In the process of completion of the assessment of a taxpayer or for any other purpose, the tax authorities need to ascertain the value of any capital asset. In such a case, the tax authorities can make a reference to the valuation officer for ascertaining the value of the capital asset. Section 55A contains the provision relating to the power of the tax authorities for making a reference to the valuation officer for ascertaining the value of a capital asset.

Section 55A has provided the circumstances in which and the purposes for which a reference could be made by the tax authorities to a Valuation Officer for valuation of capital asset. This section does not refer the ‘value of consideration’ but only uses the term ‘Fair Market value’. So the scope of the section gets confined to determine the fair market value of a capital asset only. Thus, considering the language of section 48 the value so determined cannot be substituted for ‘Full value of consideration’.

 (A) Registered Valuer

Registered Valuer and valuation officer both perform the same task but registered Valuer work in private capacity and can be termed as Private Valuer. They are recognised by the Income-tax Department and are authorized Valuer of Income-tax Department.  Registered Valuer i.e. Private Valuer work in private capacity under a license issued by the Board. Valuation done by the Private Valuer is not binding on the tax authorities but the same cannot be ignored if the Assessing officer has not moved to DVO for valuation.

Barjinder Singh Bhatti vs. ITO (ITAT Chandigarh)

Section 55A: If the AO is not satisfied with the valuation made by the assessee’s valuer, he must refer the issue to the DVO. He cannot reject the assessee’s valuation without any basis.

The assessee filed report of Registered Valuer in support of the market value as on 01.04.1981. The Assessing Officer was not having any evidence or material before him to contradict the report of the Registered Valuer. The Assessing Officer, if was not satisfied with the report of the Registered Valuer, could have made a reference to the Departmental Valuation Officer under section 55A of the Act for the purpose of computing income from capital gains. The Assessing Officer has thus, not acted in accordance with law and without any basis or evidence in his possession, did not accept report of the Registered Valuer. In the absence of any material on record, Assessing Officer should not have made his own calculation for the purpose of computing the capital gains. The orders of the authorities below, thus, cannot be sustained in law. We, accordingly, set aside the orders of authorities below and direct Assessing Officer to accept valuation reported by the assessee as per report of the Registered Valuer as on 01.04.1981 and accept the computation filed by the assessee.

(B) Departmental Valuation Officer (DVO)

Departmental Valuer i.e. valuation officers are the valuation officer approved/ authorised by the Income-tax Department. The tax authorities will take the recourse of the value estimated by the Valuer. In other words, if the tax authorities need to ascertain the value of an asset, then they will request the valuation officer to ascertain the value of the capital asset and the value determined by them will be taken into consideration by the tax authorities.

ITO vs. Aditya Narain Verma (HUF) (ITAT Delhi)

S 50C Failure by the AO to refer the valuation of the capital asset to a valuation officer instead of adopting the value taken by the stamp duty authorities is a fatal error and the assessment order has to be annulled. The matter cannot be set aside to the AO for a second chance. The power of the ITAT to set aside cannot be exercised so as to allow the AO to cover up the deficiencies in his case- when the assessee in the present case had claimed before Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub section (1) exceeds the fair market value of the property as on the date of transfer, the Assessing Officer should have referred the valuation of the capital asset to a valuation officer instead of adopting the value taken by the state authority for the purpose of stamp duty. The very purpose of the Legislature behind the provisions laid down under sub section (2) to section 50C of the Act is that a valuation officer is an expert of the subject for such valuation and is certainly in a better position than the Assessing Officer to determine the valuation. Thus, non-compliance of the provisions laid down under sub section (2) by the Assessing Officer cannot be held valid and justified.

CIRCUMSTANCES IN WHICH REFERENCE CAN BE MADE TO VALUATION OFFICER

As per section 55A, with a view to ascertaining the fair market value of a capital asset, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer. The Circumstances in which reference can be made by the Assessing Officer to the valuation officer will be broadly classified as follows:

Variation in the value as claimed by assessee and Fair Market Value

 Taxpayer claims the fair market value in accordance with the estimate made by a registered Valuer. Such a report is generally obtained by the taxpayer to support the value of the capital asset claimed by him. The Assessing Officer can make a reference to the valuation officer (i.e. departmental Valuer) if the Assessing Officer is of the opinion that the value of the asset as claimed by the taxpayer is at variance with its fair market value. No quantum of variation to be established to make a reference to the valuation officer. The only requirement is that the Assessing Office should be of the opinion that the value of the asset claimed by the taxpayer and the fair market value of the asset are in variation i.e. both the values differ. The variation i.e. the difference could be of any amount. Further where assessee objects to the value being taken up by AO u/s 50C and on receiving the objection, Assessing Office is bound to refer for a DVO report. Such cases generally fall in case of registered sale deeds of the immovable properties where AO consider the fair market value as per section 50 C for the amount before the stamp duty authority. Section 50C states that the AO can refer to DVO u/s. 55A only if the assessee claims that the value adopted by the stamp valuation authority exceeds their fair market value or the value so adopted by stamp valuation authority has not been disputed by any authority, Court or High Court.

Pr. CIT vs. Quark Media House India Pvt. Ltd (P&H High Court)

Section 45/48: The AO is not bound to accept the consideration stated in the sale deed. In a case where property is sold between arm’s length parties at a gross undervaluation, the onus is on the assessee to explain and if there is no explanation, the AO is entitled to draw an inference. The presumption against the value being understated (not undervalued) is greater where parties are connected or related. However, if the AO does not allege that the assessee received more consideration than is stated in the sale deed, he cannot made an addition to the stated consideration (George Henderson 66 ITR 622 (SC) & Gillanders Arbuthnot 87 ITR 407 (SC) explained) The judgments in CIT v. George Henderson & Co. Ltd. (1967)66 ITR 622, Commissioner of Income Tax, Calcutta v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 undoubtedly hold that the expression “full value of the consideration” cannot be construed as the market value but as the price bargained for by the parties to the sale.

 Assessing Officer can make a reference to the valuation officer

If the case is not covered as above mention, even then the Assessing Officer can make a reference to the valuation officer if he is of the opinion:  (i)that the fair market value of the asset exceeds the value of the asset as claimed by the taxpayer by more than such percentage 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. (*) Currently the prescribed rate is 15% and prescribed value is Rs. 25,000.

Thus the reference can be made by AO if the value of the asset as claimed by the taxpayer and the fair market value as per the Assessing Officer’s opinion differ and the difference is either more than 15% of the value of asset or more than Rs. 25,000, as the case may be; or (ii) if having regard to the nature of the asset and other relevant circumstances, it is necessary to do so.

ACIT vs Prakash Ratanlal Sheth, ITAT Ahmedabad, IT Appeal No. 951 (AHD.) of 2012, Section 55A- Full value of consideration cannot be construed as fair market value 

The Tribunal held that the assessee had shown sale value as a result of transfer at Rs. 14.00 lacs whereas stamp authority had taken this value at Rs. 13.83 lacs which meant that assessee had shown more sale consideration in sale deed. Thus, this case could not be referred u/s 50C (2) of the IT Act to the DVO. Further relying on the decision in the case of CIT v.Smt. Nilofer I. Singh [2009] 309 ITR 233 (Delhi HC) wherein it was held that full value of consideration u/s 48 cannot be construed as fair market value as per Section 55A of the IT Act, the Tribunal dismissed the appeal filed by the Revenue and upheld the order of the CT(A).

ITO Vs. Chandrakant R. Patel (ITAT Ahmedabad )

-The language in section 55A does not refer the ‘value of consideration’ but only uses the term ‘Fair Market value’. So the scope of the section gets con-fined to determine the fair market value of a capital asset only. Thus, considering the language of section 48 the value so determined cannot be substituted for ‘Full value of consideration’.

– Section 50C states that the AO can refer to DVO u/s. 55A only if the assessee claims that the value adopted by the stamp valuation authority exceeds their fair market value or the value so adopted by stamp valuation authority has not been disputed by any authority, Court or High Court.

– Thus, the valuation made by the DVO and the consequential addition as made by the AO was reversed and the view taken by the CIT(A) was upheld.

AO  HAS NO AUTHORITY TO SUBSTITUTE THE FAIR MARKET VALUE OF CONSIDERATION

Section 50C of the Income Tax Act  Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed [or assessable] shall, for the purposes of section 48, be deemed to be the full  value of the consideration received or accruing as a result of such transfer

PCIT vs. Quark Media House India Pvt. Ltd. Mohali

Can Assessing Officer invoke Provisions of Section 55A to determine the Fair Market Value of the Capital Asset sold when he did not find the Consideration to have been understated – Held No . The full value of consideration is the full sale price actually paid and cannot be construed as having a reference to the market value of the asset/property transferred. What is to be determined is the consideration bargained for and not the market value in the case of sale while computing the capital gains. The Assessing Officer has no authority to substitute the fair market value of consideration actually paid unless it is demonstrated that the assessee had received more than what was declared by him. In the present case it was not the case of the Assessing Officer that the assessee had received any consideration more than what was mentioned in the sale deed. Therefore, there was no necessity for computing the fair market value and the Assessing Officer accordingly could not have referred the matter to the D.V.O. 

PERMISSIBLE VARIATION AS PER 50 C  

The Courts and Tribunals are consistently taking a liberal approach in favour of the assessee where the difference between the value adopted by the assessee and the value adopted by the DVO is less than 10 per cent.  In a remarkable judgment,  J&K High Court in the case of Honest Group of Hotels (P) Ltd. Vs. CIT (2002) 177 CTR (J&K) 232  held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent, the difference is liable to be ignored and the addition made by the AO cannot be sustained.(Now 15%)

Rahul Constructions Vs. DCIT (Supra) ITA No. 1543/PN/2007:-

“We find that the Pune Bench of the Tribunal in the case of Asstt. ClT vs. Harpreet Hotels (P) LTd. Vide ITA No. 1156-1160/Pn/2007 and relied on by the learned counsel for the assessee had dismissed the appeal filed by the Revenue where the CIT(A) had deleted the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10 per cent. Similarly, we find that the Pune Bench of the Tribunal in the case of ITO vs. Kaaddu Jayghoslz Appasahebh, the Learned counsel for the assessee following the decision of the J&K High Court in the case of Honest Group of Hotels (P) Ltd. Vs. CIT (2002) 177 CTR (J&K) 232 had held that when the margin between the value as given by the assessee and the Departmental Valuer was less than 10 per cent, the difference is liable to be ignored and the addition made by the AO cannot be sustained. 

John Fowler (India) Pvt. Ltd vs. DCIT (ITAT Mumbai)

Section 50C: The AO is not entitled to make an addition to the sale consideration declared by the assessee if the difference between the valuation adopted by the Stamp Valuation Authority and that declared by the assessee is less than 10% – In Honest Group of Hotels (P) Ltd. Vs. CIT (2002) 177 CTR (J&K) 232 it was held that when the margin between the value as given by the assessee and the Departmental Valuer was less than 10 per cent, the difference is liable to be ignored and the addition made by the AO cannot be sustained. Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur, we are of the considered opinion that the AO in the instant case is not justified in substituting the sale consideration. 

COMPLETION OF ASSESSMENT FOR THE WANT OF VALUATION REPORT 

Many of the times, AO has to complete the assessment proceedings by virtue of time barred case and may not be in position to receive the DVO report over the valuation. Many cases have been taken in support of DVO report received after the completion of the assessment proceeding and also against admissible of DVO report once assessment is completed. Section 55A has been interpreted in many ways. Thus the pros and cons originate from all the judicial levels. 

CIT v. Ranchhoddas Karsondas , to show that an assessee is entitled to file his return any time before his assessment, provided there is no time-limit. Their Lordships of the Supreme Court while deciding that case observed that even a return filed on the last day could not be ignored on the ground that the Department would be driven to complete the assessment proceeding within a few hours or lose the right to send a notice under Section 34(1). The argument of inconvenience was held to be hot a decisive argument and there were means and methods which could be availed of by the Department to save the bar of limitation from becoming operative. It was further pointed out by their Lordships of the Supreme Court that it was for the courts to administer the laws as they stood and they were seldom required to be astute to defeat the law of limitation. 

Uma Debi Jhawar v. WTO , where it was held in a proceeding for making assessment if pending, a reference to the Valuation Officer could be made. The reasons given in the said decision make it amply clear that where the assessment is completed and proceeding for reopening of such assessment was not in existence, the valuation became incompetent.

Satyendra Chunder Ghosh v. WTO , where it was held that in the case of a completed assessment, which was not reopened, the WTO was not entitled to make a reference under section 16a of the w.t. act. It has been urged that although the aforesaid case was distinguishable on facts, yet the principle laid down ‘therein applies on all fours to the facts of the present case inasmuch as during the pendency of the valuation proceeding the assessment having been completed, the said proceeding has lost its utility. It is not contended that there has been any reopening of the assessment so as to open up a scope for application of the valuation report to such reopened proceeding which would have also been a pending assessment proceeding. 

Nawal Kanwar v. WTO , the Rajasthan High Court laid down that the report of the Valuation Officer under Section 16A could not be used as the basis for reopening an assessment already completed. Though the reference for valuation, in that case, was made in connection with a completed assessment, yet the reason for which such a valuation proceeding was declared void ab initio holds good in a case where during the pendency of the valuation proceeding the assessment is completed, because the whole purpose of a valuation report would be to enable the officer concerned to complete the assessment in conformity therewith. 

Reliance Jute and Industries Ltd. v. Income Tax Officer And Ors. DVO report after the completion of assessment cannot be taken care of. The valuation proceeding is liable to be quashed on the grounds that:  (a) the opinion of the ITO which is an essential prerequisite for making a reference for valuation under section 55a of the i.t. act is absent in the present case, and (b) the purpose for which alone a valuation report can be utilised, namely, for completion of the assessment in conformity with the valuation report is no longer existent, the assessment having been completed in the meantime. In such circumstances, to allow the assailed valuation proceeding to continue would militate against well-known canons of strict construction of taxing statutes. 

The statutory character of Section 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—

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 at variance with its fair market value];

in any other case, if the [Assessing] Officer is of opinion—

that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf ; or

that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the [Assessing] Officer under sub-section (1) of section 16A of that Act.

Explanation.—in this section, “Valuation Officer” has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).] 

The statutory character of relevant Wealth Tax Provisions:

Section 16A: For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, [where under the provisions of section 7 read with the rules made under this Act, or, as the case may be, the rules in Schedule III, the market value of any asset is to be taken into account in such assessment,] the [Assessing Officer] may refer the valuation of any asset to a Valuation Officer—in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the [Assessing Officer] is of opinion that the value so returned is less than its fair market value ;

In any other case, if the [Assessing Officer] is of opinion—that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf ; or that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.

– For the purpose of estimating the value of any asset in pursuance of a reference under sub- section (1), the Valuation Officer may serve on the assessee a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Valuation Officer may require.

-Where the Valuation Officer is of opinion that the value of the asset has been correctly declared in the return made by the assessee under section 14 or section 15, he shall pass an order in writing to that effect and send a copy of his order to the [Assessing Officer] and to the assessee.

-Where the Valuation Officer is of opinion that the value of the asset is higher than the value declared in the return made by the assessee under section 14 or, section 15, or where the asset is not disclosed or the value of the asset is not declared in such return or where no such return has been made, the Valuation Officer shall serve a notice on the assessee intimating the value which he proposes to estimate and giving the assessee an opportunity to state, on a date to be specified in the notice, his objections either in person or in writing before the Valuation Officer and to produce or cause to be produced on that date such evidence as the assessee may rely in support of his objections.

-On the date specified in the notice under sub-section (4), or as soon thereafter as may be, after hearing such evidence as the assessee may produce and after considering such evidence as the Valuation Officer may require on any specified points and after taking into account all relevant material which he has gathered, the Valuation Officer shall, by order in writing, estimate the value of the asset and send a copy of his order to the [Assessing Officer] and to the assessee.

-On receipt of the order under sub-section (3) or sub-section (5) from the Valuation Officer, the [Assessing Officer] shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.]

Rule 3A: Regional Valuation Officers shall exercise, within such areas as the Board may direct, general supervision over the work of District Valuation Officers, Valuation Officers and Assistant Valuation Officers. District Valuation Officers, Valuation Officers and Assistant Valuation Officers shall perform the functions of a Valuation Officer in respect of such areas and in relation to such classes of assets as the Board may direct. Where under any directions issued under sub-rule (2), the functions of a Valuation Officer in relation to any class of assets, being buildings or lands or any rights in buildings or lands, in respect of any area have been assigned to a District Valuation Officer, Valuation Officer and an Assistant Valuation Officer, such functions shall be performed by the District Valuation Officer, the Valuation Officer or, as the case may be, the Assistant Valuation Officer as provided hereunder:—

-if the value of the asset as declared in the return made by the assessee under section 14 or section 15 exceeds [Rs. [300] lakhs] or if the asset is not disclosed or the value of the asset is not declared in such return or no such return has been made and the value of the asset, in the opinion of the [Assessing Officer], exceeds the aforesaid amount, the functions shall be performed by the District Valuation Officer ;

-if the value of the asset as declared in the return made by the assessee under section 14 or section 15 exceeds [Rs. [ 40] lakhs] but does not exceed [Rs. [300] lakhs] or if the asset is not disclosed or the value of the asset is not declared in such return or no such return has been made and the value of the asset, in the opinion of the Assessing Officer], falls within the aforesaid limits, the functions shall be performed by the Valuation Officer; and

-if the value of the asset as declared in the return made by the assessee under section 14 or section 15 does not exceed [Rs. [40] lakhs], or if the asset is not disclosed or the value of the asset is not declared in such return or no such return has been made and the value of the asset, in the opinion of the [Assessing Officer], does not exceed the aforesaid amount, the functions shall be performed by the Assistant Valuation Officer:]

Rule 3B: The percentage of the value of the asset as returned and the amount referred to in sub-clause (i) of clause (b) of sub-section (1) of section 16A shall, respectively, be 331/3 per cent and Rs. 50,000.

 Rule 3C: The Valuation Officer or any overseer, surveyor or assessor authorised by him by order in writing in this behalf may enter any land referred to in clause (a), or any land, building or other place referred to in clause (b), of sub-section (1) of section 38A, or inspect any asset referred to in clause (c), of that sub-section, on any day, excluding Sundays and holidays under the Negotiable Instruments Act, 1881 (26 of 1881) at any time between 6 a.m. and 6p.m.]

(About the Author– Author was Member of ICAI- Capacity Building Committee 2010-11 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)

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