2019 (6) TMI 1680 - AT - Income Tax

Capital gain computation - calculation of cost of acquisition as on 1.4.1981 - action of the AO in making reference to the DVO under section 55A(a) - Scope of amended section 55A(a) w.e.f. 1.7.2012 for making reference to the DVO - HELD THAT - AO can refer the valuation of property to a Valuation Officer in a case where the value claimed by the assessee based on the registered valuation report is less than its fair market value. However in the case before us there is no dispute that the fair market value as declared by assessee is not less than the value determined by the DVO. Thus, the valuation determined by the DVO cannot be accepted as it is against the provision of Section 55A of the Act as applicable prior to the amendment. ITAT Mumbai Bench in the case of Shri Rabinder H Chhabra(HUF) 2014 (6) TMI 283 - ITAT MUMBA has taken into consideration similar plea of the Revenue that if assessment proceedings is pending then cognizance to amended provision of section 55A effective from 1.7.2012 could be made. ITAT Mumbai Bench on strength of Hon ble Bombay High Court decision in the case of CIT Vs. Puja Print 2014 (1) TMI 764 - BOMBAY HIGH COURT has held that such amendment would be applicable to the assessment proceedings subsequent to 1.7.2012. In that case, assessment year involved was 2006-07. As relying on Gauranginiben S. Shodhan 2014 (2) TMI 78 - GUJARAT HIGH COURT neither with help of amended proviso of section 55A a reference can be made nor under the old proviso, because value declared by the assessee as on 1.4.1981 is far more than fair market value. The ld.AO is therefore directed to re-compute capital by adopting fair market value adopted by the assessee as on 1.4.1981 on the basis of registered valuer s report. This ground of appeal is allowed.

Summary

Issues:
1. Validity of AO's reference to DVO under section 55A(a) of the Income Tax Act, 1961 for determining fair market value of property as on 1.4.1981.

Analysis:
The appellant appealed against the order of the ld.CIT(A)-7, Baroda dated 13.1.2016 for the Assessment Year 2012-13, specifically contesting the AO's decision to refer the case to the DVO under section 55A(a) of the Income Tax Act, 1961. The AO observed discrepancies in the cost of acquisition declared by the appellant regarding the sale of land. The AO doubted the declared cost and referred the case to the DVO, who determined the fair market value significantly lower than the appellant's declared value. The AO calculated the long-term capital gain based on the DVO's valuation, resulting in an addition to the appellant's total income.

The appellant argued that the amended provision of section 55A(a), effective from 1.7.2012, was not applicable to their case as the assessment year in question was 2012-13. The appellant contended that the AO's reference to the DVO was unjustified as the appellant's declared value was higher than the fair market value determined by the DVO. The Tribunal analyzed the provisions of section 55A of the Act before and after the amendment effective from 1.7.2012. The Tribunal noted that the pre-amendment provision allowed reference to the DVO only if the value claimed by the assessee was less than the fair market value. In this case, the appellant's declared value was higher than the DVO's valuation, rendering the DVO's valuation invalid under the pre-amendment provision.

The Tribunal also considered a similar case decided by the ITAT Mumbai Bench and the decision of the Hon'ble Bombay High Court, emphasizing that the amendment to section 55A(a) should be applicable only to assessment proceedings subsequent to 1.7.2012. Relying on the precedents and the existing law, the Tribunal concluded that neither the amended provision nor the old provision of section 55A(a) allowed the AO to refer the case to the DVO as the appellant's declared value exceeded the fair market value. Consequently, the Tribunal directed the AO to re-compute the capital gain based on the appellant's declared fair market value as on 1.4.1981. The Tribunal allowed the appellant's appeal, setting aside the additions made by the AO based on the DVO's valuation.

In conclusion, the Tribunal held that the AO's reference to the DVO under section 55A(a) was not valid for the year under consideration as the appellant's declared value exceeded the fair market value. The Tribunal directed the AO to re-calculate the capital gain based on the appellant's declared fair market value. The appeal of the assessee was allowed.