2016 (10) TMI 407 - HC - Income Tax

Reference to DVO - sale consideration does not reflect the correct rate - revenue authorities with the power to obtain valuation reports - Held that - Reference to the DVO in terms of Section 55A of the Act if strictly seen, for the purpose of valuation in the context of the capital gain may not be competent. However, post the said decision in case of Smt.Amiya Bala Paul (2003 (7) TMI 4 - SUPREME Court ) Section 142A of the Act was inserted with retrospective effect substantially nullifying its effect and vesting the competent revenue authorities with the power to obtain valuation reports in the context of issues other than of capital gains computation also. In the present form, sub-section (2) of Section 142A of the Act provides that such valuation may be summoned even when the Assessing Officer may not have questioned the accounts of the assessee. This last issue is strictly not relevant for our purpose since the Assessing Officer has painstakingly and at length demonstrated why in his prima facie opinion the declaration of sale consideration does not reflect the correct rate. In short, he seriously disputed the veracity of the petitioner s declaration of the prices at which said 3 properties were sold. Merely because from time to time the Assessing Officer referred to wrong provision for exercising powers which he otherwise had, would not vitiate his action. Had this been a case of lack of powers, the issue would certainly rest on different parameters. However, when we find that the Assessing Officer had the powers to call for the DVO s report, the exercise cannot be struck down for a mere reference of a wrong statutory provision as has been consistently held by the Supreme Court in series of judgments. Merely because the Assessing Officer in one of the communications referred to the sale consideration as business income would not wash away the detailed analysis and materials he referred to in various letters indicating that the sale price shown was abysmally low compared to real market price. At a stage when the assessment is not yet complete, it would simply not be possible or proper in our part to intervene and interfere in the manner in which the assessment should be made. If ultimately the assessee is aggrieved by the order of assessment, he has remedy to file appeal. When the statute provides such remedies, as held by the Supreme Court in case of Commissioner of Income-tax and Ors. V/s. Chhabil Dass Agarwal, reported in 2013 (8) TMI 458 - SUPREME COURT , interference at this stage would not be proper. The Assessing Officer strongly disputes the correctness of the sale considerations reflected in the sale deeds. The assessment is yet to be made. The Assessing Officer must be allowed free hand, be allowed to complete the assessment in accordance with law.

Issues Involved:
1. Legality of the Assessing Officer’s reference to the District Valuation Officer (DVO) for property valuation.
2. Applicability of Section 50C and Section 55A of the Income Tax Act.
3. Assessing Officer’s power to treat capital gains as business income.
4. Validity of the Assessing Officer’s actions based on the alleged low sale consideration of properties.

Issue-wise Detailed Analysis:

1. Legality of the Assessing Officer’s reference to the District Valuation Officer (DVO) for property valuation:
The petitioner challenged the action of the Assessing Officer (AO) in referring the valuation of three agricultural lands to the DVO. The AO initially cited Section 50C(2) of the Income Tax Act, which pertains to the valuation of capital assets for computing capital gains. However, the AO later corrected this to Section 55A, which allows for valuation to ascertain the fair market value of a capital asset. The petitioner contended that such a reference was incompetent and unnecessary since the capital gains were already assessed based on Jantri rates.

2. Applicability of Section 50C and Section 55A of the Income Tax Act:
Section 50C(1) deems the value adopted by the State Stamp Valuation Authority as the full value of consideration for capital gains purposes if the sale consideration is less. Section 50C(2) allows the assessee to dispute this valuation, permitting the AO to refer the valuation to a Valuation Officer. The court noted that the DVO's valuation cannot replace the State Stamp Valuation Authority's valuation for capital gains purposes. However, the AO’s reference to the DVO was not solely for capital gains assessment but also to determine if the sale receipts should be treated as business income.

3. Assessing Officer’s power to treat capital gains as business income:
The AO suspected that the petitioner was engaged in the business of buying and selling land for profit rather than holding it as an investment. This suspicion was based on the petitioner holding multiple properties, the frequency of transactions, and the lack of agricultural activity on the lands. The AO proposed to tax the sale receipts as business income, which justified the reference to the DVO for valuation.

4. Validity of the Assessing Officer’s actions based on the alleged low sale consideration of properties:
The AO questioned the sale considerations reflected in the sale deeds, comparing them with higher market rates obtained from Surat Urban Development Authority (SUDA) auctions. The AO argued that the sale prices were significantly lower than the prevailing market rates, suggesting that the declared sale considerations were not accurate. The court noted that the AO had the power under Section 142A to refer the valuation to the DVO for purposes beyond capital gains, including assessing the fair market value for potential business income taxation.

Conclusion:
The court dismissed the petition, allowing the AO to proceed with the assessment. It emphasized that the AO’s reference to the DVO was within his powers under Section 142A, even if the initial reference cited incorrect sections. The court held that the AO’s actions were justified based on the substantial discrepancy between the declared sale prices and the market rates, and the AO’s suspicion of the petitioner’s intent to earn profits from land transactions rather than holding them as investments. The petitioner’s remedies lie in appealing the final assessment if aggrieved.

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