2025 (5) TMI 872 - AT - Income Tax

Addition based on report of DVO as obtained in co-owners case - HELD THAT - AO should form an opinion that value so claimed by assessee is less than its Fair Market Value (FMV). Only in such a scenario the value so claimed by assessee is less than its Fair Market Value in the opinion of AO matter can be referred to valuation officer. In a scenario where the value so claimed by the assessee is more than its fair market value the matter could not be referred to the valuation officer. It was ultimately held that the AO was not empowered to refer the matter to the valuation officer even as per the erstwhile provisions of section 55A(a) prior to amendment by the Finance Act 2012. Considering the decision of Gauranginiben S. Shodhan Ind. 2014 (2) TMI 78 - GUJARAT HIGH COURT and Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT and respectfully following the same hold that reference made to the DVO by AO Officer for determination of Fair Market Value was not valid so no reliance can be made on his report. Therefore the addition based on such report of DVO which is obtained in co-owners case is not legally sustainable. Thus the assessee succeeded on legal plea. No contrary facts or law is brought to my notice to take other view. In the result the grounds of appeal raised by the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Assessing Officer (AO) was legally authorized to refer the valuation of the property as on 01.04.1981 to the District Valuation Officer (DVO) under the provisions of section 55A(a) of the Income Tax Act for the assessment year (A.Y.) 2012-13, given that the sale transaction took place prior to 01.07.2012;

(b) Whether the AO erred in adopting the DVO's valuation report, which was obtained in respect of a co-owner's case, for determining the cost of acquisition of the assessee's share of ancestral property;

(c) Whether the legal bar as established by the decisions of the Hon'ble Gujarat High Court and Hon'ble Bombay High Court regarding the applicability of amended section 55A(a) provisions post 01.07.2012 applies to the facts of this case;

(d) Whether the learned Commissioner of Income Tax (Appeals) (CIT(A)) misconstrued facts or mixed up facts of other cases while deciding the appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (c): Legality of AO's reference to DVO under section 55A(a) for A.Y. 2012-13

Relevant legal framework and precedents:
Section 55A(a) of the Income Tax Act governs the determination of the cost of acquisition of an asset acquired before 01.04.1981 for capital gains computation. The provision was amended by the Finance Act, 2012, effective from 01.07.2012, substituting the phrase "is less than its fair market value" with "is at variance with its fair market value" to broaden the AO's power to refer valuation matters to the DVO.

However, the amendment applies only to transactions occurring on or after 01.07.2012. The Hon'ble Gujarat High Court in CIT vs. Gaurangiben S. Shodhan and the Hon'ble Bombay High Court in CIT vs. Pooja Prints have held that for transactions prior to 01.07.2012, the erstwhile provisions of section 55A(a) apply, which restrict the AO's power to refer valuation to DVO only if the value claimed by the assessee is less than the fair market value (FMV) in the AO's opinion.

Court's interpretation and reasoning:
The Tribunal noted that the property was sold on 26.04.2011, i.e., prior to 01.07.2012, hence the amended provisions of section 55A(a) are not applicable. Therefore, the AO's power to refer valuation to DVO is limited to cases where the value claimed by the assessee is less than FMV.

In the present case, the assessee claimed indexed cost of acquisition based on valuation by a Government registered valuer as on 01.04.1981, which resulted in a net capital gain of Rs. 54,205/-. The AO, however, adopted a much lower value based on the DVO's report from a co-owner's case, valuing the property at Rs. 6,999/- as on 24.12.1928.

The Tribunal relied on the precedents to hold that since the transaction occurred before 01.07.2012, the AO was not legally authorized to refer the valuation to the DVO unless the value claimed by the assessee was less than FMV. No such finding was recorded by the AO. Therefore, the reference to DVO was invalid.

Key evidence and findings:
- Sale date: 26.04.2011
- Property acquisition date: 24.12.1928
- Valuation by Government registered valuer as on 01.04.1981: Rs. 10,11,132/-
- Assessee's share: Rs. 3,37,044/-
- Indexed cost of acquisition claimed: Rs. 26,45,795/-
- AO's adopted value (based on DVO report in co-owner's case): Rs. 6,999/-
- Relevant case law: CIT vs. Gaurangiben S. Shodhan (Gujarat HC), CIT vs. Pooja Prints (Bombay HC)

Application of law to facts:
Applying the legal position established by the High Courts, the Tribunal found that the AO had no jurisdiction to refer the valuation to the DVO under section 55A(a) for the A.Y. 2012-13 since the sale took place before the effective date of amendment (01.07.2012). Hence, the AO's reliance on the DVO report was legally impermissible.

Treatment of competing arguments:
The revenue's argument supporting the AO and CIT(A) orders was rejected as the Tribunal found no contrary facts or law to justify the reference to DVO. The assessee's submissions and case law were accepted as authoritative and binding.

Conclusions:
The referral to the DVO and consequent adoption of the DVO's valuation report were not legally sustainable. The AO's valuation was set aside, and the assessee's valuation based on the Government registered valuer's report was accepted.

Issue (b): Use of DVO report obtained in co-owner's case for valuation of assessee's share

Relevant legal framework and precedents:
Valuation of property for capital gains purposes must be based on the facts and circumstances of the specific assessee's interest. The use of valuation reports from co-owners' cases without proper reference or application to the assessee's share is generally impermissible.

Court's interpretation and reasoning:
The Tribunal observed that the AO adopted the DVO's valuation report obtained in the case of co-owner Ranjitlal Shah rather than obtaining a separate valuation for the assessee's share. This was found to be improper and legally untenable.

Key evidence and findings:
The DVO's report valued the entire property at Rs. 6,999/- as on 24.12.1928, which was significantly lower than the valuation submitted by the assessee's registered valuer. The AO used this report in the assessee's assessment without independent valuation or justification.

Application of law to facts:
Given that the valuation was not independently obtained for the assessee's share and was based on a co-owner's case, the Tribunal found the AO's reliance on such valuation inappropriate and legally flawed.

Treatment of competing arguments:
The revenue did not produce any justification for using the co-owner's valuation report. The assessee's objection was accepted.

Conclusions:
The use of the DVO's valuation report from the co-owner's case was invalid, and no addition could be made on that basis.

Issue (d): Alleged misconstruction or mixing up of facts by CIT(A)

Relevant legal framework and precedents:
The CIT(A) is required to examine facts and law carefully and avoid confusion or mixing of facts from other cases.

Court's interpretation and reasoning:
The assessee alleged that the CIT(A) misconstrued facts or mixed up facts of other cases while deciding the appeal. However, the Tribunal did not find any evidence or material indicating such error in the CIT(A)'s order.

Key evidence and findings:
The CIT(A) upheld the AO's order relying on the DVO report, which was found by the Tribunal to be legally incorrect. No specific instance of factual confusion was demonstrated.

Application of law to facts:
Since the Tribunal set aside the CIT(A) order on legal grounds, the issue of misconstruction was rendered moot.

Treatment of competing arguments:
The Tribunal did not find merit in the assessee's contention on this ground.

Conclusions:
No error of misconstruction or mixing up of facts by CIT(A) was established.

3. SIGNIFICANT HOLDINGS

"Considering the decision of Hon'ble Gujarat High Court in CIT Vs. Gauranginiben S. Shodhan and Hon'ble Bombay High Court in CIT Vs. Pooja Prints and respectfully following the same, I hold that reference made to the DVO by