SEEMA CHADHA,, BILASPUR(CG) v. THE ACIT, CIRCLE- 1(1),, BILASPUR(CG)

Page 2 of 10

reference, authorize such reference only when the value of the asset as estimated made by the registered valuer is less than its fair market value.

3. The Id. CIT (Appeals) is not justified in confirming validity of the learned DVO's Report, which was adopted by the A.O., for making the assessment as the learned DVO has estimated the value of the asset as on 1.4.1981 on the basis of irrelevant considerations and non-comparable sale instances and without disposing off the appellant's objections by passing a speaking order.

4. The Id. CIT(A) is not justified in confirming the additions made by the A.O. to the returned income on the basis of DVO's report and in upholding the income assessed by the A.O. at Rs.45,84,024/-.

5. The order of the Id. CIT(A) is bad in law and on facts."

3. When this appeal was called out for hearing, learned representatives fairly agreed that whatever we decide in the case of Smt. Seema Chadha Vs. ACIT (ITA No.66/RPR/13) will apply mutatis mutandis in this case as well.

4. Vide our order of even date, we have upheld the plea of the assessee in the said case and reasoned as follows:

"3. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

4. Section 55A, as it stood prior to substitution of words "is at variance with its fair market value" for the words "is less than its fair market value"

w.e.f. 1^stJuly 2012, did not permit a reference being made to the DVO in a situation in which the fair market value of an asset as on 1.4.81 was more than the fair market value claimed by the assessee. The very reference to Section 55A was thus illegal and devoid of any legally sustainable basis. The fact that the assessee herself requested for such a reference, as has been highlighted by the Assessing Officer time and again, would not clothe this reference with legality. The Assessing Officer cannot capitalize out of the ignorance of the assessee. A sense of fairplay by the field officers towards the taxpayers is not an act of benevolence by the field officers, but it is the minimum civilized behaviour that is required to be extended to the taxpayers. If authority is needed even for justifying these basics, one need not look beyond the circulars issued by the CBDT itself. In Circular No. 14, which has been taken note of by the Hon'ble Bombay High Court in the case of Dattatraya Gopal Bhotte vs. CIT (1984) 150 ITR 460 (Bom), the Board has these words of advice for the field officers :

Page 3 of 10

"..................Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist taxpayer in every reasonable way, particularly in the matter of claiming and securing any relief and in this regard the officers should take initiative in guiding the taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would in the long run benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Government........"

5. The very reference to the DVO was thus vitiated in law and the report so obtained cannot be put against the assessee. There is nothing more than the DVO report, on the facts of the present case, to disturb the valuation adopted by the Assessing Officer, and that DVO report is devoid of any legal basis. The impugned action of the Assessing Officer, therefore, cannot be sustained.

6. While on this issue, it is useful to take note of one more aspect of the matter. Admittedly, even the DVO report is based on the comparable sale instances as per records of the registration office but so far as the situation prevailing as on 1.4.1981 is concerned, it is not a common knowledge that the underhand dealings in real estate transactions were more of a rule than an exception, and, for this short reason alone, the comparable sale instances cannot be conclusively fair indicator of the actual prevailing market rates. It was because of this widespread practice of understatement of sale consideration in a large number of cases that legal remedies were introduced from time to time. Such being the facts, the sale consideration instances alone, as admittedly is the basis of the DVO report, cannot be sound basis of valuation. In any event, this issue is now covered, in favour of the assessee in the case of ACIT Vs Kabir Chadha and vice versa (order dated 19.12.2014) wherein the coordinate bench has observed as follows:

"5. We have heard the rival submissions and perused the material before us. The undisputed facts of the case are that the assessee had sold a part of land, that he got it valued by a registered valuer, that he adopted the value given in the valuation report of the plot as on 01.04.1981, that the AO was of the opinion that value shown by the assessee was very high and thus he had tried to avoid pay taxes on long term capital gains, that the AO collected information from the office of the registrar, that considering the material received from the state revenue authorities he reduced 3 ITA No. 180/BLPR/2011 Kabir Chadhha the value of the plot as on 01.04.1981,that he computed indexed cost of acquisition at Rs.75,186/- in the hands of the assessee against Rs.43,85,939/-claimed by him, that it resulted in addition of Rs.43,10,753/- to the returned income of the assessee. The issue in short, before us, is to decide what was the FMV of the plot of land in question as on 01.04.1981.

Page 4 of 10

Here, we would like to refer to the provisions of section u/s.55A of the Act. The provisions of the section were introduced, w.e.f. 01.01.1973, by the Taxation Laws (Amendment) Act 1972.Section reads as under

"55A. Reference to Valuation Officer.- With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the AO may refer the valuation of the 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 AO is of opinion that the value so claimed is less than its fair market value ;

(b) in any other case, if the AO 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 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." By an amendment, w.e.f. 01.07.2012, words "is less than its fair market value" were substituted by the words "is at variance with its fair market value". For better understanding of the purpose of introducing it in the Act, one has to take note of the Explanatory Notes to the section. Circular No.96 of 25.11.1972 is relevant in this regard as it reads as under:

"Under the new provisions, an Income Tax Officer may refer the valuation of any capital asset to a VO in a case where the assessee has got the assets valued by a registered valuer and the Income Tax Officer is of the opinion that the value as estimated by the registered valuer (i.e., a person registered as a valuer under section 34AB of the Wealth-tax Act)is less than the fair market value of the asset. Other cases in which a reference may be made to the VO would be where the Income Tax Officer is of the opinion that the fair market value of the asset exceeds the value of the assets as claimed by more than 15 percent of the value claimed or by more than Rs. 25,000, whichever is less or where, having regard to the nature of the asset and the relevant circumstances, the Income tax Officer considers it necessary to do so. It will be seen that in a case where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value as on January 1,1954, the fair market value as claimed by him may be higher than its actual fair market value. The provisions of section 55A(a) and (b)(i) will therefore, not apply in such a case. It will, however, be open to

Page 5 of 10

the Income-tax Officer to make a reference to the VO under section 55A(b)(ii)."

A perusal of the Memorandum explaining the reasons behind the introduction of the section and the explanatory notes for introduction of amendment to section w.e.f.01.07.2012 proves that the section was inserted in the Act with the deliberate object of empowering the AO to find out the market value of capital assets for the purpose of Chapter IV. In our opinion, intention of the Legislature is obvious that the AO can make a reference to the DVO for determining the value of a capital asset. We are of the opinion that for the purpose of ascertaining the FMV of a capital asset, the statute has provided two group of cases namely:

(i) the case mentioned at clause (a) above, where the value of the asset as claimed by the assessee is in accordance with the estimate by the registered valuer ; and

(ii) other cases mentioned at clause (b) above. In the cases mentioned as (i) above, the AO assumes jurisdiction, when there is a valuation report in respect of the asset and the assessee adopts the value of the asset in accordance with such estimation and also if the AO is of the opinion that the value claimed by the assessee is less than the FMV.

In other cases mentioned as (ii) above and which are covered by the provisions of clause (b) of section 55A,the AO is empowered to make a reference to the Valuation Officer, where the AO is of the opinion that the FMV of the asset exceeds the value of the assets as claimed by more than 15 % of the value claimed or by more than Rs. 25,000, wherever is less or where, having regard to the nature of the asset and other relevant circumstance, the AO considers it necessary to do so. In other words, section deals with cases where the basis for FMV of the asset is the valuation report itself and the assessee fails to adopt the value of the asset in accordance with the estimate of such valuation report and cases where the basis for such FMV of the asset is other than the valuation report. The other situation envisages the existence of such circumstances, that to make reference is justifiable. In such a case, nature of the assets and other relevant factors also play a decisive role. A reference can be made to VO, under section 55A,clause (b) sub-clause (ii),only if AO records existence of 'such other relevant circumstances' on the basis of which he forms such opinion. In other words, a reference can be made if certain pre- conditions exit. For invoking the provisions of section 55A of the Act formation of opinion of the AO that the value claimed by the assessee is less than its FMV is a sine qua non. Recording reasons after the order of reference, for valuation of the registered valuer, is not a substitute for pre decisional formation of opinion. (330 ITR506). In the matter of Hotel Joshi, Hon'ble Rajasthan High Court has held that for invoking sub-clause (ii) of clause (b) of section 55A of the Act, the AO

Page 6 of 10

is required to form an opinion on the basis of the material on record that reference to the DVO for ascertaining the FMV of an asset and having regard to the nature of the asset and other relevant circumstances (242 ITR 478).

It will be useful to discuss a few cases, dealing with section 55A of the Act. In the case of Anant Mills Ltd. a reference under clause (b)(ii) of section 55A of the Act was made by the AO and the asset in question was a piece of land. Deciding the writ petition filed by the assessee, Hon'ble Gujarat High Court held that reference could have been made, if the AO was of the opinion that having regard to the nature of the asset and other relevant circumstances, it was necessary so to do, that there was nothing special about the nature of the asset which would have justified the AO to make a reference to the VO. No other relevant circumstances could be pointed out, that no attempt was made to justify the action of the AO under any other provision of Sec.55A.Finally, it was held by the Hon'ble Court that the reference to the DVO was not in accordance with law and it had to be quashed.(209

ITR 568).

Hon'ble Gujarat High Court in the case of Hinaben Jayantilal Shah(310ITR31)has held that as per the clause(b) of section 55A of the Act, the AO has to record an opinion that (i) the FMV 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. Clause (b) of section 55A of the Act can be invoked only when the value of the asset claimed by the assessee is not supported by the valuation report of a registered valuer.

We would also like to discuss the decision of the Hon'ble Bombay High Court, delivered in the case of Puja Prints(360ITR697).In that case, assessee had claimed value of the property as on 01. 04.1981 at Rs.35.99 lakhs on the basis of the report of a government valuer. The AO referred the issue of valuation to the DVO, who valued the property at Rs. 6.68 lakhs as on First April, 1981.Consequently,the AO enhanced the taxable capital gains of the assessee. In the appellate proceedings, the FAA decided the issue against the it. Order of the FAA was challenged before the Tribunal. Deciding the issue of FMV, the Tribunal held that in view of section 55A it was not permissible for the AO to make a reference to the DVO for the purpose of valuation, as the value of the property declared by the assessee was not less than its FMV. Department agitated the issue before the Hon'ble High Court. Upholding the order of the Tribunal and following the judgment of Daulal Mohta (HUF)(360ITR680) Hon'ble Court held as under:

"There was no dispute that the value adopted by the assessee of the property at Rs. 35.99 lakhs was much more than the fair market value of Rs.6.68 lakhs even as determined by the Departmental Valuation Officer. In fact, the AO referred the

Page 7 of 10

issue of valuation to the Department - al VO only because in his view the valuation of the property as on 1981 as made by the assessee was higher than the fair market value. Therefore, the invocation of section 55A(a) was not justified.

(ii) That the amendment to section 55A(a) of the Act in 2012 by which the words "is less than its 5 ITA No. 180/BLPR/2011 Kabir Chadhha fair market value" were substituted by the words

"is at variance with its fair market value" 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 assessee's case was section 55A(a) as existing during the period relevant to the assessment year 2006-07.At the relevant time, very clearly reference could be made to the Departmental VO only if the value declared by the assessee was in the opinion of AO less than its fair market value.

(iii) That section 55A(b) states that it would apply in any other case, i.e., a case not covered by section 55A(a). There was no dispute that the issue was covered by section 55 A(a).Therefore, recourse could not be had to the residuary clause provided in section 55 A(b)(ii).Therefore, the Central Board of Direct Taxes Circular dated November 25 1972 (see [1973] 91 ITR (St.) 1), could have no application in the face of the clear position in law. Hence, the reference to the Departmental VO by the AO ,was not sustainable in view of section 55A(a)(ii). The following questions of law have been formulated by the Revenue for consideration by this court :

(a) Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was right in holding that the reference made by the AO to the VO per se is bad in law ? Further, whether the Income-tax Appellate Tribunal was justified in observing that the reference to the DVO under section 55A of the Act is to be made when the value of the property disclosed by the assessee is less than the fair value and not vice versa thereby ignoring the provisions of section 55A(b)(ii) of the Act, and paragraphs 26 to 28 of Circular No.96, dated November 25, 1972, of the Central Board of Direct Taxes (see [1973] 91 ITR (St.) 1) ?

(b) Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was right in directing the AO to accept the valuation given by the respondent as the fair market value on the basis of the registered valuer's report and workout capital gains ?

(c) Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was right in holding that the ownership of the property is required to be examined vis-avis the various partnership deeds entered into by

Page 8 of 10

the firm and to that limited extent restoring the issue to the file of the AO for deter-mining the date of acquisition by the firm for the purpose of indexation, particularly when this issue was not raised either before the AO or the Commissioner of Income-tax (Appeals) and, hence, did not arise from the order of the Commissioner of Income tax (Appeals) ?

We have considered the rival submissions. We find that the impugned order dated 18.02.2011, allowing the respondent- assessee's appeal holding that no reference to the Departmental VO can be made under section 55A of the Act only follows the decision of this court in the matter of Daulal Mohta (HUF) (supra).The Revenue has not been able to point out how the aforesaid decision is inapplicable to the present facts nor has the Revenue pointed out that the decision in Daulal Mohta (HUF) (supra) has not been accepted by the Revenue. On the aforesaid ground alone, this appeal need not be entertained. However, as the submissions were made on the merits, we have independently examined the same.

We find that section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the Departmental VO only when the value adopted by the assessee was less than the fair market value. In the present case, it is an undisputed position that the value adopted by the respondent- assessee of the property at Rs. 35.99 lakhs was much more than the fair market value of Rs. 6.68 lakhs even as determined by the Departmental Valuation Officer. In fact, the AO referred the issue of valuation to the Departmental VO only because in his view the valuation of the property as on 1981 as made by the respondent-assessee was higher than the fair market value. In the aforesaid circumstances, the invocation of section 55A(a) of the Act is not justified. 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 clarificatory 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. The contention of the Revenue that the reference to the Departmental VO by the AO is sustainable in view of section 55A(a)(ii) of the Act is not acceptable. This is for the reason that section 55A(b) 6 ITA No. 180/BLPR/2011 Kabir Chadhha of the Act very clearly states that it would apply in any other case, i.e.,

Page 9 of 10

a case not covered by section 55A(a) of the Act. In this case, it is an undisputable position that the issue is covered by section 55A(a) of the Act. Therefore, resort cannot be had to the residuary clause provided in section 55A(b)(ii) of the Act. In view of the above, the Central Board of Direct Taxes Circular dated November 25, 1972, can have no application in the face of the clear position in law. This is so as the understanding of the statutory provisions by the Revenue as found in Circular issued by the Central of Direct Taxes is not binding upon the assessee and it is open to an assessee to contend to the contrary. The contention of the Revenue that the AO is entitled to refer the issue of valuation of the property to the Departmental VO in exercise of its power under sections 131, 133(6) and 142(2) of the Act is entirely based upon the decision of the Guwahati High Court in Smt. Amiya Bala Paul (supra).However, the apex court in Smt. Amiya Bala Paul(supra) has reversed the decision of the Guwahati High Court and held that if the power to refer any dispute with regard to the valuation of the property was already available under sections 131(1), 136(6) and 142(2) of the Act, there was no need to specifically empower the AO to do so in circumstances specified under section 55A of the Act. It further held that when a specific provision under which the reference can be made to the Departmental VO is available, there is no occasion for the AO to invoke the general powers of enquiry. In view of the above and particularly in view of clear provisions of law as existing during the period relevant to the assessment year 2006-07, we are of the view that questions (a) and (b) do not raise any substantial question of law." In our opinion after the above order of the Hon'ble Bombay High Court, there is no confusion with regard to the matters where the assessee adopts the value suggested by a registered valuer. If the FMV adopted by him is in accordance with the valuation report i.e. not less than the valuation report till 01.07.2012, than the property in question cannot be referred for valuation by the AO. The record available with us, does not indicate as to what was the opinion formed by the AO before making reference to the DVO. Therefore, it is apparent that he had, at no point of time, formed an opinion that the FMV determined by the valuer. In other words, it is not clear as to whether the reference was made under clause 55A(a) or 55A(b)(ii) of the Act and if it was made under section 55A(b)(ii) then what were the relevant circumstances for making such a reference. Recording of reasons for invoking a particular section of the Act and justification for invoking the specific clause are not available and nor were they brought to our notice. As the value shown by the assessee was not less than the FVM, so, in our opinion, there was no justification for making any reference to the revenue authorities of state government, by the AO in the year under consideration. Amendment to the section 55A of the Act is effective from 01.07. 2012 and as per that now reference can be made if there is

Page 10 of 10

variance in the FMV. The issue before us pertain to AY.2007-08. Respectfully, following the judgments of the Hon'ble Bombay High Court, we decide the effective ground of appeal against the AO."

5. We see no reasons to take any other view of the matter than the view so taken by us in the above case. Accordingly, the impugned additions in the computation of capital gains, on the basis of DVO report on valuation of transferred asset as on 1.4.1981, must stand deleted. We direct so.

6. In the result, the appeal is allowed. Pronounced under rule 34(4) of the Appellate Tribunal Rules 1963 today on 21^stday of September, 2016.

Sd/- Sd/- C.M. Garg Pramod Kumar

(Judicial Member) (Accountant Member)

Dated: the 21^st day of September, 2016.

PBN/* Copies to: (1) The appellant

(2) The respondent

(3) CIT

(4) CIT(A)

(5) DR

(6) Guard File By order

Assistant Registrar Income Tax Appellate Tribunal Raipur Bench, Raipur