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2014 (6) TMI 283 - AT - Income TaxLTCG Lower Cost of acquisition adopted as on 1.4.1981 Validity of reference made to DVO u/s 55A of the Act Held that - Following CIT V/s Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT - Section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the DVO only when the value adopted by the assessee was less than the fair market value - the value adopted by the assessee of the property at Rs.35.99 lakhs was much more than the fair market value of Rs.6.68 lakhs even as determined by the DVO the AO referred the issue of valuation to the DVO only because in his view the valuation of the property as on 1981 as made by the assessee was higher than the fair market value - the invocation of Section 55A(a) of the Act is not justified. The Parliament has not given retrospective effect to the amendment - Section 55A(a) of the Act as existing during the period relevant to the AY 2006-07 - reference could be made to DVO only if the value declared by the assessee is in the opinion of AO less than its fair market value thus, the order of CIT(A) is upheld in deleting the addition made by the AO on account of LTCG relying on the report of DVO by holding that the reference made by AO to the DVO u/s 55A of the Act itself was bad in law Decided against Revenue.
Issues Involved:
1. Validity of reference made by AO to DVO u/s 55A of the Income Tax Act. 2. Justification of deleting the addition made by AO on account of Long Term Capital Gain (LTCG) by adopting lower cost of acquisition. Issue 1: Validity of reference made by AO to DVO u/s 55A of the Income Tax Act: The appeal was against the order of CIT(A) regarding the addition made by AO on account of LTCG. The AO referred the matter to the DVO for determining the FMV of the property as on 1.4.1981, which led to the AO making an addition to LTCG based on DVO's report. The assessee challenged the validity of this reference to the DVO u/s 55A. The AO referred to DVO because he believed the value declared by the assessee exceeded the FMV. The CIT(A) held that the reference was bad in law as it did not meet the conditions of section 55A(a) and relied on precedents like Daulat Mota HUF case. The Bombay High Court's decision in CIT v. Puja Prints supported the assessee's argument, leading to the deletion of the addition by the CIT(A), which was upheld by the Tribunal. Issue 2: Justification of deleting the addition made by AO on account of Long Term Capital Gain (LTCG) by adopting lower cost of acquisition: The solitary issue raised by the Revenue was whether the CIT(A) was right in deleting the addition to LTCG made by the AO. The assessee declared a Long Term Capital Loss based on the cost of acquisition as on 1.4.1981. The AO made an addition to LTCG based on DVO's report, which was disputed by the assessee. The CIT(A) found the AO's reference to the DVO u/s 55A to be invalid in law, leading to the deletion of the addition. The Tribunal upheld the CIT(A)'s decision based on the Bombay High Court's ruling in a similar case. The appeal of the Revenue was dismissed, and the cross-objection by the assessee was also deemed infructuous and dismissed. This judgment delves into the validity of references made by the Assessing Officer to the Departmental Valuation Officer under section 55A of the Income Tax Act and the subsequent implications on additions to Long Term Capital Gains. The decision highlights the importance of meeting the statutory conditions for such references and the legal consequences of failing to adhere to the prescribed procedures.
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