Case Law Details
Mahdevbhai Mohanbhai Naik Vs ITO (ITAT Surat)
The assessee appealed against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2010-11, challenging an addition of ₹5,92,550 made on account of long-term capital gains arising from the sale of immovable property. The principal issue was whether the Assessing Officer (AO) was justified in referring the valuation of the property to the Departmental Valuation Officer (DVO) under Section 55A of the Income-tax Act, 1961.
During the relevant year, the assessee and others sold land measuring 9,207 square meters. For determining long-term capital gains, the assessee relied on a valuation report of a registered valuer, which estimated the fair market value (FMV) of the property as on 01.04.1981 at ₹7,36,560. The DVO, however, determined the FMV at ₹1,74,012. Based on the DVO’s valuation, the AO recomputed the indexed cost of acquisition and made an addition of ₹5,92,550 as long-term capital gain.
Before the Commissioner (Appeals), the assessee argued that, for Assessment Year 2010-11, Section 55A as it stood prior to its amendment with effect from 01.07.2012 permitted a reference to the Valuation Officer only where the value claimed by the assessee was less than the fair market value. Since the value declared by the assessee based on a registered valuer’s report was higher than the value determined by the DVO, the reference itself was invalid. Reliance was placed on various judicial precedents, including CIT v. Puja Prints, CIT v. Daulal Mohta (HUF), and CIT v. Gaurangiben S. Shodhan. However, the Commissioner (Appeals) upheld the reference, observing that it had been made after 01.07.2012, when the amendment to Section 55A had already come into force.
Before the Tribunal, the assessee reiterated that the amendment effective from 01.07.2012 was prospective and could not apply to Assessment Year 2010-11. It was contended that where a registered valuer’s report had been furnished and the value shown by the assessee was higher than the fair market value estimated by the department, the AO lacked authority to invoke Section 55A.
The Tribunal examined Section 55A and observed that references to a Valuation Officer could be made in two situations: where the valuation is based on a registered valuer’s report and where it is not. Since the assessee had furnished a registered valuer’s report, the case fell under Section 55A(a). Under the provision applicable to Assessment Year 2010-11, a reference could be made only if the value claimed by the assessee was less than the fair market value. In the present case, the value claimed by the assessee was higher than the value determined by the DVO. Therefore, the statutory conditions for invoking Section 55A were not satisfied.
The Tribunal relied on decisions of the Bombay High Court in Puja Prints and Daulal Mohta (HUF), the Gujarat High Court in Gaurangiben S. Shodhan, and decisions of the Mumbai and Pune Benches of the Tribunal. It held that the amendment substituting the expression “less than its fair market value” with “at variance with its fair market value” was substantive in nature and applicable only from 01.07.2012 onwards. The amendment could not be applied retrospectively to Assessment Year 2010-11 merely because the reference to the DVO was made after that date.
The Tribunal concluded that the AO was not justified in referring the matter to the DVO or adopting the valuation determined by the DVO. Consequently, the addition based on such valuation was unsustainable. The grounds raised by the assessee were allowed, and the appeal was allowed in full.
SEO-Friendly Titles with Descriptions
ITAT Deletes Capital Gains Addition Because DVO Reference Was Invalid Under Pre-2012 Section 55A
SEO Description: The Tribunal held that for Assessment Year 2010-11, a reference to the DVO was impermissible where the assessee’s declared value exceeded the department’s estimate. The resulting capital gains addition was therefore deleted.
SEO Description: The Tribunal ruled that Section 55A could not be invoked when the assessee’s valuation was higher than the fair market value determined by the department. The addition based on the DVO’s report was set aside.
ITAT Rules Section 55A Amendment Cannot Apply Retrospectively Because Assessment Year Was 2010-11
SEO Description: The Revenue relied on the post-2012 amendment to Section 55A to justify the valuation reference. The Tribunal held that the amendment was prospective and could not govern Assessment Year 2010-11.
Capital Gains Addition Quashed Because AO Lacked Power to Refer Property Valuation to DVO
SEO Description: The Tribunal found that the statutory conditions for making a valuation reference were not met. Consequently, the DVO’s valuation could not be used to recompute capital gains.
Registered Valuer’s Report Prevails Because DVO Reference Was Contrary to Section 55A
SEO Description: The assessee had furnished a valuation report from a registered valuer showing a higher fair market value. The Tribunal held that the AO could not disregard it through an invalid DVO reference.
ITAT Allows Appeal Because Pre-Amendment Section 55A Permitted Reference Only When Value Was Lower
SEO Description: The Tribunal observed that the law applicable to Assessment Year 2010-11 allowed a valuation reference only if the value claimed was lower than the fair market value. Since that condition was absent, the reference was invalid.
Capital Gains Recalculation Set Aside Because DVO Valuation Was Improperly Invoked
SEO Description: The AO adopted a lower fair market value based on a DVO report and enhanced taxable capital gains. The Tribunal held that the valuation exercise itself lacked legal authority.
ITAT Rejects Revenue’s Stand Because Section 55A Amendment Was Substantive and Prospective
SEO Description: The Tribunal ruled that the amendment replacing the words “less than” with “at variance with” could not be applied retrospectively. The pre-amendment provision governed the assessee’s case.
Property Valuation Reference Held Unsustainable Because Assessee Had Submitted Approved Valuer’s Report
SEO Description: The Tribunal found that where a registered valuer’s report existed, the AO had to satisfy the specific conditions of Section 55A(a). Those conditions were not met in the present case.
Long-Term Capital Gains Addition Deleted Because DVO-Based Valuation Had No Legal Basis
SEO Description: The Tribunal held that the AO was not entitled to substitute the assessee’s valuation with a lower DVO valuation for Assessment Year 2010-11. The addition arising from such substitution was accordingly deleted.
FULL TEXT OF THE ORDER OF ITAT SURAT
1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-3, Surat (in short “the CIT (A)”) dated 15.01.2016 pertaining to Assessment Year 2010-11.
2. Ground no. I (1) to (5) : states that the Ld.AO was not justified in making the addition of Rs.5,92,550 made on account of long-term capital gain of immovable property by overlooking that provisions of section 55A (a) which states that reference to Valuation Officer may be made if the concerned Assessing Officer is of the opinion that the value of the capital asset so claimed by the assessee is less than the fair market value (FMV) are not applicable as it are effective from 01.07.2012 hence, not applicable for the assessment year 2010-11.
3. The above grounds relates with a single issue hence, being considered together. During the year under consideration, the assessee along with others have sold an immovable property admeasuring 9207 sq. meter ( assessee`s 1/6th share 1534.50 sq. meter ) situated at Moje Kansad Taluka for Rs. 51,63,265 on 16.03.2010 for total consideration of which fair market value was determined at Rs. 1,74,012 ( @ 18.90 x 9207) by the DVO as against the value determined by the assessees`s Valuer at Rs. 7,36,560. Accordingly the AO considered the long-term capital gain at 6,77,207 [Rs.8,60,500 less index cost at Rs. 1,83,293 ( 29002*632/100)] and after reducing the long-term capital gain at Rs. 84,657 disclosed by the assessee made net addition of Rs. 5,92,550 as long-term capital gain.
4. Being dissatisfied, the assessee preferred an appeal before the Commissioner of Income tax (Appeals). It was explained that the sale price of land was at Rs.51.63 Lakh as against which valuation of land as per Valuer of the assessee as on 01.04.1981 comes to Rs. 7,36,560 @ 80 per sq. meter of 9207 sq. meter in which assessee`s share comes to Rs. 1,22,760 (1/6th ) However, the AVO vide his report dtd. 26.12.2014 estimated FMV as on 01.04.1981 for entire land of 9207 sq. meter @ 18.90 per sq. meter at Rs. 1,74,012 as against the Fair market value Rs. 80 per sq. meter claimed by the assessee. it was contended that reference to AVO can only be made if in the opinion of the AO that the value shown is less than FMA. Since the FMV shown by the assessee is more than FMV hence, the AO cannot refer it to AVO. The amendment in section 55A(a) is introduced with effect from 01.07.2012 by Finance Act, 2012 which is applicable for the assessment year commencing after 01.07.2012. Therefore, as per provisions of section 55A(a) as stood for the assessment year 2010-11 no reference can be made to DVO. The assessee has placed reliance in the case of CIT v. Puja Prints [2014] 360 ITR 697 (Bom) wherein it was held that the Assessing Officer referred the issue of valuation to the Departmental valuation Officer only because in his view the valuation of property as on 1981 as made by the assessee was higher than the fair market value. Therefore, invocation of section 55A(a) was not justified. CIT v. Daulal Mohta (HUF) [2014] 360 ITR 680 (Bom) held reference to Departmental Valuation Officer can only be made in cases where the value of the cause shown by the assessee is less than its fair market value as on April1, 1981. Where the value of capital asset shown by the assessee on the basis of approved valure`s Valuer report was more than its fair market value, reference under section 55A of Income Tax Act,1961 was not valid. The assessee has placed reliance in the case of Hussain Ismail Dawoodani v. ACIT [I.T.A.No. 2499/Mum/2013 A.Y. 2007-08] dated 03.09.2014 –Trib-Mumbai ] and Seksaria Industries Pvt. Ltd. v. ITO [ I.T.A.No. 2835/Mum/2013 A.Y. 09-10 dtd. 31.10.2014] in support of his contentions. However, the CIT (A) was of the view that the reference to DVI in this case made on 05.09.2014 i.e. after 1st July 2012 i.e. the date from which amendment to said section came into force. Hence, the amendment in section with effect from 01.07.2012 is applicable to all pending proceeding before the AO and case laws referred by the assessee are prior to amendment hence, not applicable.
5. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the AO adopted the cost of acquisition of the land as on 01.04.1981 at @ 18.90 per sq. meter instead of @ Rs. 80 per sq. meter considered by the assessee based on Registered Valuer report. It was further submitted that the AO cannot refer to valuation where property is sold before 01.07.2012 as the amendment under section 55A is effective from 01.07.2012. The fair market value of property is less as laid down in the case of CIT v. Puja Prints [2014] 360 ITR 697 (Bom) , CIT v. Daulal Mohta (HUF) [2014] 360 ITR 680 (Bom) and Hon’ble Gujarat High Court in the case of CIT v. Gauragiben S Shodhan[2014] 108 DTR 442 (Gujarat) wherein it was held that Coming to the question of reference to DVO for ascertaining the fair market value as on 1st April, 1981 also, such reference was not competent. Prior to the amendment in section 55A with effect from 1st July, 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 AO was of the opinion that the value so claimed was less than its fair market value as on 1st April, 1981. It would not be the case of the AO that the value of the asset shown as on 1st April, 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 1st April, 1981. With effect from 1st July, 2012, the expression now used in clause (a) of s.55A is “is at variance with its fair market value”. The situation may, therefore, be different after 1stJuly, 2012. It was contended that the AO has no power to make reference under section 55A nor he can himself value the property. The learned counsel for the assessee further placed reliance in the case of Hussain Ismail Dawoodani v. ACIT [I.T.A.No. 2499/Mum/2013 A.Y. 2007-08] dated 03.09.2014 –Trib-Mumbai ] and Seksaria Industries Pvt. Ltd. v. ITO [ I.T.A.No. 2835/Mum/2013 A.Y. 09-10 dtd. 31.10.2014] in support of his contentions. The learned counsel for the assessee submitted that the Mumbai Tribunal in the case of Pradeep G. Vora v. ITO [2015] 58 taxmann.com 110 (Mum-Trib)
6. Per contra, the ld. Sr. D.R. relied on the orders of lower authorities and submitted that as per provision of section 55A, the AO can refer for valuation of property as if in his opinion the value of fair market value is at variance. The decision of Puja Prints are related to case where reference is made prior to 01.07.2012. In the case of the assessee reference has been made after 01.07.2012 hence, same is applicable where assessment is made after 01.07.2012.
7. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has submitted a valuation report of Registered Valuer who has valid the property based on sale instances whereas the AO adopted the fair market value of property based on DVO report. Further where the fair market value of property is shown more than fair market value, the AO cannot refer the same to valuation before 01.07.2012. Since the assessment is for the assessment year 2010-11, the AO cannot make the reference to DVO for valuation of property.
8. After going through rival submissions and material on record, we find that issue before us is whether Assessing Officer was justified in applying the provisions of Section55A(b)(ii) of the Act at relevant point of time. As stated above, during the year assessee shown sale consideration of land. The land sold during the year was purchased prior to 1st April, 1981. Therefore, long term capital gain was calculated by adopting fair market value of land as on 1st April, 1981 as per the provisions of section 55(2)(b)(i) of the Act. Assessee adopted fair market value at Rs. 7,36,560 based on valuation report of Government approved registered valuer. Assessing Officer after not accepting the claim of assessee referred the matter to DVO u/s.55A(b)(ii) for ascertaining fair market value of land as on 05.09.2014. After obtaining DVO report, Assessing Officer rejected the fair market value adopted by assessee and completed assessment u/s.143(3) of the Act estimating the fair market value as on 01.04.1981 at 1,74,012. Assessing Officer has referred the valuation to the DVO u/s.55A(b)(ii), for the sake of convenience the provision of Section 55A of the Act reds as under:
“55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer –
(a) In a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion ;that the value so claimed is less than its fair market value;
(b) in any other case, if the Assessing Officer is of opinion
(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such per-centage of the value of the asset as 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”
9. Thus reference to DVO can be made in two situations; first, the value is adopted based on report of registered valuer and second, in any other case. In assessee’s case, fair market value adopted as on 01.04.1981 is based on valuation report of registered Valuer. Therefore, Assessing Officer should have applied the provisions of 55A(a) and according to said provision, fair market value claimed by assessee can be rejected only if fair market value is less than fair market value as per Assessing Officer. As fair market value claimed by assessee as on 1st April, 1981 is higher than that estimated by Assessing Officer provisions of 55A should not be invoked. The provisions of Section 55A(b)(ii) as resorted by Assessing Officer for referring the matter to DVO can be invoked only in case the valuation report is not submitted by assessee. Thus, reference made by Assessing Officer u/s.55A(b)(ii) was not correct. We find that Hon’ble Bombay High Court in case of CIT v. Daulal Mohta (HUF) [2014] 360 ITR 680 (Bom) the Hon`ble Bombay High Court wherein respondent had adopted fair market value of property as on 01.04.1981 at Rs.2,13,31,000/- based on the valuation report of Government approved Valuer and Assessing Officer determined the fair market value as on 1 April 1981 at Rs.1,35,40,000/- based on valuation report of DVO. Hon’ble Bombay High Court upheld the order of Tribunal by observing as under:
“3. We have perused the judgment of the Tribunal. It is explicitly clear that the questions sought to be raised are with regard to the quantum of valuation which is only a finding of fact and there is absolutely no question of law involved in the above appeal.
4. The Tribunal in its order dated 23rd July, 2008 has categorically observed thus:
“5. The first issue that arises for our consideration is whether the reference made by the Assessing Officer to the DVO u/s 55A is bad in law under the facts and circumstances of the case. This issue, in our considered opinion, is covered in favour of the assessee and against the Revenue by the judgment in the case of Rubab M.Kazerani reported in 91 ITD 429 (Mum(TM). Further the assessee also covered by the Third Member decision of the Pune Bench of the Tribunal, the case of Krishnabhai Tingore Vs.ITO reported in 101 ITD 317 (Pune) (TM) wherein it has been held that reference to DVO can only be made in cases where the value of capital asset shown by the assessee is less than its fair market value of land as on 1st April, 1981 shown by the assessee on the basis of approved valuer’s report being more than its fair market value, reference under S.55A was not valid. Respectfully following the propositions laid down these two cases by the coordinate benches we uphold the contention of the assessee and hold that the reference made by the Assessing Officer to the DVO u/s 55A in the peculiar facts and circumstances of the case is bad in law. Thus, on the sole grounds of appeal of the assessee has to be allowed.
10. Further, where the fair market value of property is shown more than the Fair Market Value, the AO cannot refer the same to valuation relating to assessment year falling before the date of 01.07.2012. Since the assessment made is for the assessment year 2010-11, the AO cannot make reference to DVO for the valuation of property, where value of property is not less than the value of fair market value. This view is supported with decision of Hon`ble Bombay High Court in the case of CIT v. Puja Prints [2014] 360 ITR 697 (Bom) wherein it was held that the Assessing Officer referred the issue of valuation to the Departmental Valuation Officer only because in his view the valuation of property as on 1981 as made by the assessee was higher than the fair market value. Therefore, invocation of section 55A (a) was not justified.
11. We find that the Hon`ble Jurisdictional High Court of Gujarat in the case of CIT v. Gauragiben S Shodhan[2014] 108 DTR 442 (Gujarat) wherein it was observed “Coming to the question of reference to DVO for ascertaining the fair market value as on 1st April, 1981 also, such reference was not competent. Prior to the amendment in section 55A with effect from 1st July, 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 AO was of the opinion that the value so claimed was less than its fair market value as on 1st April, 1981. It would not be the case of the AO that the value of the asset shown as on 1st April, 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 1st April, 1981”. Therefore, respectfully following the same the reference made by the AO to DVO is not justified hence, findings recorded by the CIT (A) are not proper. Similarly, the Pune Tribunal in the case of ACIT V. Bhima Dada Kharate I.T.A.No. 1582/PUN/2015 dated 31.10.2017, observed in para 10 as follows:“10. Now, coming to the facts of the present case, the year under reference is assessment year 2009-10 and since the amendment was made effective from 01.07.2012 and the Hon‟ble High Court has held that law which is to be applied in such cases is as existing during assessment year 2009-10, then the pre- amended provisions of section 55A(a) of the Act are to be applied. In such scenario, there is no merit in the order of Assessing Officer in adopting the cost of acquisition as on 01.04.1981 at the value less than the value shown by the assessee, which in turn, is based on the report of the approved Valuer.”. Therefore, The AO was not justified in referring to DVO for valuation as on 01.04.1981. Similarly, the Mumbai Tribunal in the case of Pradeep G. Vora 58 taxmann.com 110 (Mum-Trib) / [2015] 154 ITD 118 (Mum) has observed in para 4.2 as “ The contention of the Revenue that in view of the amendment to section 55A(a) of the Act in 2012 by which the words “is less than its fair market value” is substituted by the words “is at variance with its fair market value” is clarifactory and should be given retrospective effect. This submission is in face of the fact that the 2012 amendment was made effective only from July 1, 2012. Parliament has not given retrospective effect to the amendment. Therefore, the law to be applied in the present case is section 55A(a) of the Act as existing during the period relevant to the assessment year 2006-07. At the relevant time, very clearly reference could be made to Departmental VO only if the value declared by the assessee is in the opinion of AO less than its fair market value.”
12. Thus, the contention of the Learned Departmental Representative that reference was made after 01.07.2012 is not tenable in law as the amendment made in section is substantive in nature which is relevant to assessment year commencing after the date of amendment i.e. F.Y. 2012-13 relevant to A.Y. 2013-14, hence, it is not applicable for the assessment year 2010-11, as the assessment involved is prior to period of 01.07.2012. In view of these facts and circumstances, we are of the considered opinion that the law has been settled by the decision of Hon`ble Bombay High Court, Hon’ble Gujarat High Court, Mumbai tribunal and Pune Tribunal. Therefore, the AO was not justified in referring to DVO or adopting valuation based on valuation report. The amendment in section 55A was qua prior period to 01.07.2012 and not qua proceeding prior to 01.07.2012. Hence, respectfully the following the ratio laid down in above judgements of Hon`ble High Courts and Tribunal as referred above, hence,, Ground No. 1(1) to (5) of the appeal are allowed.
13. In the result, the appeal of the assessee is allowed.
14. Order pronounced in the open Court on 11.07.2018.
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