2015 (8) TMI 770 - HC - Income Tax

Under valuation of property - Whether Tribunal was correct in holding that AO has to form an opinion that the property is under valued before sending it to the valuation officer which had not been done in the facts of the present case when the assessee himself had raised no objection for referring to the Valuation Officer? - Held that - What is to be primarily considered is that whether the valuation report was required in the facts of the present case or not. Admittedly, there was no valuation report of a registered Valuer submitted by the assessee with regard to the valuation of the three flats in question. It is correct that the Assessing Officer had wrongly sought the report under section 142-A of the Act, whereas it ought to have been called under section 55-A of the Act which provides for the Assessing Officer to be first of the opinion that the fair market value of the asset exceeds by more than 15% of the value of the asset as claimed by the assessee, for which reasons ought to have been recorded by the Assessing Officer. Assessing Officer has the power to call for a valuation report when he is of the opinion that the valuation of the asset given by the assessee is undervalued and technically such opinion has not been recorded by the Assessing Officer in the present case, though we answer the first question in favour of the assessee and against the Revenue, but we provide that in the facts and circumstances of the case, the matter may be reconsidered by the Assessing Officer and after recording reasons for forming an opinion with regard to calling for a valuation report as required under section 55-A of the Act, the Assessing Officer may proceed afresh in the matter, in accordance with law. - Decided in favour of assessee by way or remand. Transfer - Whether the Tribunal was correct in holding that only 8,434 sq.ft had been transferred by ignoring the development agreement which clearly stated that 12,377 sq.ft has been transferred to the builder and consequently recorded a perverse finding? - Held that - The agreement and the memorandum of understanding, as had been entered into between the parties, was for 12,377 sq.ft. being the share of contribution of the assessee in the total land given for development to the developer. The Tribunal, without assigning any cogent reason in this regard, has come to the conclusion that the assessee had transferred only 8,434 sq.ft. of undivided interested in exchange of three flats measuring 9,747 sq.ft. along with 527 sq. ft. of undivided interest in the adjoining land. The findings recorded by the Assessing Officer as well as the appellate Commissioner in this regard have not been properly appreciated by the Tribunal. As such, we answer the second question in favour of the Revenue

Summary

Issues:
1. Valuation report under section 55-A vs. section 142-A of the Act.
2. Determination of the area transferred based on the joint development agreement.

Analysis:

Issue 1: Valuation Report under Section 55-A vs. Section 142-A of the Act
The appeal was filed by the Revenue challenging the Tribunal's order regarding the valuation of the property in question. The Assessing Officer had obtained a valuation report of the property under section 142-A of the Act, which was challenged by the assessee. The Commissioner of Income Tax (Appeal) held that the valuation report should have been called for under section 55-A of the Act, as it requires the Assessing Officer to form an opinion that the fair market value of the asset exceeds by more than 15% of the value claimed by the assessee. The High Court agreed with the assessee on this point, stating that the Assessing Officer must record reasons for forming an opinion before calling for a valuation report under section 55-A. However, the court allowed the matter to be reconsidered by the Assessing Officer after recording such reasons, in accordance with the law.

Issue 2: Determination of the Area Transferred Based on the Joint Development Agreement
The Tribunal had held that only 8,434 sq.ft. had been transferred by the assessee, contrary to the 12,377 sq.ft. mentioned in the joint development agreement. The court found that the Tribunal's decision lacked proper reasoning and did not consider the agreements or memorandum of understanding between the parties, which clearly stated the transfer of 12,377 sq.ft. The court ruled in favor of the Revenue on this issue and referred the matter back to the Assessing Officer for a fresh computation, emphasizing the need to consider the valuation report under section 55-A of the Act and accurately determine the area transferred in the transaction. The court directed the Assessing Officer to reevaluate the matter in light of the agreements and the actual area transferred, ensuring compliance with the law.

In conclusion, the High Court upheld the assessee's argument regarding the valuation report but ruled in favor of the Revenue on the determination of the area transferred. The matter was referred back to the Assessing Officer for fresh computation, emphasizing compliance with the law and accurate assessment based on the joint development agreement.