2016 (9) TMI 1532 - AT - Income Tax

Computation of capital gains - validity of reference made u/s.55A - valuation of transferred asset as on 1.4.1981 - ascertaining the fair market value of a capital asset - CIT (Appeals) confirming validity of the DVO's Report, which was adopted by the A.O.for making the assessment as the DVO has estimated the value of the asset as on 1.4.1981 on the basis of irrelevant considerations and non-comparable sale instances - HELD THAT - As decided in Daulal Mohta (HUF) 2008 (9) TMI 890 - BOMBAY HIGH COURT there is no confusion with regard to the matters where the assessee adopts the value suggested by a registered valuer. If the FMV adopted by him is in accordance with the valuation report i.e. not less than the valuation report till 01.07.2012, than the property in question cannot be referred for valuation by the AO. The record available with us, does not indicate as to what was the opinion formed by the AO before making reference to the DVO. Therefore, it is apparent that he had, at no point of time, formed an opinion that the FMV determined by the valuer. It is not clear as to whether the reference was made under clause 55A(a) or 55A(b)(ii) of the Act and if it was made under section 55A(b)(ii) then what were the relevant circumstances for making such a reference. Recording of reasons for invoking a particular section of the Act and justification for invoking the specific clause are not available and nor were they brought to our notice. As the value shown by the assessee was not less than the FVM, so, in our opinion, there was no justification for making any reference to the revenue authorities of state government, by the AO in the year under consideration. Amendment to the section 55A of the Act is effective from 01.07. 2012 and as per that now reference can be made if there is variance in the FMV We see no reasons to take any other view of the matter than the view so taken by us in the above case. Accordingly, the impugned additions in the computation of capital gains, on the basis of DVO report on valuation of transferred asset as on 1.4.1981, must stand deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings under Section 147 of the Income Tax Act, 1961.
2. Validity of reference made under Section 55A for valuation.
3. Validity of the DVO's Report used for assessment.
4. Confirmation of additions made by the Assessing Officer (AO) based on the DVO's report.
5. Overall legality and factual correctness of the CIT(A)'s order.

Detailed Analysis:

1. Validity of Proceedings under Section 147:
The appellant challenged the correctness of the proceedings initiated under Section 147 of the Income Tax Act, 1961. The core issue was whether the reopening of the assessment for the year 2008-09 was justified. The Tribunal did not specifically address this issue in the detailed judgment provided, focusing instead on the subsequent issues related to valuation and the DVO's report.

2. Validity of Reference Made under Section 55A:
The appellant contended that the reference made under Section 55A was invalid, as the provisions at the time allowed such a reference only when the value estimated by the registered valuer was less than its fair market value. The Tribunal upheld this contention, citing that the reference to the DVO was illegal and devoid of any legally sustainable basis. The Tribunal noted that the amendment to Section 55A, effective from 1st July 2012, which allowed for a reference in cases where the value "is at variance with its fair market value," did not apply retrospectively to the assessment year in question.

3. Validity of the DVO's Report Used for Assessment:
The appellant argued that the DVO's report, which the AO used for making the assessment, was based on irrelevant considerations and non-comparable sale instances. The Tribunal agreed, stating that the DVO's report was not a sound basis for valuation, especially considering the widespread practice of understatement of sale consideration in real estate transactions as of 1.4.1981. The Tribunal emphasized that the DVO report, being devoid of legal basis, could not be used against the assessee.

4. Confirmation of Additions Made by the AO Based on the DVO's Report:
The appellant challenged the additions made to the returned income based on the DVO's report. The Tribunal found that the AO's action of relying on the DVO's report was unsustainable. It was highlighted that the AO did not form a pre-decisional opinion as required under Section 55A(b)(ii), and the reference made to the DVO lacked justification. Consequently, the Tribunal directed that the impugned additions in the computation of capital gains must be deleted.

5. Overall Legality and Factual Correctness of the CIT(A)'s Order:
The Tribunal concluded that the CIT(A)'s order was bad in law and on facts. The Tribunal's decision to uphold the plea of the assessee in a similar case (Smt. Seema Chadha Vs. ACIT) was applied mutatis mutandis to this case, resulting in the allowance of the appeal and deletion of the additions made by the AO based on the DVO's report.

Conclusion:
The Tribunal allowed the appeal, directing the deletion of the additions made by the AO based on the DVO's report. The proceedings under Section 147 and the reference under Section 55A were found to be invalid, and the DVO's report was deemed unsustainable for assessment purposes. The order of the CIT(A) was thus overturned.