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KANAIYALAL DHANSUKHLAL SOPARIWALA Versus DISTRICT VALUATION OFFICER, VALUATION CELL AND 1

2016 (10) TMI 407 - GUJARAT HIGH COURT

Reference to DVO - sale consideration does not reflect the correct rate - revenue authorities with the power to obtain valuation reports - Held that:- Reference to the DVO in terms of Section 55A of the Act if strictly seen, for the purpose of valuation in the context of the capital gain may not be competent. However, post the said decision in case of Smt.Amiya Bala Paul (2003 (7) TMI 4 - SUPREME Court ) Section 142A of the Act was inserted with retrospective effect substantially nullifying its .....

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hy in his prima facie opinion the declaration of sale consideration does not reflect the correct rate. In short, he seriously disputed the veracity of the petitionerís declaration of the prices at which said 3 properties were sold. Merely because from time to time the Assessing Officer referred to wrong provision for exercising powers which he otherwise had, would not vitiate his action. Had this been a case of lack of powers, the issue would certainly rest on different parameters. However, when .....

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lly low compared to real market price. At a stage when the assessment is not yet complete, it would simply not be possible or proper in our part to intervene and interfere in the manner in which the assessment should be made. If ultimately the assessee is aggrieved by the order of assessment, he has remedy to file appeal. When the statute provides such remedies, as held by the Supreme Court in case of Commissioner of Income-tax and Ors. V/s. Chhabil Dass Agarwal, reported in [2013 (8) TMI 458 - .....

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NDENT : MR SUDHIR M MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged the action of the respondent No.2 - Additional Commissioner of Income-tax, the petitioner's Assessing Officer of making a reference to the District Valuation Officer (for short 'DVO') seeking his report on the valuation of the three agricultural lands the petitioner sold during the Financial Year 2007-08. The petitioner's challenge arises in following back .....

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essing Officer wrote to the DVO calling for his valuation report on the estimated fair market value of the properties sold by the petitioner. In the caption to this letter, he referred to Section 50C(2) of the Income-Tax Act,1961 (for short 'the Act'). In the said letter, he conveyed to the DVO as under : 2. Under the power conferred by the IT Act,1961, u/s 131(d) on the undersigned you are hereby issued commission to value the property mentioned below for the purpose of estimation of fa .....

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calling for certain basic information about the land in question. The petitioner thereupon wrote to the DVO on 8.11.2010 pointing out to him that there is no provision for substituting the fair market value of the property for the purposes of computing capital gains in terms of Section 50C of the Act and the exercise of valuation is wholly redundant. 1.3 On 26.11.2010, the Assessing Officer wrote to the DVO with a copy to the petitioner and conveyed as under : Please refer to this office letter .....

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tter, as the assessment u/s 143(3) of the IT Act for A.Yr.2008-09 is pending and the same is barred by limitation by 31.12.2010. 1.4 The petitioner thereupon wrote to the Assessing Officer on 1.12.2010 and yet again opposed the reference to the DVO placing strong reliance on Section 50C of the Act. He contended that the exercise of obtaining valuation report would be infructuous since the capital gain cannot be computed on the basis of the valuation report of the DVO. He pointed out that the cap .....

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nsideration worked out to ₹ 654 per sq. mtrs. The documents of auction sale conducted by Surat Urban Development Authority (SUDA) in the same area during the same period reflected the price range of ₹ 750/- to ₹ 2300/- per sq. mtrs. Regarding agricultural land of village Khadsad, Taluka - Kamrej, District - Surat which the petitioner had sold on 15.1.2008, the sale price worked out to ₹ 39.47 per sq. mtrs. The SUDA auction documents for the said area during the same perio .....

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years on 1.4.2008 i.e. barely few months after the petitioner's sale deeds. There was a margin of ₹ 900/- to ₹ 1600/- between the petitioner's sale price and the fresh Jantri rates. According to him, the entire appreciation could not have been achieved in last few months. Along with his letter, he had also annexed supporting documents received from SUDA. In this letter, the Assessing Officer also pointed out to the assessee that as on 31.3.2008 he was holding 9 different imm .....

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eloped industrial zone. Thus, the intention of holding the property was to book the profit and not to carry out any agricultural activities. He therefore formed a prima facie belief that looking to the frequency of property transactions, holding period of these plots of land, history of transactions in properties and absence of any agricultural activity on these properties, would indicate that the assessee was holding these plots as stock-in-trade and not for investment. He called upon the asses .....

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ssued commission to value the property mentioned below for the purpose of estimation of fair market value of the property. The above named person has sold and purchased various properties specifications of which are as per Annex-A attached herewith. 3. You are requested to send your valuation report to the undersigned in duplicate urgently preferably within 15 days of receipt of this letter. This is time barring matter, as the assessment u/s 143(3) of the IT Act for A.Yr.2008-09 is pending and t .....

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r. Learned counsel, Mr.M.J.Shah for the petitioner vehemently contended that a reference to the DVO made by the Assessing Officer was wholly incompetent. He submitted that Section 50C of the Act would not permit the Assessing Officer to substitute any other figure for the actual sale consideration except in terms of sub-section (2) of Section 50C of the Act which has reference to the Jantri rates. In the present case, since the petitioner had offered capital gain on such Jantri rates, reference .....

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-Tax, reported in 45 Taxmann.com 248. Learned counsel lastly contended that the Assessing Officer had under a letter dated 9.12.2010 called upon the assessee to show cause why the entire sale consideration of ₹ 1.57 crores towards the sale of the lands in question should not be treated as business receipts. In that view of the matter, the DVO s report would be wholly inconsequential. 3. On the other hand, learned counsel, Mr.Sudhir Mehta for the department opposed the petition contending t .....

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earned counsel relied on a decision of learned Single Judge of the Madras High Court in case of C.T.Laxmandas V/s. Assistant Commissioner of Income-tax & Anr., reported in 208 ITR 859. 4. Section 50C of the Act pertains to special provisions for full value of consideration in certain cases which reads as under : 50C. Special provision for full value of consideration in certain cases :- (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital as .....

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ce to the provisions of sub-section (1), where - (a) the assessee claims before any Assessing Officer that the value adopted [or assessed or assessable] by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted [or assessed or assessable] by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, cour .....

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relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation [1]: For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation 2.-For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other .....

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r accruing as a result of the transfer.] 5. In terms of sub-section (1) of Section 50C of the Act, where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both, is less than the value adopted, assessed or assessable by the State Stamp Valuation Authority in respect of transfer of such property, such value would be by deeming fiction considered to be a full value of consideration received or accruing as a result of such capital asset. Und .....

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would prevail. In other words, for the purpose of capital gains it would be lesser of the two valuations that adopted by the State Valuation Authority or one suggested by the Valuation Officer which would prevail. In this context therefore, learned counsel for the petitioner would be correct in pointing out that the valuation of the DVO even if obtained, cannot replace the valuation by the State Stamp Valuation Authority referred to in Section 50C of the Act for the purposes of charging capital .....

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referred to various factors based on which he formed a prima facie belief that the assessee did not hold the lands in question by way of investment but, was engaged in the business of buying and selling land for the purpose of making profit. He pointed out that the assessee was as on 31.3.2008 holding as many as 9 different immovable assets, 7 out of them were agricultural lands. Many of these properties were acquired only in recent times. Though they were technically agricultural lands, they we .....

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ade and not as investment with primary motive of making profit. He therefore proposed to tax the receipts out of the sale of said properties as assessee s business income. 7. In this very communication, in the context of the variance between reflected sale consideration in the sale deeds and the prima facie indication of the prevailing market rates, he pointed out that the agricultural lands at Bhimrad was sold at a rate of ₹ 654/- per sq. mtrs., whereas the SUDA conducted auction of the l .....

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her pointed out that Jantri rates, to which the assessee was referring to were not revised since the year 1999. The same came to be revised only after a gap of 9 years w.e.f. 1.4.2008. The land in question was sold between October,2007 and March,2008, thus, barely few months prior to the revision in the Jantri rates, according to which there was a margin of about ₹ 900/- to ₹ 1600/- per sq. mtrs. He contended that such an appreciation in the market rate cannot be attributed to the la .....

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ase of C.T.Laxmandas (Supra) held that there was no reason to confine the powers under Section 55A of the Act to the limited purpose pertaining to capital gains. The learned Judge was of the opinion that such powers can be exercised even de-hors the question of assessment of capital gains. 11. The Division Bench of the Andhra Pradesh High Court, in case of Daulatram and Ors. V/s. Income-tax Officer and Anr., reported in 181 ITR 119, had taken a similar view holding that the powers under Section .....

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ted in 116 ITR 825 in which it was held that Section 55A of the Act would apply only to the capital gains. However, the Income-tax Officer can refer to the powers under sub-section (6) of Section 133 of the Act for valuation and mere mention of a wrong section in the requisition sent to the Valuation Officer would not vitiate the valuation. 13. As was correctly pointed out by learned counsel, Shri Shah, similar issue came up for consideration before the Supreme Court in case of Smt.Amiya Bala Pa .....

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er did not accept such declaration and referred the question of construction cost to the DVO under Section 55A of the Act. On the basis of the report of the DVO, the Assessing Officer made additions in the Assessment Year 1983-84 and also reopened the assessment for the Assessment Year 1982-83. In this context, the question came up before the Supreme Court, could the Assessing Officer have referred the question of cost of construction to the Valuation Officer? Referring to the provisions contain .....

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nce in different circumstances and for other purposes. [See Padam Sen V. State of U.P.: AIR 1961 SC 218 para 8; Arjun Singh v. Mohindra Kumar: AIR 1964 SC 993 (para 19) ]. It is noteworthy that Section 55 A was introduced in the Act by the Taxation Laws (Amendment) Act, 1972 when Section 131 (1), 133 (6) and 142 (2) were already on the statute book. Learned counsel for the appellant has correctly submitted that if the power to refer any dispute to a Valuation Officer were already available in Se .....

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er : 142A. Estimation of value of assets by Valuation Officer- (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him. (2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assesse .....

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to the assessee. (5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or subsection (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1). (7) The As .....

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, to make a reference to the Valuation Officer to estimate the value, including fair market value, of any asset, property or investment, who would submit such a report to him. Sub-section (2) of Section 142A of the Act further clarifies that the Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. 16. Before expressing our thoughts further on the action of the As .....

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unts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals) etc., giving information in relation to such points or matters as, in the opinion of the Assessing Officers, will be useful for, or relevant to, any inquiry or proceeding under this Act. In other words, such powers could be exercised even when the assessment is not pending. The constitutional validity of such provisions was challenged before the Kerala High Court on the ground that it br .....

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ng the necessary details. It was observed that even if the right to privacy is a fundamental right, it is subject to reasonable restrictions. It was further observed as under : 10. … When a legislation, especially one in the fiscal realm is being examined by courts to check whether it infringes the right of individuals to privacy in own affairs, it has to be borne in mind that the larger public and economic interest of nation is to be balanced against such right to privacy. All decisions .....

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have been invested bearing in mind the larger public and economic interest and in furtherance to the right of the revenue to gather information under fiscal administration. 18. Reverting back to the facts of the case, as noted, as held and observed by the Supreme Court in case of Smt.Amiya Bala Paul (Supra), it may be that the reference to the DVO in terms of Section 55A of the Act if strictly seen, for the purpose of valuation in the context of the capital gain may not be competent. However, p .....

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is last issue is strictly not relevant for our purpose since the Assessing Officer has painstakingly and at length demonstrated why in his prima facie opinion the declaration of sale consideration does not reflect the correct rate. In short, he seriously disputed the veracity of the petitioner s declaration of the prices at which said 3 properties were sold. Merely because from time to time the Assessing Officer referred to wrong provision for exercising powers which he otherwise had, would not .....

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t wash away the detailed analysis and materials he referred to in various letters indicating that the sale price shown was abysmally low compared to real market price. At a stage when the assessment is not yet complete, it would simply not be possible or proper in our part to intervene and interfere in the manner in which the assessment should be made. If ultimately the assessee is aggrieved by the order of assessment, he has remedy to file appeal. When the statute provides such remedies, as hel .....

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