TaxTMI 
TaxTMI 
2016 (11) TMI 246
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....of the ownership of the property. Furthermore, the Ld. CIT(Appeals) had also erred in law as well as in facts by giving relief to the assessee on the ground that the reference to the Department Valuation Officer u/s. 55A had been contrary to law and as such the said valuation does not warrant acceptance and effect in the assessment, solely relying on the assessee's submission without considering the facts observation in totality." Md. Ghayas Uddin, Ld. Senior Departmental Representative represented on behalf of Revenue and Shri I Banerjee, Ld. advocate appeared on behalf of assessee. 2. The only inter-connected issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer under the head capital gain by taking the cost inflation index factor of 1981 i.e. 100 and further erred by disregarding the valuation report made by DVO u/s 55A of the Act. 3. The fact in brief are that assessee in the present case is an individual and has shown income from salary, capital gains and other sources. Assessee inherited the property from his father located at 57, Jyotindra Mohan Avenue, PS. Shyampukur, Kolkata-05 in the financial ye....
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....of section 55A of the Act, the AO is authorized to make the reference to the DVO if he is of the opinion that the value so claimed is at variance with its fair market value. However, AO was authorized to make the reference to the DVO with effect from 1st July 2012 and instant case pertains to the AY 2007-08. Therefore, the AO cannot make the reference to the DVO as the assessee has shown more value of the property as on 1.4.1981 than the value of the DVO. With regard to action of the AO for adopting the index factor for the FY 2002-03, assessee submitted that the ownership of the property was inherited in the year 2002- 03 but as per law the value of the property will be taken as on 01.04.1981 and accordingly cost inflation index for that year i.e. 100 should be adopted. Accordingly, Ld. CIT(A) deleted the addition made by AO after having reliance in the case of Umedbhai International Ltd 330 ITR 506 and 134 TTJ 23 by observing as under:- "3.1.1 In the above judgment the Hon'ble Kolkata Tribunal, has pointed out the unintended absurdity and inconsistency in situation of adoption of some remote index factor to some distant and discrete FMV, prevailing in two different year....
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....on 1- 4-1981 with motive of avoiding capital gain, action of Assessing Officer in making reference to DVO while not accepting valuation shown by assessee on basis of registered valuer's report was well permissible under law - Held, yes [In favour of revenue] Finally, Ld. DR vehemently relied on the order of AO. On the other hand, Ld. AR submitted that the provision of Sec.55A of the Act was amended with effect from 01.07.2012 and therefore, the amended provision cannot be applied. He further submitted that the case law cited by Ld.DR is different from the instant case, in that case the question before the Hon'ble jurisdictional High Court whether there was a motive to avoid tax or not but in the instant case, assessee has no such ill-motive to avoid his tax liability. He further submitted that on similar facts, the Hon'ble High Court of Calcutta has decided the issue in favour of assessee in the case of CIT Vs. Smt. Mina Deogun in 375 ITR 0586. The relevant extract of the order is reproduced below: "Mr. Agarwal, learned advocate appearing for the revenue/appellant has not disputed the fact that under Clause (a) of section 55A as it stood at the relevant point of ti....
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....e property since 1968 as indicated above. Here is, as such, the reason why the assessee in the case before us can be said to have held the property since 1968. In order to ascertain the cost of acquisition to the assessee reference can also be made to Section 55(2)(b)(ii) which reads as follows:- "(ii) where the capital asset became the property of the assessee by any of the modes specified in [sub-section(1) of section 49], and the capital asset became the property of the previous owner before the [1st day of April, [1981]], means the cost of the capital asset to the previous owner or the fair market value of the asset on the [1st day of April, [1981]], at the option of the assesse." Based on the aforesaid provision the cost of acquisition of capital asset at the option of the assessee is the fair market value of the asset on 1st April, 1981. When that is permissible in law, indexation on the fair market value as on 1st April, 1981 until the date of transfer has to be allowed. Any other interpretation will not only lead to absurd result but shall also cause immense prejudice to the assessee. If the previous owner that is to say the mother had not died and if she hersel....
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....putation provision of section 48. When we do so, we work out the cost of acquisition of the asset in the hands of previous owner. While doing so, we cannot transpose the assessee in Explanation (iii) of section 48. Doing so, would amount to falling short of giving full effect to the deeming fiction contained in sub-section (1) of section 49. To our opinion such deeming fiction must be allowed to have its full play. As is often stated, a deeming fiction must be allowed its full application and should not be allowed to boggle. 8. Additionally we notice that in Sub-section (1) of section 49, the legislature has provided that cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by any cost of improvement of the assets incurred or borne by the previous owner or the assessee as the case may be. If the interpretation of the counsel for the Revenue was correct, this later reference to the cost of improvement borne by the assessee would not have been necessary since section 48 itself would take care of any improvement on the capital asset to be included for the cost of acquisition. It is precisely bec....
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....the issue on 09.06.2016 which is the latest decision. Therefore this case should have bearing on the issue of the instant case. 6. We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that AO has disregarded the valuation report submitted by assessee as on 01.04.1981 by holding that assessee intentionally has declared the value of the property at a higher amount which is against the provision of law. Similarly, assessee became the owner of the impugned property in FY 2002-03. Therefore the cost inflation index of that year should be adopted. However we find that in the present case the AO has applied cost inflation index applicable for financial year 2002-2003 being the year in which the assessee inherited the property. The words "the year in which the assessee first held the capital assets" is interpreted by him to be the year in which the assessee succeeded to the assets. We find that s. 2(42A) also uses a somewhat similar expression. Explanation 1 to section 2(42A) provides that in determining the period for which any capital asset is held by the assessee, in the case of a capital asset which become the prop....
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....g allowed in respect of cost of acquisition which did not relate to the period of time for which the asset was held. The old system of computation of capital gain did not take into account the inflation which occurred over a period of time. The new system was therefore, enacted for computing capital gain which allowed the cost of asset to be adjusted for general inflation before deducting it from the sale proceeds. The statutory objective of the new system was to favour those assessee's where capital gains accrued over a long period. The CBDT, in Circular No. 636, dt. 31st Aug., 1992, explained provisions of Finance Act, 1992 relating to amended scheme of capital gains. In this circular the Board explained that in the scheme prior to 1992 a specified percentage was allowed as deduction under s. 48(2) which was unrelated to the length of the period of holding of the capital asset. Under the new system a fair method of allowing relief was enacted to link the cost of acquisition to the period of holding. For this purpose, the cost of acquisition and the cost of improvement of the asset were to be inflated to arrive at indexed cost of acquisition. The circular further clarified that if....
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....tion, the date of acquisition by the previous owner is excluded then it will lead to absurd result. Such interpretation of section 48 will be against the intent and object of the enactment and will be against the overall scheme of taxation of capital gains in case of inherited assets. The cardinal principles of interpretation of statutes is that if literal meaning of the statute leads to an absurdity then the statute should be interpreted in a manner which will result in harmonious interpretation which avoids absurdity and promote the objective of an enactment. We, therefore, direct the AO to re-compute the capital gains by applying cost inflation index of 100 per cent applicable for financial year 1981-82. Hence, we uphold the order of Ld. CIT(A) on this point and this ground of Revenue's appeal is dismissed. 6.1 For the other issue of referring the matter to the DVO for the valuation of the property as on 1.4.1981, we find that the Hon'ble Jurisdictional High Court has decided the issue in favour of Revenue in the case of Nirmal Kumar Ravinder Kumar- HUF Vs. CIT in IT Appeal No. 293 of 2008 vide order dated June 9, 2016. The relevant extract of the order is reproduced below:- ....