2008 (4) TMI 292 - HC - Income Tax

Computation of capital gains - reference to the DVO - reference by AO was made before filing of return of income by the assessee - AO could not have formed any opinion as to existence of difference between the value of the asset as claimed by the assessee and the fair market value reference can be made only when AO records opinion that value had been underestimated by assessee - S. 55A could not have been resorted to by the AO - reference to valuation officer is quashed and set aside

Summary

Issues:
Challenge to Reference under Section 55A of the Income Tax Act, 1961.

Detailed Analysis:

1. Background: The petitioner challenged a Reference dated 26.4.1996 made by the Assessing Officer to the District Valuation Officer (D.V.O.) under section 55A of the Income Tax Act, 1961, regarding the share of the petitioner in a property.

2. Facts of the Case: The petitioner, a co-owner of the property, entered into an agreement to sell the property and applied for necessary certificates. The Assessing Officer issued a certificate under section 230A of the Act, and the petitioner filed a return of income showing capital gains.

3. Contentions: The petitioner challenged the reference, stating that no assessment was pending when the reference was made, and the reference was not permitted under section 55A of the Act to determine the fair market value on the sale date.

4. Legal Provisions: Section 55A of the Act allows the Assessing Officer to refer the valuation of a capital asset to a Valuation Officer in specific circumstances, as outlined in the Act.

5. Fair Market Value: The concept of fair market value is crucial for computing capital gains under the Act, and the Assessing Officer can refer to a Valuation Officer based on specific criteria mentioned in section 55A.

6. Assessing Officer's Opinion: The Assessing Officer must form an opinion before making a reference under section 55A, considering the value claimed by the assessee and the fair market value. In this case, the Assessing Officer did not have a valid basis for the reference.

7. Conclusion: The court found that the Assessing Officer did not have a valid reason to make the reference under section 55A, as the fair market value claimed by the assessee was not significantly different from the estimated value proposed by the DVO. Therefore, the reference made on 26.4.1996 was deemed without jurisdiction, and the petition was allowed, quashing the reference to the D.V.O.

8. Final Decision: The petition was allowed, and the reference made to the D.V.O. was quashed and set aside, with no order as to costs.

This detailed analysis highlights the legal provisions, factual background, contentions of the parties, and the court's reasoning leading to the judgment in favor of the petitioner.