2020 (11) TMI 991 - AT - Income Tax

Tribunal invalidates DVO reference under Income Tax Act, upholds assessee's fair market value.

Jagrutiben V. Patel, Bharvinaben V. Patel Versus The Income Tax Officer, Silvassa Ward-2 (2) (2), Surat.

Jagrutiben V. Patel, Bharvinaben V. Patel Versus The Income Tax Officer, Silvassa Ward-2 (2) (2), Surat. - TMI Issues Involved:1. Validity of reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act.2. Confirmation of addition towards long-term capital gains by rejecting the fair market value adopted by the assessee.Detailed Analysis:1. Validity of Reference to the DVO under Section 55A of the Income Tax Act:The primary issue is whether the reference made to the DVO under Section 55A of the Income Tax Act to determine the fair market value (FMV) of land as on 01/04/1981 is valid. The amendment to Section 55A, effective from 01.07.2012, is applicable for the assessment year 2013-14 onwards. Since the assessment year under consideration is 2012-13, the amended provisions are not applicable.At the relevant time, the Assessing Officer (AO) could make a reference to the DVO under Section 55A only if the value adopted by the assessee was not supported by a valuation report from a government-approved valuer or if the AO believed that the value claimed by the assessee was 'less than its fair market value.' In this case, the AO's reference to the DVO was not legally competent as the conditions were not met. The valuation adopted by the assessee was supported by a report from a government-approved valuer, and the AO's belief that the value was more than its fair market value did not justify the reference.The Tribunal cited various judicial precedents, including the Bombay High Court's decision in CIT vs. Daulal Mohta (HUF), which held that a reference to the DVO could only be made if the value claimed by the assessee was less than its fair market value. The Tribunal also referred to the Gujarat High Court's decision in CIT v. Gauragiben S Shodhan, which confirmed that the pre-amended provisions of Section 55A applied to assessments before 01.07.2012.2. Confirmation of Addition Towards Long-Term Capital Gains:The second issue is the confirmation of the addition of Rs. 49,07,585 towards long-term capital gains by rejecting the FMV as on 01/04/1981 adopted by the assessee. The assessee, a small agriculturist, had declared a total income of Rs. 1,51,800, including long-term capital gains from the sale of agricultural land jointly held with co-owners. The assessee's share in the sale consideration was Rs. 69,35,220.The assessee had obtained a valuation report from a registered valuer, which estimated the FMV of the land as on 01/04/1981 at Rs. 100 per square meter, totaling Rs. 38,57,900. The AO, however, rejected this valuation, citing the absence of comparable sale instances and considered the value at Rs. 19 per square meter, resulting in a calculated capital gain of Rs. 50,35,902.The Tribunal noted that the AO's estimation was based on the DVO's valuation, whereas the assessee's valuation was supported by a government-approved valuer's report. The Tribunal found that the AO had misinterpreted the provisions of Section 55A by applying them retrospectively and erroneously.The Tribunal referred to its own precedent in the case of Shri Mahdevbhai Mohanbhai Naik, where it was held that the AO could not make a reference to the DVO if the value claimed by the assessee was more than the fair market value. The Tribunal also cited the Bombay High Court's decision in CIT vs. Puja Prints, which held that the AO's reference to the DVO was not justified when the value declared by the assessee was higher than the fair market value.Conclusion:The Tribunal concluded that the reference made by the AO to the DVO under Section 55A was not valid for the assessment year 2012-13, as the amended provisions were not applicable. The Tribunal allowed the appeals filed by the assessees, setting aside the AO's addition towards long-term capital gains and upholding the FMV adopted by the assessee based on the government-approved valuer's report.Order Pronouncement:The appeals filed by the assessees (in ITA No.650/AHD/2017 & ITA No.651/AHD/2017 for AY.2012-13) were allowed. The order was pronounced on 27/11/2020, as per Rule 34 of Income Tax Appellate Tribunal, Rule 1963.