TaxTMI 
TaxTMI 
2009 (2) TMI 501
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....06 of the appellant at Rs. 1,750 per sq. ft. as against Rs. 2,200 taken by the appellant as per the report of Registered valuer Shri Kishor C. Dabhawala. 2.The CIT(A) erred in estimating value of the property as on 1-4-1981 at Rs. 1,750 per sq. ft. by holding that sale instances considered by the District Valuation Officer (DVO) were indicative of the prevailing fair market value as on 1-4-1981. The appellant submits that the three instances given by the DVO in his report do not reflect real status and are not comparable instances. The appellant submits that in order to determine the price of the property the instances of the sale should be of similar property in similar locality. The estimate of fair market value of the property at Rs. 1,750 per sq. ft. is arbitrary, exorbitant and without any rational basis. 3.The CIT(A) erred in accepting the fair market value of the property of the appellant, which was derived by rent capitalization method. In the absence of comparable instances not available, better course would be to all back on the method of valuation which is accepted by the department. The appellant submits that the rent capitalization method is an acceptable method of v....
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....r sq. ft. is the average figure of three sale instances and as per the Registered Valuer's report market value was adopted at Rs. 2,200 per sq. ft. In doing so, the Assessing Officer held that the objection of the assessee to the DVO's report was considered by the DVO. In the process, the DVO rejected the lease capitalization method adopted by the Registered valuers and based his valuation on the comparable cases. Further, the Assessing Officer did not specify the clauses or sub-clauses of section 55A of the Act while making a reference to the DVO. Assessing Officer also did not allow the deduction at Rs. 7,875, being valuation charges paid in respect of the said property at flat No. 4C, New Ridge Apartments Co-operative Housing Society from capital gains under section 48 of the Act. Accordingly, the Assessing Officer made an assessment under section 143(3) after making the additions determining the total income at Rs. 1,14,94,658 against the returned income of Rs. 24,08,540. 5. Aggrieved with the above decisions of the Assessing Officer, the assessee filed an appeal before the CIT(A). During the first appellate proceedings, the assessee made various submissions both on issue of r....
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....v. IAC [1985] 153 ITR 774 , (ii) IAC v. N. Vajram Setty [1986] 159 ITR 742 and (iii ) Smt. S. Nedaveni v. CWT [1980] 125 ITR 665 in this regard. 6. After considering the submissions of the assessee as well as after perusing the remand report dated 23-3-2005 received from the Assessing Officer, the CIT(A) dismissed the assessee's submissions and confirmed the additions made by the Assessing Officer. The CIT(A) found that the DVO figure of Rs. 1,154 is the average figure of three sale instances and as per the Registered Valuer's report market value was adopted at Rs. 2,200 per sq. ft. Considering the above variations, CIT(A) held that it will be fair and reasonable to fix the FMVs of the property at Rs. 1,750 per sq. ft. as on 1-4-1981 and directed the Assessing Officer to recalculate the long-term capital gains adopting the above figure of Rs. 1,750. In the process, the CIT(A) rejected the estimation by the Registered Valuers and their rent capitalisation method. In the process, he approved the reference of the Assessing Officer made under section 55A as well as the DVO's estimation, which was based on the sale instances. Thus, the assessee got part relief in the appeal befor....
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....e said provision envisages two types of cases i.e., the cases with the valuation report which fall under clause (a) of section 55A and others without such report, which fall under clause (b) of the said section. Further, he argued that the assessee's case is covered by the provisions of section 55A(a) in view of the existence of valuation report. However, he argued that the clause (a) will come into play only when the Assessing Officer is of the opinion that the value of the assets, as claimed by the assessee is less than its market value. In this regard, the counsel mentioned that this being the case, where the value claimed by the assessee is more than that of the market value, therefore, the reference made under clause 55A(a) is invalid and the Assessing Officer invalidly assumed the jurisdiction. Further, the Counsel also argued that the clause (b) does not apply to the case of the assessee as this is the case where the value of the assets as claimed by the assessee is in accordance with estimate made by a Registered Valuer. As per the Ld. counsel, the provisions of clause (b) of section 55A cover the cases where the assessee does not have the benefit of a valuation report. The....
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....rred to above is distinguishable and stated that the said decision has not considered the explanatory notes to section 55A issued by the Board in this regard as well as the commentary cited by him above. 12. We have heard both the parties on the issue of assumption of jurisdiction of the Assessing Officer under section 55A and perused both the orders of the revenue, valuation report and the paper book filed by the assessee in this regard. The issue is legal one and it revolves around the provisions of section 55A and therefore, it is necessary to elucidate these provisions as well as the scope of section 55A. The provisions of said section 55A were introduced by the Taxation Laws (Amendment) Act, 1972 and it reads as under :- "55A. References to Valuation Officer.-With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer- ( a)in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market valu....
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....ving regard to the nature of the asset and other relevant circumstances, it is necessary so to do'. 14. Further, we find that the Explanatory Notes to the above section 55A also threw necessary light in the context of the cases, where the assessee adopted the FMV for the purposes of the cost of acquisition of the asset. Circular No. 96, dated 25-11-1972 is relevant and provides for additional information in analysing the scope of section 55A. Paragraph numbers 26 to 28 of the said circular relates to this newly inserted provisions and para 26 is relevant and it reads as under : ". . . .Under the new provisions, an ITO may refer the valuation of any capital asset to a Valuation Office in a case where the assessee has got the assets valued by a registered valuer and the ITO is of opinion that the value as estimated by the registered valuer (i.e., a person registered as a valuer under section 34 AB of the Act) is less than the fair market value of the asset. Other cases in which a reference may be made to the Valuation Officer would be where the ITO is of the opinion that the fair market value of the asset exceeds the value of the assets as claimed by more than 15 per cent of the va....
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....icer, placed at page 31 of the paper book, revealed that the Assessing Officer mentioned under section 55A of the Act against the relevant columns of the said reference. Thus, it does not specify the particulars of the clause (a) or ( b) of the said section. Regarding the purpose the reference, Assessing Officer mentioned that the reference is 'to determine the FMV of the property as on 1-4-1981 for the purpose of computing capital gains on the long-term capital assets'. Being the issue relating to the determination of the cost of acquisition, it is obvious that Assessing Officer is certainly inclined to adopt lesser FMV and per contra, the assessee attempt to inflate the FMV as on 1-4-1981 with view to reduce the capital gains. 17. In these circumstances, the provision of clause (a) cannot be resorted to by the Assessing Officer while making a reference to the DVO, as the said clause (a) deals with the cases of assets of value lesser than the fair market value. Further, we have considered the Counsel's argument that the provisions of clause (b) shall apply to the cases where there is no valuation report at all filed by the assessee in view of the words such as 'in any other case'....
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....on of the cost of acquisition of the capital asset for computing the capital gains. As per the above para 26 of the Explanatory Notes, provisions of clause (a) and sub-clause (i) of clause (b) have not application and the Assessing Officer is empowered to make a reference to the DVO only under clause (b)(ii ) of section 55A of the Act. This part of the explanation is free from any ambiguity. In the instant case, the value of the asset so adopted is much lower than the actual FMV as per the DVO. Thus, the provisions clause (b)(ii ) relevant to the case of the assessee and thus the reference is valid. 18. We have also perused the 3rd Member decision in the case of Ms. Rubab M. Kazerani (supra) where 3rd Member held "clause (b) comes into play where the assessee has not furnished any valuation report in support of her claim. Relevant extract from the held portion of the said decision, as described on pages 433 and 434 of the ITD is reproduced as under :- "It was an admitted position that in the instant case, the assessee returned the capital gain based on the valuation report of the approved valuer. Therefore, from the provision it was clear that clause (a) of section 55A would be a....
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....set for the purposes of the Chapter IV relating to 'Computation of Capital Income'. In other words, undisputedly, Assessing Officer is vested with powers under section 55A to make a reference to the DVO for the purposes of the determining the FMV for the purposes of ascertaining the cost of acquisition for computing the capital gains. In such circumstances, the counsel's arguments that the Assessing Officer has no jurisdiction under section 55A, when the assessee's value claimed is higher, is does not appear proper. Further, his argument that sub-clause (ii) of section 55A(b) shall have no application in cases where the assessee relied on the Valuation Report of the register valuer, also does not appear proper. If such arguments are accepted, the legislative intent expressed though the Explanatory Notes is defeated. At the end the Assessing Officer is left with no powers to assume jurisdiction when the claimed FMV is higher, such an interpretation may lead to an absurdity of the provisions of section 55A. Explanatory notes, a delegated legislation, reproduced above is precisely categorical in prescribing that the Assessing Officer is empowered to make reference sub-clause (ii) of s....
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....d (b)(i ) will not apply and under such circumstances, it will, however, be open to the ITO to make a reference to the Valuation Officer under section 55A(b)( ii) as explained in the aforesaid Explanatory notes. Therefore, the reference made by the DVO is valid and we confirm the order of the CIT(A). Accordingly, the additional ground filed by the assessee is dismissed. On having upheld the validity of the reference, we proceed to adjudicate the grounds of the revenue as well as the assessee on merits in the following paragraphs. Assessee's appeal ITA No. 552/M/06 20. The facts of the issue have already been provided in the preceding paragraphs. Briefly, the assessee owns a flat No. 4C, New Ridge Apartments Co-operative Housing Society, Ridge Road, Mumbai and sold the same and for the purpose of computing the capital gains, assessee adopted the FMV for determining the cost of acquisition of the asset in accordance with the estimate of the Registered valuers, who valued the asset basing on the rent capitalisation method. Per contra, the DVO valued the same property based on the comparable cases, which the assessee disputes. Registered Valuer's arrived at the market value of the as....
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....75 while computing the capital gains under section 48 of the Act. In this regard, he mentioned that the said expenses were incurred in connection with the valuation charges paid to the Registered valuers. 23. We have heard both the parties ad perused the relevant orders and the records. It is noticed that the value of the asset as on 1-4-1981 based on the 'rent capitalisation method' as per the Registered Valuers is Rs. 45,58,268; whereas, the value as per the DVO based on his comparable sale instances is Rs. 23,20,306. In our opinion, the gap is unbridgeable and none of the two methods enjoys perfection as criticised by both the parties in the preceding paragraphs. Considering the self occupied nature of the flat as well as the assessee's inclination to inflate the FMV for cost of acquisition, the 'rent capitalisation method' relied on by the assessee is not acceptable. Further, considering the comparable sale instances relied on by the DVO as well as the Assessing Officer's tendency to reduce the cost of acquisition of an asset, in our opinion, the DVO's figures also suffer from inadequacy. In view of the above, we are of the opinion that the CIT(A) has rightly rejected both the....