Amendment to Section 55A(a) regarding fair market value variance applies prospectively from July 1, 2012.

In brief

The question

1. Whether the Assessing Officer (AO) could validly refer the matter to a Valuation Officer under Section 55A(a) when the value claimed by the assessee was higher than the FMV estimated by the AO.

The court held

The AO exceeded jurisdiction because the 2012 amendment is prospective and the un-amended Section 55A(a) did not permit reference when the assessee's valuation was higher than the AO's estimate

It also directed

The court allowed the petition and quashed the impugned notice dated March 30, 2017

The issue regarding the validity of a notice issued to a dead person was left open as the petition was decided on the merits of Section 55A

01Facts

The petitioner (assessee) sold land in Daman on June 24, 2009, for ₹92,65,680

p. 1

For computing Capital Gains for A.Y. 2010-11, she adopted a Fair Market Value (FMV) as of April 1, 1981, at ₹81/sq. mtr. based on a registered valuer's report

p. 2

She passed away on May 21, 2012

p. 2

On March 30, 2017—the last day of limitation—the Respondent issued a notice under Section 148 to reopen assessment, alleging that the FMV in 1981 was only ₹1/sq. mtr. based on a reverse calculation of a 1982 sale instance

p. 2, 4

The petitioner's representative challenged the reopening, arguing that the law did not permit a reference to a Valuation Officer when the assessee’s declared value was higher than the department’s estimate

p. 3

02Issues

i.1. Whether the Assessing Officer (AO) could validly refer the matter to a Valuation Officer under Section 55A(a) when the value claimed by the assessee was higher than the FMV estimated by the AO.

pp. 7/para. 8-10

ii.2. Whether the amendment to Section 55A(a) by the Finance Act, 2012, has retrospective application to Assessment Year 2010-11.

p. 9/para. 10

03Law Applied

The court applied Section 55A of the Income Tax Act, 1961, which governs references to Valuation Officers

p. 7

The court relied on the un-amended Section 55A(a), which permitted a reference only if the AO believed the value claimed by the assessee was less than the FMV

p. 8

Early Section 55A does not allow a downward revision of value declared via a registered valuer [Hiaben Jayantilal Shah v. ITO (2009)]

p. 3, 7

The 2012 amendment to Section 55A (substituting "less than" with "at variance with") is prospective from July 1, 2012, and not clarificatory or retrospective [CIT v. Puja Prints (2014)]

pp. 9-10

Provisions in the judgment · 8 · Linked ones open on LawLens

Wealth-tax Act, 1957 Section 2 Section 16 Section 23 Section 24 Section 34 Section 35 Section 37 Section 164

04Reasoning

The court reasoned that for A.Y. 2010-11, the un-amended Section 55A(a) applied

p. 9

Under this provision, a reference to a Valuation Officer is only jurisdictional if the AO opines that the assessee's valuation is "less than" the FMV. Here, the assessee claimed a higher FMV (₹81) to reduce capital gains, while the AO sought to lower it to ₹1; thus, the assessee’s value was not "less than" the market value, but rather higher

p. 9

Consequently, the AO lacked the statutory authority to disturb the valuation

¶ 9

The court rejected the Revenue's argument on the 2012 amendment, noting that the Parliament specifically made the change effective from July 1, 2012, without retrospective intent

p. 10

Since the statutory precondition for reopening based on valuation was not met, the notice lacked legal basis

p. 10

05Holding

The AO exceeded jurisdiction because the 2012 amendment is prospective and the un-amended Section 55A(a) did not permit reference when the assessee's valuation was higher than the AO's estimate

p. 10

The court allowed the petition and quashed the impugned notice dated March 30, 2017

p. 11

The issue regarding the validity of a notice issued to a dead person was left open as the petition was decided on the merits of Section 55A

p. 10

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