Ita/75/2015 Of C.v.sunny v. The Commissioner Of Income Tax-Ii

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI TUESDAY ,THE 19TH DAY OF MARCH 2019 / 28TH PHALGUNA, 1940 ITA.No. 75 of 2015 AGAINST THE INCOME TAX APPELLATE TRIBUNAL'S APPELLATE ORDER DATED12.02.2015 IN ITA 386/COCH/2014 APPELLANT/APPELLANT/ASSESSEE: C.V.SUNNYCHIRAKKAL HOUSE, XL/676, CHITTUR ROAD, KOCHI-682011. BY ADV. SRI.S.VIJAYAN NAYAR RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAX-II C.R.BUILDING, I.S PRESS ROAD, KOCHI-682018. BY ADV. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.03.2019,THE COURT ON 19.03.2019 DELIVERED THE FOLLOWING: C.K.ABDUL REHIM & R.NARAYANA PISHARADI, JJ. ************************** I.T.Appeal No.75 of 2015 ---------------------------------------------- Dated this the 19[th] day of March, 2019 J U D G M E N T R.Narayana Pisharadi, J Is it mandatory for the Assessing Officer to make areference under Section 55A of the Income Tax Act, 1961(hereinafter referred to as 'the Act') to the Valuation Officer in acase where he is of the opinion that the value of the asset asclaimed by the assessee, which is based on the estimate madeby a registered valuer, is less than its fair market value? This isthe substantial question of law to be answered in this appeal filedby the assessee. 2.The appellant/assessee had purchased 20.50 cents of land in the year 1975. On the same day, his son and wife hadalso purchased land comprised in the same survey number forthe same price. The property purchased by them became capital asset on 06.01.1994. The appellant sold the aforesaid land on19.01.2006. His son also sold the land, which was purchased byhim in the year 1975, on the same day at the same rate of price. 3.The assessee filed return of income for theassessment year 2006-2007 on 18.07.2006 declaring his totalincome as Rs.6,28,480/-. The return was accepted underSection 143(1) of the Act but the assessment was reopenedunder Section 148 of the Act. The assessee then filed a revisedreturn on 03.08.2009 declaring his income as Rs.11,09,320/-.The Assessing Officer completed the assessment under Section143(3) read with 147 of the Act on 31.12.2010 on a total incomeof Rs.1,23,05,580/-. 4.The Assessing Officer found that the cost of acquisitionof the land as on 01.04.1981 shown by the assessee asRs.1,15,385/- per cent, which was later revised by him asRs.94,132/- per cent, cannot be accepted. The Assessing Officerfound that the cost of acquisition of the land owned and sold bythe son of the assessee as on 01.04.1981 had been fixed atRs.1,000/- per cent and therefore, the cost of acquisition of the land owned and sold by the assessee shall also be fixed at thesame rate. 5.The appellant challenged the assessment order passedby the Assessing Officer by filing appeal before the Commissionerof Income Tax (Appeals) but the appeal was dismissed.Thereafter, the appellant filed appeal before the Income TaxAppellate Tribunal. The Tribunal found that there existed nocircumstances to make a reference under Section 55A of the Actas demanded by the appellant. The Tribunal found that the costof acquisition determined in respect of the land owned by the sonof the assessee was approved by this Court in the case filed byhim and therefore, there was no illegality committed by theAssessing Officer and the appellate authority in adopting thesame value as the cost of acquisition in respect of the landowned and sold by the assessee. Accordingly, the Tribunaldismissed the appeal. 6.We have heard Sri.S.Vijayan Nair, learned counsel forthe appellant and also Sri.Christopher Abraham, learnedStanding Counsel for the Income Tax Department. I.T.Appeal No.75/2015 5 6.We have heard Sri.S.Vijayan Nair, learned counsel forthe appellant and also Sri.Christopher Abraham, learnedStanding Counsel for the Income Tax Department. I.T.Appeal No.75/2015 5 7.Learned counsel for the appellant contended thatwhen the Assessing Officer was of the opinion that the value ofthe capital asset estimated by the assessee on the basis of thereport of a registered valuer was less than its fair market value,it was incumbent upon the Assessing Officer to make a referenceunder Section 55A of the Act to the Valuation Officer. Learnedcounsel would further contend that this Court had not approvedthe cost of acquisition in respect of the land owned and sold bythe son of the assessee. On the other hand, learned StandingCounsel for the revenue would contend that properties comprisedin the same survey number were purchased by the assessee andhis son on the same date and at the same rate and therefore, theAssessing Officer was right in adopting the cost of acquisitionfixed in respect of the land owned and sold by the son of theassessee as the cost of acquisition of the land owned and sold bythe assessee also. Learned Standing Counsel would also pointout that the son of the assessee had challenged the value of theland fixed in a case before this Court but this Court did notaccept the challenge. I.T.Appeal No.75/2015 8.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 marketvalue of a capital asset for the purposes of thisChapter, the Assessing Officer may refer thevaluation of capital asset to a Valuation Officer - (a) in a case where the value of the asset asclaimed by the assessee is in accordance with theestimate made by a registered valuer, if theAssessing Officer is of opinion that the value soclaimed is less than its fair market value; (b) in any other case, if the Assessing Officer is ofopinion (i) that the fair market value of the asset exceedsthe value of the asset as claimed by the assesseeby more than such percentage of the value of theasset as so claimed or by more than such amountas may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessaryso to do. ....... ” 9.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 I.T.Appeal No.75/2015 market value". 10.Ascertaining the fair market value of a capital asset isthe object of making reference to a Valuation Officer underSection 55A of the Act. It is only when the Assessing Officer isrequired to ascertain the fair market value of a capital asset, theprovisions of Section 55A of the Act can be invoked. Section 55Aof the Act expressly sets out the circumstances under which andthe purposes for which a reference could be made to ValuationOfficer. There is no question of the Assessing Officer invoking thepower under that provision for any other purpose or under anyother circumstance (See Amiya Bala Paul v. CIT : AIR 2003SC 2702). 11.At this juncture, we may note that as per Section55(2)(b) of the Act, as it stood at the relevant time, cost ofacquisition in relation to a capital asset, where capital assetbecame the property of the assessee before the first day of April,1981, means cost of acquisition of the asset to the assessee orthe 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 thepurpose of indexation. 11.At this juncture, we may note that as per Section55(2)(b) of the Act, as it stood at the relevant time, cost ofacquisition in relation to a capital asset, where capital assetbecame the property of the assessee before the first day of April,1981, means cost of acquisition of the asset to the assessee orthe 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 thepurpose of indexation. 12.On a plain reading of Section 55A of the Act, it can befound that in a case where the Assessing Officer is of the opinionthat the value of the capital asset as claimed by the assessee, inaccordance with the estimate made by a registered valuer, is lessthan its fair market value, he may refer the valuation of the assetto a Valuation Officer. The question, whether it it is mandatory forthe Assessing Officer to make a reference to the Valuation Officerunder Section 55A of the Act in the circumstances providedtherein, is no more res integra. In Dilip N. Shroff v. JointCommissioner of Income Tax: (2007) 6 SCC 392, the ApexCourt has held as follows: “Section 55A of the Act provides for referenceto Valuation Officer.A bare perusal of the saidprovision will clearly go to show that thereference to a Valuation Officer is optional. Thesaid provision is for the purpose of making anestimate. Such reference is made, if in theopinion of the Assessing Officer the value of theassets as claimed by the assessee in accordance with the estimate made by aregistered valuer is less than its fair marketvalue. Clause (b) of Section 55A refers to anyother case which goes to show that theassessee had two options, namely, to get thevalue of the assets prepared through indexvalue or take any other known mode ofvaluation.” (emphasis supplied). The Apex Court has also observed that there can be a genuine difference of opinion between two experts. 13. In the light of the decision of the Hon'ble SupremeCourt referred to above, we hold that it is not mandatory for theAssessing Officer to make a reference under Section 55A of theAct under the circumstance envisaged under clause (a) of thatprovision. 14.However, on the facts of the present case, we are ofthe view that the Assessing Officer should have made referenceunder Section 55A of the Act to the Valuation Officer. In theinstant case, the Assessing Officer had found that the valuationof the capital asset as on the date 01.04.1981 made by theassessee on the basis of the estimate of a registered valuer was less than its fair market value. The Assessing Officer did notmake any reference to the Valuation Officer only on the premiseor assumption that in the case filed by the son of the assessee,this Court had approved the cost of acquisition of the land ownedand sold by him as Rs.1,000/- per cent. The Assessing Officerhad taken it for granted that since the assessee and his son hadpurchased the property in the same survey number on the sameday at the same rate of price, the cost of acquisition would notbe different in respect of those two lands and therefore, it wasnot necessary for making a reference under Section 55A of theAct. 15.We are of the view that the Assessing Officer and theappellate authority and the Tribunal have misread the decision ofthis Court in the case filed by the son of the assessee. Learnedcounsel for the appellant has produced a copy of the judgment ofthis Court in the case I.T.Appeal No.94/2009 filed by the son ofthe assessee, for our perusal. On a perusal of this judgment, wefind that this Court had not approved or disapproved thevaluation of the capital asset made by the Assessing Officer in 15.We are of the view that the Assessing Officer and theappellate authority and the Tribunal have misread the decision ofthis Court in the case filed by the son of the assessee. Learnedcounsel for the appellant has produced a copy of the judgment ofthis Court in the case I.T.Appeal No.94/2009 filed by the son ofthe assessee, for our perusal. On a perusal of this judgment, wefind that this Court had not approved or disapproved thevaluation 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 referenceunder Section 55A of the Act at the first appellate stage. Heraised such a contention only at the appellate tribunal stage andfor that reason this Court did not interfere with the valuation ofthe capital asset made by the Assessing Officer. The judgment inI.T.Appeal No.94/2009 also does not indicate that the son of theassessee had produced report of any registered valuer before theAssessing Officer. Therefore, the authorities under the Act werenot justified in holding that this Court had approved the cost ofacquisition of the land owned and sold by the son of theassessee, as Rs.1,000/- per cent. 16.In the present case, the situation is different. Evenbefore the Assessing Officer, the assessee had produced thereport of a registered valuer and the assessee had based hisclaim on the estimate made by the registered valuer. TheAssessing Officer has shown no reason whatsoever for rejectingthe valuation made by the registered valuer except the wrongnotion entertained by him that the cost of acquisition of land owned and sold by the son of the assessee was approved by thisCourt as Rs.1,000/- per cent. 17.Learned Standing Counsel for the revenue wouldcontend that even if a reference had been made under Section55A of the Act, the valuation made by the Valuation Officer wouldnot have been different from the valuation made in the case ofthe land owned and sold by the son of the assessee. But it is nota sufficient ground for not complying with the procedureprescribed under the Act. It may be true that after exhaustingthe procedure prescribed under the Act, the consequence may bethe same. But, on that ground, the procedure prescribed underthe statute cannot be done away with. Moreover, though thelands owned and sold by the assessee and his son werecomprised in the same survey number, it is stated that the landowned and sold by the assessee was abutting the NationalHighway. Value of land may differ on the basis of its location.Even if a property is comprised in the same survey number, theportion of the property which abuts a road may fetch more pricethan the portion of the property which has got no such advantage. 18.On the basis of the discussion above, we find that in acase where the Assessing Officer is of the opinion that the valueof the capital asset claimed by the assessee, on the basis of theestimate made by a registered valuer, is less than its fair marketvalue, it is not mandatory for the Assessing Officer to make areference 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 AssessingOfficer should have made a reference under Section 55A of theAct. 19.Consequently, the appeal is allowed. The assessmentorder dated 31.12.2010 passed by the Assessing Officer and therevised order dated 15.06.2011, as confirmed by the orders ofthe Commissioner of Income Tax (Appeals) and the Income TaxAppellate Tribunal, are set aside. The matter is remitted to theAssessing Officer concerned for fresh consideration. TheAssessing Officer shall make reference under Section 55A of the I.T.Appeal No.75/2015 Income Tax Act, 1961 regarding valuation of the capital asset of the assessee and thereafter, pass fresh assessment order inaccordance with law. No costs in the appeal. (sd/-) C.K.ABDUL REHIM, JUDGE 19.Consequently, the appeal is allowed. The assessmentorder dated 31.12.2010 passed by the Assessing Officer and therevised order dated 15.06.2011, as confirmed by the orders ofthe Commissioner of Income Tax (Appeals) and the Income TaxAppellate Tribunal, are set aside. The matter is remitted to theAssessing Officer concerned for fresh consideration. TheAssessing Officer shall make reference under Section 55A of the I.T.Appeal No.75/2015 Income Tax Act, 1961 regarding valuation of the capital asset of the assessee and thereafter, pass fresh assessment order inaccordance with law. No costs in the appeal. (sd/-) C.K.ABDUL REHIM, JUDGE (sd/-) jsr/15/03/2019 R.NARAYANA PISHARADI, JUDGE I.T.Appeal No.75/2015 15 I.T.APPEAL NO.75 OF 2015 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A : TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2010. ANNEXURE-A1:TRUE COPY OF THE COVERING LETTER DATED 3.8.2009 ALONGWITH REVISED RETURN WITHOUT ENCLOSURES. ANNEXURE A2:TRUE COPY OF THE RECTIFICATION ORDER WAS PASSED UNDERSECTION 154 ON 15.6.2011. ANNEXURE-B:TRUE COPY OF THE ORDER OF COMMISSIONER (APPEAL) DATED30.6.2014 ANNEXURE-C:CERTIFIED TRUE COPY OF THE ORDER DATED 12.2.2015 OFTRIBUNAL RESPONDENT'S ANNEXURES: NIL TRUE COPY PS TO JUDGE