court decision in Hiaben Jayantilal Shah Vs. ITO And Anr., which held that the AO has no power to make such a reference if the value declared by the assessee is higher than the FMV. The Tribunal concluded that the AO's reference to the DVO was not justified.

2. Determination of Fair Market Value (FMV) as on 01-04-1981 and 22-04-2004:
The AO had referred the matter to the DVO to determine the FMV of the property as on 01-04-1981 and 22-04-2004. The DVO determined the FMV as Rs. 18,48,000 as on 01-04-1981 and Rs. 2,59,86,000 as on 22-04-2004. The assessee, however, had taken the indexed cost of acquisition at Rs. 320 per sq. mtr (Rs. 58,56,000) as on 01-04-1981. The Tribunal noted the significant variance between the values determined by the DVO and the Registered Valuer. The Tribunal found that the AO had no power to refer the matter to the DVO for determining the FMV as on 01-04-1981, as the value adopted by the assessee was higher than the FMV.

3. Computation of Long Term Capital Gain (LTCG) versus Long Term Capital Loss (LTCL):
The AO computed the LTCG at Rs. 1,71,56,000, as opposed to the LTCL of Rs. 96,08,800 declared by the assessee. After allowing a deduction for the construction of a house under Section 54F, the net capital gain was determined at Rs. 1,44,00,724. The Tribunal, however, found that the AO's computation was based on an invalid reference to the DVO. The Tribunal directed the AO to accept the LTCL declared by the assessee, thus overturning the AO's computation of LTCG.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the AO's reference to the DVO under Section 55A was invalid. The Tribunal directed the AO to accept the long term capital loss declared by the assessee, thereby setting aside the order of the CIT(A). The grounds raised by the assessee were allowed, and the appeal was pronounced in favor of the assessee.