2023 (4) TMI 815 - AT - Income Tax

Tribunal Invalidates Long Term Capital Gain Addition, AO's Reliance on DVO Report Deemed Erroneous

Kirankumar Ramanlal Naik Versus Income Tax Officer, Ward-2 (3) (2), Surat

The Tribunal ruled in favor of the assessee, finding the addition of Rs.87,41,778/- as Long Term Capital Gain invalid. The Tribunal held that the ... Long term capital gain - value determined by the valuation officer - HELD THAT:- As in the case of Virendra Natwarlal Jariwala [2021 (6) TMI 975 - ITAT SURAT] whereby the issue relating to Section 55A(a) inserted with effect from 01.07.2012 by the Finance Act, 2012 for providing for reference by Assessing Officer to DVO for determination of value of property sold by assessee and which was not applicable retrospectively has been discussed and adjudicated in favour of the assessee. In view of the amendment to Section 55A(a) of the Act by which the words “is less than the fair market value” is substituted by the words “is at variance with its fair market value” is clarificatory in nature and it should be given retrospective effect. Therefore, the amendment was made effective only from 01.07.2012 which is applicable for the AY. 2013-14. However, in the assessee’s case under consideration, the assessment year involved is AY.2012- 13, therefore, the amended provisions are not applicable to the assessee under consideration. Thus held 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. Therefore, respectfully following the binding judgment of the Co-ordinate Bench above, we allow the appeal of the assessee. Issues Involved:1. Validity of the addition of Rs.87,41,778/- as Long Term Capital Gain.2. Legitimacy of reopening under Section 147 based on DVO's report beyond the period of 4 years.3. Applicability of Section 55A for the Assessment Year 2012-13.4. Consideration of the appellant's valuation report over the DVO's report.Summary:1. Validity of the addition of Rs.87,41,778/- as Long Term Capital Gain:The assessee contended that the addition made by the Assessing Officer (AO) and confirmed by the CIT(A) was incorrect. The Tribunal referenced the case of Virendra Natwarlal Jariwala vs DCIT, which adjudicated that the amendment to Section 55A(a) effective from 01.07.2012 is not applicable retrospectively. Since the assessment year in question is AY 2012-13, the amended provisions do not apply. The Tribunal found no reason to deviate from this precedent and ruled in favor of the assessee, thereby deleting the addition.2. Legitimacy of reopening under Section 147 based on DVO's report beyond the period of 4 years:The assessee argued that the reopening of the assessment under Section 147 based on the Departmental Valuation Officer's (DVO) report was a change of opinion and not valid. The Tribunal upheld the view that the AO's reliance on the DVO's report for reopening was invalid, especially since the amendment to Section 55A(a) was not applicable for AY 2012-13.3. Applicability of Section 55A for the Assessment Year 2012-13:The Tribunal reiterated that the amendment to Section 55A(a), which substituted 'is less than the fair market value' with 'is at variance with its fair market value,' is clarificatory and should be applied prospectively from 01.07.2012. Therefore, for AY 2012-13, the unamended provisions apply, which do not permit the AO to refer the matter to the DVO if the value claimed by the assessee is higher than the fair market value.4. Consideration of the appellant's valuation report over the DVO's report:The Tribunal noted that the AO and CIT(A) erred in not considering the appellant's valuation report. The Tribunal referenced multiple judicial precedents, including decisions from the jurisdictional High Court and other tribunals, which supported the assessee's claim that the AO could not rely on the DVO's valuation for the purpose of determining the fair market value as of 1-4-1981 for AY 2012-13.Conclusion:The Tribunal allowed the appeal, ruling that the AO's reference to the DVO and the subsequent addition to the Long Term Capital Gain were invalid. The appeal was decided in favor of the assessee, with the addition of Rs.87,41,778/- being deleted. The order was pronounced on 18/04/2023.