Section 55A Amendment Operates Prospectively — DVO Reference Quashed for Pre-01.07.2012 Transactions

Case Background: Mukeshbhai Ramubhai Ahir Vs ITO (ITAT Surat)

The Income Tax Appellate Tribunal, Surat, recently adjudicated an appeal arising from an order passed by the Commissioner of Income Tax (Appeals)-2, Surat, pertaining to Assessment Year 2012-13. The central issue revolved around whether the Assessing Officer was legally empowered to refer the valuation of a capital asset to the Departmental Valuation Officer (DVO) in respect of a land transaction concluded prior to the amendment of Section 55A(a) of the Income Tax Act, 1961.

The assessee, who had sold agricultural land on 06.09.2011, computed long-term capital gains by adopting the fair market value (FMV) as on 01.04.1981 at ₹350 per square metre, relying upon a valuation report furnished by a Government-approved registered valuer. The Assessing Officer, however, took the view that this valuation was inflated and consequently referred the matter to the DVO for an independent assessment. The DVO pegged the FMV at a significantly lower figure of ₹48 per square metre.

Acting on the DVO's report, the Assessing Officer recomputed the long-term capital gains and made an addition of ₹92,22,624/-, after granting a deduction under Section 54B of the Income Tax Act, 1961.

Proceedings Before the CIT(A)

During first appellate proceedings, the assessee attempted to strengthen his position by placing on record a fresh valuation report from another registered valuer, Shri Ramesh Jain, who estimated the FMV of the land as on 01.04.1981 at ₹225 per square metre. However, the Commissioner of Income Tax (Appeals) declined to admit this additional valuation evidence and proceeded to uphold the addition made by the Assessing Officer in its entirety.

The assessee, aggrieved by this twin rejection — both of the primary valuation argument and the additional evidence — preferred a further appeal before the ITAT, Surat.

Note: At the commencement of proceedings before the Tribunal, the assessee's authorized representative expressly stated that Ground No. 1, which related to the validity of reopening of assessment under Section 147 of the Income Tax Act, 1961, was not being pressed. Accordingly, that ground was dismissed at the threshold.

The Statutory Framework: Pre and Post-Amendment Position

Section 55A of the Income Tax Act, 1961 empowers the Assessing Officer to refer the valuation of a capital asset to a Valuation Officer for the purposes of determining capital gains liability. The provision, as it stood prior to the Finance Act, 2012, read as follows in the relevant clause: