2014 (12) TMI 144 - HC - Income Tax

Reference made to DVO for determination of FMV u/s 55A(a) - Whether the Tribunal is right in law in holding that the AO ought not to have made reference to the departmental valuation officer for determination of fair market value of the proper u/s 55A(a) Held that - The Tribunal was rightly of the view that a reference to the Valuation Officer is to be made u/s 55A - The provision specifically provides that if the AO is of the opinion that the value disclosed by the assessee is less than the fair market value only, then he can make a reference to the DVO - the formation of opinion should have rational connection with the material brought on record - It should not be based on extraneous or irrelevant reasons the AO before making a reference to the Valuation Officer has not brought anything on the record indicating that the assessee has disclosed lesser sale price - there is nothing on the record which can suggest to ignore the report of the registered valuer and to adopt the report of the Valuation Officer - Both these persons are technical persons and before accepting the evidence of an expert, there should be corroboration of some other material the AO ought to have not made a reference to the DVO for determination of the fair market value of the property - the report of the DVO alone is not sufficient for estimating the capital gains thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding valuation of property under Section 55A of Income Tax Act, 1961.

Analysis:
The High Court of Gujarat heard an appeal by the Revenue challenging an order passed by the Income Tax Appellate Tribunal (ITAT) regarding the valuation of a property. The substantial question of law formulated was whether the Assessing Officer was right in referring the property for valuation to the departmental valuation officer under Section 55A(a) of the Income Tax Act, 1961. The property in question was acquired by the assessee on 01.04.1981 and sold on 12.10.1994. The Valuation Officer determined the value of the property at the time of sale as well as the fair market value as on 01.04.1981. The Assessing Officer issued a notice under Section 148 of the Act based on this valuation and finalized the assessment. The assessee appealed to the CIT(A), who upheld the order, leading to an appeal before the ITAT, which ruled in favor of the assessee.

The appellant's advocate referred to a previous decision and argued that the Assessing Officer had not formed an opinion justifying the reference to the Valuation Officer. The High Court analyzed the provisions of Section 55A of the Act, which allows the Assessing Officer to refer the valuation of a capital asset to a Valuation Officer if the value claimed by the assessee is less than its fair market value. The Court emphasized that the Assessing Officer must form a rational opinion based on relevant material before making such a reference. In this case, the Court found that there was no evidence on record to suggest that the assessee had disclosed a lower sale price, and there was no justification to ignore the report of the registered valuer in favor of the Valuation Officer's report. The Court agreed with the Tribunal's view that the Assessing Officer should not have referred the property for valuation to the DVO. The Court dismissed the appeal, upholding the Tribunal's decision and ruling in favor of the assessee against the revenue.