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Income Tax Appellate Tribunal, KOLKATA BENCH “C”, KOLKATA
Before: SHRI RAJESH KUMAR, HON’BLE & SHRI SONJOY SARMA, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCH “C”, KOLKATA BEFORE SHRI RAJESH KUMAR, HON’BLE ACCOUNTANT MEMBER AND SHRI SONJOY SARMA, HON’BLE JUDICIAL MEMBER ITA No.394/Kol/2020 Assessment Year: 2015-16 ALOKE RAY ACIT (Intt. Taxation), Circle – 1(1), Kolkata C/o. Soumya Dutta & Associates, Chartered Vs. Accountants, 13, Satyen Dutta Road, Kolkata – 700 029. PAN: ADHPR 6467 N (Appellant) (Respondent) Present for: Appellant by : Shri S. Kalyansundaram, AR Respondent by : Shri G. Hukunga Sema, ACIT Date of Hearing : 12.05.2022 Date of Pronouncement : 23.06.2022 O R D E R PER SONJOY SARMA, JM: This appeal is filed by the assessee against the order of Ld. CIT (International Taxation & Transfer Pricing), Kolkata dated 06.03.2020. The assessee in this appeal has taken the following grounds of appeal: 1. The Learned Commissioner of Income-tax (IT & TP)-Kolkata ('Ld. CIT") has erred in law as well as on facts while initiating proceedings u/s 263 and, further, in concluding that Long Term Capital Gain offered to tax by the assessee should have been higher by INR 49,94,662/- (Tax Effect: INR 11,31,790/- (including surcharge and E-Cess). 2. In the facts and circumstances of the case, the assumption of Jurisdiction by the Ld. CIT violates the settled principle that where the Assessing Office (AO") has adopted one of courses permissible in law, or where he has adopted one of two possible views, then the order of the AO cannot be treated as erroneous even if the Ld. CIT disagrees with the view adopted by the AO. 3. In the facts and circumstances of the case, the Ld. CIT should have appreciated that the power given to the AO u/s 55A to refer valuation of a capital asset to a
2 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 Valuation Officer is a discretionary power and cannot be influenced, and that too, based only on a report of the Valuation Officer. 4. In the facts and circumstances of the case, the Ld. CIT should have appreciated that the report of a Valuation Officer is nothing more than an opinion, as held by a catena of judicial precedents, and cannot form the basis for interference in the order of the AO, especially so when the AO has recorded a categorical finding in regard to the valuation undertaken by the Registered Valuer based upon whose valuation the assessee has computed Long Term Capital Gain and has accepted the same. 5. In the facts and circumstances of the case, the Ld. CIT has erred in placing reliance on the Explanation 2 to section 263, thus ignoring the settled principle of finality of proceedings, and, further, placing reliance on judicial precedents that can be distinguished from the facts applicable to the case of the assessee. 6. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add to, alter, supplement, amend, vary, withdraw or otherwise modify the grounds mentioned hereinabove at or before the time of hearing.
Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon’ble Supreme Court in the case of Miscellaneous Application No. 665 of 2021 in SMW(C) No. 3 of 2020, the period of filing appeal during the COVID-19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period.
The brief fact of the case is that the assessee filed its return of income on 18.07.2015 for A.Y. 2015-16 declaring total taxable income of Rs. 1,55,99,450/- and claiming refund of Rs. 46,08,710/-. The case of the assessee was selected for scrutiny through CASS and notice u/s 143(2) of the Income Tax Act dated 21.09.2016 was issued by the AO which was duly served on the assessee. Subsequently, the case of the assessee was transferred from ITO, Ward-54(1), Kolkata to ITO, Ward-6(4), Kolkata and then finally it was transferred to the office of the ACIT (IT), Circle-1(1), Kolkata as the case was belonging to Non-Resident. Pursuant to that notice u/s 142(1) of the Act dated 21.09.2016 & 03.11.2017 were issued to the assessee. In response to that the AR of the assessee appeared and produced / filed details and documents in support of the return of income filed by the assessee. During the assessment year in question, the assessee had sold a property. The proceeds from sale of residential property has been
3 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 shown at Rs. 3,55,72,600/- for which capital gain has been calculated by the assessee. The assessee has submitted one third of the property belonging to him and since market value of the property is Rs. 9,37,50,000/- and the sale consideration is more than one third of the market value of one third property, same is being taken as full value of consideration. The assessee has shown calculation in respect of Long Term Capital Gain as under: Sl. Particulars Amount No. 1 Full value of consideration Less Brokerage Rs. 3,55,72,600 (-) 9,37,500 Rs. 3,46,35,100 2 Less Indexed cost of Acquisition (-) Rs. 1,43,36,000 3 Long Term Capital Gain Rs. 2,02,99,000 4 Less Deduction u/s 54EC (-) Rs. 50,00,000 5 Net Long Term Capital Gain Rs. 1,52,99,100/-
In support of indexed cost of acquisition, the assessee has filed valuation report of property as on 01.04.1981 as the property was inherited and was acquired by the assessee before 01.04.1981 as per section 55(2), if the asset is acquired before 01.04.1981 that have been cost of acquisition will be (i) actual cost of acquisition or (ii) FMV (fair market value) on 01.04.1981 at the option of the assessee. As per valuation report, the value of the property as on 01.04.1981 of one third property was Rs. 14,00,000/- and it was accepted by the AO. At the time of hearing proof for brokerage was asked by the AO but the assessee could not furnish the document except Rs. 2,37,500/-. Consequent to that brokerage of Rs. 7,00,000/- was disallowed and long term capital gain was recalculated as under: Sl. Particulars Amount No. 1 Full value of consideration Less Allowed Rs. 3,55,72,600 Brokerage (-) 2,37,500 Rs. 3,53,35,100 2 Less Indexed cost of Acquisition (-) Rs. 1,43,36,000 3 Long Term Capital Gain Rs. 2,09,99,000 4 Less Deduction u/s 54EC (-) Rs. 50,00,000 5 Net Long Term Capital Gain Rs. 1,59,99,100/- 6 LTCG shown in the ROI Rs. 1,52,99,100/-
4 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 7 Addition in respect of LTCG Rs. 7,00,000/-
Accordingly, the assessee is assessed at an income of Rs. 1,62,99,450/- including long term capital gain of Rs. 1,59,99,100/-. The Ld. CIT upon going through the assessment records came to the conclusion that assessment framed by the AO is erroneous as well as prejudicial to the interest of the Revenue. The aforesaid order of the AO was reversed and set aside by Ld. CIT (International Taxation) finding for which in his own words read as under: “4. The assessee was the owner of one third portion of the same land which was referred to the valuation cell by the DCIT(IT) Circle 1(2), Kolkata The valuation of the whole property as on 01 04. 1981 was determined by the DVO at Rs 27,36,720/- but the assessee calculated indexed cost on the basis of valuation at Rs. 42,00,000/-. Due to this, there comes a difference in Indexed Cost of Acquisition resulting in difference in the amount of taxable Capital Gains. Calculation of difference in the cost of acquisition is given as under:
Computation of indexed cost of the property on the basis of valuation given by DVO: Total value of the property as on 01.04.1981 Rs. 27,36,720/- Proportional Cost (1/3) as on 01.04.1981 Rs. 9,12,240/- Cost of inflation index Rs. 1024 Indexed cost of acquisition Rs. 93,41,338/- Indexed cost of acquisition shown by the Assessee (14,00,000 x 10.24) Rs. 1,43,36,000/- Difference (indexed cost excess taken) Rs. 49,94,662/-
4.1 On the basis of above calculation, difference of long term capital gain is calculated here as under: Sl. Particulars Amount No. 1 Full value of consideration Less Allowed Rs. 3,55,72,600 Brokerage (-) 2,37,500 Rs. 3,53,35,100 2 Less Indexed cost of Acquisition (-) Rs. 93,41,338/- 3 Long Term Capital Gain Rs. 2,59,93,762/- 4 Less Deduction u/s 54EC (-) Rs. 50,00,000 5 Net Long Term Capital Gain Rs. 2,09,93,762/- 6 LTCG shown in the ROI Rs. 1,52,99,100/- 7 Shortfall in respect of LTCG Rs. 56,94,662/- 8 Addition already been made in the assessment Rs. 7,00,000/- order
5 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 9 Net shortfall in LTCG in the assessment year Rs. 49,94,662/-
In view of the above, the assessment order passed by the AO u/s 143(3) dated 27/12/2017 for A.Y.2015-16 is erroneous in so far as it is prejudicial to the interest of revenue and hence, the said assessment order is required to be revised u/s 263 of the Act Therefore. a show cause notice u/s. 263 was issued to the assessee vide letter No CIT(IT&TP/Kol/Revision/Notice u/s263/2018-19/5428 dated 04/03/2019 asking to explain as to why the assessment order dated 27/12/2017 may not be revised/ set aside in accordance with the provisions of section 263 of the income Tax Act 1961.
In response to the notice u/s 263, Mr. Kalyanasundaram and Mr. Swagato Banerjee attended the proceedings and filed the reply. The relevant portions of the reply are as follows:
At the time of passing the order of assessment u/s 143(3) (assessment order), the Learned Assessing Officer ("Ld. AO') had made inquiries in regard to the computation of long-term capital gains Based upon such inquiries, the Ld. A0 had disallowed assessee's claim towards part of the brokerage expenses and then passed the assessment order that is now the subject of this Revision.
Whist passing the assessment order, the Ld. AO has specifically recorded his acceptance of the Valuation Report submitted by the assessee wherein the fair market value of the property as at 01.04.1981 has been worked out at INR 42 Lakhs.
Your learned self is now proposing to increase the amount of capital gains by adopting the valuation conducted by the DVO in respect of another assessee.
It is respectfully submitted that in the facts and circumstances of the case interference u/s 263 is uncalled for due to the following reasons:
a. Jurisdiction u/s 263 can be assumed only if the twin conditions of the order of assessment being erroneous as well as prejudicial to the interest of revenue are satisfied. An incorrect assumption of facts can also lead to the order being erroneous but a difference of opinion cannot lead to proceedings u/s 263. The law on this is settled and this position has not changed even after the amendments in section 263 vide the Finance Act, 2015 by insertion of Explanation 2 to section 263.
b. The only ground on which the assessment order is proposed to be revised is the difference in valuation between that submitted by the assessee and that arrived at by the DVO. It may be noted here that the Valuation Report submitted by the assessee has been issued by a registered valuer (Amal Kanti Biswas) having registration number WB/CAT-1/88/Cal.
6 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 c. Difference in valuation cannot be a valid gr.und for assuming jurisdiction u/s 263 because it is settled law that the Report of the DVO is merely an opinion and the difference between the valuation conducted by the DVO and a registered valuer is merely one of opinion.
d. Reference may also be made to the provisions of section 55A of the Act which deals with reference to a Valuation Officer. The section says that the AQ may refer the valuation of fair market value to a Valuation Officer only if he is of the opinion that the value claimed by the assessee based on estimate made by a registered valuer is at variance with its fair market value (Section 55A(a)] or if the AO is of the opinion that it is necessary to do so (emphasis supplied) reference to the Valuation Officer is therefore discretionary and is a power that has specifically been vested in the AO. A difference in valuation does not lead to a conclusion that facts have been erroneously assumed without there being anything more to substantiate that the valuation conducted by the DVO represented a fair value.
e. There is, therefore, no statutory requirement on the part of the AO to refer the valuation to a Valuation Officer and he is to proceed based on his opinion after going through the records called for/made available to him In the instant case the AO has accepted the Valuation Report and has specifically recorded his acceptance of the same. It is evident that he has applied his mind to the entire matter of computation of capital gains because he has, in fact specifically disallowed part of the claim for brokerage expenses made by the assessee.
f. In summary, it is respectfully submitted that based merely on an opinion of DVO without there being anything more to substantiate its conclusions an acceptance of Valuation Report submitted by the assessee that has been accepted by the Ld. AO under the discretionary powers available with him cannot be treated as erroneous calling for interference u/s 263.
The assessee relies on the following judicial precedents in support of its submissions: a. ACIT v Dhariya Construction Co 328 1TR 515(SC) in which it was held that the DVO report is merely an opinion and cannot lead to reopening of assessment.
b. Jitendar Singh Chaddha v Pr. CIT-18 1TA 2732/Del/2018 (1TAT) in which on almost identical facts, it was held when AO has concluded assessment based on Valuation Report of Government Registered Valuer, he has taken a possible view and the CIT cannot interfere based only on a valuation report of DV0.
Further, the assessee filed another written submission, the relevant portion of which is as given below:
7 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 Without prejudice to our earlier written submission and verbal arguments placed before you, we submit herewith our submission on the Valuation Report dated 11.04.2018 made by the DCIT(IT), Circle-1(2). Kolkata
Is seen from the said valuation report that transactions recorded in the jurisdictional registry that have been considered by the Ld. DVO have been executed in 1985/86 in this regard, your kind attention is drawn to the fact that registration fees in West Bengal in respect of immovable properties used to be collected based on the Consideration/value set forth in the underlying instruments of transfer. It is only upon introduction of the West Bengal Stamp (Prevention of Under-Valuation of instruments) Rules, 1994 w.e.f. 31 01.1994 that the Registering Officials were required to determine the market value of properties which were the subject matter of registration. Reference may kindly be made to the second paragraph of page 6 of the Administrative Report 2006-2007" dated 1ssued by the Government of West Bengal Directorate of Registration and Stamp Revenue Kolkata (copy enclosed).
It is respectfully submitted that in 1985/1986, it was a common practice to split consideration upon transfer of immovable properties into a cash component and a cheque component. In order to curb this pernicious practice that the Finance Act 2002 first introduced the concept of Stamp Duty Valuation for computation of Capital Gains. Therefore prior to 01.04.2003, the value stated in a deed of transfer cannot necessarily be considered a fair value of the price at which the transfer took place. Admittedly. this is a rebuttable presumption but nonetheless reflects market realities.” 5. After deciding the objection raised by the assessee still not satisfied, the Ld. CIT (International Taxation) indicating the assessment order by exercising his power u/s 263 of the Act by pointing out fault as under:
“8.3. After going through both valuation reports ie the valuation report by registered valuer and the valuation report submitted by the DVO. I find that there is wide variation in the Valuation of property. As against the total valuation of the property determined by the DVO at Rs. 27,36,720/, the registered valuer has determined the total value of property at Rs. 42,00,000/-, Therefore, there is a variation of 55% in the value of property. In other words the assessee has taken the cost of acquisition at 55% more than what has been estimated by the DVO. It can be seen that the valuation report of Registered Valuer determining the cost of acquisition of the sold property as being inflated and in order to determine the correct value of such property. it was necessary for the AO to have referred this property to DVO. Therefore, it cannot be held that the assessment order was passed by the AO u/s.143(3) vide order dated 27/12/2017 with due application of mind. As the reference to DVO was not made by the AO, he could not get the correct value of the property to determine the cost of acquisition of the sold property and hence, he
8 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 ended up in passing of assessment order taking a high value of the cost of acquisition, resulting into assessing short amount of Long Term Capital Gain on the property sold as discussed in para 4.1 of this order. Therefore, the assessment order passed by the AO u/s.143(3) vide order dated 27/12/2017 is erroneous in so far as prejudicial to the interest of revenue.”
Here, the ld. CIT (International Taxation) was of the view that AO has acted upon assessee’s calculation indexed cost on the basis of valuation at Rs. 42,00,000/- filed by the assessee and one third thereof comes to Rs. 14,00,000/- but as per DVO, the valuation of whole property as on 01.04.1981 determined at Rs. 27,35,720/-, the assessee calculated indexed cost on the basis of valuation at Rs. 42,00,000/- and due to this difference in valuation it has resulted in difference in the amount of taxable capital gain. It is to be noted that even though the assessee contested the proposed action of the ld. CIT (International Taxation) and submitted that circumstances of the case interference u/s 263 is uncalled for due to the following reasons: “a. Jurisdiction u/s 263 can be assumed only if the twin conditions of the order of assessment being erroneous as well as prejudicial to the interest of revenue are satisfied. An incorrect assumption of facts can also lead to the order being erroneous but a difference of opinion cannot lead to proceedings u/s 263 The law on this is settled and this position has not changed even after the amendment in section 263 vide the Finance Act, 2015 by insertion of Explanation 2 to section 263.
b. The only ground on which the assessment order is proposed to be revised is the difference in valuation between that submitted by the assessee and that arrived at by the DVO. It may be noted here that the Valuation Report submitted by the assessee has been issued by a registered valuer (Amal Kanti Bıswas) having registration number WB/CAT- 1/88/Cal.
c. Difference in valuation cannot be a valid gr.und for assuming jurisdiction u/s 263 because it is settled law that the Report of the DVO is merely an opinion and the difference between the valuation conducted by the DV and a registered vałuer is merely one of opinion.
d. Reference may also be made to the provisions of section 55A of the Act which deals with reference to a Valuation Officer The section says that the AO may refer the valuation of fair market value to a Valuation Officer only if he is of the opinion that the value claimed by the assessee based on estimate made by a registered valuer is at variance with its fair market value [Section 55A(e)] or if the AO is of the opinion that it is necessary to do so (emphasis supplied). The reference to the Valuation Officer is, therefore, discretionary and is a power that has specifically
9 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 been vested in the A0. A difference in valuation does not lead to a Conclusion that facts have been erroneously assumed without there being anything more to substantiate that the valuation conducted by the DVO represented a fair value.
e. There is. Therefore, no statutory requirement on the part of the AO to refer the valuation to a Valuation Officer and he is to proceed based on his opinion after going through the records called for/made available to him. In the instant case the AO has accepted the Valuation Report and has specifically recorded his acceptance of the same It is evident that he has applied his mind to the entire matter of computation of capital gains because he has, in fact specifically disallowed part of the claim for brokerage expenses made by the assessee.
f. In summary, it is respectfully submitted that based merely on an opinion of DVO without there being anything more to substantiate its conclusions an acceptance of Valuation Report submitted by the assessee that has been accepted by the Ld. AO under the discretionary powers available with him cannot be treated as erroneous calling for interference u/s 263.
The assessee relies on the following judicial precedents in support of its submissions: a. ACIT v Dhanya Construction Co. 328 ITR 515 (SC) in which it was held that the DVO report is merely an opinion and cannot lead to reopening of assessment.
b. Jitendar Singh Chaddha v Pr. CIT-18 ITA 2732/Del/2018 (1TAT) in which on almost identical facts, it was held when AO has concluded assessment based on Valuation Report of Government Registered Valuer, he has taken a possible view and the CIT cannot interfere based oily on a valuation report of DVO.
Further, the assessee filed another written submission, the relevant portion of which is as given below:
Without prejudice to our earlier written submission and verbal arguments placed before you, we submit herewith our submission on the Valuation Report dated 11.04.2018 made by the DCIT(I.T.), Circle-1(2), Kolkata.
It is seen from the said valuation report that transactions recorded in the jurisdictional registry that have been considered by the Ld. DVO have been executed in 1985/86. In this regard, your kind attention is drawn to the fact that registration fees in West Bengal in respect of immovable properties used to be collected based on the consideration/value set forth in the underlying instruments of transfer. It is only upon introduction of the West Bengal Stamp (Prevention of Under-Valuation of Instruments) Rules, 1994 w.e.f. 31 01.1994 that the Registering Officials were required to determine the market value of properties which were the subject matter of registration. Reference may kindly be made to the second paragraph of page 6 of
10 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 the Administrative Report 2006-2007" dated issued by the Government of West Bengal Directorate of Registration and Stamp Revenue, Kolkata (copy enclosed).
It is respectfully submitted that in 1985/1986, it was a common practice to split consideration upon transfer of immovable properties into a cash component and a cheque component. In order to curb this pernicious practice that the Finance Act, 2002 first introduced the concept of Stamp Duty Valuation for computation of capital Gains. Therefore prior to 01.04.2003, the value stated in a deed of transfer cannot be necessarily be considered a fair value of the price at which the transfer took place Admittedly, this is a rebuttable presumption but nonetheless reflects market realities.”
According to the ld. AR after having perusal of valuer’s report, the AO made addition of Rs. 7,00,000/- in respect of LTCG. Therefore according to ld. AR AO’s order cannot be held to erroneous or prejudicial to the interest of revenue and Ld. CIT (International Taxation) lacked jurisdiction to intervene in the order of AO. The ld. AR further submitted the following decisions to advance his argument: “i.Monoj Kumar Biswas vs Principal Commissioner of Income Tax-9, (ITAT, Kolkata) ii. Jitindar singh Chadha vs Pr. CIT-18 (ITAT, Delhi) iii. Pr. CIT-2 vs J. Upendra Construction Pvt. Ltd. (HC, Guj) iv. Narayan Tatu Ranne vs ITO, Ward-27(1) (Mumbai ITAT)”
Per contra, the ld. CIT, DR submitted that in the facts of this case, the AO ought to have referred report of DVO and he shall take decision as per law to determine the actual cost of acquisition of the property sold and to determine the correct amount of long term capital gain earned by the assessee on sale of property.
We after going through the submission made by the parties and material available on record. The case of the assessee is squarely covered by the decision of the coordinate bench of the Tribunal in the case of Monoj Kumar Biswas vs Pr. CIT-9, Kolkata held as under: “10. We have heard rival submissions and carefully perused the material available on record. We note that the assessee has raised the legal issue of jurisdiction of the Ld. Pr. CIT to interfere in the order of the AO. Before we advert to the facts and law involved in this lis before us, let us revisit the law governing the legal issue before us. The assessee has challenged in the first place, the very usurpation of jurisdiction
11 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 by Ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is existing in this case before the Pr. CIT rightfully exercised his revisional power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him;[ because AO has to discharge dual role of an investigator as well as that of an adjudicator ]then in aforesaid any event the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”. 11. In the light of the binding judicial precedent and well established principles, while we examine the legal issue as to whether the Ld. PCIT had made out a case as to invoke the revisional jurisdiction u/s 263 of the Act, we have to examine as to whether the Ld. PCIT’s allegation against the AO’s action/omission can be termed as erroeneous as well as prejudicial to the Revenue. For examining that we have to see the merit of the faults/omission on the part of the AO which according to Ld. PCIT makes the order of AO (order of AO) erroneous. The main fault raised by the Ld. PCIT is the omission on the part of AO not to refer the valuation of asset/flats to Departmental Valuation Officer (DVO) when there was difference in valuation of flats as claimed by the assessee at actual value of Rs. 60 Lakhs and his registered value estimating it at Rs. 67,57,600/- whereas the circle rate of flats as per the Stamp
12 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 Valuation Authority was to the tune of Rs. 80,82,150/-. For that, first we have to examine the legality of the AO accepting the valuation estimated by the registered valuer of the assessee, Shri Sarabjit Dutta at Rs. 67,57,600/- is legal or his omission to refer to DVO the valuation makes the action of AO an erroneous and prejudicial to Revenue. For that let us have a look at section 55A of the Act which empowers the AO to refer to DVO the fair market value of a capital asset in certain condition/situation which reads as under:
“[Reference to Valuation Officer. 55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter 5, the 6 [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 7[Assessing] Officer is of opinion that the value so claimed is less than its fair market value ; (b ) in any other case, if the 7[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 8 of the value of the asset as so claimed or by more than such amount 8 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, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the [Assessing] Officer under sub-section (1) of section 16A of that Act. Explanation.—In this section, "Valuation Officer" has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]” Thus we note that section 55A of the Act as amended by the Finance Act, 2012 w.e.f. 01.07.2012 now provides that for ascertaining the fair market value of capital asset, the AO may refer the valuation of a capital asset to a valuation officer in a case where the value of the asset estimated by the registered value of the assessee in the opinion of the AO is at variance with its fair market value. So, it can be discerned that in order to ascertain the fair market value (hereinafter the FMV) of a capital asset, the AO may refer the valuation of capital asset to a valuation officer (hereinafter the DVO) when he is of the opinion that the value of the asset as claimed by the assessee as estimated by a registered valuer is at variance with its FMV. In other words, if the AO after perusal of the report/estimate of the registered valuer in respect of the asset is of the opinion that the value of the capital asset is not in
13 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 variance with the market value of the asset, then the AO need not refer the valuation of capital asset to a DVO. Here in this case, we note that even though the assessee paid to the vendor only Rs 60 lakhs for the flats as per agreement dated 06 Feb 2013, and since at the time of registration of the flats took place after two years i.e. on 17.02.2015, the valuation of the flats on which stamp duty was paid was at Rs 80,82,150/-. So when called upon by the AO during scrutiny assessment, the assessee contested the adoption of Circle Rate fixed by Stamp Valuation Authority at Rs 80,82,150/- and brought to the notice of AO the Fair Market Value (FMV) of the flats purchased by assessee was much less i.e, Rs 67,57,600/- and for that relied on the estimate prepared by Shri Sarbajit Datta who was holder of Registration Certificate as valuer issued by the Chief Commissioner of Income Tax for the purpose of Wealth Tax Act; and the AO after enquiry has agreed with the estimate prepared by the registered valuer at Rs.67,57,600/-, which is as per the law discussed (supra). At the cost of repetition, we note that Section 55A of the Act empowers the AO to refer the value of a capital asset to Department Valuation Officer (DVO) provided he is not satisfied with the FMV of the capital asset estimated by the registered valuer of the assessee. So, it can be seen that the AO has acted as per the section 55A of the Act and has exercised his discretion as empowered by the law, so it cannot be termed as erroneous. Further the AO’s action of accepting the fair market value of the flats on the basis of the estimate prepared by the registered valuer of the assessee as per section 55A of the Act cannot be held to be perverse because it was based on material i.e. registered valuer’s report. Therefore, in the aforesaid facts the action of the AO cannot be held to be erroneous. 12. Coming to the next issue as to whether the amendment made by Finance Act, 2013 w.e.f. 01.04.2014 in section 56(2)(vii)(b) of the Act is applicable in this case. For that let us have a look at the pre-amended section i.e. before insertion of sub- clause (ii) to clause (b) of sub-section (vii) to section 56(2) of the Act which read as under – “Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :— ……. …… [(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—
14 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; [(b) any immovable property,— (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;”
It is pertinent to note that Sub-clause (ii) (infra) was inserted to Clause (vii)(b) to Sub-section (2) of section 56 by the Finance Act, 2013 w.e.f. 01.04.2014 which reads as under: “(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:” 13. According to the Ld. AR, sub-clause (ii) supra is not applicable in this case. For that his main contention is that the agreement for sale was made on 06.02.2013 (AY 2013-14) wherein the consideration of Rs.60,00,000/- was finalized for the flats. According to the Ld. AR, by registration dated 17.02.2015, the assessee has only completed the agreement made on 06.02.2013. According to the Ld. AR, the character of the sale transaction has not changed, therefore, the date of sale agreement dated 06.02.2013 should be taken and therefore sub-clause (ii) which was inserted to clause (vii)(b) to sub-section (2) of section 56 by the Finance Act, 2013 w.e.f. 01.04.2014 would not apply and the Ld PCIT erred in assuming otherwise. We find force in the submission of Ld. AR. In this context, we need to see when the transfer of flats in question can be seen to have happened in the eyes of law. For that let us look at the definition of transfer in relation of capital asset is given in section 2(47) of the Act. We note that as per sub-clause (ii) of Section 2(47) of the Act, transfer in relation to a capital asset, includes the extinguishment of any rights therein. In Sanjeev Lal v. CIT [2014] 365 ITR 389/225 Taxman 239/46 taxmann.com 300 (SC), the Hon’ble Supreme Court considered the question as to whether the date on which the agreement for sale was executed could be considered the date on which the property was transferred. The Hon’ble Supreme Court held that when an agreement to sell in respect of immovable property is executed, a right in personam is created in favour of the vendee and when such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee gets a legitimate right to enforce a specific performance of the agreement. The Hon’ble Supreme Court, while considering the provisions of Section 2 (47) (ii) of the Act held that if a right in respect of any capital asset is extinguished and that right is transferred to someone else, it would amount to transfer of a capital asset. The Hon’ble Supreme Court held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished. Moreover, Explanation 2 to Section 2(47) of the Act which was added by Finance Act, 2012 with retrospective effect on 1.4.1962 clearly provides that transfer of an asset
15 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 includes disposing of or parting with an asset by way of an agreement. Thus, we note that the process of sale is initiated from the date of sale agreement, the character of the transaction vis-à-vis Income Tax Act should be determined on the basis of the conditions that prevailed on the date of transaction was initially entered into and not on the date of conveyance deed executed, because by executing the conveyance deed, the assessee has only completed the contractual obligation imposed upon it by virtue of the sale agreement. Further, we note that by Finance Act 2013, w.e.f. AY 01.04.2014, the Parliament has accepted the above principle for the purpose of computing deemed income on acquisition of immovable property u/s. 56(2)(vii) by inserting 1st proviso to section 56(2)(vii) which reads as under: “Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty valuer on the date of the agreement may be taken for the purposes of this sub-clause.”
From the aforesaid, it is apparently clear that the transfer of the property took place in the year 2013 when the provision of sub-clause (ii) in Section 56(2)(vii)(b) of the Act was not in existence. According to us, the Ld. PCIT was not justified in finding fault with the AO for not referring the valuation of the flats to the DVO by taking the aid of proviso to Section 56(2)(vii) which refers to case when it falls in sub-clause (b) of clause (vii) of sub-section (2) of Section 56 of the Act. Because, in this case when the assessee had agreed to purchase the flats on 06 Feb 2013, sub- clause (i) of clause (vii)(b) was also not applicable because, the assessee had purchased the flats for a consideration of Rs. 60 Lakhs whereas sub-clause (i) of Section 56(2)(vii)(b) is only attracted when the capital asset is received by an assessee who is an individual or HUF without any consideration. So the Ld. PCIT erred in law by referring to clause (b) of Section 56(2)(vii)(b) to justify his finding that AO ought to have referred the valuation of flats to DVO, which impugned action of Ld PCIT cannot be countenanced. 15. Thus, from the aforesaid discussion since the date of agreement for sale of flats was on 15 Feb 2013, we find that the amendment brought in by Finance Act, 2013 w.e.f. 1.04.2014 by inserting sub-clause (ii) in section 56(2)(vii)(b) of the Act is not applicable in the case of the assessee. And as per the law as was applicable in the case of the assessee before the pre-amendment even sub- clause (i) in section 56(2)(vii)(b) is not applicable since assessee’s case is not a case wherein no consideration was given for receiving the immovable property. And the AO as per section 55A of the Act since satisfied with the estimate prepared by the registered valuer of the assessee has adopted at Rs.67,57,600/- as the fair market value of the capital assets/flat as full value of consideration for the capital asset which action of the AO is his discretion which he has exercised as empowered by the statute. So it cannot be called as a wrong/erroneous order, whereas it is a plausible view. Therefore, the said action of AO to accept the estimated value of the flats at Rs. 67,57,600/- cannot be held to be erroneous. And even if
16 ITA No.394/KOL/2020 Aloke Ray A.Y. 2015-16 the Ld. PCIT has a different view which may be a possible view that cannot be a ground to invoke the revisional jurisdiction u/s 263 of the Act unless the Ld. PCIT is able to show that the AO’s view was unsustainable in law, which is not the case of the Ld PCIT. Without the jurisdictional facts and law existing in this case as discussed (supra), the Ld. Pr. CIT erred in usurping the revisional jurisdiction, so his impugned action is held to be without jurisdiction, therefore, we find that the Ld. Pr. CIT erroneously has usurped the jurisdiction u/s. 263 of the Act, so we are inclined to quash the same. Therefore, the assessee succeeds so, the appeal of assessee is allowed.”
Keeping in view all the facts and circumstances of the case and relying on the decision of coordinate bench in the case of Monoj Kumar Biswas (supra), we are of the view that the revisionary jurisdiction has not been exercised by the Ld. CIT (International Taxation) in accordance with the provisions of the Act. Accordingly we quash the revisionary proceedings initiated u/s 263 of the Act and consequential order passed u/s 263 of the Act. The appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 23.06.2022.
Sd/- Sd/- (RAJESH KUMAR) (SONJOY SARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Kolkata, Dated: 23.06.2022. Biswajit, Sr. P.S. Copy to: 1. The Appellant: Aloke Ray. 2. The Respondent: ACIT (International Taxation), CIR-1(1), Kolkata. 3. The CIT, Concerned, Kolkata 4. The CIT (A) Concerned, Kolkata 5. The DR Concerned Bench //True Copy// [ By Order
Assistant Registrar ITAT, Kolkata Benches, Kolkata