Gujarat HC Dismisses Tax Appeal as DVO Reference Was Not Permissible Under Pre-2012 Section 55A

PCIT Vs Shantaben P. Patel (Gujarat High Court)

Summary: The Gujarat High Court considered a tax appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal dated 02.04.2018. The issue arose in relation to Assessment Year 2011-12 and concerned the deletion of an addition of ₹13,97,290 made on account of Long-Term Capital Gains.

The question before the Court was whether the Tribunal had erred in deleting the addition and whether the Assessing Officer was justified in making a reference to the District Valuation Officer (DVO) for determining the fair market value of an asset as on 01.04.1981.

The Tribunal had relied on the Gujarat High Court’s earlier decision in Commissioner of Income-Tax v. Gauranginiben S. Shodhan [2014] 367 ITR 238. In that judgment, the Court had examined Section 55A as it stood prior to its amendment with effect from 01.07.2012.

The Court had observed that where an assessee had relied upon the valuation report of a registered valuer, the Assessing Officer could invoke Section 55A(a) only if he formed an opinion that the value claimed by the assessee was less than the fair market value. In such circumstances, the provision as it then existed would not apply where the Assessing Officer considered the value claimed by the assessee to be higher than the fair market value.

The Court further noted that the amendment effective from 01.07.2012 substituted the earlier language with the expression “is at variance with its fair market value,” which could alter the legal position prospectively. However, for periods prior to that amendment, the earlier provision governed the matter.

The judgment also explained that Section 55A(b) applied only in cases where Section 55A(a) did not apply. Since the assessee had relied upon a registered valuer’s report, the Assessing Officer could proceed only under Section 55A(a), and Section 55A(b) was not applicable.

Relying on the earlier binding decision, the High Court held that the issue was fully covered by its previous ruling. Consequently, the Revenue’s challenge failed, and the tax appeal was dismissed.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. The Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 02.04.2018.

2. The following question has been presented for our consideration;

“Whether the Appellate Tribunal has erred on the facts and in law in deleting the addition of Rs.13,97,290/­ made on account of Long Term Capital Gains?”

3. The issue pertains to the Assessment Year 2011­12 and touches the authority of the Assessing Officer to make a reference to the District Valuation Officer for determining the fair market value of the assets as on 01.04.1981.

4. In this context, the Tribunal had relied on the decision of this Court in the case of Commissioner of Income­Tax v. Gauranginiben S. Shodhan reported in [2014] 367 ITR 238. In the said judgment, the following observations were made;

“15. Coming to the question of reference to the DVO for ascertaining the fair market value as on April 1, 1981, also, we find that such reference was not competent. We have noticed that prior to the amendment in section 55A with effect from July 1, 2012, in a case, the value of the asset claimed by the assessee is in accordance with the estimate made by the registered valuer, if the Assessing Officer was of the opinion that the value so claimed was less than its fair market value as on April 1, 1981. It would not be the case of the Assessing Officer that the value of the asset shown as on April 1, 1981 was less than the fair market value. Such clause, therefore, as it stood at the relevant time, had no application to the valuation as on April 1, 1981. We are conscious that with effect from July 1, 2012, the expression now used in clause (a) of section 55A is “is at variance with its fair market value”. The situation may, therefore, be different after July 1, 2012. We are, however, concerned with the period prior thereto. Clause (b) of section 55A is in two parts and permits a reference to the DVO if the Assessing Officer is of the opinion that (i) the fair market value of the asset exceeds the value of the asset so claimed by the assessee by more than such percentage of the value of the asset so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do. Sub­clause (i) of clause (b) also for the same reasons recorded above, would have no bearing on the fair market value as on April 1, 1981. The Assessing Officer had not resorted to sub­clause (ii) of clause (b). In any case, clause (b) would apply where clause (a) does not apply since it starts with the expression “in any other case”. In other words, if the assessee has relied upon a registered valuer’s report, the Assessing Officer can proceed only under clause (a) and clause (b) would not be applicable.”

5. The issue is covered by the decision of this Court. Hence, the Tax Appeal is dismissed.