ITAT upholds CIT(A)'s decision on invalid Section 55A reference, affirms prospective amendment

The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision, dismissing the Revenue's appeal. The ITAT agreed that the reference to the Departmental Valuation Officer (DVO) under Section 55A was invalid as the declared value exceeded the fair market value. Additionally, the ITAT affirmed that the amendment to Section 55A, effective from 01.07.2012, was prospective and not applicable to the assessment year in question. Consequently, the CIT(A)'s deletion of the AO's addition of Rs. 39,33,748/- was upheld. The Revenue's appeal was dismissed on 23rd November 2017.

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Issues Involved:
1. Validity of the reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act.
2. Determination of the fair market value of the property as on 01.04.1981.
3. Applicability of the amendment to Section 55A effective from 01.07.2012.

Issue-wise Detailed Analysis:

1. Validity of the reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act:

The primary issue was whether the Assessing Officer (AO) was justified in referring the valuation of the property as on 01.04.1981 to the DVO under Section 55A of the Income Tax Act. The AO believed that the value of the property declared by the assessee was more than its fair market value, and thus, referred the matter to the DVO. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the reference to the DVO was without jurisdiction and legally untenable. The CIT(A) cited several judicial precedents, including the decision of the Hon’ble Bombay High Court in the case of CIT-13, Mumbai vs. M/s Puja Prints (2014) 360 ITR 697 (Bom), which held that reference to the DVO under Section 55A is permissible only when the value claimed by the assessee is less than the fair market value. The CIT(A) noted that the AO's reference to the DVO was not valid as the value declared by the assessee was higher than the fair market value.

2. Determination of the fair market value of the property as on 01.04.1981:

The AO noted that the property was acquired 70 years back and the valuation report as on 01.04.1984 was not furnished by the assessee. The AO determined that the cost of acquisition as on 01.04.1981 was Rs. 36,33,769/- and found it to be incorrect. The DVO valued the property at Rs. 6.68 lakhs. The CIT(A) held that the valuation of the property declared by the assessee based on the valuer's report should be accepted, as the reference made by the AO to the DVO was without jurisdiction. The CIT(A) deleted the addition of Rs. 39,33,748/- made by the AO.

3. Applicability of the amendment to Section 55A effective from 01.07.2012:

The CIT(A) noted that the amendment to Section 55A, which replaced the words “is less than its fair market value” with “is at variance with its fair market value,” is applicable prospectively from 01.07.2012. The CIT(A) held that the AO was not justified in making the addition based on the DVO's valuation report, as the amendment was not retrospective. The CIT(A) relied on various judicial decisions, including the Hon’ble Bombay High Court's decision in the case of CIT vs. Daulal Mohta (HUF) (2014) 360 ITR 680 (Bom), which supported the view that the amendment is prospective.

Conclusion:

The Income Tax Appellate Tribunal (ITAT) upheld the order of the CIT(A), dismissing the Revenue's appeal. The ITAT agreed with the CIT(A) that the reference to the DVO under Section 55A was not valid, as the value declared by the assessee was not less than the fair market value. The ITAT also concurred with the CIT(A) that the amendment to Section 55A is prospective and not applicable to the assessment year in question. Consequently, the addition of Rs. 39,33,748/- made by the AO was rightly deleted by the CIT(A).

Order:

The appeal of the Revenue was dismissed, and the order pronounced on 23rd November 2017.

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