2016 (5) TMI 712 - AT - Income Tax

ITAT upholds CIT(A)'s decision on AO's lack of jurisdiction under IT Act Section 55A.

ITO, Ward-1 (3), Jalna Versus Shri Dhirendra Mahendraprasad Mehra and ITO, Ward-1 (3), Jalna Versus Shri Surendra Shrirangprasad Mehra

The ITAT dismissed the revenue's appeals, upholding the CIT(A)'s decision that the AO lacked jurisdiction to refer valuation to the DVO under Section 55A ... Determination of Long term capital gain - Reference to Valuation Office u/s.55A - Held that:- AO was not justified in referring the matter to the DVO u/s.55A of the Act especially when the value of the capital asset declared by the assessee was more than the fair market value estimated by the AO. It is only when the value adopted by the assessee is less than the fair market value that the AO has power to refer the matter to the DVO u/s.55A of the Act prior to 01-07- 2012. Since the assessment year involved in the instant case is A.Y. 2010-11 and since the value adopted by the assessee as on 01-04-1981 is more than the fair market value, therefore, the AO has no power to refer the matter to DVO u/s.55A of the I.T. Act. The argument of the Ld. Departmental Representative that the amendment will apply to pending cases in our opinion is also not correct - Decided in favour of assessee Issues Involved:1. Jurisdiction of AO to refer valuation to DVO under Section 55A of the IT Act.2. Determination of fair market value as on 01-04-1981 for capital gains computation.Issue-wise Detailed Analysis:1. Jurisdiction of AO to Refer Valuation to DVO under Section 55A of the IT Act:The primary issue was whether the Assessing Officer (AO) had the jurisdiction to refer the valuation of the property to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act. The AO referred the valuation because he believed the value claimed by the assessee was higher than the fair market value. The CIT(A) and ITAT both concluded that the AO did not have the jurisdiction to make such a reference. The judgments cited, including the Hon'ble Bombay High Court in Puja Prints and other cases, supported the view that, before the amendment effective from 01-07-2012, Section 55A allowed reference to the DVO only if the value claimed by the assessee was less than the fair market value. The amendment substituting 'is at variance with its fair market value' for 'is less than its fair market value' was prospective and not retrospective. Thus, for the assessment year 2010-11, the AO's reference to the DVO was deemed invalid.2. Determination of Fair Market Value as on 01-04-1981 for Capital Gains Computation:The second issue was whether the valuation of the land as on 01-04-1981 claimed by the assessee or arrived at by the DVO should be adopted for computing the capital gains. The assessee had provided a valuation report from a government-approved valuer, which the AO rejected, instead referring the matter to the DVO. The DVO's valuation was significantly lower than that claimed by the assessee. The CIT(A) and ITAT held that since the AO's reference to the DVO was invalid, the valuation provided by the assessee should be accepted. The CIT(A) noted that the assessee's valuation was based on the stamp duty authority's valuation, which is generally not less than the market value. Additionally, provisions of sections 50C, 56(2), and 43CA support the use of stamp duty valuation for income assessment purposes. Therefore, the valuation claimed by the assessee as on 01-04-1981 was accepted for computing the capital gains.Conclusion:The appeals by the revenue were dismissed. The ITAT upheld the CIT(A)'s decision that the AO's reference to the DVO was without jurisdiction and that the valuation provided by the assessee should be accepted for computing the capital gains. The order emphasized that the amendment to Section 55A was prospective and the AO could not refer the matter to the DVO when the value claimed by the assessee was more than the fair market value for the assessment year in question.