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2020 (1) TMI 125 - AT - Income TaxCapital gain computation - claimed that the said property was an ancestral property devolved and jointly owned with other co-owners - assessee adopted the fair market value (FMV) of the immovable property as on 01.04.1981 and substituted the same as cost of acquisition - reference can be made u/s.142A of the Act to the Valuation Officer for estimating the full value of consideration of the property for the purpose of computation of capital gains u/s 48 - Revenue in substituting FMV of capital asset as on 01.04.1981 determined by the Registered Valuer appointed by the assessee with the FMV determined by the DVO on a reference made by AO concerning land sold during the year - HELD THAT - Section 55A(a) is not applicable on facts as the AO did not demonstrate any cogent reason to enable him to form an opinion towards variance/over valuation in the FMV of land in question. Section 55A(b)(i) of the Act concerns a situation where the FMV of the assets exceeds the value of asset claimed by the assessee. In the instant case, the FMV is sought to be lowered by AO than what is claimed by the assessee. Therefore, Section 55A(b)(i) of the Act is not relevant in the facts of the case. We now advert to Section 55A(b)(ii) of the Act which enables the AO to take recourse to Section 55A of the Act only on fulfillment of prescribed parameter therein i.e. nature of asset and other relevant circumstances AO has not pointed out existence of any such valid circumstance which could empower him under s.55A of the Act. The AO has merely issued reference to DVO under s.142A of the Act without any background or reasons and the Valuation Officer, in turn, has acted in a perfunctory manner and travelled beyond the jurisdiction mandate conferred within the sweep of Section 142A of the Act and has passed an order under s.55A of the Act without any reference therein. It does not require to underscore that a DVO derives its authority in law which flows from the mandate as delegated by the AO. The Valuation Officer cannot exercise the power of valuation independent of such mandate. Where an express mandate was given under s.142A of the Act, the Valuation Officer could not have travelled in the arena of Section 55A of the Act to determine the FMV. However, as noted earlier, the AO himself has not chosen to exercise powers under s.55A of the Act and therefore, we do not require to delineate any further on this aspect. AO could not invoke powers vested u/s 142A of the Act either in the given facts of the case. The RV has adopted reverse calculation of indexation which method has been approved by the co-ordinate bench in some cases as noted above. The AO has failed to bring on record any adversities in applicability of such method but has simply adopted the FMV determined by the Valuation Officer on the strength of some comparable instances under a different provision without any mandate. On facts too, the assessee has claimed that the case of the assessee is not comparable with such instances having regard to the different nature of land and different complexities. The AO has also failed to observe the principles of natural justice while confronting the findings of the DVO in as much as the copy of order of the DVO was also not provided at the time of hearing. Action of the Revenue is seriously marred by multiple and intrinsic legal infirmities and violation of principles of natural justice. The assessee, on the other hand, has discharged its primary onus to support the FMV as on 01.04.1981. Thus, in our view, the jurisdictional defect in issuing firstly unlawful reference under s.142A of the Act and secondly, adopting FMV as per the valuation order passed under a wholly different Section i.e. 55A of the Act in gross contradiction of mandate is prima facie not curable. Coupled with this, the valuation report of RV could not be successfully demonstrated to be unworthy of acceptance. We thus set aside the order of the CIT(A) and direct the AO to restore the claim of the assessee. - Decided in favour of assessee.
Issues Involved:
1. Legality of the reference made under Section 142A of the Income Tax Act. 2. Validity of the valuation report prepared by the District Valuation Officer (DVO) under Section 55A of the Act. 3. Correctness of the Fair Market Value (FMV) adopted by the Assessing Officer (AO). 4. Adherence to principles of natural justice. Detailed Analysis: 1. Legality of the Reference Made Under Section 142A of the Income Tax Act: The Tribunal noted that the AO invoked Section 142A to determine the FMV of the property as on 01.04.1981. However, Section 142A is restricted to matters concerning Sections 69, 69A, or 69B of the Act, which deal with unexplained investments. The property in question was acquired before 01.04.1981, making the reference under Section 142A inappropriate. The Tribunal observed that the AO's reference was to elucidate the correctness of the cost of investment, which is beyond the scope of Section 142A. Consequently, the reference under Section 142A was quashed. 2. Validity of the Valuation Report Prepared by the DVO Under Section 55A of the Act: The DVO issued a valuation report under Section 55A, despite the AO's reference being made under Section 142A. The Tribunal held that the DVO could not act beyond the AO's mandate. Section 55A(b)(ii) of the Act allows the AO to refer to the DVO only under specific circumstances, which were not demonstrated in this case. Thus, the valuation report under Section 55A was deemed invalid. 3. Correctness of the Fair Market Value (FMV) Adopted by the Assessing Officer (AO): The AO disputed the FMV of ?48,59,313 as on 01.04.1981 determined by the Registered Valuer (RV) and adopted the DVO's valuation of ?1,96,800. The Tribunal found that the AO did not provide any tangible reason to doubt the RV's valuation. The RV's method of reverse calculation of indexation was supported by precedents, and the AO failed to demonstrate any fundamental error in the RV's approach. Therefore, the Tribunal directed the AO to restore the FMV as determined by the RV. 4. Adherence to Principles of Natural Justice: The Tribunal noted that the AO failed to provide the assessee with a copy of the DVO's order during the hearing, violating principles of natural justice. The Tribunal emphasized the need for fairness and objectivity in valuation processes. The AO's actions were marred by multiple legal infirmities and lack of adherence to natural justice, further invalidating the assessment. Conclusion: The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO to restore the assessee's claim based on the RV's valuation. This decision was applied to all similar cases involved in the appeal. The judgment underscores the importance of adhering to legal mandates and principles of natural justice in tax assessments.
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