2016 (6) TMI 492 - HC - Income Tax

Evaluation of the property under section 55A(a) as the fair market value estimated by the registered valuer engaged by the assessee is higher than the actual fair market value - reference to DVO - Held that - Policy of law is to take the fair market value as on 1st April, 1981 as the basis for the purpose of indexation. If the assessee has shown more than the fair market value he obviously, is interested in increasing the index cost for the purpose of avoiding to pay capital gains. Therefore, the practice adopted by him cannot be permitted. Even assuming that there is a case in which the assessee has offered more than the market value, it is not the policy of law to recover more than what is actually due from the assessee. In either case, the contention of the assessee is wrong and not acceptable. In the case before us, the assessee, however, was inspired by sinister motive of avoiding to pay capital gain and that was the reason why he inflated the fair market value on 1st April, 1981. The reference made by the Assessing Officer was competent. The learned Tribunal was correct in holding that the clause (b)(ii) to section 55A carries a broader spectrum which certainly empowers the Assessing Officer to make reference to the DVO wherein in his opinion the fair market value estimated by the assessee is not proper and since in the present case the reference has been made by the Assessing Officer u/s.55A(b)(ii) of the Act, in our considered opinion such action of Assessing Officer was well within the parameters of the spirit of the section which empowers the Assessing Officer to make a reference to DVO i.e. in any other circumstances which he thinks that it is necessary to refer the matter to the DVO and, therefore, in the present case, the action of Assessing Officer in making reference to DVO while not accepting the valuation shown by the assessee on the basis of the registered valuer s report was well permissible under the law. - Decided against assessee.

Summary

Issues involved:
1. Interpretation of Section 55A of the Income Tax Act, 1961 regarding valuation of assets.
2. Legality of reference under Section 55A of the Income Tax Act, 1961.

Analysis:
1. Interpretation of Section 55A of the Income Tax Act, 1961 regarding valuation of assets:
The case involved an appeal against a judgment and order passed by the Income Tax Appellate Tribunal pertaining to the assessment year 1996-1997. The dispute arose from the valuation of a property sold by the assessee, where the Assessing Officer disagreed with the fair market value adopted by the assessee and referred the matter to the Departmental Valuation Officer (DVO). The Tribunal held that the Assessing Officer's action was justified under Section 55A(b)(ii) of the Act, which allows a reference to the DVO in circumstances where the fair market value estimated by the assessee is deemed improper. The Tribunal emphasized that the Assessing Officer's power under this provision is broad and enables him to refer the matter to the DVO based on his judgment. The Tribunal concluded that there was no infirmity in the Assessing Officer's decision to refer the valuation to the DVO, thereby upholding the order of the Commissioner of Income Tax (Appeals) and rejecting the grounds raised by the assessee.

2. Legality of reference under Section 55A of the Income Tax Act, 1961:
The appellant contended that the Assessing Officer could not have made a reference for property evaluation under Section 55A(a) as the fair market value shown by the registered valuer engaged by the assessee was higher than the actual fair market value. However, the Court dismissed this contention, stating that the policy of law is to consider the fair market value as on 1st April, 1981 for indexation purposes. The Court noted that if the assessee shows a value higher than the fair market value, it could be an attempt to inflate the index cost to avoid paying capital gains tax. The Court emphasized that the law does not intend to recover more than what is actually due from the assessee. In this case, the Court found that the assessee's motive was to avoid paying capital gains tax by inflating the fair market value, justifying the Assessing Officer's reference to the DVO. The Court held that the Assessing Officer's action was competent and in line with the spirit of Section 55A(b)(ii) of the Act, ultimately leading to the dismissal of the appeal.

In conclusion, the Court dismissed the appeal, answering both questions formulated at the time of admission of the appeal in the negative and in favor of the revenue.