SHRI BALVANTBHAI NAROTTAMBHAI PATEL,,SURAT vs. THE ITO, WARD-2(2)(1),, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 1440/Ahd/2017 (Assessment Year: 2012-13) (Virtual hearing) Shri Balvantbhai Narottambhai Patel, I.T.O. 129, Kesariu Faliyu Masma Olpad, Ward 2(2)(1), Vs. Surat. Surat. PAN: BKAPP 1881 K Appellant/ assessee Respondent/ revenue

Assessee represented by Shri S.N. Divatia, A.R. Department represented by Shri Anurag Dubey, Sr.DR Date of hearing 19/07/2022 Date of pronouncement 12/09/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-2, Surat (in short, the ld. CIT(A) dated 05/04/2017 for the Assessment year 2012-13. The assessee has raised following grounds of appeal:

“1.1 The order passed u/s 250 on 05/04/2017 for A.Y. 2012-13 by CIT(A)-2, Surat upholding the reference u/s 55A to Valuation Officer, FMV as on 1/4/1981 at Rs. 46,350/- and LTCG at Rs. 38,03,718/- made by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submission made and evidence produced by the appellant with regard to the impugned addition.

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO 2.1 The Ld. CIT(A) has grievously erred in law and on facts in confirming that the reference of Valuation Officer u/s 55A was valid, his valuation as on 01/4/1981 at Rs. 46,350/- was fair and correct. 2.2 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought not to have upheld that the reference to Valuation Officer u/s 55A was valid; his valuation as on 01/4/1981 at Rs. 46,350/- was fair and correct, thereby rejecting the registered valuer’s report and objections raised by the appellant to the valuation of VO. 3.1 The Ld. CIT(A) has erred in law and on facts in rejecting the additional ground of appeal raised by the appellant relating to exemption u/s 54B. It is, therefore, prayed that the LTCG of Rs. 38,03,718/- upheld by the CIT(A) may kindly be deleted.” 2. Brief facts of the case are that the assessee is an individual filed his return of income on 29/03/2014 declaring total income of Rs. 1,97,710/-. The case of assessee was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee along with his two co- owners has sold a piece of land on 03/08/2011 admeasuring 29,642 Sq. Meters out of block No. 615 and revenue survey number (R.S. No.) 780, village Masma, Taluka-Olpad, District- Surat for a sale consideration of Rs. 1.206 crores and the sale deed was registered on 09/11/2011. The assessee being 1/3rd share holder of the property, therefore, he received consideration of Rs. 40.00 lacs. On further perusal of computation of income and working of long term capital gain, the Assessing officer noted

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO that the assessee has claimed that the said land as ancestral land and fair market value of land as on 01/4/1981 was estimated at Rs. 15.00 lacs on the basis of registered valuer report for the purpose of calculating long term capital gain. The cost of acquisition for assessee’s share was estimated at Rs. 5.00 lacs and after indexation, long term capital gain of Rs. 75,000 was offered by assessee in the return of income. The Assessing officer on perusal of valuation report, was of the view that the registered valuer has shown the value at the higher side as on 01/4/1981. The Assessing Officer made reference to district valuation officer (DVO) under Section 55A of the Income Tax Act, 1961 (in short the Act) vide reference dated 26/03/2015. The DVO valued the fair market value of land at Rs. 46,350/- as on 01/4/1981. The assessee being 1/3rd owner of land, so the cost of land of assessee’s share comes to Rs. 15,450/- and on applying the indexation cost, the Assessing officer was of the view that the assessee earned long term capital gain of Rs. 38,78,718/-. 3. The Assessing officer by narrating his aforesaid view, issued show cause notice to the assessee. The Assessing officer in para 5 of the assessment order, recorded that the assessee filed his written reply on 30/03/2015. The contents of reply are not recorded therein. The Assessing Officer recorded that reply of assessee was perused carefully but not found tenable. The assessee adopted the fair market value @ Rs. 100 per 3

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO Square meter. However, the government valuer estimated the fair market value at Rs. 3.09 per square meter. The Assessing officer computed the long term capital gain on the basis of report of government valuer in the following manner: (i) Total sale consideration received on sale of land Rs. 1,20,00,000/- (ii) Share of the assessee out of total consideration Rs. 40,00,000/- (33%) (iii) Fair Market value of the land ascertained by Valuation officer as on 01/04/1981 Rs. 46,350/- (iv) Cost of acquisition for share of Assessee Rs. 15,450/- (v) Indexed cost = 15,450 x 785 Rs. 1,21,282/- 100 (vi) Total Long Term Capital gain = Rs. 38,78,718/- (40,00,000 – 1,21,282) On the basis of above working, the Assessing Officer made addition of Rs. 38,03,718/- while passing the assessment order on 30/3/2015. 4. Aggrieved by the additions of long–term capital gain of Rs. 38,78,718/- in the assessment, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. Part of the written submissions is extracted in para 5 of order of ld. CIT(A). In the written submission, the assessee stated that the Assessing Officer ought not to have made reference to Departmental Valuation Officer (DVO) under Section 55A of the Act for determining value of land as on 01/4/1981. Reference so made is illegal and against the principle of natural justice. The assessee submitted that reference so made on the ground that the law existing at relevant time did not permit the Assessing Officer to make reference to DVO. The Assessing Officer could make the

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO reference to valuation of the capital asset to DVO on the cases where the asset claimed by assessee is in accordance with estimate made by registered valuer. However, the Assessing Officer of the opinion that the value so claimed is less than fair market value or where the Assessing officer was of the opinion that the fair market value of asset exists the value of asset by more than Rs. 25,000/- or 15% of value claimed by assessee whichever is less. As per provisions of Section 55A(b)(i) r.w.Rule 111AA and where the Assessing Officer is of the opinion that having regard to the nature of asset and relevant circumstances it is necessary to make reference to valuation officer. In other words, the Assessing Officer was entitled to make reference to valuation officer only if the Assessing Officer was of the opinion that the value of asset claimed by assessee is less than the fair market value. The assessee claimed value of property as per the registered value’s report, therefore, clause (a) of Section 55A could not be made applicable and clause (b) of Section 55A can be invoked only in any other case, namely when value of asset is not supported by estimate made by registered valuer. The assessee further stated that the amendment made in Section 55A is effected from 01/7/2012 and is not retrospective in nature. Hence, for the period prior to 01/07/2012, the law is existed during the assessment year to be taken into consideration. The assessee also relied on the case law of Hon’ble 5

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO Bombay High Court in the case of CIT Vs Puja Prints (2014) 98 DTR (Bom) 177 wherein it was held that Section 55A(a) of the Act clearly states that at the relevant time provided that a reference could be made to the DVO only when the value adopted by the assessee was less than the fair market value. The value adopted by the assessee was much more than the value adopted by the DVO. 5. Before, ld CIT(A) , the assessee also claimed deduction under Section 54B on the ground that the assessee purchased another agricultural land on the sale of agriculture land, within two years after the date of transfer of agricultural land and filed application for admission of additional evidence to substantiate the additional ground of appeal. The ld. CIT(A) referred the submission of assessee to the Assessing Officer for seeking remand report. The Assessing Officer furnished his remand report dated 29/11/2016. In the remand report, the Assessing Officer objected against the claim of deduction under Section 54B on the ground that at the time selling of original asset, the permission was granted for non-agriculture purpose and that the assessee has not claimed such deduction while filing return of income. On the reference to the DVO, the Assessing officer submitted that the assessee has not filed any objection either during the assessment or before the valuation officer. The ld. CIT(A) provided the copy of remand report to the assessee. The assessee filed his reply on 6

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO 17/03/2017 as recorded in para 6.1.4 of order of ld. CIT(A). the assessee objected to the remand report furnished by the Assessing Officer and contended that the Assessing Officer has reported the stand taken by her while framing the assessment order. 6. The ld. CIT(A) after considering the submission of assesse and remand report furnished by Assessing Officer, upheld the addition of long term capital gain by taking a view that the Assessing Officer can make a reference to the valuation officer to ascertain the fair market value of capital asset under Section 55A. This section was amended w.e.f. 01/7/2012. Prior to the amendment before 01/7/2012, such reference can be made when the Assessing Officer was of the view that the value disclosed by assessee was less than the fair market value. In some cases, it has been held by the Hon’ble Court that when the assessee exercised his option to substitute fair market value of the capital asset as on 01/4/1981, for the cost of asset and if so, the Assessing Officer was of the view that such fair market value declared by assessee was more, he cannot make a reference to valuation officer. The amended provision is applicable from 01/7/2012 meaning thereby the Assessing Officer can make reference to the valuation officer in respect of any assessment pending after 01/7/2012, thus the contention of assessee that reference to DVO is erroneous and misplaced. The reference was rightly made by 7

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO Assessing Officer as per amended provisions to Section 55A of the Act. On the value suggested/adopted by the government valuer, the ld. CIT(A) held that the valuation officer in his report has mentioned that the report of registered valuer is not reliable. As he has adopted rate @ Rs. 100 per Square meter as on 01/4/1981 without substantial proof and no comparable instances were referred. The assessee has not filed any objection against the proposed addition by the assessing officer. 7. On the additional ground of deduction under Section 54B of the Act, the ld. CIT(A) held that this ground of appeal does not arise from the assessment order. The grounds of appeal can be raised only on the issue which has been examined by Assessing Officer during the assessment proceedings. This issue was neither claimed in the return of income nor claimed during the assessment proceedings. Therefore, grounds cannot be raised at the appellate stage and thereby dismissed the appeal of assessee. Further aggrieved, the assessee has filed the present appeal before this Tribunal. 8. We have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue and have gone through the orders of lower authorities carefully. Ground No. 1 &2 relates to addition of long term capital gain of Rs. 38,03,718/- on the basis of report of DVO on the 8

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO reference under section 55A. The ld. AR of the assessee submits that the assessee sold agricultural land along with his co-owner vide registered sale deed executed on 03/8/2011 which was registered with Sub- Registrar, Olpad on 09/11/2011. The assessee adopted the fair market value @ Rs. 100 per square meter as on 01.041981, on the basis of report of registered valuer. During the assessment, the Assessing Officer made reference to the DVO. The DVO suggested the rate of land as on 01/4/1981 at Rs. 3.09 per square meter. The ld. AR submits that the Assessing Officer was not entitled to make the reference to the DVO for ascertaining fair market value of the asset as the amended provision of Section 55A is not applicable on the transaction of assessee, as the assessee has sold his asset in 2011 and the amended provision of Section 55A is applicable from 01/7/2012. The ld. AR of the assessee submits that the grounds of appeal raised by assessee is covered by the series of decisions including the decision of Ahmedabad bench in the case of Kantilal Manilal Patel Vs ITO in ITA No. 2536/Ahd/2017 (A.Y. 2012-13) dated 08/07/2019 wherein the Tribunal by relying on the decision of Hon’ble Gujarat High Court in CIT Vs Gauranginiben S. Shodhan 45 taxmann.com 356 (Guj) held that if the value declared by the assessee as on 01/4/1981 is more than fair market value assumed by Assessing Officer for making a reference to the DVO then he cannot make reference 9

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO under Section 55A wherein the transaction of transfer of asset took place prior to 01/7/2012. 9. On the other hand, the ld. Sr. for the Revenue submits that the ld. CIT(A) while considering the contention of assessee has clearly held that the Assessing Officer could make reference to the valuation officer in respect of any assessment pending before him after 01/7/2012. 10. We have considered the rival submissions of both the parties and perused the material placed on record. We find that there is no dispute that the assessee has transferred the impugned land prior to 01/7/2012. The assessee while computing the capital gain adopted the fair market value then the value adopted by Assessing Officer. We find that on similar ground of appeal, the Coordinate Bench of Ahmedabad Tribunal in Kantilal Manilal Patel Vs ITO (supra) almost all similar fact while following the decision of Hon’ble Gujarat High Court in CIT Vs Gauranginiben S. Shodhan, Indl. (supra) passed the following order: “10. As far as merit of the addition is concerned, we find that the assessee has calculated long term capital by taking cost of acquisition as on 1.4.1981 on the basis of registered valuer’s report. Hon’ble Gujarat High Court in the case of CIT Vs. Gauranginiben S. Shodhan, Indl., 45 taxmann.com 356 (Guj) has observed that if value declared by an assessee as on 1.4.1981 is more than the fair market value assumed by the AO for making a reference to the DVO, then he cannot make a reference under section 55A. The discussion made by the Hon’ble Gujarat High Court in this connection reads as under: 10

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO “15. Coming to the question of reference to DVO for ascertaining the fair market value as on 1.4.1981 also, we find that such reference was not competent. We have noticed that prior to the amendment in section 55 A with effect from 1.7.2012 in a case, the value of the asset claimed by the assessee is in accordance with the estimate made by the Registered Valuer, if the Assessing Officer was of the opinion that the value so claimed was less than its fair market value as on 1.4.1981. It would not be the case of the Assessing Officer that the value of the asset shown as on 1.4.1981 was less than the fair market value. Such clause, 'therefore, as it stood at the relevant time, had no application to the valuation as on 1.4.1981. We are conscious that with effect from 1.7.2012, the expression now used in clause (a) of section 55A is "is at variance with its fair market value". The situation may, therefore, be different after 1.7.2012. We are, however, concerned with the period prior thereto. Clause (b) of section 55A is in two parts and permits a reference to DVO if the Assessing Officer is of the opinion that (i) the fair market value of the asset exceeds the value of the asset so claimed by the assessee by more than such percentage of the value of the asset 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. Sub-clause(i) of clause (b) also for the same reasons recorded above, would have no bearing on the fair market value as on 1.4.1981. The Assessing Officer had not resorted to sub-clause(ii) of clause (b). In any case, clause (b) would apply where clause(a) does not apply since it starts with the expression "in any other case". In other words if assessee has relied upon a Registered Valuer's Report, Assessing Officer can proceed only under clause (a) and clause (b) would not be applicable.

"10. Under clause(a) of sec. 55A of the Act under the Assessing Officer is entitled to make the reference to the Valuation Officer in a 11

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO case where the value of the asset as claimed by the assessee is in accordance with the estimate made by the Registered Valuer, if the Assessing Officer is of the opinion that the value so claimed is less than the fair market value. In any other case, as provided under clause(b) of Sec. 55 A of the Act, the Assessing Officer has to record an opinion that (i) the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage or by more than such an amount as may be prescribed; or (ii) having regard to the nature of the asset and other relevant circumstances, it is necessary to make such a reference." 17. In the result, we see no reason to interfere. However, we have given our independent reasons and should not be seen to have confirmed the reasonings adopted by the Tribunal in the impugned judgment.”

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO retrospective effect. This submission is in face of the fact that the 2012 amendment was made effective only from 1 July 2012. The Parliament has not given retrospective effect to the amendment. Therefore, the law to be applied in the present case is Section 55A(a) of the Act as existing during the period relevant to the Assessment Year 2006-07. At the relevant time, very clearly reference could be made to Departmental Valuation Officer only if the value declared by the assessee is in the opinion of Assessing Officer less than its fair market value.” 11. Therefore, respectfully following decision of Hon’ble jurisdictional High Court in the case of CIT Vs. Gauranginiben S. Shodhan, 45 taxmann.com 356 (Guj) as well Bombay High Court judgment (supra), we are of the view that in the present year neither with help of amended proviso of section 55A a reference can be made nor under the old proviso, because value declared by the assessee as on 1.4.1981 is far more than fair market value. The ld.AO is therefore directed to re- compute capital by adopting fair market value adopted by the assessee as on 1.4.1981 on the basis of registered valuer’s report. This ground of appeal is allowed.” 12. Since the assessee has transferred his land prior to 1.7.2012, even the amended proviso is not applicable on merit also. Addition by reducing the cost of acquisition on the basis of DVO’s report cannot be made. In view of the above discussion, we allow the appeal of the assessee and quash the re- assessment order.” 11. Considering the aforesaid factual and legal discussion and by respectfully following the decision of Hon’ble Gujarat High Court in CIT Vs Gauranginiben S. Shodhan (supra) and the decision of Coordinate Bench of Ahmedabad Tribunal in Kantilal Manilal Patel Vs ITO (supra), we hold

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO that the assessee has transferred his land prior to 01/7/2012 and the amended provision of Section 55A is not applicable on the facts of assessee, thus, the reduction in the cost of acquisition on the basis of report of DVO cannot be made applicable on the assessee. Thus, the assessing officer is directed to delete the additions of long term capital of Rs. 38,03,718/-. Resultantly, the grounds No. 1.1 to 2.2 of the appeal are allowed. 12. Ground No. 3 relates to rejecting an additional ground for deduction under Section 54B of the Act. The ld. AR of the assessee submits that before ld CIT(A), the assessee has raised additional ground of appeal and filed additional evidence before the ld. CIT(A). The additional ground of appeal was rejected by the ld. CIT(A) by taking a view that this ground of appeal was not examined by the Assessing Officer nor it was claimed in the return of income or during the assessment proceedings. The ld. AR submits that the facts relating to admission of additional evidence claim/ground are emanating from the records of lower authorities and the assessee has claimed deduction for the first time before the first appellate authority. Though, the Assessing Officer has no jurisdiction/authority to admit the additional ground of appeal or fresh claim in absence of revised return of income, however, this power of first appellate authority or

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO Tribunal is not restricted to admit additional claim or additional ground of appeal. 13. On the other hand, the ld. Sr. DR for the revenue has supported the order of ld. CIT(A) and submitted that no such claim was raised before the Assessing officer nor revised return of income was filed by the assessee. 14. We have considered the rival submissions of both the parties and find that the assessee has raised additional ground of appeal for the first time before the ld. CIT(A) on the ground that the assessee has purchased another agricultural land within two years from the sale of agricultural land and that land sold by the assessee soon before transfer was used for agriculture propose. We find that the assessee has raised additional ground of appeal for seeking deduction under section 54B for the first time before ld CIT(A) by taking plea that such claim was neither made at the time of filing return of income or even at the time of filing appeal. However, the assessee in its application contended that the land sold by the assessee was agriculture land and was used as such and filed the statement of accounts to justify the facts. Thus, in our view the facts necessary for consideration of additional claim was available on record. Considering the fact that the assessee has raised this ground first time before the ld. CIT(A), therefore, we find merit in the submissions of ld AR for the assessee that the appellate authorities have jurisdiction to admit 15

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO the additional grounds/ claim, thus, we admit the additional grounds of appeal. Our view gets support from the decision of Hon’ble Apex Court in Goetz India Ltd. (284 ITR 323 SC). 15. Further, the Hon’ble Jurisdictional High Court in CIT Vs Mitesh Impex (2014) 367 ITR 85 (Guj)/ 46 taxmann.com 30 (Guj) and Hon’ble Bombay High Court in CIT Vs. Prithivi Brokers & Share Holders (P) Ltd. 349 ITR 336/208 Taxman 498 (Bom) also held that Tribunal have jurisdiction to consider the additional claim and discretion to permit additional ground by way of additional claims. Such claims need not to be those which became available on account of change of circumstances of law but which was even available when return was filed. (Emphasis added by us). Considering the aforesaid facts and the legal position, we admit the additional ground of appeal of the assessee for just decision of the case under section 54B and direct the assessing officer to examine the fact and grant the benefit to the assessee under section 54B, as per law. Needless to direct that before passing the order the assessing officer shall grant opportunity to the assessee to file required evidence to substantiate his ground of appeal. In the result, ground No. 3.1 of appeal is allowed for statistical purpose.

ITA No.1440/Ahd/2017 Sh. Balvantbhai Narottambhai Patel Vs ITO 16. In the result, this appeal of assessee is partly allowed. Order pronounced in the open court on 12th September, 2022 in open court and result was also placed on notice board.

Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 12/09/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By order

Sr.Private Secretary, ITAT, Surat