Dy. Commissioner Of ... v. Mr. S.B Thakkar (Huf..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

ITA no. 4586.Mum./2011, (Assessment Year: 2008-09)

Attorney(S)

Revenue by: Mrs. Parminder
Assessee by: None

Judges

Shri B. Ramakotaiah, Accountant Member
Shri Amit Shukla, Judicial Member

Acts

section 143(3) of the Income Tax Act, 1961 (for short the Act),
u/s 55A(a) of the LT. Act, 1961
provisions of section 45(2).

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Smart Summary

Factual and Procedural Background

The present appeal was filed by the Revenue challenging the order dated 25 March 2011 passed by the Commissioner (Appeals)-XXXIV, Mumbai, concerning the quantum of assessment under section 143(3) of the Income Tax Act, 1961 for assessment year 2008–09.

The assessee was a one-fourth owner of a plot (CTS no. 480/481/1) at Ranisati Market, Malad (East). The land had been converted into stock-in-trade in 2003–04 and a development agreement was entered into with M/s K. Raheja Universal Pvt. Ltd. The assessee offered sale proceeds of constructed areas as business income and also offered capital gain on transfer of land shown as closing stock under section 45(2).

For cost of acquisition the assessee took the 1 April 1981 value at Rs. 190 per sq.ft, arriving at a fair market value (FMV) of Rs. 5,67,11,059 and an indexed cost of Rs. 1,05,29,163, resulting in a long-term capital loss of Rs. 5,83,942. The Assessing Officer referred the matter to the District Valuation Officer (DVO) under section 55A to verify the FMV as of 1 April 1981. The DVO reported a lower FMV of Rs. 3,73,74,000. The Assessing Officer rejected the assessee's objections and made an addition of Rs. 30,03,122 based on the DVO report.

Before the Commissioner (Appeals), the assessee contended that the reference under section 55A was not in accordance with law because the conditions required to refer the matter to the DVO were lacking. The Commissioner (Appeals) allowed the assessee's ground, relying on precedent, and directed the Assessing Officer to recompute capital gains accepting the disclosed valuation as on 1.4.1981. The Revenue appealed to the Tribunal; the Departmental Representative defended the Assessing Officer's action and contended that the DVO report was binding.

Legal Issues Presented

Whether the Assessing Officer had jurisdiction under section 55A of the Income Tax Act to refer the assessee's declared value (based on an approved valuer's report) as on 1 April 1981 to the DVO when the Assessing Officer did not form an opinion that the FMV disclosed by the assessee was less than the actual FMV (or exceeded it by more than the prescribed percentage)?
Whether a reference to the DVO under section 55A is valid where the assessee's declared FMV (supported by a registered valuer's report) is higher than the FMV estimated by the DVO?
Whether the Assessing Officer may make a reference to the DVO without recording material or forming an opinion as required by the statutory provisions of section 55A?

Arguments of the Parties

Revenue's Arguments

The Departmental Representative relied on the Assessing Officer's findings and submitted that the reference to the DVO was rightly made to determine the FMV as on 1 April 1981.
It was contended that the DVO's valuation report is binding on the Assessing Officer and justified the addition of Rs. 30,03,122 in the computation of long-term capital gains.

Assessee's Arguments

The assessee argued before the Commissioner (Appeals) that the reference to the DVO under section 55A was not made in accordance with law because the statutory conditions for invoking section 55A were absent.
The assessee relied on an approved valuer's report supporting the declared FMV as on 1 April 1981 (rate of Rs. 190 per sq.ft) and objected to the DVO valuation and consequent addition.
The Commissioner (Appeals) accepted these submissions and directed acceptance of the disclosed valuation for recomputing capital gains.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ms. Rubab M. Kazerani v. JCIT, [2004] 91 ITD 429 (Mum.) (TM)	Section 55A(a) permits reference to the Valuation Officer only when the Assessing Officer is of the opinion that the FMV disclosed by the assessee is less than the actual FMV; the AO cannot invoke section 55A(a) merely because he considers the assessee's disclosed value to be on the higher side.	The Commissioner (Appeals) relied on this decision; the Tribunal treated it as directly applicable and followed it to hold the AO's reference to the DVO invalid in the present facts.
ITO v. Pratap M. Indulkar (ITA No. 1142/Mum/2010), order dated 23 July 2004 (Tribunal, Mumbai Bench)	Coordinate-bench authority holding that reference to DVO under section 55A is invalid where the value shown by the assessee is not less than FMV; references to coordinate-bench rulings including Krishnabai Tingore were applied.	The Tribunal referred to this order as supporting the proposition that the AO's reference to the DVO was bad in law under the facts of this case and upheld the assessee's contention.
Krishnabai Tingore v. ITO, 101 ITD 317 (Pune) (TM)	Held that reference to DVO can be made only where the value shown by the assessee is less than its fair market value; if the assessee's valuer's report shows a higher value, section 55A reference is not valid.	Followed by the Tribunal via the Pratap Indulkar decision; the principle was applied to find the AO's reference inappropriate where the assessee's disclosed value exceeded the DVO estimate.
CIT v. Daulal Mohta (HUF), ITA No. 103 of 2008, judgment dated 22 September 2008 (High Court)	Referenced in support of the legal proposition that section 55A reference must be founded on the Assessing Officer's opinion that the assessee's declared value is less than FMV (as part of a chain of authorities considered by the Tribunal).	The Tribunal relied on this jurisdictional High Court authority (as cited in allied decisions) to reinforce the conclusion that the AO's reference without forming the requisite opinion was not valid.
Sarala N. Sakaraney v. ITO, [2010] 46 DTR (Trib.) (Mum.) 2008	Cited among coordinate-bench decisions addressing the scope of section 55A references and limitations on making DVO references when valuation by an approved valuer exists.	Used as part of the body of Tribunal authority supporting the view that the AO's reference in the present facts was not legally sustainable.
Hiaben Jayantilal Shah (Gujarat High Court decision) (referred to as "supra")	Explained that clause (a) of section 55A applies when the AO is of the opinion that the value claimed by the assessee (supported by a registered valuer's estimate) is less than FMV. If the DVO's estimate is lower than the assessee's declared value, clause (a) cannot be invoked; clause (b) applies only when no registered valuer's estimate supports the assessee's claim.	The Tribunal quoted and applied this reasoning to conclude clause (a) could not apply because the DVO's estimate was lower than the assessee's declared value, rendering the AO's reference invalid.

Court's Reasoning and Analysis

The Tribunal reviewed the Assessing Officer's actions and the Commissioner (Appeals)' order. The analysis proceeded in the following steps, consistent with the material contained in the opinion:

Statutory test for making a reference to the DVO: The Tribunal reiterated that for a valid reference under section 55A the Assessing Officer must form an opinion that the FMV of the asset exceeds the value claimed by the assessee by more than the prescribed percentage (or must satisfy the specific conditions of clauses (a) or (b) of section 55A). In particular, clause (a) applies when the AO is of the opinion that the value claimed by the assessee (supported by a registered valuer's estimate) is less than the fair market value.
Factual evaluation of the assessee's valuation: The assessee had disclosed the 1 April 1981 value supported by computations and evidence (rate of Rs. 190 per sq.ft). The Assessing Officer did not find that the assessee's working was incorrect.
Defect in the Assessing Officer's reference: The Tribunal found that the Assessing Officer, without material on record or without forming the requisite opinion that the assessee's declared value was less than FMV, referred the matter to the DVO. In other words, the statutory pre-condition of forming an opinion was not satisfied on the facts.
Precedential support: The Tribunal relied on a line of authorities (including the Third Member decision in Ms. Rubab M. Kazerani, the Tribunal's Pratap M. Indulkar decision, Krishnabai Tingore, and the Gujarat High Court's Hiaben Jayantilal Shah) which establish that an AO cannot invoke section 55A(a) where the assessee's declared value (supported by an approved valuer) is not less than the FMV and that clause (b) cannot be invoked where a registered valuer's estimate supports the assessee.
Conclusion from legal and factual matrix: Because the assessee's declared FMV (per registered valuer) exceeded the DVO's estimate, clause (a) of section 55A was not applicable and clause (b) could not be invoked under the facts. Consequently, the determination of FMV based on the DVO report was held to be invalid.
Relief directed: The Tribunal upheld the Commissioner (Appeals)' direction that the Assessing Officer should accept the assessee's declared valuation as on 1 April 1981 and recompute the capital gains accordingly.

Holding and Implications

Holding: The Tribunal confirmed the Commissioner (Appeals)' order and dismissed the Revenue's appeal. The core ruling is emphasized as:

DISMISSED — The Revenue's appeal is dismissed and the Assessing Officer's reference to the DVO under section 55A is held invalid on the facts of this case.

Direct implications for the parties:

The Assessing Officer must accept the assessee's disclosed valuation of the property as on 1 April 1981 (based on the approved valuer's report) and recompute the capital gains accordingly.
The addition of Rs. 30,03,122 made on the basis of the DVO report is not sustained by the Tribunal.

Broader implications: The opinion follows and applies existing Tribunal and High Court authorities on the limited question of jurisdiction under section 55A; the decision resolves the dispute between the parties on the basis of those authorities and the facts of the case.

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Dy. Commissioner Of Income Tax, Circle-24(2), Pratyakshakar Bhavan, Bandra (E), Mumbai 400051 v. Mr. S.B Thakkar (Huf), 67-A, Vithal Nagar Chs, Road No. 12, Ns Jvpd Scheme, Juhu, Mumbai 400049 .

Amit Shukla, J.M:— The present appeal is preferred by the Revenue challenging the impugned order dated 25 March 2011, passed by the learned Commissioner (Appeals)-XXXIV, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short “the Act”), for the A.Y 2008–09.

2. The sole dispute in this appeal is with regard to the direction of the learned Commissioner (Appeals) to delete the addition of Rs. 30,03,122, which was based on DVO's report by holding that the Assessing Officer has no jurisdiction to refer the matter to the valuation officer under section 55A ignoring the fact that the fair market value of the property differs by more than 15%.

3. Facts in brief:— The assessee was 1/4 owner of the plot bearing CTS no. 480/481/1, having area of 298479.26 sq.ft situated at Ranisati Market, Malad (East). The assessee and other co-owners had entered into a development agreement dated 14 October 2003, with M/s. K. Raheja Universal Pvt. Ltd. after converting the land into stock-in-trade in the financial year 2003–04 and valued the same at Rs. 7,37,50,000. During the year, the assessee has offered sale proceeds of constructed area Tower-A and Tower-B to be taxed under the head “Business Income”. Simultaneously, the assessee has also offered the income under the head “Capital Gain” on transfer of land shown in the closing stock as per the provisions of section 45(2). For the purpose of cost of acquisition, the assessee has taken the value of the said property as on 1 April 1981 at Rs. 190 per sq.ft The fair market value was taken at Rs. 5,67,11,059 and indexed cost for purchase has been shown at Rs. 1,05,29,163. As a result, long term capital loss was worked out at Rs. 5,83,942. In order to verify the genuineness of the market value as on 1 April 1981, the Assessing Officer made a reference to the DVO under section 55A. The DVO, vide his report dated 21 December 2010, took the value of the property as on 1 April 1981 at Rs. 3,73,74,000 instead of 5,67,11,059. Detailed objections were made before the Assessing Officer which, however, was rejected and, as a result, addition of Rs. 30,03,122, was made in the computation of long term capital gains based on the valuation report submitted by the DVO.

4. Before the learned Commissioner (Appeals), the assessee submitted that the reference under section 55A to the DVO was not made in accordance with the provisions of law, as all the conditions required for making reference to the DVO under section 55A was seriously lacking in this case. The learned Commissioner (Appeals) allowed the assessee's ground after observing and holding as under:—

“I have gone through the contents of impugned assessment order, grounds of appeal and written submissions and arguments of the appellant's authorised representative on this issue, including the case laws, I find force in the arguments and submissions of the Ld. Authorized Representative on this issue that the Assessing Officer has no jurisdiction u/s 55A(a) of the LT. Act, 1961 to refer the valuation as on 01/04/1 981 to the DVO in case where he is not of the opinion that the FMV disclosed by the appellant is lower than the actual FMV as on 1.4.19811 The appellant has relied on many of the decisions but I find that appellant's case is squarely covered by the decision of Hon'ble Third Member in the case of Ms. Rubab M. Kazerani v. JCIT, [2004] 91 ITD 429 (MUM.) TM the relevant portion of the same is reöduced for the purposes of clarity as under:

“It does not talk about excess fair market vaue, In the present case what I find is that the CIT has mentioned that the fair market value disclosed by the assessee at Rs. 1 crore as on 1.4.1981 as per the valuation report furnished by the assessee was on the higher side. The CIT or the Assessing Officer assumes power under the sub-clause (a) of section 55A only when in his opinion the fair market value disclosed by the assessee is less. Therefore neither the Assessing Officer nor the CIT can assume power to give such a direction where the value of the property disclosed by the assessee based on the approved valuer's report is on a higher side i.e Rs. I crore in this case. As such, invoking jurisdiction under section 263 on the above basis is illegal.”

3.2 In view of the above the appeal is allowed on this issue and the Assessing Officer is directed to re-compute the capital gains by accepting the disclosed valuation of the property as on 1.4.1981.”

5. The learned Departmental Representative strongly relied upon the findings of the Assessing Officer and submitted that reference was rightly made by the Assessing Officer to determine the fair market value as on 1 April 1981 and such a report of the DVO was binding on the Assessing Officer.

6. None appeared on behalf of the respondent assessee.

7. We have carefully gone through the findings of the Assessing Officer as well as of the learned Commissioner (Appeals). For making a reference to the DVO, the Assessing Officer has to form an opinion that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than 15%. The assessee had shown the value as on 1 April 1981, based on the detail working which has not been found to be wrong by the Assessing Officer. The assessee has taken the rate of Rs. 190 per sq.ft as on 1 April 1981, based on certain evidence. The Assessing Officer, without any material on record, or forming any opinion as to why the value shown by the assessee as on 1 April 1981, was incorrect or was less than fair market value, has made a reference to the DVO. The scope of reference to the DVO under section 55A has come up for consideration in number of cases before the Hon'ble High Courts as well as by the various benches of the Tribunal. The learned Commissioner (Appeals) has relied upon the decision of Third Member in Ms. Rubab M. Kazerani v. Jt. CIT, [2004] 91 ITD 429 (Mum.), wherein this aspect has been dealt in detail. The Tribunal, Mumbai Bench, in ITO v. Pratap M. Indulkar, in ITA no. 1142.Mum./2010, vide order dated 23 July, 2004, after relying upon the judgment of Hon'ble Jurisdictional High Court in CIT v. Daulal Mohta (HUF), ITA no. 103 of 2008, judgment dated 22 September 2008, Gujarat High Court judgment and the also decision of Sarala N. Sakaraney v. ITO, [2010] 46 DTR (Trib.) (Mum.) 2008, held as under:—

“4. The Tribunal in its order dated 23rd July, 2004 has categorically observed thus:—

“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 Judgement 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 the Krishnabai Tingore v. 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 section 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.

Before passing, we have to mention that the assessee has submitted the arguments. As on the basis of the legal aspects itself we have decided the issue in favour of the assessee, we refrain from undertaking this academic exercise of disposing this case on merits.”

5. In view therefore is no merit in the appeal. Appeal stands dismissed.”

13. The Hon'ble Gujarat High Court in the case of Hiaben Jayantilal shah (supra) has held on this issue as follows:—

“Under cl. (a) of s. 55A the AO is entitled to make the reference to the Valuation Officer in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by the registered valuer, if the AO is of the opinion that the value so claimed is less than the fair market value. In any other case, as provided under cl. (b) of s. 55A, the AO has to record an opinion that (i) the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage or by more than such an amount as may be prescribed; or (ii) having regard to the nature of the asset and other relevant circumstances, it is necessary to make such a reference. As can be seen from the communication dated nil from DVO to the petitioner insofar as the fair market value of the property as on 1st April, 1981 is concerned, the petitioner had claimed the same at a sum of Rs. 6,25,000 as per registered valuer's report. Therefore, the AO was required to form an opinion that the value so claimed is less than the fair market value. The estimated value proposed by the DVO is shown at Rs. 3,97,000, which is less than the fair market value shown by the assessee as on 1st April, 1981. Therefore, cl. (a) of s. 55A cannot be made applicable. Clause (b) of s. 55A can be invoked only in any other case, namely when the value of the asset claimed by the assessee is not supported by an estimate made by a registered valuer. In the facts of the present case, cl. (b) of s. 55A also cannot be invoked. Therefore there is no question of having recourse to sub-cl. (ii) of cl. (b) of s. 55A of the Act.”

14. In view of the aforesaid decisions, we are of the view that reference by the Assessing Officer to the DVO u/s. 55A for valuation of FMV of the property as on 1.4.1981 is not valid for the reasons that FMV declared by the assessee as per Government registered valuer's report was more than the FMV as estimated by the DVO. Since determination of the FMV as on 1.4.1981 was based on the report of the DVO, the same is held to be invalid. Consequently, estimation of the FMV of the property as on 1.4.1981 as made by the assessee is directed to be accepted. Ground No. 1 of the assessees is allowed.“

5. It is thus clear from the aforesaid decision that Section 55A could be invoked only if the Ld. Assessing Officer is of the opinion that the value declared by the assessee is less than the fair market value of the asset. In the assess's case, the ld. Assessing Officer has made this reference because he felt that the value of the property as on 1/4/1981 declared by the assesseee is more than the fair market value. Thus, the condition of clause (a) of section 55A is not satisfied. Respectfully following the decision of the Tribunal referred to above we uphold the order of the CIT(A) and dismiss the appeal by the revenue.”

8. Thus, in view of the aforesaid decision and the decision relied upon by the learned Commissioner (Appeals), we do not find any reason to deviate from such a finding and, accordingly, confirm the order passed by the learned Commissioner (Appeals) on this score. Thus, the grounds raised by the Revenue is treated as dismissed.

9. In the result, Revenue's appeal is treated as dismissed.

Dy. Commissioner Of ... v. Mr. S.B Thakkar (Huf...