C.V.SUNNY vs. THE COMMISSIONER OF INCOME TAX-II

The appellant/assessee had purchased 20.50 cents of land in the year 1975. On the same day, his son and wife had also purchased land comprised in the same survey number for the same price. The property purchased by them became capital asset on 06.01.1994. The appellant sold the aforesaid land on 19.01.2006. His son also sold the land, which was purchased by him in the year 1975, on the same day at the same rate of price.

The assessee filed return of income for the assessment year 2006-2007 on 18.07.2006 declaring his total income as Rs.6,28,480/-. The return was accepted under Section 143(1) of the Act but the assessment was reopened under Section 148 of the Act. The assessee then filed a revised return on 03.08.2009 declaring his income as Rs.11,09,320/-. The Assessing Officer completed the assessment under Section 143(3) read with 147 of the Act on 31.12.2010 on a total income of Rs.1,23,05,580/-.

The Assessing Officer found that the cost of acquisition of the land as on 01.04.1981 shown by the assessee as Rs.1,15,385/- per cent, which was later revised by him as Rs.94,132/- per cent, cannot be accepted. The Assessing Officer found that the cost of acquisition of the land owned and sold by the son of the assessee as on 01.04.1981 had been fixed at Rs.1,000/- per cent and therefore, the cost of acquisition of the land owned and sold by the assessee shall also be fixed at the same rate.

The appellant challenged the assessment order passed by the Assessing Officer by filing appeal before the Commissioner of Income Tax (Appeals) but the appeal was dismissed. Thereafter, the appellant filed appeal before the Income Tax Appellate Tribunal. The Tribunal found that there existed no circumstances to make a reference under Section 55A of the Act as demanded by the appellant. The Tribunal found that the cost of acquisition determined in respect of the land owned by the son of the assessee was approved by this Court in the case filed by him and therefore, there was no illegality committed by the Assessing Officer and the appellate authority in adopting the same value as the cost of acquisition in respect of the land owned and sold by the assessee. Accordingly, the Tribunal dismissed the appeal.

We have heard Sri.S.Vijayan Nair, learned counsel for the appellant and also Sri.Christopher Abraham, learned Standing Counsel for the Income Tax Department.

Learned counsel for the appellant contended that when the Assessing Officer was of the opinion that the value of the capital asset estimated by the assessee on the basis of the report of a registered valuer was less than its fair market value, it was incumbent upon the Assessing Officer to make a reference under Section 55A of the Act to the Valuation Officer. Learned counsel would further contend that this Court had not approved the cost of acquisition in respect of the land owned and sold by the son of the assessee. On the other hand, learned Standing Counsel for the revenue would contend that properties comprised in the same survey number were purchased by the assessee and his son on the same date and at the same rate and therefore, the Assessing Officer was right in adopting the cost of acquisition fixed in respect of the land owned and sold by the son of the assessee as the cost of acquisition of the land owned and sold by the assessee also. Learned Standing Counsel would also point out that the son of the assessee had challenged the value of the land fixed in a case before this Court but this Court did not accept the challenge.

Section 55A of the Act occurs in Chapter IV, Part E of the Act which deals with capital gains. Section 55A of the Act, as it stood at the relevant time, reads as follows: "55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer - (a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value; (b) in any other case, if the Assessing Officer is of opinion (i) that the fair market value 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 (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do. ....... ”

We may note that the words "is less than its fair market value" came to be substituted by Finance Act, 2012 with effect from 1.7.2012 by the words "is at variance with its fair market value".

Ascertaining the fair market value of a capital asset is the object of making reference to a Valuation Officer under Section 55A of the Act. It is only when the Assessing Officer is required to ascertain the fair market value of a capital asset, the provisions of Section 55A of the Act can be invoked. Section 55A of the Act expressly sets out the circumstances under which and the purposes for which a reference could be made to Valuation Officer. There is no question of the Assessing Officer invoking the power under that provision for any other purpose or under any other circumstance (See Amiya Bala Paul v. CIT : AIR 2003 SC 2702).

At this juncture, we may note that as per Section 55(2)(b) of the Act, as it stood at the relevant time, cost of acquisition in relation to a capital asset, where capital asset became the property of the assessee before the first day of April, 1981, means cost of acquisition of the asset to the assessee or the fair market value of the asset on the first day of April, 1981, at the option of the assessee. The policy of law was to take the fair market value as on 1st April, 1981 as the basis for the purpose of indexation.

On a plain reading of Section 55A of the Act, it can be found that in a case where the Assessing Officer is of the opinion that the value of the capital asset as claimed by the assessee, in accordance with the estimate made by a registered valuer, is less than its fair market value, he may refer the valuation of the asset to a Valuation Officer. The question, whether it it is mandatory for the Assessing Officer to make a reference to the Valuation Officer under Section 55A of the Act in the circumstances provided therein, is no more res integra. In Dilip N. Shroff v. Joint Commissioner of Income Tax: (2007) 6 SCC 392, the Apex Court has held as follows: “Section 55A of the Act provides for reference to Valuation Officer. A bare perusal of the said provision will clearly go to show that the reference to a Valuation Officer is optional. The said provision is for the purpose of making an estimate. Such reference is made, if in the opinion of the Assessing Officer the value of the assets as claimed by the assessee in accordance with the estimate made by a registered valuer is less than its fair market value. Clause (b) of Section 55A refers to any other case which goes to show that the assessee had two options, namely, to get the value of the assets prepared through index value or take any other known mode of valuation.” (emphasis supplied). The Apex Court has also observed that there can be a genuine difference of opinion between two experts.

In the light of the decision of the Hon'ble Supreme Court referred to above, we hold that it is not mandatory for the Assessing Officer to make a reference under Section 55A of the Act under the circumstance envisaged under clause (a) of that provision.

However, on the facts of the present case, we are of the view that the Assessing Officer should have made reference under Section 55A of the Act to the Valuation Officer. In the instant case, the Assessing Officer had found that the valuation of the capital asset as on the date 01.04.1981 made by the assessee on the basis of the estimate of a registered valuer was less than its fair market value. The Assessing Officer did not make any reference to the Valuation Officer only on the premise or assumption that in the case filed by the son of the assessee, this Court had approved the cost of acquisition of the land owned and sold by him as Rs.1,000/- per cent. The Assessing Officer had taken it for granted that since the assessee and his son had purchased the property in the same survey number on the same day at the same rate of price, the cost of acquisition would not be different in respect of those two lands and therefore, it was not necessary for making a reference under Section 55A of the Act.

We are of the view that the Assessing Officer and the appellate authority and the Tribunal have misread the decision of this Court in the case filed by the son of the assessee. Learned counsel for the appellant has produced a copy of the judgment of this Court in the case I.T.Appeal No.94/2009 filed by the son of the assessee, for our perusal. On a perusal of this judgment, we find that this Court had not approved or disapproved the valuation of the capital asset made by the Assessing Officer in respect of the land owned and sold by the son of the assessee. In that case, the son of the assessee did not seek any reference under Section 55A of the Act at the first appellate stage. He raised such a contention only at the appellate tribunal stage and for that reason this Court did not interfere with the valuation of the capital asset made by the Assessing Officer. The judgment in I.T.Appeal No.94/2009 also does not indicate that the son of the assessee had produced report of any registered valuer before the Assessing Officer. Therefore, the authorities under the Act were not justified in holding that this Court had approved the cost of acquisition of the land owned and sold by the son of the assessee, as Rs.1,000/- per cent.

In the present case, the situation is different. Even before the Assessing Officer, the assessee had produced the report of a registered valuer and the assessee had based his claim on the estimate made by the registered valuer. The Assessing Officer has shown no reason whatsoever for rejecting the valuation made by the registered valuer except the wrong notion entertained by him that the cost of acquisition of land owned and sold by the son of the assessee was approved by this Court as Rs.1,000/- per cent.

Learned Standing Counsel for the revenue would contend that even if a reference had been made under Section 55A of the Act, the valuation made by the Valuation Officer would not have been different from the valuation made in the case of the land owned and sold by the son of the assessee. But it is not a sufficient ground for not complying with the procedure prescribed under the Act. It may be true that after exhausting the procedure prescribed under the Act, the consequence may be the same. But, on that ground, the procedure prescribed under the statute cannot be done away with. Moreover, though the lands owned and sold by the assessee and his son were comprised in the same survey number, it is stated that the land owned and sold by the assessee was abutting the National Highway. Value of land may differ on the basis of its location. Even if a property is comprised in the same survey number, the portion of the property which abuts a road may fetch more price than the portion of the property which has got no such advantage.

On the basis of the discussion above, we find that in a case where the Assessing Officer is of the opinion that the value of the capital asset claimed by the assessee, on the basis of the estimate made by a registered valuer, is less than its fair market value, it is not mandatory for the Assessing Officer to make a reference under Section 55A of the Act to the Valuation Officer. The substantial question of law is answered accordingly. However, on the facts of the case, we find that the Assessing Officer should have made a reference under Section 55A of the Act.

Consequently, the appeal is allowed. The assessment order dated 31.12.2010 passed by the Assessing Officer and the revised order dated 15.06.2011, as confirmed by the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, are set aside. The matter is remitted to the Assessing Officer concerned for fresh consideration. The Assessing Officer shall make reference under Section 55A of the Income Tax Act, 1961 regarding valuation of the capital asset of the assessee and thereafter, pass fresh assessment order in accordance with law. No costs in the appeal. (sd/-) C.K.ABDUL REHIM, JUDGE (sd/-) R.NARAYANA PISHARADI, JUDGE jsr/15/03/2019 I.T.APPEAL NO.75 OF 2015