2016 (11) TMI 294 - HC - Income Tax

Legality and validity of making a reference to the Valuation Officer - Estimation of value of assets by Valuation Officer - Held that - From the bare reading of aforesaid statutory provisions, it appears that Section 50C of the Act which has been introduced is applied to a seller and not to the purchaser and therefore, ascertaining an amount of capital gain, it will be the tax in the hands of seller on the basis of jantri price and making a reference and inquiring from the petitioner is of no avail and to this, learned counsel has rightly relied upon a decision of this Court in case of Commissioner of Incometax- IV V/s. Sarjan Realities Ltd., reported in (2012 (9) TMI 1076 - GUJARAT HIGH COURT) wherein it is quite clear that provision of Section 50C would apply to a seller only and not the purchaser and therefore, to make reference casually in case of petitioner, who is purchaser, is not just and proper. Unexplained investment - addition u/s 69 - Held that - Assessing Officer had no cogent material available nor to satisfy himself about the requirement of Section 69 of the Act and therefore, in the absence of it, the reference could not have been made under Section 142A of the Act. Simply because prior to 2 days the reference order came to be made, it cannot be said that the action of making reference during the period of assessment is justified. In fact, no purpose would be served to make such reference especially when the contingencies reflected hereinabove are not satisfied on the background of present facts. Therefore, considering this set of circumstance, we are of the opinion that the action of making reference is not tenable.

Issues Involved:
1. Legality and validity of the reference made to the Valuation Officer by the respondent authority.
2. Validity of communications dated 10.3.2011 and 26.4.2011.
3. Applicability of Section 50C of the Income-tax Act, 1961.
4. Applicability of Section 69 and Section 142A of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality and Validity of the Reference to the Valuation Officer:
The petitioner challenged the reference made to the Valuation Officer by the respondent authority, arguing that the reference was not in consonance with the settled proposition of law. The petitioner contended that the reference was made under a mistaken belief that the petitioner had invested in the construction/renovation of the property, whereas the petitioner had purchased the property in an "as is" condition. The court noted that the reference was made just two days before the final assessment order, without any cogent material to justify the estimate of ?90 lacs. The court concluded that the reference was made in a casual manner and was not tenable.

2. Validity of Communications Dated 10.3.2011 and 26.4.2011:
The petitioner received communications from the Valuation Officer requiring certain particulars to determine the cost of construction and materials used. The court observed that these communications assumed that the petitioner had incurred expenses on construction, which was not the case as the property was purchased in an already constructed state. The court found these communications to be based on incorrect assumptions and quashed them.

3. Applicability of Section 50C of the Income-tax Act, 1961:
The petitioner argued that Section 50C, which deals with the valuation of capital assets for the purpose of calculating capital gains, applies to the seller and not the purchaser. The court agreed, citing the case of Commissioner of Income-tax-IV v. Sarjan Realities Ltd., which clarified that Section 50C applies to the seller for the purpose of section 48 of the Act. Therefore, the reference made to the Valuation Officer in the case of the petitioner, who is the purchaser, was deemed improper.

4. Applicability of Section 69 and Section 142A of the Income-tax Act, 1961:
The court analyzed the statutory provisions of Section 69 (unexplained investments) and Section 142A (estimation of value by Valuation Officer). It referred to the case of Me and Mummy Hospital v. Assistant Commissioner of Income-tax, which held that a reference to the Valuation Officer under Section 142A is permissible only when there is prima facie application of Section 69. The court found no material to suggest that the conditions of Section 69 were satisfied in this case. The reference was made without any cogent material or prima facie satisfaction, rendering the action of making the reference unsustainable in law.

Conclusion:
The court quashed the reference made to the Valuation Officer and the subsequent communications dated 10.3.2011 and 26.4.2011. It held that the reference was not justified as it was made without any cogent material and based on incorrect assumptions. The court also clarified that Section 50C applies to the seller and not the purchaser, and that Section 142A cannot be invoked without satisfying the conditions of Section 69. The petition was allowed, and the impugned actions were set aside.

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