2010 (2) TMI 631 - HC - Income Tax

Capital gains Valuation of capital asset Reference to Departmental Valuation Officer Condition precedent the formation of opinion of the Assessing Officer that the value claimed by the assessee less than its fair market value is sine qua non. Reasons recorded after order of reference for valuation of the registered valuer is not the substitute of pre-decisional formation of opinion - there is no applicability of clause (b) of section 55A which is meant for other purpose

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal erred in law regarding the Assessing Officer's opinion before referring the matter to the Departmental Valuation Officer?
2. Whether the Income-tax Appellate Tribunal erred in law concerning the manner of forming an opinion before referring the matter to the Departmental Valuation Officer under section 55A of the Income-tax Act, 1961?

Analysis:
1. The case involved an appeal against the Income-tax Appellate Tribunal's judgment on the Assessing Officer's referral of valuation to the Departmental Valuation Officer. The assessee, a trading company, purchased a rice mill with land and converted it into stock-in-trade. The Assessing Officer did not accept the valuation submitted by the assessee and referred the matter to the Departmental Valuer under section 55A. The Assessing Officer concluded that the assessee overstated the opening stock value based on the Departmental Valuer's report, leading to a different tax liability assessment. The Commissioner of Income-tax (Appeals) and the Tribunal found that the Assessing Officer did not form an opinion before the referral, as required by section 55A. The Tribunal upheld the finding that the reference was not in compliance with the Act.

2. The Commissioner of Income-tax (Appeals) and the Tribunal both concluded that the Assessing Officer did not have a pre-decisional opinion on the fair market value, as mandated by section 55A. The court highlighted that the formation of opinion by the Assessing Officer is essential before referring the valuation to the Departmental Valuation Officer. The judgment emphasized that reasons recorded after the referral cannot substitute the pre-decisional formation of opinion. It was established that in this case, clause (a) of section 55A applied, as the value claimed by the assessee was in line with the registered valuer's estimate, necessitating the Assessing Officer's opinion on the fair market value.

3. The High Court concurred with the lower authorities' fact findings that the Assessing Officer did not demonstrate a formed opinion before the reference, as required by section 55A. The judgment emphasized the importance of adherence to the statutory provisions and the necessity of a pre-referral opinion by the Assessing Officer. It was concluded that the Tribunal correctly applied the law and settled principles regarding the applicability of section 55A, leading to the dismissal of the appeal. The court highlighted the clarity of the law and the absence of any legal points requiring determination in the case.

4. Ultimately, the High Court dismissed the appeal, affirming the decisions of the lower authorities regarding the Assessing Officer's failure to form an opinion before referring the valuation matter to the Departmental Valuation Officer. The judgment emphasized the significance of compliance with statutory provisions and reiterated the requirement for a pre-decisional opinion by the Assessing Officer in such matters, in line with section 55A of the Income-tax Act, 1961.