2006 (4) TMI 78 - HC - Income Tax

Property valuation - Is the Assessing Officer competent to seek valuation of the property under section 55A of the Income-tax Act, 1961, after he has already assessed the income of the assessee and passed the assessment order? - The entire exercise of reference to the Valuation Officer for ascertaining the fair market value of the capital assets of an assessee is for the purposes of computation of income from capital gains and for completion of the assessment order and once that has been done, the Assessing Officer has no competence to refer to the Valuation Officer. - In our view, therefore, the reference made by the Assessing Officer to the Valuation Officer for determination of the fair market value of the aforestated property is without competence and as a consequence thereof, the notice dated April 19, 2005 issued under section 55A of the Income-tax Act, 1961 is rendered bad in law and we quash the said notice

Summary

Issues:
1. Competency of Assessing Officer to seek valuation of property under section 55A of the Income-tax Act, 1961 after passing the assessment order.

Analysis:

Competency of Assessing Officer after Passing Assessment Order:
The High Court of BOMBAY addressed the issue of whether the Assessing Officer is competent to seek valuation of a property under section 55A of the Income-tax Act, 1961 after passing the assessment order. The court noted that the Assessing Officer had already assessed the income of the assessee and passed the assessment order for the relevant assessment year. Subsequently, the Assessing Officer sought valuation of a property located in Mumbai under section 55A. The court examined the provisions of section 55A, which allow the Assessing Officer to refer the valuation of a capital asset to a Valuation Officer for ascertaining the fair market value. However, the court emphasized that this reference is primarily for the purpose of computing the total income of the assessee. Since the Assessing Officer had already determined the value of the property and passed the assessment order, the court held that it was not within the Assessing Officer's competence to refer the matter to the Valuation Officer for further valuation. The court highlighted that the purpose of determining fair market value for capital gains is to compute the total income and facilitate the assessment order, which had already been completed in this case.

Interpretation of Section 55A and Competency of Assessing Officer:
The court considered the argument presented by counsel for the Revenue, who contended that section 55A does not expressly prohibit seeking fair market value after passing the assessment order. However, the court rejected this argument, stating that the purpose of determining fair market value under section 55A is intrinsically linked to computing the total income for the assessment order. The court clarified that once the assessment order has been passed, the Assessing Officer no longer has the authority to refer the matter for valuation. The court emphasized that the entire exercise of valuation under section 55A is for the computation of income from capital gains and completion of the assessment order. Therefore, the court concluded that the Assessing Officer's reference to the Valuation Officer after passing the assessment order was without competence. Consequently, the court declared the notice issued under section 55A as invalid and quashed the same.

Final Decision:
In conclusion, the High Court of BOMBAY held that the Assessing Officer lacked the competence to seek valuation of the property under section 55A of the Income-tax Act, 1961 after passing the assessment order. The court emphasized that the purpose of valuation under section 55A is for the computation of total income and completion of the assessment order, which had already been done in this case. Therefore, the court declared the notice issued under section 55A as legally invalid and quashed it. The rule was disposed of accordingly, and no costs were awarded in this matter.