2021 (6) TMI 975 - AT - Income Tax

Tribunal deems Assessing Officer's reference to DVO invalid under Income Tax Act, allows assessee's appeals

The Tribunal held that the Assessing Officer's reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act was invalid ... Capital gain computation - assessee sold a piece of non-agricultural land along with its three co-owners - addition on LTCG on the basis of report of DVO, received in assessee’s co-owners case and apply the cost as on 01.04.1981 @ ₹ 550 per sq. mtr. - whether CIT(A) ought to have directed the Ld. A.O. to adopt the value as on 01st April 1981 as adopted by the appellant as per the valuation report submitted by him and hence Your Petitioner prays that the ld. A.O. be directed to adopt the rate @ 700 per sq. Mt. instead of the rate as per report of DVO.? - HELD THAT:- We find that the assessee sold piece of land on 04.06.2012. There is no dispute about the date of transaction - amendment to section 55A(a) i.e. substitution of the word “is at variance with the Fair Market Value” were inserted in the Income Tax Act w.e.f 01.07.2012 and the same is not applicable retrospectively - amended provisions of section 55A is not applicable to the facts of the present case. Since the amendment made in the statute is not applicable on the transaction dated 04.06.2012, therefore, the reference made by the AO was invalid. We further find that the ground of appeal raised by the assessee is squarely covered by the decision of Tribunal in Ranchodbhai C. Patel [2020 (12) TMI 171 - ITAT AHMEDABAD] wherein on transaction of sale of land prior to 01.07.2012, the assessee in that case was allowed similar relief by the Tribunal, by following the decision of Jurisdictional High Court in CIT Vs Gauranginiben S Sodhan [2014 (2) TMI 78 - GUJARAT HIGH COURT] and Hon’ble Bombay High Court in CIT Vs. Pooja Prints [2014 (1) TMI 764 - BOMBAY HIGH COURT] Without going into the merits of the basis of valuation so adopted by the registered valuer and subsequently by the department’s valuation officer, in absence of a valid reference to the valuation officer, the addition so made under the head “long term capital gains” so far as it relates to cost of acquisition as substituted by fair market value as on 1.4.1981 is directed to be deleted. In the result, the appeal of the assessee is allowed Issues Involved:1. Determination of Fair Market Value (FMV) of land as on 01.04.1981 for calculating Long Term Capital Gain (LTCG).2. Validity of the Assessing Officer's (AO) reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act.3. Applicability of amended provisions of Section 55A of the Income Tax Act.Issue-wise Detailed Analysis:1. Determination of Fair Market Value (FMV) of land as on 01.04.1981 for calculating Long Term Capital Gain (LTCG):The assessee sold a piece of land along with three co-owners and adopted the value of land @ Rs. 700 per sq. mtr. as on 01.04.1981 based on a report by a Government-approved valuer, Shri K.O. Shah. The AO, however, relied on the DVO's report which suggested a lower FMV of Rs. 550 per sq. mtr. Consequently, the AO determined the LTCG at Rs. 94,37,095/- against the assessee's calculation of Rs. 86,84,145/-, adding Rs. 7,52,950/- to the income of the assessee. The CIT(A) upheld the AO's valuation based on the DVO's report, which considered various factors such as shape, size, situation, location, utility, and future potential of the property.2. Validity of the Assessing Officer's (AO) reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act:The Tribunal noted that the AO made the reference to the DVO based on the provisions of Section 55A as amended by the Finance Act, 2012, which came into effect from 01.07.2012. However, the transaction in question occurred on 04.06.2012, prior to the amendment. The Tribunal held that the amended provisions of Section 55A are not applicable retrospectively. Therefore, the reference made by the AO to the DVO was invalid.3. Applicability of amended provisions of Section 55A of the Income Tax Act:The Tribunal referred to multiple judicial precedents, including decisions from the Hon'ble Bombay High Court and the Hon'ble Gujarat High Court, which held that the amendment to Section 55A is prospective and applicable only from 01.07.2012. These precedents emphasized that the law to be applied is the one existing during the period relevant to the assessment year. Consequently, for transactions prior to 01.07.2012, the unamended provisions of Section 55A would apply. Under these provisions, the AO could only refer the valuation to the DVO if the value claimed by the assessee was less than its FMV, which was not the case here.Conclusion:The Tribunal concluded that the AO's reference to the DVO was invalid as it was based on the amended provisions of Section 55A, which were not applicable to the transaction date of 04.06.2012. Consequently, the addition made by the AO based on the DVO's valuation was deleted, and the appeals of the assessee were allowed. The Tribunal's decision was consistent with the legal precedents set by the jurisdictional High Courts, ensuring that the unamended provisions of Section 55A were applied correctly to the facts of the case.