2014 (4) TMI 1205 - AT - Income Tax

Addition on account of capital gain - the addition is solely based on valuation of report called for u/s. 55A(a) - whether reference to DVO for valuing the property for valuation u/s. 55A was without jurisdiction? - Held that - Up to 01.07.2012, the Assessing Officer could make reference to Valuation Officer under clause (a) of section 55A in case of value of asset claimed by assessee in the opinion of Assessing Officer is less than market value. In the case under appeal, the value of land as on 01.04.1981 as per opinion of the Assessing Officer is more than market value claimed by the assessee and hence, the Assessing Officer cannot refer the property for valuation by Valuation Officer under clause (a) of section 55A of the Act. For similar reason as above, the Assessing Officer could not refer the property for Valuation Officer under clause (b)(i) of section 55A of the Act. The Assessing Officer could not refer the property for valuation by DVO under clause (b)(ii) of section 55A as the assessee has adopted the value as on 01.04.1981 on the basis of valuation report of government approved valuer Shri Atul Thombare The stand of the assessee is fortified from the amendment made to section 55A w.e.f. 01.07.2012. In order to remove the above hurdle for referring the property for valuation where as per Assessing Officer, the value of the property is different from the value adopted by assessee, the legislature has replaced the words is less than fair market value by the word is at variance with its fair market value by the Finance Act, 2012 w.e.f. 01.07.2012. There is nothing before us to suggest that the amendment is retrospective. In view of above facts and discussion including the amendment to section 55A, the CIT(A) rightly held that the Assessing Officer was not justified in making addition by referring the property for value by DVO u/s. 55A - Decided in favour of assessee.

Summary

Issues involved:
1. Deletion of addition on account of capital gain based on valuation report under section 55A(a).
2. Validity of valuation reference made by the Assessing Officer.
3. Consideration of valuation report of the DVO in view of Supreme Court's decision.
4. Jurisdiction of the Assessing Officer in referring the property for valuation under section 55A.

Detailed Analysis:
Issue 1:
The appeal was filed by the revenue against the order of the Commissioner of Income Tax (Appeal) for the assessment year 2009-10, challenging the deletion of addition on account of capital gain presumed to be solely based on a valuation report under section 55A(a) of the Income Tax Act. The Assessing Officer had assessed the income of the assessee at a higher amount than declared, specifically focusing on long-term capital gains. The CIT(A) granted relief to the assessee, leading to the appeal. The contention was that the addition was made based on a valuation report called for by the Departmental Valuation Officer (DVO), and the reference to the DVO for valuing the property was challenged by the assessee as being without jurisdiction.

Issue 2:
The crux of the matter revolved around the validity of the valuation reference made by the Assessing Officer. The provisions of section 55A of the Income Tax Act were examined to determine whether the reference to the DVO for valuation was within the jurisdiction of the Assessing Officer. The section allows for the valuation of a capital asset by a Valuation Officer under specific circumstances, and it was argued that in this case, the reference made by the Assessing Officer was without jurisdiction as the value of the property claimed by the assessee was not less than its fair market value. The amendment to section 55A in 2012 was also considered in light of the case.

Issue 3:
The consideration of the valuation report of the DVO in view of the decision of the Hon'ble Supreme Court in the case of Pooranmal (1974) (93 ITR 505) was a significant aspect of the case. The argument put forth was that the CIT(A) erred in not taking into account the content of the valuation report of the DVO, which was deemed essential in light of the Supreme Court's decision. The issue of whether the valuation report should have been given due weight in the assessment process was a point of contention between the revenue and the assessee.

Issue 4:
The jurisdiction of the Assessing Officer in referring the property for valuation under section 55A was a crucial issue in the case. The Assessing Officer's authority to make a reference to the DVO for valuation under the specific clauses of section 55A was scrutinized to determine the validity of the addition made on account of capital gains. The legislative amendment to section 55A in 2012 was instrumental in understanding the Assessing Officer's jurisdiction in referring the property for valuation and its impact on the assessment process.

In conclusion, the Tribunal upheld the decision of the CIT(A) to delete the addition on account of capital gain, emphasizing that the Assessing Officer's reference to the DVO for valuation under section 55A was without jurisdiction. The Tribunal's analysis considered the relevant provisions of the Income Tax Act, the legislative amendments, and judicial precedents to arrive at the decision to dismiss the revenue's appeal.