Note on Reference to DVO and related issues

Under the provisions of incometax, 1961 reference to DVO can be made under sections 142A, 50C , 55A, 56(2) and 43CA. When we speak of these sections, the questions that arise in our mind are as to When these references can be made. Why there are more than one section for reference to DVO. In case, reference is made to DVO will the AO get extended time to complete the assessments under various sections or only some sections provide for this extended time. If assessment is completed before receiving DVO report can the AO pass rectification order after receipt of DVO report. Let us discuss one by one.

Sec. 55A

First let us discuss about sec. 55A. This is a section placed under the head capital gains. Hence this section can be utilised only for the income to be determined under the head capital gains. Accordingly, the section is limited only to ascertain the fair market value of the asset. This was introduced through the finance Act (Amendment Act) 1972 and is made applicable from 01.01.1973 onwards. During those days the sale consideration was available but the cost of acquisition was not available as there was a probability of acquiring the asset long back. Since the assessee was unable to give the correct cost of acquisition and coming out with value as per registered valuer, this section might have been introduced to find out the fair market value of the asset as on the date of acquisition. It is a general practise that every finance act is followed by a circular wherein the intention of the legislature will be explained in that circular. Accordingly, a circular no 96 dated 25.11.1072 and 108 dated 28.03.1973 were also issued explaining the finance Acts, 1972. Since the section in question ie. 55A was introduced by the amendment Act, the relevant circular is 96. Thus, the intention of the legislature in bringing out this section as elucidated in the said circular 96 as under .

REFERENCES TO VALUATION OFFICER

TAXATION LAWS (AMENDMENT)

ACT, 1972

Ascertaining the fair market value of any capital asset and appearance by registered valuers in matters of valuation

26.  A new section 55A has been inserted in the Income-tax Act enabling the Income-tax Officer to refer the valuation of any capital asset to the Valuation Officer with a view to ascertaining the market value of such asset. References under this section will lie only after 31-12-1972 as the provisions of section 2 of the Amending Act will come into force with effect from 1-1-1973. Under the new provision, an Income-tax Officer may refer the valuation of any capital asset to a Valuation Officer in a case where the assessee has got the assets valued by a registered valuer and the Income-tax Officer is of opinion that the value as estimated by the registered valuer (i.e., a person registered as a valuer under section 34AB of the Wealth-tax Act) is less than the fair market value of the asset. Other cases in which a reference may be made to the Valuation Officer would be where the Income-tax Officer is of opinion that the fair market value of the asset exceeds the value of the asset as claimed by more than 15 per cent of the value claimed or by more than Rs. 25,000, whichever is less or where, having regard to the nature of the asset and other relevant circumstances, the Income-tax Officer considers it necessary to do so. It will be seen that in a case where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value as on 1-1-1954, the fair market value as claimed by him may be higher than its actual fair market value. The provisions of section 55A(a) and (b)(i ) will, therefore, not apply in

such a case. It will, however, be open to the Income-tax Officer to make a reference to the Valuation Officer under section 55A(b)( ii).

TAXATION LAWS (AMENDMENT)

ACT, 1972

27. The Central Government have appointed a large number of Valuation Officers under section 12A of the Wealth-tax Act and these Valuation Officers will exercise their functions in relation to categories of assets for which they have been appointed. The jurisdiction of the Valuation Officers has been defined in rule 3A of the Wealth-tax Rules. The Valuation Officers will exercise the same jurisdiction for income-tax purposes also. The provisions of rule 3A of the Wealth-tax Rules have been explained in paragraph 34 of this circular.

In cases covered by the provisions of clauses (a) and (b)(i ) of section 55A, it will be incumbent on the Income-tax Officer to refer the valuation of the asset in question to the Valuation Officer and it will not be open to him to decide the question of valuation on his own.

Thus, the above reference can be made only when the assessee has got the valuation done by registered valuer and the AO get any doubt of such valuation. In order to enable the AO to ascertain correct fair market value, the section was introduced. However, the sale consideration as mentioned in the sale deed is to be adopted at that point of time till introduction of new section in the form of Sec. 50C. Therefore, only to ascertain the fair market value as on the date of acquisition, that too when it is in doubt, the AOs, under this section, can refer the said asset to DVO. Further, whenever, the AO gets a doubt about the fair market value of the assets when submitted by the assessee u/s 45(4), the same can be referred to DVO under this section. Further, Whenever, an insurance claim is received against the damage of the property, the quantity of the damage of the property can be referred to DVO under this section. Therefore, these provisions were enacted for a specific purpose.

This section was no where mentioned in sec 153 which specify the time limit for completion of the assessment. As such if a case is referred to DVO under this section, the AO will not get any extended time to complete the assessment. Therefore, assessment is to be completed without the help of the DVO report. Further, in case, the DVO report is received after the assessment is completed, can the AO pass rectification order to give effect to the DVO findings. The answer to this question is no as the DVO report was not available at the time of passing the order and hence cannot be construed as a mistake apparent from record.

II)  142A. If any construction has taken place by the assessee either for the purpose of business or for the purpose of his residence and in case he does not maintain books of accounts and bills in respect of such construction, how to ascertain the correct investment gone into the said construction. Since the AO is not a technical expert, a reference is to be made to DVO ( who is a technical expert in this regard ) u/s 55A of the IT Act, 1961. In one of such instances, since there is a variation in the value given by DVO and value reflected by the assessee the AO issued notice u/s 148 and brought to tax the difference amount as unexplained investment. The case went up to supreme court as both the parties are not satisfied with the judgements of lower courts. The honourable Apex court in the case of Amia Bala Paula reported in 262 ITR 407 (enclosed as annexure -1) held that AO has no powers to make that reference u/s 55A to ascertain the cost of construction nor the reference made to DVO u/s 55A cannot be treated as an enquiry made by the AO u/s 133(6) or 142(2). Thus, it knocked

down the addition made by the AO. In order to enable the AO to make a reference to DVO for the purpose of ascertaining the cost of construction a new section ie. 142A has been brought into the statute by the finance Act 2004 wref 15.11.1972. The legislative intention in bringing the above section with retrospective effect is clearly explained in circular no. 5/2005 dated 15.07.2005. The relevant portion of the said circular is reproduced hereunder-

Clarificatory amendments regarding estimates by Valuation Officer in certain cases

The existing provisions of section 131 provide that the Assessing Officer shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit. One such power which has been provided in clause (d) of sub-section (1) of section 131, is the power to issue commissions. Section 75 of CPC and order XXVI of the Schedule thereto lays down the power of ‘issuing commission’, which inter alia, empowers the Court to make a local investigation and also "to hold a scientific, technical and expert investigation". Using this power, the Assessing Officer has been making a reference to the Valuation Officer for estimating the cost of construction of properties.

The scope of power vested in an Assessing Officer under section 131 to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a subject-matter of litigation.

A new section 142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with retrospective effect from 15th November, 1972 to save the cases where such references have been made in the past and are still pending in litigation at one stage or the other.

Sub-section (1) of the new section provides that where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made for the purposes of making any assessment or re-assessment, the Assessing Officer may require the Valuation Officer to make an estimate of the same and report to the Assessing Officer.

Sub-section (2) of the new section provides that the Valuation Officer to whom such a reference is made under sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957.

Sub-section (3) of the new section provides that on receipt of the report from the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment.

It has been provided in the proviso to the new section that the provisions of the same shall not apply in respect of an assessment made on or before the 30th day of September, 2004 and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.

This amendment takes effect retrospectively from 15th November, 1972.

A glance at the section indicates that this section was framed and worded initially to ascertain the investment u/s 69, 69A, 69B. So under this section if the AO is in doubt about cost of construction of the assesses who does not maintain books of accounts or bills can refer it to DVO to ascertain the actual investment flown into the said construction. Suppose in case of

a builder, whose business is to construct and selling the constructed portion along with the embedded land, whether the AO can refer the case to DVO to ascertain the correct amount spent by the builder. If yes under which section. Naturally, the amount spent by the builder for construction was his expenditure/work in progress. So, if at all this case is referred it should be referred only to ascertain the unexplained expenditure incurred by such builder. Since the section was not meant for such cases, moreover, sec 69C was, particularly, not mentioned while framing the section, can it be referred under this section. This issue was already came before honourable high court of Delhi in the case of CIT vs Aar pee Apartments

(P)   Ltd reported in 319 ITR 276. The said decision is enclosed as annexure -2 . Even after amendment in 2014 also, this lacuna, if at all you consider it as, has not been taken care of. Please see the amended section which is worded as under.

⁹⁶[Estimation of value of assets by Valuation Officer.

⁹⁷142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him.

(2)   The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.

(3)   The Valuation Officer, on a reference made under sub-section (1), shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(4)   The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee.

(5)  The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions.

(6)  The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1).

(7)  The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

Explanation.—In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]

It can be observed from the above that the new section also says the value, including fair market value, of any asset, property or investment but no where the word ‘expenditure’ is mentioned. Thus, it can be concluded that for the purpose of ascertaining the unexplained expenditure even now, the reference cannot be made under this section. Otherwise, we can take alternative argument as to why should we treat the construction of the builder as unexplained expenditure, it can also be treated as investment only so that a reference can be made to DVO under this section. Accordingly, if we argue that it is also investment and we

refer it to DVO u/s 142A and the DVO gives higher value, then the AO is bound to allow higher value as expenditure also because the sections sec. 69, 69A and 69B donot have restrictive clause like unexplained investment cannot be allowed subsequently when it is claimed as expenditure unlike sec. 69C where there is a restrictive clause that unexplained expenditure cannot be allowed as expenditure subsequently. { of course, one can argue that unexplained investment is to be taxed 60% (plus surcharge and cess) where as expenditure is to be taxed at 30% ( plus surcharge and cess) . I have left the marginal difference to your discretion. }

Meanwhile sec. 56(2) has been incorporated to bring to tax the difference amount of stamp duty value and the value mentioned in the registered document, if at all any difference is there at the time of purchase of any asset. There also, the assessee may object for the value as per stamp valuation authority. Therefore, an amendment was made in sec 142A incorporating that under this section reference to DVO can be made to ascertain fair market value as required u/s 56(2). It is very much pertinent to mention here that though 56(2) was incorporated wef 01.10.2009, the section 142A was amended including sec 56(2) in it with effect from 01.07.2010. The section as appearing at that point of time is being reproduced for the sake of convenience.

1. Substituted by the Finance (No. 2) Act, 2014, w.e.f. 1-10-2014. Prior to its substitution, section 142A, as inserted by the Finance (No. 2) Act, 2004, w.r.e.f. 15-11-1972 and amended by the Finance Act, 2010, w.e.f. 1-7-2010, read as under

:

'142A. Estimate by Valuation Officer in certain cases.—(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.

(2)  The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(3)   On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:

Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.

Explanation.—In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).'

Not only the dispute discussed earlier, but several disputes have arisen on this section also. Honourable Apex Court in the case of Sargam Cinema VS CIT reported in 328 ITR 513 ( the

decision enclosed as annexure -3) had held that without rejecting the books of accounts, the AO Cannot make the reference to DVO. In order to overcome the said decision the entire section has been redrafted and in place of old section a new section has been enacted by the finance act 2014 which is made applicable wef 01.10.2014. The intention of the legislature to amend the old section is elucidated in the circular no. 1/2015 dated 21.01.2015. The relevant portion of the circular is reproduced hereunder –

43.  Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made

43.1 The provisions contained in section 142A of the Income-tax Act, before its amendment by the Act, provided that the Assessing Officer may, for the purpose of making an assessment or reassessment, require the Valuation Officer to make an estimate of the value of any investment, any bullion, jewellery or fair market value of any property. On receipt of the report of the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard take into account such report for the purposes of assessment or reassessment.

43.2 Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. Further, the said section 142A does not provide for any time limit for furnishing of the report by the Valuation Officer.

43.3 Accordingly, section 142A has been substituted so as to provide that the Assessing Officer may, for the purposes of assessment or reassessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit the report to him. The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. The Valuation Officer, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the Wealth-tax Act, 1957. The Valuation Officer is required to estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession or gathered, after giving an opportunity of being heard to the assessee.If the assessee does not co-operate or comply with the directions of the Valuation Officer he may, estimate the value of the asset, property or investment to the best of his judgment.

43.4 It has also been provided that the Valuation Officer shall send a copy of his estimate to the Assessing Officer and the assessee within a period of six months from the end of the month in which the reference is made. On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

43.5 Sections 153 and 153B of the Income-tax Act have also been amended to provide that the time period beginning with the date on which the reference is made to the Valuation Officer and ending with the date on which his report is received by the Assessing Officer shall be excluded from the time limit provided under the aforesaid section for completion of assessment or reassessment.

43.6 Applicability:—These amendments take effect from 1st October, 2014.

From a perusal of the said circular it is understood the legislature aimed mainly at two objectives in amending the section -

1. There was no need to reject the books of accounts before making a reference.
2. The old section donot provide for any time limit to the DVO to furnish his report.

Thus, we cannot attribute any other motives other than the above two in amending the section.

It is to be further mentioned here that with effect from 2012 onwards, the provisions of sec. 153 was amended to as to provide extended time to AO when reference to DVO u/s was made u/s 142A . The relevant portion of the section as existing as on date is reproduced hereunder-

Section 153 (9) ......

Explanation 1.—For the purposes of this section, in computing the period of limitation—

...................................

...................................

.........................

........................

However, the proviso below says as under

Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-sections (1), (2), (3) and sub-section (8) available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:

From a harmonious reading of the explanation and proviso above, it is understood that the legislature has safe guarded the AO with the extended time for completion of the assessment. Whatever the time lost by him because of the reference made to DVO will be extended for the purpose of completion of the assessment. It was also provided in case, the time left out to him after receipt of DVO report is less than 60 days, then he can complete the assessment within 60 days after receipt of the report. Thus, proper care has been taken to allow the AO to complete the assessment. It is very strange to note that as per the provisions of sec. 153 the extended time is available only when a reference is made u/s 142A. Accordingly, the extended time is not available to any other section except for a reference u/s 142A.

For a reference made under this section also what is the extended time. Let us examine this issue with some examples. Sec. 153 says the time barring date of the assessment get extended

to the extent of the time lost by the AO because of the reference made and the submission of report by the DVO. It is also provided that the time available to the AO after receipt of the DVO report is less than 60 days he can take full 60 days and complete the assessment. By and large this is what is stated in sec. 153 Explanation and proviso as mentioned earlier.

For instance, in the course of assessment proceedings for the A.Y. 2017-18, the case is referred to DVO in April 2019 and the report of the DVO is received August 2019, exactly the number of days from the date of reference to the date of receipt of the DVO report will be extended and the said period can further be added to the December 2019 and the same can be treated as extended time available to the AO for completion of the assessment.

EX 1. Suppose, for the same AY the reference was made on 11.11.2019 then the time as per the provisions sec. 153 shall be extended only 50 days ( what has been lost by the AO is 19 days in November and 31 days in December as per section 153) or 60 days (under the proviso to sec. 153) or 6 months ( under section 142A) as section 142A provides, the DVO has to furnish the report within 6 months once the reference is made to him. Can we wait till DVO furnishes his report as he is bound to give the report within six months as per sec. 142A or whatever the time we lost because of the reference made within that extended time only the assessment is to be completed. Suppose, the DVO has not submitted the report as mandated by the statute within 6 months, then AO has to complete the assessment with the extended time of 6 months or he can wait till the report is received ( 9 months or even one year or so). I could not find answer to this question. If any of the readers provide answer to this query, I will be thankful.

Ex.2. In case the reference is made on 21.12.2019 for the A.Y 2017-18 whether the AO will get extended time of only 10 days { this is the time he lost in the time available to him as per sec 153(9) } or he can wait till June 2020 (harmonious reading of sections 153 and 142A) and can complete the assessment. In this case also, if DVO does not give his report by 30.06.2020 then whether AO can wait till the report is received or he has to invariably complete the assessment by 30.06.2020. At this juncture, the decision of honourable ITAT, Hyderabad in the case of Zulfi Ravadji Vs ACIT in ITA no. 2415/HYD/2018 is pertinent to be mentioned wherein the ITAT had held that within 6 months the assessment is to be completed with or without the help of DVO report. The above decision of Hyderabad ITAT is enclosed as annexure-4 for the benefit of the readers.

In the circumstances mentioned above, if the report is received on 30.06.2019 then AO will get another 60days for completion of the assessment.

Another disputed issue with regard to this section is in case the report of the DVO is received after completion of the assessment then, can the AO pass rectification/modification order. My answer to this question is no as the DVO report is not a part of the record to constitute a mistake apparent from record. Some AOs may argue that u/s 155(15) the assessment order can be rectified. From a cursory look at this section it is clear the reference u/s 142A was not mentioned but reference u/s 50C was only mentioned and therefore, when a reference is made u/s 142A the order cannot be rectified/modified. However, the provisions of sec. 155(15) are discussed in detail in the later part wherein sec. 50C has been discussed.

Coming to the further disputes on this section, When DVO report is received subsequent to the assessment, can the AO reopen the assessment basing on the said report of the DVO. The honourable Apex court in the case of ACIT vs Dhariya Construction Co. Reported in 328 ITR 515 had held that the report of the DVO, perse, is not a basis for reopening the case u/s 148. So, the AOs may take proper care while reopening the cases and also may consider the supreme courts decision mentioned above.

Another dispute observed is whether the reference to DVO can be made when no proceedings are pending. The Section 142A starts with the words, the AO may, for the purpose of assessment or reassessment, ...... therefore, it can be construed that only when the

proceedings are pending the AO can make a reference to DVO under this section. These principles have been reinforced in the decisions reported in 314 ITR 263 and 314 ITR 272 by the honourable Gujarat High Court. Of course u/s 132(9D), the authorised Officer of a search can also make a reference to DVO. However, under this section the DVO is bound to submit his report within 60 days. Surprisingly, legislature has fixed different time limits of 60 days u/s 132(9D) and within 6 months u/s 142A. Whether these time limits are mandatory. What are the repercussions in case the DVO does not submit the said reports as specified in these sections.

III. Sec. 50C.

This section was brought into statute book by the finance act 2002 wef 01.04.2003. Since in the business of real estate, the transactions are taking place with high amount of unaccounted income whereas a portion of the same is mentioned in sale deed but stamp duty is paid on higher amount as stamp valuation authorities are collecting duty as per the circle rates declared by the respective state governments irrespective of the lesser value that is mentioned in the registration documents. The intention of the legislature as explained in the circular no. 8/2002 dated 20.08.2002 is furnished hereunder for clarity sake.

Computation of capital gains in real estate transactions.

37.1 The Finance Act, 2002, has inserted a new section 50C in the Income tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.

37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income tax Act.

37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the

Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.

37.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003 04 and subsequent years.

While enacting the section the legislature has taken care to provide under sub section (2) that if the assessee objects the value as per stamp valuation authority, then the AO has to refer the matter to DVO so that fair market value as communicated by DVO can be taken for computation of capital gains. Thus the principles of natural justice is also followed by giving an opportunity to the assessee. It is pertinent to mention here that this section was brought into statute by the finance act 2002 and is applicable from A.Y.2003-04 onwards whereas sec 142A was incorporated by the finance act 2004, of course, with retrospective effect from 15.11.1972. Therefore, it can safely be concluded that from 2002 to 2004 at least the reference to DVO, if at all the value is objected by the assessee, was to be made under sub section (2) of section 50C only. Further, though 142A was amended two times subsequently, in the explanatory notes of the respective finance acts never mentioned that the reference u/s 50C can also be made u/s 142A, though specifically the value objected u/s 56(2) was brought in sec. 142A itself with effect from 01.07. 2010. From this the intention of the legislature is very clear that the reference u/s 50C should be made only u/s 50C(2) but not u/s 142A .

It is very much surprising to note that, this section was not mentioned in sec. 153 and therefore, when a reference is made to DVO under this section whether AO get extended time to complete the assessment? Some AOs argue that the reference under this section can even be made u/s 142A so that extended time is available to the AO. Is it correct ? The Sec. 50C(2) is a specific provision whereas sec 142A is a general provision. When a specific provision is for a purpose can we resort to general provision just because we are getting extended time. Let us examine the evolution of sec. 142A from the beginning. The provisions of old section 142A are very clear at the time of introduction. Only for the purpose of sec. 69,69A,69B the reference u/s 142A can be made at that point of time. This was reinforced in the case decided by honourable Gujarat high court in the case of Anand Banwarilal Adhukia Vs DCIT reported in 244 taxman 243. Besides the above, reference can also be made to the decisions reported in 391 ITR 145, 391 ITR 56, 367 ITR 238. Further, the honourable ITAT, lucknow bench in the case of Naina Saluja VS DCIT reported in 76 ITR (Trib) 135 had categorically held that reference u/s 55A and 50C cannot be made under the provisions of sec. 142A. The decision of Lucknow bench as mentioned above is enclosed as annexure-5. Thus, the reference u/s 142A cannot be made when the assessee objects the value either under section 50C or 55A.

Even then, Some AOs argue that these case laws have discussed erstwhile section of 142A , since the existing section is differently worded there is no bar at present. They support their argument with the wording of the present section of 142A particularly quoting “for the purposes of assessment or reassessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment”. They argue that since it was mentioned that ”including the fair market value” as such the reference

to DVO, when objected the sale consideration u/s 50C, can be made even u/s 142A. As mentioned earlier, the provisions of sec. 142A were incorporated much later ie. By finance act 2004 whereas the provisions of sec. 50C were introduced by finance act 2002. While amending the section in 2010 also section 50C was not brought in sec 142A as observed from earlier paragraphs. Only the provisions of sec. 56(2) were incorporated and sec. 50C was specifically omitted while framing the section the section 142A which is applicable wef 01.07.2010. From this, the intention of the legislature is very clear. Since reference u/s 50C can be made under sub section (2) of the said section, other references can be made as per the provisions of sec. 142A. As the provisions of sec. 56(2) which is also meant for ascertaining the fair market value, the words “including the fair market value” were incorporated wef from 01.10.2014 only to continue the reference of sec. 56(2) which was earlier incorporated. In the earlier section of 142A which was applicable with effect from 2010 till it was amended in 2014 , directly sec 56(2)was mentioned and in the amended section of 142A which was made applicable wef 01.10.2014 the words “including the fair market value” has been incorporated only for the purpose of continuing the reference of sec. 56(2) but not to bring the reference u/s 50C also. If at all legislature wanted to bring all references under one section ie 142A, it would have been clearly stated in the explanatory memorandum. AS mentioned earlier, in the explanatory memorandum the intention in amending section 142A was stated as under -

1. There was no need to reject the books of accounts before making a reference.

1. The old section donot provide for any time limit to the DVO to furnish his report.

Only the above two objectives were mentioned as per circular no. 1/2015 which was reproduced above under the discussion part of sec. 142A. So the legislative intention is also clear that the reference u/s 50C cannot be made under the provisions of sec. 142A to get extended time. Thus, we cannot extend the intention of legislature other than the above two objectives in amending the section.

From the above discussion, we can conclude that extended time limit is not available to the reference made under the provisions of sec. 50C.

Now coming to the dispute of rectification of the assessment order passed without the help of DVO report as per the provisions of sec. 155(15), it is to be stated that the said section was introduced in statute by the finance Act, 2002 with effect from 01.06.2002 at the time of incorporation of sec.50C itself. However, nothing was mentioned in circular 8/2002 which is explanatory memorandum to finance Act, 2002. Therefore, let us try to understand the provisions by examining the section itself. For this purpose, the provisions of sec 155(15) are required and accordingly, the same is reproduced ....

(15)  Where in the assessment for any year, a capital gain arising from the transfer of a capital asset, being land or building or both, is computed by taking the full value of the consideration received or accruing as a result of the transfer to be the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in accordance with sub-section (1) of section 50C, and subsequently such value is revised in any appeal or revision or reference referred to in clause (b) of sub-section (2) of that section, the Assessing Officer shall amend the order of assessment so as to compute the capital gain by taking the full value of the consideration to be the value as so revised in such appeal or revision or reference; and the provisions of section 154 shall, so far as may be, apply thereto, and the

period of four years shall be reckoned from the end of the previous year in which the order revising the value was passed in that appeal or revision or reference.]

From a perusal of the above provisions, it is clear that the value of stamp valuation authority is revised in any appeal or revision or reference referred to in clause (b) of sub section (2) of section 50C......then the order can be rectified. Therefore, it is essential to refer to the

provisions sec 50C(2) to find out as to what clause (b) of that section implies. For our understanding sec 50C(2) is reproduced hereunder-

(2) Without prejudice to the provisions of sub-section (1), where—

the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2),

(3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections

(6)   and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

First let us understand the provisions of sec. 50C(2). It says that the reference to DVO can be made only when two conditions stipulated in clause (a) and clause (b) are fulfilled. Clause (a) speaks of objection of the assessee that the value adopted by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer and clause (b) speaks of the issue that the assessee has an opportunity to contest the value before the appellate authorities of stamp valuation authority itself by way of filing appeal or revision or reference and no such attempt has been made by the assessee. To understand the clauses the two conditions can be summarised as under –

1. The assessee should object the value of stamp valuation authority

1. The assessee should not have filed an appeal or revision or reference before the appellate authorities of stamp valuation authority.

Only when the above mentioned two conditions are fulfilled, the AO can make a reference to DVO under this section. Suppose, the assessee does not object before the AO, then the AO need not make a reference. In the same way if the assessee objects the value before the appellate authorities of stamp valuation authority by filing an appeal or revision or reference then also the reference to DVO need not be made. Suppose, the assessee filed an appeal or

revision or reference before the appellate authorities of stamp valuation authority then as stated above, the AO need not make a reference to DVO and straight away proceed to complete the assessment as per the value adopted by the stamp valuation authority. After completion of the assessment the appellate authority of stamp valuation authority has given relief or revised the rates then if the same is produced before the income tax authority, he can pass order u/s 155(15). For this limited purpose only the provisions sec 155(15) are enacted. But many AOs are under the impression that whenever DVO gives report allowing some relief to the assessee, the AO can also pass modification order giving effect to the said relief granted by the DVO. But the question is where it is provided by the statute. The purpose of sec. 155(15) as delineated above is different. Under these circumstances, the assessee has no other option except going for appeal or claiming relief u/s 264 but the AO is helpless. What has not been provided by the statue cannot be provided by the AO also who is appointed only to execute the Act passed by the parliament.

Further, this section also prone for litigation and accordingly amendments were also made to plug the loopholes. Initially as per the wording of the section it is applicable only for the registered documents. But with effect from 01.10.2009 it is made applicable not only registered ones but also unregistered documents. Accordingly, once it is assessable then the section was made applicable.

Further, it was also provided in this section that if the agreement date and date of sale varies, then the date of agreement can be considered as date of transfer provided that payment, in part at least, was paid by way of any other mode other than cash. This is as per the proviso inserted by the finance act 2016 wef from 01.04.2017. Though this proviso was in sec. 56(2) with effect from 01.04.2014, such provisions were not incorporated in sec. 50C at that point of time. This also will prone for litigation and AOs may not give this benefit for the transactions taken earlier to 01.04.2017. Since it is a beneficial provision, I am sure, the appellate authorities may take a view which is favourable to the assessee.

Besides, It has also been provided in the section that wef 01.04.2019 if the difference is not more than 5% of the consideration, then there was no need to invoke this section. Accordingly, partial relief is granted to the assesses by finance Act, 2018.

Sec 56(2)..

We can say more specifically 56(2)(vii) or 56(2)(x). Again this 56(2)(vii) has got three clauses and clause (b) deals with receipt of immovable property whereas clause (a) and clause (c) deals with receipt of cash and movable properties respectively. However, 56(2)(x) covers all transactions as well as all persons in incometax Act whereas the provisions of earlier sec ie. 56(2)(vii) covers only the individual and HUF. Sec. 56(2)(vii) was introduced by the finance act 2009 and is made applicable wef 01.10.2009. At that time this section is intended to cover only the transactions where the property has been received without consideration. However, if the property is received for inadequate consideration, then the provisions of this section are not applicable. Observing this anomaly, the section was amended with effect from 01.04.2014 by the finance Act, 2013. The intention of the legislature while enacting the section is explained in circular no. 5/2010 dated 3.06.2010. The relevant portion of the circular is reproduced for better understanding.

24.  Taxation of certain transactions without consideration or for an inadequate consideration as income from other sources

24.1 The previous provisions of sub-clause (vi) of section 56 provided that any 'sum of money' (in excess of the prescribed limit of rupees fifty thousand) received without consideration by an individual or HUF would be chargeable to income-tax in the hands of the recipient under the head 'Income from other sources'. However, receipts from relatives or on the occasion of marriage or under a will were outside the scope of the provisions of clause (vi) of sub-section (2) of section 56 of the Income-tax Act. Similarly, anything which is received in kind having 'money's worth' i.e., property were also remained outside the purview of these provisions.

24.2 The above section being an anti-abuse measure, in view of the above, section 56 of the Income-tax Act, 1961 has been amended by inserting a new clause (vii) in sub-section (2) to provide that the value of any property received without consideration or for an inadequate consideration will also be included in the computation of total income of the recipient as income from other source. Such properties will include immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art.

24.3 It has been provided that in a case where an immovable property is received without consideration and the stamp duty value of such property exceeds fifty thousand rupees, the whole of the stamp duty value of such property shall be taxed as the income of the recipient. If an immovable property is received for a consideration which is less than the stamp duty value of the property and the difference between the two exceeds fifty thousand rupees (inadequate consideration), the difference between the stamp duty value of such property and such consideration shall be taxed as the income of the recipient. If the stamp duty value of immovable property is disputed by the assessee, the Assessing Officer may refer the valuation of such property to a Valuation Officer. In such cases, the provisions of existing section 50C and sub-section (15) of section 155 of the Income-tax Act shall, as far as may be, apply for determining the value of such property.

24.4 It has been provided that in a case where movable property is received without consideration and the aggregate fair market value of such property exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property shall be taxed as the income of the recipient. If a movable property is received for a consideration which is less than the aggregate fair market value of the property and the difference between the two exceeds fifty thousand rupees, the difference between the fair market value of such property and such consideration shall be taxed as the income of the recipient.

24.5 The method for the determination of fair market value of property other than immovable property has been provided in rules 11U and I1UA vide Notification No. 23/2010/F.No. 142/21/2009-SO(TPL), dated 8th April, 2010.

24.6 Consequential amendment has been made in section 2 by inserting sub-clause

(xv)   in clause (24) thus expanding the definition of income to include any sum of money or value of property referred to in clause (vii) of sub-section (2) of section 56. Further, section 49 has also been amended by way of inserting a new sub-

section (4) providing that for the purposes of computing capital gains, if the transaction of receipt of the asset is subject to tax under clause (vii) of sub-section

(2)   of section 56, then the cost of acquisition of the asset shall be the stamp duty value (for immovable property) or fair market value (for asset being a movable property) as the case may be.

24.7 Applicability - These amendments have been made applicable with effect from 1st October, 2009 and will accordingly, apply for transactions undertaken on or after such date.

It was also provided in this section by way of a proviso that if the agreement date and date of sale varies, then the date of agreement can be considered as date of transfer provided that payment, in part atleast, was paid by way of any other mode other than cash. This is as per the proviso inserted by the finance act 2013 wef from 01.04.2014.

It has been provided that the value on which the tax has been paid under this section may be allowed as cost of acquisition as per sec. 49(4). The provisions of sec. 56(2)(x) were not highlighted as it is mainly intended to extend the scope of the section so as to cover all the persons unlike 56(2)(vii) which was applicable only to individuals and HUF.

Sec 43CA.

This section is meant for stock in trade whereas section 50C is applicable for capital asset only. In order to bring uniformity among the capital assets and stock in trade basically this section was brought into statute book by the finance Act, 2013 wef 01.04.2014 mainly to replace stamp valuation authority value against the less sale consideration reflected by the assessee. The intention of legislature in enacting this provision is explained in circular 3/2014 dated 24/01/2014. The relevant portion of the said circular is reproduced for our understanding.

1. Computation of income under the head "Profits and gains of business or profession" for transfer of immovable property in certain cases

13.1 Under the provisions of the Income-tax Act, when a capital asset, being immovable property, is transferred for a consideration which is less than the value adopted, assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, then such value (stamp duty value) is taken as full value of consideration under section 50C of the Income-tax Act. However, these provisions do not apply to transfer of immovable property, held by the transferor as stock-in-trade.

13.2 Accordingly, a new section 43CA has been inserted in the Income tax Act which provides that where the consideration for the transfer of an asset (other than capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration for the purposes of computing income under the head "Profits and gains of business or profession".

13.3 It has also been provided that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not the same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of