AO Cannot Refer Property Valuation to DVO When Assessee’s Value Exceeds FMV: Bombay HC

CIT Vs Puja Prints (Bombay High Court)

DVO Reference Held Invalid Because Section 55A Applied Only When Declared Value Was Lower Than FMV; 2012 Amendment to Section 55A Not Retrospective Because Parliament Made It Effective From July 2012; Capital Gains Addition Fails Because DVO Valuation Reference Was Not Permitted Under Existing Law; AO Cannot Use Residuary Section 55A(b) When Case Is Covered by Section 55A(a): Bombay High Court

The Bombay High Court dismissed the Revenue’s appeal against the Income Tax Appellate Tribunal (ITAT) order relating to Assessment Year 2006-07 and held that the Assessing Officer (AO) could not validly refer the valuation of the property to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act as it stood during the relevant assessment year.

The assessee had declared long-term capital gains arising from the sale of land and building in Mumbai for a consideration of ₹2 crore. While computing capital gains, the assessee adopted the fair market value of the property as on 1 April 1981 at ₹35.99 lakh based on a registered valuer’s report and claimed indexed cost accordingly. The AO considered this valuation excessive because the property had been purchased approximately 15 months earlier for ₹1.45 lakh. Consequently, the AO referred the matter to the DVO, who determined the fair market value as on 1 April 1981 at ₹6.68 lakh. Based on this valuation, the AO significantly enhanced the taxable capital gains.