2016 (8) TMI 1455 - AT - Income Tax

Tribunal Overturns CIT(A) Order on Capital Gain Addition

The Tribunal allowed the appeals, setting aside the CIT(A)'s order under Section 154 and upholding the original order that deleted the addition made by ... Validity of reference to Departmental Valuation Officer under section 55A(a) - Effect of amendment to section 55A and retrospective operation - Scope of rectification under section 154 - mistake apparent on the record versus debatable question of law - Precedential application of the decision in CIT v. Puja Prints (Bombay High Court)Validity of reference to Departmental Valuation Officer under section 55A(a) - Effect of amendment to section 55A and retrospective operation - Precedential application of the decision in CIT v. Puja Prints (Bombay High Court) - Whether the Assessing Officer was justified in referring valuation to the Departmental Valuation Officer under section 55A(a) when the assessee had adopted a higher fair market value and the reference was made after the 2012 amendment to section 55A. - HELD THAT: - The Tribunal found that the assessee had adopted the fair market value as on 01-04-1981 on the basis of an approved valuer which was higher than the value subsequently determined by the DVO. The CIT(A) initially deleted the addition following the Bombay High Court decision in CIT v. Puja Prints, which held that, as on the relevant time, reference under section 55A(a) could be made only where the value declared by the assessee was, in the AO's opinion, less than the FMV; the 2012 amendment substituting 'is at variance with' for 'is less than' was prospective and not retrospective. The AO's reference in the present case was made after 01-07-2012 but related to AY 2009-10; whether that post-amendment reference could validate a DVO reference for an earlier assessment year is a debatable legal question. The Tribunal held that, in view of the jurisdictional High Court's ruling that the amendment is not retrospective and of the factual position that the assessee's declared value exceeded the DVO value, the question whether the AO could refer to the DVO in these circumstances was not a straightforward or settled legal error but a debatable issue requiring careful application of Puja Prints. Consequently, the AO's reference could not be upheld as a clear, non-debatable mistake on the record. [Paras 11, 15, 16]Reference to the DVO by the AO under section 55A(a) for the assessment in question cannot be sustained as a matter free from debate; the issue is a debatable question of law particularly in light of Puja Prints and the non-retrospective character of the 2012 amendment.Scope of rectification under section 154 - mistake apparent on the record versus debatable question of law - Whether the CIT(A) was justified in invoking section 154 to rectify its earlier order that had deleted the addition, by re-opening the question on the basis that the AO's reference occurred after the 2012 amendment. - HELD THAT: - The Tribunal applied the established principle that section 154 cannot be used to review or rehear debatable questions of law or to revisit findings on which two reasonable views are possible. Citing the Supreme Court's approach in T.S. Balaram (Volkart Brothers) that a 'mistake apparent on the record' must be obvious and not the subject of extended argument, the Tribunal concluded that the CIT(A)'s exercise of rectification power to reverse her own earlier appellate conclusion on this debatable legal question was impermissible. The CIT(A)'s change of view based on the AO's letter and the timing of the DVO reference involved legal controversy over retrospectivity and applicability of Puja Prints; therefore it did not amount to a manifest or patent error warranting section 154 relief. [Paras 14, 16, 18]The order passed by the CIT(A) under section 154 was not justified; rectification could not be exercised to reopen a debatable legal issue and is set aside.Final Conclusion: Both appeals are allowed: the Tribunal set aside the CIT(A)'s rectification under section 154 and restored the appellate conclusion rejecting the AO's reliance on the DVO report, holding that the question whether a post amendment reference could validate a DVO valuation for AY 2009-10 is debatable and not a mistake apparent on the record. Issues Involved:1. Validity of reference to Departmental Valuation Officer (DVO) under Section 55A of the Income-tax Act.2. Applicability of the amendment to Section 55A effective from 01-07-2012.3. Scope of rectification under Section 154 of the Income-tax Act.Issue-wise Detailed Analysis:1. Validity of Reference to DVO under Section 55A:The primary issue was whether the Assessing Officer (AO) was justified in referring the valuation of the property to the DVO under Section 55A of the Income-tax Act. The AO had made this reference because he believed the fair market value (FMV) declared by the assessee was higher than the FMV determined by the DVO. The CIT(A) initially deleted the addition made by the AO, relying on the decision of the Hon'ble Bombay High Court in the case of Puja Prints, which held that a reference under Section 55A could only be made if the value declared by the assessee was less than the FMV. The Tribunal upheld this view, stating that the AO's reference to the DVO was invalid as the conditions stipulated in Section 55A(a) were not satisfied.2. Applicability of the Amendment to Section 55A Effective from 01-07-2012:The CIT(A) later rectified her order under Section 154, noting that the reference to the DVO was made after the amendment to Section 55A, which substituted the words 'is less than the fair market value' with 'is at variance with its fair market value,' effective from 01-07-2012. However, the Tribunal found that the amendment was not retrospective and applied only from the date it came into effect. Since the assessment year in question was 2009-10, the Tribunal held that the provisions of Section 55A as they existed before the amendment should apply. The Tribunal cited the Hon'ble Bombay High Court's decision in Puja Prints, which clarified that the amendment was prospective and not retrospective.3. Scope of Rectification under Section 154:The Tribunal also addressed whether the CIT(A) was justified in rectifying her order under Section 154. It was argued that the issue of whether the AO could refer the matter to the DVO after the amendment for an assessment year prior to the amendment was a highly debatable issue. The Tribunal agreed, stating that rectification under Section 154 is not permissible for debatable issues. The Tribunal referenced the Hon'ble Supreme Court's decision in T.S. Balaram, ITO Vs. Volkart Brothers and Others, which held that a mistake apparent on the record must be an obvious patent mistake and not something that requires a long process of reasoning. Given that the issue was debatable, the Tribunal concluded that the CIT(A) was not justified in passing the order under Section 154.Conclusion:The Tribunal allowed the appeals filed by the assessees, setting aside the CIT(A)'s order passed under Section 154 and upholding the original order that deleted the addition made by the AO on account of long-term capital gain. The Tribunal emphasized that the reference to the DVO was invalid under the provisions of Section 55A as they existed during the relevant assessment year, and the issue was too debatable to be addressed through rectification proceedings.