2016 (8) TMI 690 - HC - Income Tax

Referring the matter to the Valuation Officer under section 55A - reopening of assessment - Held that - There was no finding of the Assessing Officer that there was variation in the valuation report given by the government approved valuer. The original assessment order was passed. Thereafter, the case was reopened and while reopening the assessment, the Assessing Officer observed that since there were discrepancies in the valuation report of the government approved valuer, the matter was referred to the Valuation Cell. Since the matter was getting time barred, on the basis of the report of Asst. Valuation Officer, the Assessing Officer determined capital gain and added the same to the total income of the assessee. However, taking into account the observations of this court in the case of Commissioner of Income-tax v. Gauranginiben S. Shodhan Indl. (supra), the subsequent ascertainment of fair market value by the Asstt. Valuation Officer will not apply in the present case since the valuation of the property as per the valuation report of the government approved valuer is on the higher side. Had the valuation of the Asst. Valuation Officer been on the lower side, the matter would have been standing on a different foot. In that view of the matter, the authority ought not to have referred the matter to the Valuation Officer by applying provisions of section 55 A of the Income-tax Act by reopening of the assessment. Thus, in view of the decision of this court in Commissioner of Income-tax v. Gauranginiben S. Shodhan Indl. (2014 (2) TMI 78 - GUJARAT HIGH COURT ) and keeping in mind the above facts, the reopening of the assessment is not permissible. Therefore, the issues are required to be answered in favour of the assessee and against the revenue.

Issues Involved:
1. Legality of the Assessing Officer referring the matter to the Valuation Officer under section 55A of the Income-tax Act.
2. Correctness of the Tribunal upholding the CIT(A)'s direction to recalculate capital gain by increasing the cost of acquisition based on the Assistant Valuation Officer's report.
3. Validity of the Assessing Officer's reliance on the valuation report for calculating capital gain when the value claimed by the assessee was higher than the fair market value determined by the Valuation Officer.

Detailed Analysis:

Issue 1: Legality of the Assessing Officer referring the matter to the Valuation Officer under section 55A of the Income-tax Act
The court examined whether the action of the Assessing Officer in referring the matter to the Valuation Officer under section 55A of the Income-tax Act was legal. The original assessment was completed on 13.3.2003, and the assessment was reopened based on discrepancies in the cost of acquisition as of 1.4.1981. The Commissioner (Appeals) upheld the reopening, stating that the Assessing Officer acted correctly upon receiving the valuation report indicating discrepancies. The Tribunal supported this view, citing that the reference to the Valuation Officer was an aid for a fair assessment and justified under section 55A. However, the court referenced the case of Commissioner of Income-tax v. Gauranginiben S. Shodhan Indl., which concluded that such a reference was not competent if the value claimed by the assessee was higher than the fair market value determined by the Valuation Officer. Thus, the court ruled that the reopening of the assessment was not permissible.

Issue 2: Correctness of the Tribunal upholding the CIT(A)'s direction to recalculate capital gain by increasing the cost of acquisition based on the Assistant Valuation Officer's report
The Tribunal upheld the CIT(A)'s direction to recalculate the capital gain by increasing the cost of acquisition based on the Valuation Officer's report. The CIT(A) had considered various sale instances and determined that the valuation should be increased by 50%. The Tribunal found that the valuation officer had communicated the proposed valuation to the assessee, who did not file any objection. The Tribunal agreed with the CIT(A) that the valuation report was detailed and justified, and thus, interference was not required. However, the court noted that the subsequent ascertainment of the fair market value by the Assistant Valuation Officer was not applicable since the valuation by the government-approved valuer was higher. Therefore, the court ruled that the authority should not have referred the matter to the Valuation Officer, and the recalculation based on the Assistant Valuation Officer's report was not justified.

Issue 3: Validity of the Assessing Officer's reliance on the valuation report for calculating capital gain when the value claimed by the assessee was higher than the fair market value determined by the Valuation Officer
The Tribunal justified the Assessing Officer's reliance on the valuation report for calculating capital gain, stating that the valuation officer's determination was based on comparative sale instances and the assessee did not provide evidence to the contrary. The Tribunal upheld the CIT(A)'s decision to increase the valuation by 50% and directed the recalculation of capital gains. However, the court referenced the decision in Commissioner of Income-tax v. Gauranginiben S. Shodhan Indl., which held that if the value claimed by the assessee is higher than the fair market value determined by the Valuation Officer, the reference to the Valuation Officer is not competent. Consequently, the court ruled that the reliance on the valuation report was not valid, and the reopening of the assessment was not permissible.

Conclusion:
The court concluded that the reopening of the assessment and the reference to the Valuation Officer under section 55A of the Income-tax Act were not justified. The issues were answered in favor of the assessee, and the appeal was allowed with no order as to costs.

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