2017 (10) TMI 1475 - AT - Income Tax

Addition on account of LTCG - addition not as per report of DVO by holding that the reference made by AO to the DVO u/s 55A - addition on account of cost of acquisition of assets sold by the assessee on which long term capital gains was declared - HELD THAT - Hon ble Bombay High Court in CIT Vs. Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT is that reference could be made to the Departmental Valuation Officer only when the value adopted by the assessee was less than the fair market value. In case the value adopted by the assessee of any property was more than the fair market value as determined by the DVO then such invocation of provisions of section 55A(a) of the Act was held to be not justified. Reference was also made to the amendment to section 55A(a) of the Act in 2012 wherein for the words is less than the fair market value was substituted by the words is at variance with its fair market value was held to be clarificatory and it was categorically held that where the amendment was made effective only from 01.07.2012; the Parliament has not given retrospective effect to the amendment. The Hon ble High Court thus held that the law to be applied in the facts of the present case was the section as existing during the period relevant to assessment year 2006-07. Now coming to the facts of the present case the year under reference is assessment year 2009-10 and since the amendment was made effective from 01.07.2012 and the Hon ble High Court has held that law which is to be applied in such cases is as existing during assessment year 2009-10 then the preamended provisions of section 55A(a) of the Act are to be applied. In such scenario there is no merit in the order of Assessing Officer in adopting the cost of acquisition as on 01.04.1981 at the value less than the value shown by the assessee which in turn is based on the report of the approved Valuer. - Decided against revenue.

Summary

Issues:
- Appeal against deletion of addition on account of LTCG
- Retrospective application of section 55A amendment
- Application of fair market value determination in pending matters
- Justification of reference to DVO under section 55A
- Reliance on Bombay High Court decision in similar case
- Assessment of long term capital gains based on valuation reports

Analysis:
1. Deletion of Addition on Account of LTCG:
The appeal was filed against the deletion of an addition on account of Long Term Capital Gains (LTCG) by the CIT(A). The Revenue contested the deletion of an addition of ?48,42,862 made by the Assessing Officer (AO) regarding LTCG. The AO had made a reference to the Departmental Valuation Officer (DVO) under section 55A of the Income Tax Act, 1961 to determine the cost of acquisition of assets sold by the assessee.

2. Retrospective Application of Section 55A Amendment:
The issue of retrospective application of the amendment to section 55A was raised. The CIT(A) held that the amendment to section 55A was not retrospective and allowed the assessee's claim. The Tribunal analyzed the applicability of the amendment, which substituted key phrases, and concluded that the pre-amended provisions were to be applied for the relevant assessment year.

3. Application of Fair Market Value Determination in Pending Matters:
The Tribunal discussed the application of fair market value determination in pending matters. It was argued that the amendment to section 55A should apply to all pending matters when it came into force. However, the Tribunal upheld the view that the law applicable would be as existing during the relevant assessment year, not retrospectively.

4. Justification of Reference to DVO under Section 55A:
The question of whether the reference to the DVO under section 55A was correct in law and procedure was raised. The Tribunal examined the correctness of the reference made by the AO to the DVO under section 55A and the subsequent actions taken based on the valuation reports provided.

5. Reliance on Bombay High Court Decision in Similar Case:
The Tribunal considered the reliance on a decision of the Hon'ble Bombay High Court in a similar case. The CIT(A) relied on the High Court decision in CIT Vs. Puja Prints and applied the same rationale to the present case, leading to the deletion of the addition made by the AO.

6. Assessment of Long Term Capital Gains Based on Valuation Reports:
The Tribunal reviewed the assessment of long term capital gains based on valuation reports. The AO had computed the income from LTCG in the hands of the assessee based on valuation reports and references made to determine the cost of acquisition of the property sold. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal, emphasizing the application of relevant legal provisions and precedents in determining the cost of acquisition and LTCG in the case.