2015 (4) TMI 940 - HC - Income Tax

Court clarifies jurisdiction of Commissioner of Income Tax (Appeals) under Income Tax Act

The Court concluded that the Commissioner of Income Tax (Appeals) does not have explicit jurisdiction under Section 55A of the Income Tax Act, 1961, to ... Jurisdiction of CIT(A) to make a reference to DVO to determine the FMV of the property - The Revenue insists on the fact that the power is being exercised only under Section 250(4) of the Act alone. - Held that:- Power to make further enquiry under Section 250(4) of the Act can only be in respect of issues which arise under the Act and for which specific provision have been made and the Assessing Officer has failed to do what he ought to have done. Thus, this power of enquiry though very wide has to find its source in one of the substantive provisions of the Act. It is in the context of substantive provisions that the CIT(A) has to examine whether Assessing Officer either did no enquiry at all or made insufficient enquiry. This power cannot be exercised dehors the substantive provisions of the Act. We find that the only provisions then existing to make reference to the DVO for the purposes of determining the FMV to compute the capital gains was found in Section 55A of the Act. It is undisputed that the power of a CIT(A) is coterminus with that of the Assessing Officer. In fact, the CIT(A) can do what the Assessing Officer can do and has failed to do as held by the Apex Court in Commissioner of Income Tax v/s. Kanpur Coal Syndicate [1964 (4) TMI 18 - SUPREME Court]. Thus, in this case, even according to the Petitioner, the Assessing Officer could make a reference to the DVO but he failed to do so during the assessment proceedings. it is undisputed that during the assessment proceedings before him, the Assessing Officer could have made a reference to the DVO and yet he choose not do or failed to do. This failure or conscious decision of not referring to the DVO could be a subject matter of examination by the CIT(A), in an appeal before him. In this case, the issue of the FMV as on 1st April, 1981 was admittedly raised by the Petitioner in its appeal before the CIT(A). Thus the CIT(A) during the appellate proceedings before him can exercise powers under Section 55A of the Act and can make such enquiry in terms of Section 250(4) of the Act, either himself or direct the Assessing Officer to do so and report in terms of Section 250(4) of the Act. Thus, the CIT(A) can make further enquiries into FMV as on 1st April, 1981 in view of the Assessing Officer failing to make such enquiry under Section 55A of the Act while passing the Assessment Order. The only other provision to make a reference to a Valuation Officer is Section 142A of the Act introduced by Finance (No.2) Act 2004 with retrospective effect 15th November, 1972. Section 142A of the Act deals with determination of the FMV of investments referred to in Section 69 or 69B of the Act or to the value of bullion, jewellery or other valuable articles referred to Section 69A or 69B of the Act or in respect of FMV of any property referred to in Section 56(2) of the Act. In this case, the reference which had to be made by Assessing Officer to the DVO is under Chapter IV - part (E) of the Act while the reference which is to be made under Section 142A of the Act is in respect of Chapter IV - part (F) and Chapter VI of the Act. Therefore, Section 142A of the Act would have no application to the present facts. It is a settled position that the provisions of Section 55A of the Act which were amended in 2012 by substituting the following words “as it variance with its FMV” for “is less than its FMV” is clarifactory and not retrospective as held by this Court in CIT v/s. Puja Prints [2014 (1) TMI 764 - BOMBAY HIGH COURT ]. Therefore, the Revenue did not contend that the provisions of Section 55A of the Act is retrospective. It, therefore, follows that where admittedly the value arrived at by the Registered Valuer of the land is more than its FMV, no jurisdiction is acquired by the authorities to invoke Section 55A of the Act. We, therefore, find that the impugned notices dated 26th December, 2006 and 2nd February, 2007 of the DVO not having been issued under Section 55A of the Act according to the Revenue, are quashed and set aside. However, the CIT(A) is at liberty to exercise powers under Section 250(4) read with Section 55A of the Act, if he is of the opinion that the conditions for its invocation are satisfied after hearing the Petitioner's on the above aspect. Issues Involved:1. Jurisdiction of the Commissioner of Income Tax (Appeals) [CIT(A)] to make a reference to the District Valuation Officer (DVO) under Section 55A of the Income Tax Act, 1961.2. Validity of the notices issued by the DVO under Section 55A of the Act.3. Powers of the CIT(A) under Section 250(4) of the Act.4. Applicability of the Supreme Court judgment in Smt. Amiya Bala Paul v/s. CIT.5. Procedural and administrative conduct of the Revenue.Detailed Analysis:1. Jurisdiction of the CIT(A) to Make a Reference to the DVO under Section 55A:The core issue was whether the CIT(A) has the authority to refer the matter to the DVO for determining the Fair Market Value (FMV) of the land as on 1st April, 1981 under Section 55A of the Income Tax Act, 1961. The petitioner argued that only the Assessing Officer (AO) has jurisdiction under Section 55A to make such a reference. The Revenue, however, contended that the CIT(A) could exercise such powers under Section 250(4) of the Act to make further inquiries.The Court concluded that while the CIT(A) does not have explicit jurisdiction under Section 55A, he can exercise his powers under Section 250(4) to make further inquiries, which could include referring to the DVO if the AO failed to do so during the assessment process. This interpretation aligns with the CIT(A)'s co-extensive powers with the AO, as established in the case of Commissioner of Income Tax v/s. Kanpur Coal Syndicate.2. Validity of the Notices Issued by the DVO:The petitioner challenged the validity of the notices dated 26th December, 2006, and 2nd February, 2007, issued by the DVO under Section 55A. The Court noted that these notices were issued following a reference from the CIT(A), which the Revenue argued was under Section 250(4) and not Section 55A. The Court found that the CIT(A) must first form an opinion that the value determined by the Registered Valuer is less than its FMV before making a reference to the DVO. Since this exercise was not done, the notices were quashed.3. Powers of the CIT(A) under Section 250(4):The Court examined the scope of Section 250(4), which allows the CIT(A) to make further inquiries before disposing of an appeal. The Court held that this power, while broad, must be exercised within the confines of the substantive provisions of the Act. The CIT(A) can direct inquiries that the AO should have conducted, including those under Section 55A, if the conditions for such inquiries are met.4. Applicability of the Supreme Court Judgment in Smt. Amiya Bala Paul v/s. CIT:The petitioner cited the Supreme Court judgment in Smt. Amiya Bala Paul v/s. CIT, which held that no reference for determining FMV can be made in the absence of a specific provision under the Act. The Court acknowledged this precedent but clarified that the CIT(A)'s power under Section 250(4) to make further inquiries is distinct and can encompass directing the DVO to determine FMV, provided the statutory conditions are satisfied.5. Procedural and Administrative Conduct of the Revenue:The Court expressed dismay over the procedural lapses and lack of adequate preparation by the Revenue's counsel, which hindered proper assistance to the Court. The Court suggested that the Revenue distribute cases more evenly among its panel of counsel to ensure better preparation and assistance in future cases.Conclusion:The Court quashed the impugned notices issued by the DVO but allowed the CIT(A) to exercise his powers under Section 250(4) read with Section 55A, provided the statutory conditions are met. The petition was allowed, and the Court emphasized the need for better administrative conduct by the Revenue.