2016 (11) TMI 294 - HC - Income Tax

Court quashes Valuation Officer reference, clarifies Section 50C & 142A.

ANAND BANWARILAL ADHUKIA Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 14 AND 1

ANAND BANWARILAL ADHUKIA Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 14 AND 1 - TMI Issues Involved:1. Legality and validity of the reference made to the Valuation Officer by the respondent authority.2. Validity of communications dated 10.3.2011 and 26.4.2011.3. Applicability of Section 50C of the Income-tax Act, 1961.4. Applicability of Section 69 and Section 142A of the Income-tax Act, 1961.Detailed Analysis:1. Legality and Validity of the Reference to the Valuation Officer:The petitioner challenged the reference made to the Valuation Officer by the respondent authority, arguing that the reference was not in consonance with the settled proposition of law. The petitioner contended that the reference was made under a mistaken belief that the petitioner had invested in the construction/renovation of the property, whereas the petitioner had purchased the property in an 'as is' condition. The court noted that the reference was made just two days before the final assessment order, without any cogent material to justify the estimate of Rs. 90 lacs. The court concluded that the reference was made in a casual manner and was not tenable.2. Validity of Communications Dated 10.3.2011 and 26.4.2011:The petitioner received communications from the Valuation Officer requiring certain particulars to determine the cost of construction and materials used. The court observed that these communications assumed that the petitioner had incurred expenses on construction, which was not the case as the property was purchased in an already constructed state. The court found these communications to be based on incorrect assumptions and quashed them.3. Applicability of Section 50C of the Income-tax Act, 1961:The petitioner argued that Section 50C, which deals with the valuation of capital assets for the purpose of calculating capital gains, applies to the seller and not the purchaser. The court agreed, citing the case of Commissioner of Income-tax-IV v. Sarjan Realities Ltd., which clarified that Section 50C applies to the seller for the purpose of section 48 of the Act. Therefore, the reference made to the Valuation Officer in the case of the petitioner, who is the purchaser, was deemed improper.4. Applicability of Section 69 and Section 142A of the Income-tax Act, 1961:The court analyzed the statutory provisions of Section 69 (unexplained investments) and Section 142A (estimation of value by Valuation Officer). It referred to the case of Me and Mummy Hospital v. Assistant Commissioner of Income-tax, which held that a reference to the Valuation Officer under Section 142A is permissible only when there is prima facie application of Section 69. The court found no material to suggest that the conditions of Section 69 were satisfied in this case. The reference was made without any cogent material or prima facie satisfaction, rendering the action of making the reference unsustainable in law.Conclusion:The court quashed the reference made to the Valuation Officer and the subsequent communications dated 10.3.2011 and 26.4.2011. It held that the reference was not justified as it was made without any cogent material and based on incorrect assumptions. The court also clarified that Section 50C applies to the seller and not the purchaser, and that Section 142A cannot be invoked without satisfying the conditions of Section 69. The petition was allowed, and the impugned actions were set aside.