By TIOL News Service

AHMEDABAD, OCT 17, 2016: THE issue is - Whether the validity of valuation done by the DVO can be examined in a writ petition. NO is the answer.

Facts of the case

The assessee is a co-owner of a property which was sold by the assessee and the other co-owners. For the Assessment Year 2005-2006, the assessee filed a return in which he declared that he had received his share of sale proceeds of the said property to the extent of Rs.2,13,50,000/- and offered a sum of Rs.55,91,600/- by way of long term capital gain after availing indexed cost of the property. While processing the assessee's return for the Assessment Year 2006-2007, the Assessing Officer noticed that the sale deed was actually registered with the local Sub-Registrar at Jodhpur in July 2005. The Registering Authority had valued the property at Rs.15.99 crores (rounded off). He, therefore, called upon the assessee to state why the valuation adopted by the Stamp Valuation Authority should not be taken as the market value of the property and the capital gain should not be worked out accordingly. Assessing Officer passed order taxing the assessee to capital gain on 1/4th of the difference between the valuation adopted by the Stamp Valuation Authority and the declared sale consideration of Rs.7.75 crores. The Commissioner passed his revisional order under Section 264 directing the Assessing Officer to take the year of taxation of capital gains as assessment year 2005-06 and to adopt the indexed cost of acquisition by taking the registered value as on 01.04.1981 as furnished by the assessee and refer the valuation of the property as on the date of transfer i.e. 18.03.2005 to the Departmental Valuation Officer and adopt the said value as the full value of consideration for computation of capital gains. The Assessing Officer issued a notice to reopen the assessee's assessment for the Assessment Year 2005– 2006. The Assessing Officer communicated two separate sets of reasons to the assessee. Firstly, he conveyed that CIT had directed to tax capital gains in assessment year 2005-06 instead of A.Y. 2006-07 after referring the case to the Departmental Valuation Officer and adopt the said value as the full value of consideration for computation of capital gains. In a separate letter, he conveyed that the sale price of house property taken for working of Long Term Capital Gain was lesser than the fair market value. The case was subsequently referred to the valuation cell for arriving at the fair market value of the property on the date of sale. The fair market value of the property shall be considered as per valuation report while working of Long Term Capital Gain. Assessee’s objections were rejected by the Assessing Officer. Assessing Officer took the value of the property on the date of sale as Rs.12,27,80,380/- and adopted the same for the purpose of computing the assessee's capital gain tax liability on the basis of the difference between the valuation assessed by the DVO and declared sale consideration. The Assessing Officer added 1/4th share thereof towards the share of the assessee.

Having heard the parties, the Court held that,

+ the order of the Commissioner dated 26.6.2009 was not challenged by the assessee for a long time. Even when the Assessing Officer re-opened the assessment of the assessee for the year 2005–2006 and called for the DVO's report, the assessee did not question the legality of the order of the Commissioner. He, in fact, participated in the reassessment and questioned the validity of the DVO's report. Effectively, the assessee acquiesced in the order of the Commissioner. It was only when the Assessing Officer passed the order of assessment on 9.12.2010 for the Assessment Year 2005–2006 that the assessee filed the present petition in which one of the challenges is made to the revisional order passed by the Commissioner. In any case, the assessee cannot decide to challenge the order passed by the authority depending on its consequential effect on him. In other words, the assessee cannot contend that, if the consequences of the order of the Commissioner are favourable to him, he would not challenge the same, and if the order, however, acts harshly, he may challenge it later;

++ the Commissioner substantially accepted the grievances of the assessee. The assessee's case that the income did not arise during the Assessment Year 2006–2007 but 2005-06 was accepted. As a natural corollary, the income as contended by the assessee himself had to be accounted in the year 2005–2006. The assessee had also contended that there could be no nil cost of acquisition, a contention which the Commissioner accepted. It is only on the background of such facts, the Commissioner also provided that the Assessing Officer would obtain a report from the DVO and adopt the valuation in such report for the purpose of computing the assessee's capital gain;

++ the assessee had all along in the assessment for the Assessment Year 2006-2007 as well as in the re-opened assessment for the Assessment Year 2005-2006 questioned the stamp duty valuation. In terms of Section 50C, therefore, even otherwise, the Assessing Officer was required to call for DVO's report. The direction of the Commissioner in this regard must be seen as passing remarks since the issue did not directly arise before him, but, in any case, was in consonance with the provisions contained in Section 50C of the Act. His later direction for accepting the valuation of the DVO for the purpose of capital gain also must likewise be seen as passing remarks. He was perhaps under the presumption that the valuation of the DVO would be lower than that adopted by the Stamp Valuation Authority, a presumption which eventually turned out to be true;

++ when the Commissioner accepted the assessee's contention that the income did not pertain to the Assessment Year 2006-2007 but pertained to Assessment Year 2005-2006, he merely accepted the assessee's ground. His direction, therefore, not to tax the income for the Assessment Year 2006-2007 but could be tax only for the year 2005-2006, therefore, must be seen in light of the assessee's own contention. The direction to adopt a correct cost of acquisition of the property was also in favour of the assessee by accepting his contention. The further direction for obtaining DVO's report, in any case, was a passing remark, and as noted, flowed from the provisions contained in Section 50C of the Act;

++ the validity of the valuation by the DVO, the same obviously cannot be examined in a writ petition jettisoning the appeal provisions contained in the Act. The factors of the property being under litigation, there being encumbrances and tenancy was not lost sight of by the DVO. The report elaborately refers to these factors before coming to the final assessment of the valuation. Whether such assessment is correct or not, cannot be a subject matter of a writ petition. The assessee relegated to avail the appellate remedy in which the validity of the report of the DVO would also be the subject matter.

(See 2016-TIOL-2484-HC-AHM-IT)