2019 (4) TMI 61 - HC - Income Tax

Reference u/s 55A to the Valuation Officer - valuation of the capital asset - value of the asset as claimed by the assessee, which is based on the estimate made by a registered valuer, is less than its fair market value - Tribunal found that there existed no circumstances to make a reference under Section 55A of the Act as demanded by the appellant - HELD THAT - In the instant case, the AO had found that the valuation of the capital asset as on the date 01.04.1981 made by the assessee on the basis of the estimate of a registered valuer was less than its fair market value. The Assessing Officer did not make any reference to the Valuation Officer only on the premise or assumption that in the case filed by the son of the assessee, this Court had approved the cost of acquisition of the land owned and sold by him as ₹ 1,000/- per cent. AO had taken it for granted that since the assessee and his son had purchased the property in the same survey number on the same day at the same rate of price, the cost of acquisition would not be different in respect of those two lands and therefore, it was not necessary for making a reference under Section 55A of the Act. Even before the Assessing Officer, the assessee had produced the report of a registered valuer and the assessee had based his claim on the estimate made by the registered valuer. The Assessing Officer has shown no reason whatsoever for rejecting the valuation made by the registered valuer except the wrong notion entertained by him that the cost of acquisition of land owned and sold by the son of the assessee was approved by this Court as ₹ 1,000/- per cent. Thus in a case where the AO is of the opinion that the value of the capital asset claimed by the assessee, on the basis of the estimate made by a registered valuer, is less than its fair market value, it is not mandatory for the Assessing Officer to make a reference under Section 55A of the Act to the Valuation Officer. The substantial question of law is answered accordingly. However, on the facts of the case, we find that the Assessing Officer should have made a reference under Section 55A of the Act. - decided in favour of assessee.

Summary

Issues:
1. Mandatory reference under Section 55A of the Income Tax Act for valuation discrepancy.

Analysis:
The case involved a dispute regarding the mandatory requirement for the Assessing Officer to make a reference under Section 55A of the Income Tax Act when there is a difference between the value of an asset claimed by the assessee and its fair market value. The appellant had purchased land in 1975, which became a capital asset in 1994 and was sold in 2006. The Assessing Officer reopened the assessment and determined the cost of acquisition based on the son's land sale value. The appellant challenged this assessment, claiming a reference under Section 55A was necessary.

The Tribunal upheld the Assessing Officer's decision, stating that no reference was required as the son's land value determination was approved by the Court. The High Court analyzed Section 55A which allows the Assessing Officer to refer asset valuation to a Valuation Officer in specific circumstances. The Court highlighted that the provision is optional, as clarified by the Supreme Court in Dilip N. Shroff v. Joint Commissioner of Income Tax.

The Court emphasized that the Assessing Officer's discretion to refer to a Valuation Officer is not mandatory under clause (a) of Section 55A. However, in this case, the Court found that a reference should have been made as the Assessing Officer wrongly assumed the valuation approval by the Court in the son's case. The Court noted that the son did not produce a registered valuer's report, unlike the appellant. The Court concluded that the Assessing Officer's rejection of the registered valuer's valuation without proper justification was incorrect.

Furthermore, the Court highlighted that even if the Valuation Officer's assessment would have been similar, the prescribed procedure under the Act must be followed. The Court noted the potential difference in land value based on location, such as proximity to a National Highway. Therefore, the Court held that while a reference under Section 55A is not always mandatory, in this case, the Assessing Officer should have made the reference. The Court allowed the appeal, set aside the assessment orders, and remitted the matter for fresh consideration, directing the Assessing Officer to conduct a valuation reference under Section 55A.

In conclusion, the judgment clarified the discretionary nature of making references under Section 55A of the Income Tax Act, emphasizing the importance of proper justification for Assessing Officers' decisions and adherence to statutory procedures for asset valuation disputes.