2014 (2) TMI 678 - AT - Income Tax

Computation of capital gains as per Section 50C of the Act - Legality of reference made by the Assessing Officer u/s 55A to the DVO Held that - As per provisions of Section 55A when the Assessing Officer finds that value of the asset as claimed by assessee is at a variance with its fair market value, with a view to ascertain the fair market value of a capital asset for the purpose of computing capital gains under Chapter IV of Income-tax Act, 1961, the Assessing Officer may refer the valuation of capital asset to a DVO. Since Assessing Officer, was computing capital gains, issue of commission u/s 131(1)(d) to the DVO for ascertaining the fair market value u/s 55A was justified - Thus, there was no infirmity for the reference made to Valuation Officer u/s 55A for ascertaining the fair market value of the property. Correctness of Valuation arrived at by DVO Held that - The question of correctness of valuation by DVO, is a purely question of fact - In a reference made u/s 55A, the DVO has to estimate/determine fair market value of assets as on the date of transfer - Such estimation of fair market value depends on the advantage/disallowance-advantages attached with the property - since the valuation arrived at by Stamp Duty Authority was excessive, the Assessing Officer has made a reference to the Valuation Officer u/s 55A for ascertaining/estimating the fair market value as on the date of transfer - On the basis of such estimation/value arrived at by the DVO, the capital gain on transfer of property is being ascertained - All the factors are having definite bearing on the fair market value of land - By taking all these adverse factors into consideration, the approved valuer had valued the land as against value arrived at by the DVO - no defect was pointed out by any of the lower authorities in the valuation so arrived at by the approved valuer the AO is to recompute the gain after reducing the valuation arrived at by the DVO by 20 % or the actual sale consideration received by assessee, whichever is higher Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Legality of reference made by the Assessing Officer under Section 55A to the DVO.
2. Correctness of valuation arrived at by the DVO.

Detailed Analysis:

Legality of Reference Made by the Assessing Officer Under Section 55A to the DVO:
The primary legal question was whether the Assessing Officer's reference to the DVO under Section 55A was valid. The assessee contended that the reference was illegal and without jurisdiction, arguing that there is a separate provision for reference to the valuation officer under Section 55A, which should not be covered under Section 131(1)(d). However, the Tribunal held that the reference made by the Assessing Officer under Section 55A was justified. The Tribunal noted that when the Assessing Officer finds a variance between the claimed value of an asset and its fair market value, he may refer the valuation to the DVO to ascertain the fair market value for computing capital gains. Therefore, the Tribunal dismissed the legal ground raised by the assessee, affirming the legality of the reference.

Correctness of Valuation Arrived at by the DVO:
The second issue pertained to the correctness of the valuation determined by the DVO. The Tribunal acknowledged various factors affecting the fair market value of the property, including a proposed road reducing the usable area, acquisition proceedings by the government, and pending court cases. The Tribunal noted that these adverse factors should be considered in the valuation. The assessee argued that the land was transferred within the family as part of a family settlement and not a commercial transaction, which should affect the valuation. The Tribunal agreed that the valuation by the Stamp Duty Authority was excessive and that the DVO's valuation should be adjusted.

The Tribunal observed that the approved valuer had valued the land at Rs. 2,88,92,540/-, whereas the DVO valued it at Rs. 3,65,25,500/-. Considering the adverse factors affecting the land's value, the Tribunal directed the Assessing Officer to reduce the DVO's valuation by 20%. The Tribunal instructed the Assessing Officer to recompute the gain after this reduction or use the actual sale consideration received by the assessee, whichever is higher. The recomputed gain was to be divided equally between the two assessees, as they jointly owned the land.

Conclusion:
The Tribunal concluded that the reference made by the Assessing Officer under Section 55A was legal and justified. It also directed a 20% reduction in the valuation arrived at by the DVO, considering the adverse factors affecting the land's fair market value. The appeals were allowed in part, with instructions for the Assessing Officer to recompute the gain accordingly.