C.I.T. vs. MANJULABEN M. UNADKAT

Facts

The assessee, Manjulaben M. Unadkat, sold a property acquired on April 1, 1981, for Rs. 3,91,000, on October 12, 1994, for Rs. 9,51,000. A Tax Clearance Certificate was obtained. The Assessing Officer (AO) referred the property's valuation to the Departmental Valuation Officer (DVO). The DVO determined the sale date value at Rs. 15,52,800 and the fair market value as of April 1, 1981, at Rs. 1,62,700. Based on this, the AO issued a notice under Section 148 and finalized the assessment under Section 143(3) read with Section 147 at Rs. 12,33,907. The CIT(Appeals) upheld the AO's order. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, leading to the present appeal by the Revenue.

Held

The High Court held that it was in complete agreement with the view taken by the Tribunal. The Tribunal had given cogent and convincing reasons for its conclusion. The Tribunal observed that a reference to the Valuation Officer under Section 55A(a) is permissible only if the Assessing Officer is of the opinion that the value claimed by the assessee is less than its fair market value. The formation of this opinion must have a rational connection with the material on record and should not be based on extraneous or irrelevant reasons. In the present case, the Tribunal found that the AO had not brought anything on record to indicate that the assessee had disclosed a lesser sale price. The Tribunal concluded that the AO ought not to have made a reference to the DVO for determining the fair market value of the property, and the report of the DVO alone was not sufficient for estimating the capital gains. Therefore, the appeal was dismissed, and the question posed was answered in favor of the assessee.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the Assessing Officer ought not to have made a reference to the departmental valuation officer for determination of the fair market value of the property under Section 55A(a) of the Income Tax Act, 1961? Assessee's Contention (as inferred from the Revenue's argument and the Tribunal's reasoning): The AO erred in referring the matter to the DVO because the AO had not formed an opinion that the fair market value, as claimed by the assessee, was required to be disturbed. The reference was made solely because the declared value was lower by more than 25%, which is not a valid ground under Section 55A. The Tribunal's decision in "Hiaben Jayantilal Shah V. Income Tax Officer" was relied upon, highlighting that the AO's opinion must have a rational connection with the material on record and should not be based on extraneous reasons. The Tribunal itself noted that the AO had not brought anything on record to indicate the assessee disclosed a lesser sale price and that the DVO's report alone was insufficient. Revenue's Contention: The Revenue argued that the issue was covered by the decision in "Hiaben Jayantilal Shah V. Income Tax Officer." The Revenue contended that the AO acted within jurisdiction in making the reference to the Valuation Officer under Section 55A, as the capital gain is required to be worked out on the fair market value of the property on the date of the sale deed. The affidavit-in-reply stated that the reference was made because the value declared by the assessee as on the date of execution and registration of the sale deed was lower by more than 25%.