TMI Blog2009 (2) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision of clause ( a ) cannot be resorted to by AO 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. Therefore, we are of the considered opinion that this is the case, where the subject-matter of the reference u/s 55A revolves around the determination of the cost of acquisition based on the FMV as on 1-4-1981 for the purpose of computation of the capital gains and in such circumstances, the provisions of section 55A( a ) and ( 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 u/s 55A( b )( ii ) as explained in the aforesaid Explanatory notes. Hence, the reference made by the DVO is valid and we confirm the order of 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. Estimation of fair market value of the property - Method of valuation - rent capitalization method or comparable instances - difference betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross appeals, where the appeal vide ITA No. 552/M/2006 was filed by the assessee and against the order of the CIT(A) XVI, dated 2-11-2005 and revenue filed the other appeal vide ITA No. 457/M/2006. The grounds in both the appeals revolve around the same issues. In view of the interlacing of the issues in both these appeals, we proceed to adjudicate both the appeals together in this consolidated order. The grounds in assessee s as well as revenue s appeal are extracted as under : 2. Grounds in Assessee s appeal vide ITA No. 552/M/06 "1.The Commissioner of Income-tax (Appeals) XVI, Mumbai [CIT(A)] erred in adopting fair market value of the property as on 1-4-1981 at flat No. 4C, Ridge Apts., Ridge Road, Mumbai 400 006 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected the same as per the reasons given in para 2 of the assessment order and finally made a reference to the Departmental Valuation Officer (DVO) under section 55A of the Income-tax Act for the purpose of determination of cost of acquisition as on 1-4-1981. Accordingly, the fair market value of the property as on 1-4-1981 was estimated by the DVO at Rs. 23,20,306. Since the value admitted by the assessee at Rs. 45,58,268 as on 1-4-1981 was substantially higher, the same was rejected on the ground that it was done to evade tax liabilities and value of Rs. 23,20,306 as per DVO s report was adopted resulting in computation of higher long-term capital gain at Rs. 1,11,05,594 as against admitted gains of Rs. 20,19,476. The DVO figure of Rs. 1,154 per 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 Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 12-1-2005). ( f )Other factors apart form location or view of the building, the rate is also determined by the residents in that society i.e., whether residents are industrialists, population of the building, etc. In the instant case, the total number of flats in the building are 27 and the total population is about 100. None of the flats were sold for 25 years of its booking and some flats are owned by multinational companies and export houses." Further, the assessee contended that the rent capitalisation method was an accepted method of valuation as held by the Apex Court in the case of CIT v. Vegetables Products Ltd. [1973] 88 ITR 192 as well as in CIT v. P.I. George [1988] 171 ITR 620 (Ker.) as also various judgments of Karnataka High Court in ( i ) A. Premchand 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Assessing Officer to the DVO invoking the provisions of section 55A and DVO was also in communication with the assessee in giving effect to the said reference. After hearing both the parties, we find that the issue under consideration goes to the very root of the matter and it is legal in nature as it questions the validity of the reference made by the Assessing Officer under section 55A. In view of the above, we find that the ground must be admitted. 10. In connection with the said additional ground relating to the jurisdiction of the Assessing Officer in making a reference under section 55A, the Counsel argued that the Assessing Officer invoked the provisions of section 55A without valid jurisdiction. In this connection, ld. counsel relied on the provisions of section 55A of the Act and mentioned that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer. Besides, the rent capitalization method adopted by the assessee s valuer is inapplicable for self occupied property. Therefore, the Assessing Officer has every reason to reject the assessee s valuation report and refer the matter to the DVO. From the above, it is clear that reference made by the Assessing Officer is within the powers enshrined under section 55A of the Act. Also, the Ld. CIT(A) strongly commented on the unacceptable assumptions made by the assessee s valuer while valuing the fair market value." The DR also argued stating that the provisions of section 55A( b )( ii ) empowers the Assessing Officer to assume jurisdiction having regard to the nature of the asset and other relevant circumstances, it is necessary so to do and explained that the said conditions are satisfied in this instant case. DR also argued that the Third Member decision referred 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assets as claimed by more than 15 per cent of the value claimed or by more than Rs. 25,000, wherever is less or where, having regard to the nature of the asset and other relevant circumstance, the Assessing Officer considers it necessary to do so. In other words, this later group of cases includes : ( i ) the cases, where the basis for such FMV of the asset is the valuation report itself and assessee failed to adopt the value of the asset in accordance with the estimate of such Valuation Report; and ( ii ) the cases, where the basis for such FMV of the asset is other than the Valuation Report. In any such case, the Assessing Officer rightly assumes jurisdiction when he is of opinion that the FMV of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or having 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned at clause( a ) above, where the value of the asset as claimed by the assessee is in accordance with the estimate by the Registered Valuer; ( ii ) the cases, where the basis for such FMV of the asset is the valuation report itself and assessee failed to adopt the value of the asset in accordance with the estimate of such Valuation Report and also the cases, where the basis for such FMV of the asset is other than the Valuation Report; and finally ( iii ) the cases, where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value and the fair market value as claimed by him may be higher than its actual fair market value. 16. We have hitherto discussed the scope of section 55A of the Act. Now, we proceed to examine the facts relating to the reference made by the Assessing Officer in the instant case in the light of the above scope. The perusal of the documents relating to the reference by the Assessing Officer, 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value , which is not the case here. Therefore, the assessee s presumption as raised in the additional ground that the Assessing Officer s reference is under the said clause ( a ) could not have been held as a valid presumption. Further, we have also considered the revenue s argument that sub-clause ( ii ) of clause ( b ) of section 55A apply to the case of the assessee as the said sub-clause provides jurisdiction to the Assessing Officer in making reference in any case, where the Assessing Officer is of the opinion that it is necessary to refer the case to the DVO having regard to the nature of the asset and other relevant circumstances. Clause ( b ) covers those cases where the estimate by a Registered Valuer is filed and the value so adopted by the assessee is not in accordance with such estimate made by the Registered Valuer as well as the other cases. Here the Explanatory Notes to section 55A provide requisite information and it considers those other cases involving the issues of determination 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 clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed by the assessee is less. Therefore, neither the Assessing Officer nor the Commissioner could assume power to give such a direction where the value of the property disclosed by the assessee based on the approved valuer s report was on a higher side, i.e., Rs. 1 crore in instant case. As such invoking jurisdiction under section 263 on the above basis was illegal." From the above TM decision, it is evident that the provisions of section 55A( b )( ii ) shall come into play only when there is no valuation report in existence. Third Member has come to the above decision in the absence of the relevant Explanatory Notes. Parties have not brought the said notes to the attention of the Members during the proceedings. Therefore, the said decision in the case of Ms. Rubab M. Kazerani ( supra ) is distinguishable and therefore, we proceed to decide the instant case independent of the said decision. 19. Further, it is noticed that the provisions of section 55A reproduced above are provided with a view to ascertain the FMV of a capital asset for the purposes of the Chapter IV relating to Computation of Capital Income . In other words, undisputedly, Assessing Officer is vested wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction vide Luke v. IRC [1963] AC 557. The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basis assumption underlying the statutory provision. It is a well recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. . . ." Thus, we are of the considered opinion that this is the case, where the subject-matter of the reference under section 55A revolves around the determination of the cost of acquisition based on the FMV as on 1-4-1981 for the purpose of computation of the capital gains and in such circumstances, the provisions of section 55A( a ) and ( b )( i ) will not apply and under such circumstances, it will, however, be open to the ITO to make a reference to the Valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus he argued for restoring the order of the Assessing Officer. 22. On the other hand, Learned counsel for the assessee put forward various arguments and stated that the rent capitalisation method is an approved method and there are no any exactly comparable cases. Further, he reiterated all the objections taken before the CIT(A) as well as the DVO, the objection reproduced at page 4 of this order. Further, the counsel stated that the three instances given by the DVO in his report do not reflect real status and they are not comparable instances. The counsel reasoned that in order to determine the price of the property, the instances of the sale should be of similar property and from the same locality. Thus, as per the assessee, the estimate of the CIT(A) determining at Rs. 1,750 per sq. ft. is arbitrary, exorbitant and without any rational basis. Further, the Counsel also took objection to the rejection of the rent capitalisation method adopted by the assessee. Regarding ground No. 5 of his appeal, the counsel stated that the CIT(A) erred in not allowing deduction of Rs. 7,875 while computing the capital gains under section 48 of the Act. In this regard, he mentioned that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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