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Vijaykumar M. Shah v Deputy Additional Commissioner of Income Tax, Range 16(2), Mumbai

Income Tax Appellate Tribunal

MUMBAI BENCH ‘C’

26 February 2009

It Appeal Nos. 457 and 552 (Mum.) of 2006

The Judgment was delivered by : D. KARUNAKARA RAO (ACCOUNTANT MEMBER)

These are the two cross appeals, where the appeal vide ITA No. 552/M/2006 was filed by the assessee and against the order of the CIT(A) XVI, dated 2-11-2005 and revenue filed the other appeal vide ITA No. 457/M/2006. The grounds in both the appeals revolve around the same issues. In view of the interlacing of the issues in both these appeals, we proceed to adjudicate both the appeals together in this consolidated order. The grounds in assessee’s as well as revenue’s appeal are extracted as under :-

2. Grounds in Assessee’s appeal vide ITA No. 552/M/06

“I. The Commissioner of Income-tax (Appeals) XVI, Mumbai [CIT(A)] erred in adopting fair market value of the property as on 1-4-1981 at flat No. 4C, Ridge Apts., Ridge Road, Mumbai 400 006 of the appellant at Rs. 1, 750 per sq. ft. as against Rs. 2, 200 taken by the appellant as per the report of Registered valuer Shri Kishor C. Dabhawala.

2. The CIT(A) erred in estimating value of the property as on 1 -4-1981 at Rs. 1, 750 per sq. ft. by holding that sale instances considered by the District Valuation Officer (DVO) were indicative of the prevailing fair market value as on 1-4-1981. The appellant submits that the three instances given by the DVO in his report do not reflect real status and are not comparable instances. The appellant submits that in order to determine the price of the property the instances of the sale should be of similar property in similar locality. The estimate of fair market value of the property at Rs. 1, 750 per sq. ft. is arbitrary, exorbitant and without any rational basis.

3. The CIT(A) erred in accepting the fair market value of the property of the appellant, which was derived by rent capitalization method. In the absence of comparable instances not available, better course would be to all back on the method of valuation which is accepted by the department. The appellant submits that the rent capitalization method is an acceptable method of valuation.

4. The CIT(A) erred in not allowing deduction at Rs. 7, 875 being valuation charges paid in respect of flat No. 4C, New Ridge Apartments Cooperative Housing Society from capital gains under section 48 of the Act.”

3. Grounds in revenue’s appeal vide ITA No. 457/M/06

“The Ld. CIT(A) has erred in law and on facts in directing the Assessing Officer to (sic – compute) the Long-Term Capital Gain on sale of flat at Ridge Apartment, Ridge Road, Mumbai by arbitrarily adopting the fair market value at Rs. 1, 750 per sq. ft. as on 1 -4-1981 relying on the submission of the assessee against Rs. 1, 154 per sq. ft. as per the valuation of District Valuation Officer, who is a competent Authority.”

4. Briefly stated, the relevant facts in this regard are that the assessee is an individual and owns a property, the long-term capital asset and the address of the said asset is flat No. 4C, New Ridge Apartments Co-operative Housing Society. During the year, the said asset was sold and derived long-term capital gains. For the purpose of computing the capital gains and for the purpose of cost of acquisition of the said property as on 1-4-1981, the said asset was valued by the Registered Valuer and the market value as on 1-4-1981 was determined or estimated at Rs. 45, 58, 268. Registered Valuers based their valuation on the lease capitalization method in respect of the said self occupied capital asset. Assessee adopted the market value of the asset in accordance with the said estimate of the said Valuation Report. During the assessment proceedings, the Assessing Officer was of the opinion that the said valuation was improper and rejected the same as per the reasons given in para 2 of the assessment order and finally made a reference to the Departmental Valuation Officer (DVO) under section 55 A of the Income-tax Act, 1961 for the purpose of determination of cost of acquisition as on 1-4-1981. Accordingly, the fair market value of the property as on 1-4-1981 was estimated by the DVO at Rs. 23, 20, 306. Since the value admitted by the assessee at Rs. 45, 58, 268 as on 1-4-1981 was substantially higher, the same was rejected on the ground that it was done to evade tax liabilities and value of Rs. 23, 20, 306 as per DVO’s report was adopted resulting in computation of higher long-term capital gain at Rs. 1, 11, 05, 594 as against admitted gains of Rs. 20, 19, 476. The DVO figure of Rs. 1, 154 per sq. ft. is the average figure of three sale instances and as per the Registered Valuers report market value was adopted at Rs. 2, 200 per sq. ft. In doing so, the Assessing Officer held that the objection of the assessee to the DVO’s report was considered by the DVO. In the process, the DVO rejected the lease capitalization method adopted by the Registered valuers and based his valuation on the comparable cases. Further, the Assessing Officer did not specify the clauses or sub-clauses of section 55A of the Act while making a reference to the DVO. Assessing Officer also did not allow the deduction at Rs. 7, 875, being valuation charges paid in respect of the said property at flat No. 4C, New Ridge Apartments Co-operative Housing Society from capital gains under section 48 of the Act. Accordingly, the Assessing Officer made an assessment under section 143(3) after making the additions determining the total income at Rs. 1, 14, 94, 658 against the returned income of Rs. 24, 08, 540.

5. Aggrieved with the above decisions of the Assessing Officer, the assessee filed an appeal before the CIT(A). During the first appellate proceedings, the assessee made various submissions both on issue of rejection of the valuation report as well as objections on the DVO’s valuation. Regarding DVO valuation, the submissions of the assessee are summarised as under :-

“(a) Plot facing sea is more valuable by about 25 per cent as compared to plot away from sea. So also physical characteristics i.e., whether the land is made up on ground or rocky strata which will have corresponding impact on land values (Refer Physical Method of valuation in the Book Titled Theory and Practice of Valuation by Roshan Namvati (Pages 16-17 of compilation dated 12-1-2005). In appellant’s case the building is on hilly area and the plot was made flat.

(b) An unique feature of the building is that it is a ‘Tripod type Building’ (star shaped).

(c) Although specification of the building is given by DVO in Para 3.4 of his report (refer page No. 3 of submissions filed on 16-12-2004) but not considered while adopting the valuation.

(d) Valuation of properties as on 1-4-1981 in different areas in Mumbai as per Accommodation Times dated 31-10-1996-valuation in the area of Walkeshwar was 1, 600-3, 000 sq. ft. (Refer page No. 10 of compilation filed on 12-1-2005). The rates given in Accommodation Times of Prabhadevi area are same when compared with instance given in serial No. 4 of the Table II above. Thus, the rates given in the said paper looks realistic.

(e) Rates given in the book titled Indian Valuers Directory & Reference Book by Santosh Kumar & Sunil Gupta – rates at Warden Road and Napeansea Road as on 1-4-1981 stood at Rs. 1, 600 per sq. ft. in the residential nit without lift (Refer page Nos. 11-12 of compilation filed on 12-1-2005).

(f) Other factors apart form location or view of the building, the rate is also determined by the residents in that society ie, whether residents are industrialists, population of the building, etc. In the instant case, the total number of flats in the building are 27 and the total population is about 100. None of the flats were sold for 25 years of its booking and some flats are owned by multinational companies and export houses.”

Further, the assessee contended that the rent capitalisation method was an accepted method of valuation as held by the Apex Court in the case of CIT v. Vegetables Products Ltd. [1973] 88 ITR 192 as well as in CIT v. PI. George [1988] 171 ITR 620 (Ker.), 39 Taxman 148 as also various judgments of Karnataka High Court in (i) A. Premchand v. IAC[1985] 153 ITR 774, 23 Taxman 330 (ii) IAC v. N. Vajram Setty [1986] 159 ITR 742, 24 Taxman 682 and (iii) Smt. S. Nedaveni v. CWT[ 1980] 125 ITR 665 in this regard.

6. After considering the submissions of the assessee as well as after perusing the remand report dated 23-3-2005 received from the Assessing Officer, the CIT(A) dismissed the assessee’s submissions and confirmed the additions made by the Assessing Officer. The CIT(A) found that the DVO figure of Rs. 1, 154 is the average figure of three sale instances and as per the Registered Valuer’s report market value was adopted at Rs. 2, 200 per sq. ft. Considering the above variations, CIT(A) held that it will be fair and reasonable to fix the FMVs of the property at Rs. 1, 750 per sq. ft. as on 1-4-1981 and directed the Assessing Officer to recalculate the long-term capital gains adopting the above figure of Rs. 1, 750. In the process, the CIT(A) rejected the estimation by the Registered Valuers and their rent capitalisation method. In the process, he approved the reference of the Assessing Officer made under section 55A as well as the DVO’s estimation, which was based on the sale instances. Thus, the assessee got part relief in the appeal before the CIT(A).

7. Aggrieved with the above, the assessee is in appeal vide ITA 552/Mum./ 06 before us. Further aggrieved with the relief given to the assessee, the revenue also is in appeal vide ITA No. 457/Mum./2006. Since the issues are interlaced, we proceed to adjudicate the issue together.

8. During the proceedings before us, Learned Counsel for the assessee, at the very outset, brought to our notice the additional ground filed before the Tribunal, which read as under :-

“On the facts and circumstances of the case the reference made to the District Valuation Officer by the Assessing Officer under section 55A(a) is invalid, bad in law and without jurisdiction since the value claimed by the assessee in the opinion of the Assessing Officer is more than its fair market value and, therefore, the Report of the District Valuation Officer cannot be relied upon for the purpose of assessment of Capital Gains.”

9. In connection with admission of the above ground, both the parties have put forwarded their arguments and argument of the Counsel includes that the ground raised is a legal ground and the same can be raised and admitted before the Tribunal in view of the Apex Court judgment in the case of National Thermal Power Co. Ltd. v. CIT[1998] 229 ITR 383. On the other hand, Learned DR for revenue vehemently objected to the admission of the said ground by stating for that the issue of reference under section 55A was never an issue raised before the revenue authorities as well as the DVO despite the fact that the assessee is aware of the reference made by the Assessing Officer to the DVO invoking the provisions of section 55A and DVO was also in communication with the assessee in giving effect to the said reference. After hearing both the parties, we find that the issue under consideration goes to the very root of the matter and it is legal in nature as it questions the validity of the reference made by the Assessing Officer under section 55A. In view of the above, we find that the ground must be admitted.

10. In connection with the said additional ground relating to the jurisdiction of the Assessing Officer in making a reference under section 55A, the Counsel argued that the Assessing Officer invoked the provisions of section 55A without valid jurisdiction. In this connection, ld. counsel relied on the provisions of section 55A of the Act and mentioned that the said provision envisages two types of cases le., the cases with the valuation report which fall under clause (a) of section 55A and others without such report, which fall under clause (b) of the said section. Further, he argued that the assessee’s case is covered by the provisions of section 55A(a) in view of the existence of valuation report. However, he argued that the clause (a) will come into play only when the Assessing Officer is of the opinion that the value of the assets, as claimed by the assessee is less than its market value. In this regard, the counsel mentioned that this being the case, where the value claimed by the assessee is more than that of the market value, therefore, the reference made under clause 55A(a) is invalid and the Assessing Officer invalidly assumed the jurisdiction. Further, the Counsel also argued that the clause (b) does not apply to the case of the assessee as this is the case where the value of the assets as claimed by the assessee is in accordance with estimate made by a Registered Valuer. As per the Ld. counsel, the provisions of clause (b) of section 55A cover the cases where the assessee does not have the benefit of a valuation report. The Counsel also relied on the Third Member decision of the Tribunal in the case of Ms. Rubab M. Kazeraniv. Jt. CIT [2004] 91 ITD 429 (Mum.) for the proposition that Assessing Officer has no jurisdiction under sub-clause (ii) of clause (b) of section 55A in a case, where the assessee got the property valued and so adopted the said value as per his valuation report.

11. Per contra, Learned DR for revenue filed a written submission and supplied a copy of the same to the Ld. Counsel. Para 3.2 is relevant and same is reproduced as under :-

“3.2 As per the commentary of Shri Vinod K. Singhania, the provisions of section 55A(a) and 55A(b)(i) are not applicable for obtaining the fair market value as on 1-4-1981. However, Shri Singhania opines that it is open to the Assessing Officer to make a reference to the Valuation Officer under section 55A( b)(ii). The highlighted portion of section 55 A(b)( ii) states that the Assessing Officer, having regard to the nature of the asset and other relevant circumstances may refer the matter to the DVO. In the instant case, the Assessing Officer, in para 2 and para 3 of the assessment order, clearly brings out the reasons and the circumstances under which it is obligatory to refer the matter to the DVO. It is unacceptable to the Assessing Officer to accept the valuation report of the assessee which factors in ‘on money’ payment of cash to the extent of 35 per cent to 45 per cent. Also, no comparative sale instances during that period were resorted to by the assessee’s valuer. Besides, the rent capitalization method adopted by the assessee’s valuer is inapplicable for self occupied property. Therefore, the Assessing Officer has every reason to reject the assessee’s valuation report and refer the matter to the DVO. From the above, it is clear that reference made by the Assessing Officer is within the powers enshrined under section 55A of the Act. Also, the Ld. CIT(A) strongly commented on the unacceptable assumptions made by the assessee’s valuer while valuing the fair market value.”

The DR also argued stating that the provisions of section 55A(b)(ii) empowers the Assessing Officer to assume jurisdiction ‘having regard to the nature of the asset and other relevant circumstances, it is necessary so to do’ and explained that the said conditions are satisfied in this instant case. DR also argued that the Third Member decision referred to above is distinguishable and stated that the said decision has not considered the explanatory notes to section 55A issued by the Board in this regard as well as the commentary cited by him above.

12. We have heard both the parties on the issue of assumption of jurisdiction of the Assessing Officer under section 55A and perused both the orders of the revenue, valuation report and the paper book filed by the assessee in this regard. The issue is legal one and it revolves around the provisions of section 55A and therefore, it is necessary to elucidate these provisions as well as the scope of section 55A. The provisions of said section 55A were introduced by the Taxation Laws (Amendment) Act, 1972 and it reads as under :-

“55A. References to Valuation Officer.-With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer-

(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value;

(b) in any other case, if the Assessing Officer is of opinion-

(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or

(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.” [Emphasis supplied]

13. From the above, it is evident that for the purpose of ascertaining the FMV of a capital asset, Assessing Officer may refer the said asset to a D VO. For this purpose, the statute provides two group of cases namely: (i) the case mentioned at clause(a) above, where the value of the asset as claimed by the assessee is in accordance with the estimate by the Registered Valuer; and (ii) other cases mentioned at clause (b) above. In the cases mentioned as (i) above, the Assessing Officer assumes jurisdiction, when there is a valuation report in respect of the asset and the assessee adopted the value of the asset in accordance with such estimation and also if Assessing Officer is of the opinion that the value claimed by the assessee is less than the FMV. In other cases mentioned as (ii) above and which are covered by the provisions of clause (b) of section 55 A, the Assessing Officer is empowered to make a reference to the Valuation Officer, where the Assessing Officer is of the opinion that the FMV of the asset exceeds the value of the assets as claimed by more than 15 per cent of the value claimed or by more than Rs. 25, 000, wherever is less or where, having regard to the nature of the asset and other relevant circumstance, the Assessing Officer considers it necessary to do so. In other words, this later group of cases includes: (i) the cases, where the basis for such FMV of the asset is the valuation report itself and assessee failed to adopt the value of the asset in accordance with the estimate of such Valuation Report; and (ii) the cases, where the basis for such FMV of the asset is other than the Valuation Report. In any such case, the Assessing Officer rightly assumes jurisdiction when he ‘is of opinion that the FMV of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or having regard to the nature of the asset and other relevant circumstances, it is necessary so to do’.

14. Further, we find that the Explanatory Notes to the above section 55A also threw necessary light in the context of the cases, where the assessee adopted the FMV for the purposes of the cost of acquisition of the asset. Circular No. 96, dated 25-11-1972 is relevant and provides for additional information in analyzing the scope of section 55A. Paragraph numbers 26 to 2 S of the said circular relates to this newly inserted provisions and para 26 is relevant and it reads as under :

“… .Under the new provisions, an ITO may refer the valuation of any capital asset to a Valuation Office in a case where the assessee has got the assets valued by a registered valuer and the ITO is of opinion that the value as estimated by the registered valuer (ie., a person registered as a valuer under section 34 AB of the 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 ITO is of the opinion that the fair market value of the asset exceeds the value of the assets as claimed by more than 15 percent 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 the relevant circumstances, the ITO 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 ITO to make a reference to the Valuation Officer under section 55A(b)(ii).” [Emphasis supplied]

From the above Explanation to section 55A provide for two groups of cases ie., (i) those cases where the provisions of section 55A(a) and (b)(i) apply; and (ii) the other cases, where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value and the fair market value as claimed by him may be higher than its actual fair market value. The date 1-1-1954 referred to in the above circular was amended by the subsequent amendments and the relevant date after the said amendment is 1-4-1981.

15. Thus the combined reading of the provisions of section 55A read with its Explanatory Notes, we can conveniently make out three group of cases where the Assessing Officer can exercise jurisdiction in making reference to the DVO. They are : (i) case mentioned at clause(a) above, where the value of the asset as claimed by the assessee is in accordance with the estimate by the Registered Valuer; (ii) the cases, where the basis for such FMV of the asset is the valuation report itself and assessee failed to adopt the value of the asset in accordance with the estimate of such Valuation Report and also the cases, where the basis for such FMV of the asset is other than the Valuation Report; and finally (iii) the cases, where the assessee has opted for substitution of the cost of acquisition of an asset by its fair market value and the fair market value as claimed by him may be higher than its actual fair market value.

16. We have hitherto discussed the scope of section 55A of the Act. Now, we proceed to examine the facts relating to the reference made by the Assessing Officer in the instant case in the light of the above scope. The perusal of the documents relating to the reference by the Assessing Officer, placed at page 31 of the paper book, revealed that the Assessing Officer mentioned under section 55A of the Act against the relevant columns of the said reference. Thus, it does not specify the particulars of the clause (a) or (b) of the said section. Regarding the purpose the reference, Assessing Officer mentioned that the reference is ‘to determine the FMV of the property as on 1-4-1981 for the purpose of computing capital gains on the long-term capital assets’. Being the issue relating to the determination of the cost of acquisition, it is obvious that Assessing Officer is certainly inclined to adopt lesser FMV and per contra, the assessee attempt to inflate the FMV as on 1 -4-1981 with view to reduce the capital gains.

17. In these circumstances, the provision of clause (a) cannot be resorted to by the Assessing Officer while making a reference to the DVO, as the said clause (a) deals with the cases of assets of value lesser than the fair market value. Further, we have considered the Counsel’s argument that the provisions of clause (b) shall apply to the cases where there is no valuation report at all filed by the assessee in view of the words such as ‘in any other case’ used in the said clause (b) and found such an argument is now well founded. In our opinion the cases, this clause include the cases where the value adopted by the assessee is not in accordance with the estimate by the Registered Valuer together along with other conditions specified in the said clause (b). Subject-matter of the provisions of clauses (a) and (b) are not the existence of the valuation report but the assessee adopting the value of the asset “in accordance with the estimate” in the valuation report. For satisfying the above phrase, there must exist a valuation report in both group of cases mentioned in clauses (a) and (b). Under the circumstances, the case of the assessee, where there exists a valuation report and assessee adopted the value of the asset in accordance with the estimate of the registered valuers, obviously fall in clause (a) of the section 55A but for the value so adopted. This aspect of in accordance with an estimate, requires comparison of the estimate made by the registered valuer with that of the assessee’s claim, as noticed from the relevant records. We find assessee has strictly adopted the value as per the estimate of the said registered valuer namely : Dad Bhawalla Architects, Engineers and Valuers (P.) Ltd., dated 11-4-2000. Assessing Officer is empowered to make reference only when ‘that the value so claimed is less than its fair market value’, which is not the case here. Therefore, the assessee’s presumption as raised in the additional ground that the Assessing Officer’s reference is under the said clause (a) could not have been held as a valid presumption. Further, we have also considered the revenue’s argument that sub-clause (ii) of clause (b) of section 55A apply to the case of the assessee as the said sub-clause provides jurisdiction to the Assessing Officer in making reference in any case, where the Assessing Officer is of the opinion that it is necessary to refer the case to the DVO having regard to the nature of the asset and other relevant circumstances. Clause (b) covers those cases where the estimate by a Registered Valuer is filed and the value so adopted by the assessee is not in accordance with such estimate made by the Registered Valuer as well as the other cases. Here the Explanatory Notes to section 55A provide requisite information and it considers those other cases involving the issues of determination of the cost of acquisition of the capital asset for computing the capital gains. As per the above para 26 of the Explanatory Notes, provisions of clause (a) and sub-clause (i) of clause (b) have not application and the Assessing Officer is empowered to make a reference to the DVO only under clause (b)(0) of section 55A of the Act. This part of the explanation is free from any ambiguity. In the instant case, the value of the asset so adopted is much lower than the actual FMV as per the DVO. Thus, the provisions clause (b)(0) relevant to the case of the assessee and thus the reference is valid.

18. We have also perused the 3rd Member decision in the case of Ms. Rubab M. Kazerani(supra) where 3rd Member held “clause (b) comes into play where the assessee has not furnished any valuation report in support of her claim. Relevant extract from the held portion of the said decision, as described on pages 433 and 434 of the ITD is reproduced as under:-

“It was an admitted position that in the instant case, the assessee returned the capital gain based on the valuation report of the approved valuer. Therefore, from the provision it was clear that clause (a) of section 55A would be attracted. Clause (b) comes into play where the assessee has not furnished any valuation report in support of his/her claim. To say that the Assessing Officer has power to make a reference to the DVO under section 131 would be wrong in itself. Section 131 specifically gives power to the Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, etc., regarding discovery and inspection; production of evidence and issue of commissions. It does not talk about making a reference to the Valuation Officer for valuation of property. Therefore, the only section which is relevant for making reference to the DVO in the Act is section 55A only. The clause (a) of section 55A gives power to the Assessing Officer for making reference to the valuation of a capital asset to the Valuation Officer where the valuation of the asset claimed by the assessee is in accordance with the estimate made by the registered valuer, less than its fair market value. It does not talk about excess fair market value. In the instant case, the Commissioner had mentioned that the fair market value disclosed by the assessee at Rs. 1 crore as on 1-4-1981 as per the valuation report furnished by the assessee was on the higher side. The Commissioner or the Assessing Officer assumes power under clause (a) of section 55A only when in his opinion the fair market value disclosed by the assessee is less. Therefore, neither the Assessing Officer nor the Commissioner could assume power to give such a direction where the value of the property disclosed by the assessee based on the approved valuer’s report was on a higher side, i.e., Rs. 1 crore in instant case. As such invoking jurisdiction under section 263 on the above basis was illegal.”

From the above TM decision, it is evident that the provisions of section 55A(b)(0) shall come into play only when there is no valuation report in existence. Third Member has come to the above decision in the absence of the relevant Explanatory Notes. Parties have not brought the said notes to the attention of the Members during the proceedings. Therefore, the said decision in the case of Ms. Rubab M. Kazerani (supra) is distinguishable and therefore, we proceed to decide the instant case independent of the said decision.

19. Further, it is noticed that the provisions of section 55A reproduced above are provided with a view to ascertain the FMV of a capital asset for the purposes of the Chapter IV relating to ‘Computation of Capital Income’. In other words, undisputedly, Assessing Officer is vested with powers under section 55 A to make a reference to the D VO for the purposes of the determining the FMV for the purposes of ascertaining the cost of acquisition for computing the capital gains. In such circumstances, the counsel’s arguments that the Assessing Officer has no jurisdiction under section 55A, when the assessee’s value claimed is higher, is does not appear proper. Further, his argument that sub-clause (ii) of section 55A(b) shall have no application in cases where the assessee relied on the Valuation Report of the register valuer, also does not appear proper. If such arguments are accepted, the legislative intent expressed though the Explanatory Notes is defeated. At the end the Assessing Officer is left with no powers to assume jurisdiction when the claimed FMV is higher, such an interpretation may lead to an absurdity of the provisions of section 55A. Explanatory notes, a delegated legislation, reproduced above is precisely categorical in prescribing that the Assessing Officer is empowered to make reference sub-clause (ii) of section 55A(b), even in cases where the FMV claimed by the assessee is higher than the actual fair market value. Of course, the conditions specified in said sub-clause (ii) relating to ‘having regard to the asset and other relevant circumstances’ have to be met. In any case, there is dispute before us on these conditions. In view of the above, we are of the considered opinion that the statute has to be interpreted, to avoid absurdity as upheld by the Apex Court in the case of K.P. Verghese v. /JO [1981] 131 ITR 597, 7 Taxman 13 and the relevant paras are as follows :-

“A strictly literal reading of a statutory provision ignores several vital considerations which must always be borne in mind while interpreting such provision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It can attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and as pointed out by Lord Denning, it would be idle to expect every statutory provision to the “drafted with divine prescience and perfect clarity.” It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even “do some violence” to it, so as to achieve the obvious intention of the Legislature and produce a rational construction vide Luke v. IRC[1963] AC 557. The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basis assumption underlying the statutory provision. It is a well recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided….”

Thus, we are of the considered opinion that this is the case, where the subject-matter of the reference under section 55A revolves around the determination of the cost of acquisition based on the FMV as on 1 -4-1981 for the purpose of computation of the capital gains and in such circumstances, the provisions of section 55A(a) and (b)(i) will not apply and under such circumstances, it will, however, be open to the ITO to make a reference to the Valuation Officer under section 55A(b)(ii) as explained in the aforesaid Explanatory notes. Therefore, the reference made by the DVO is valid and we confirm the order of the CIT(A). Accordingly, the additional ground filed by the assessee is dismissed. On having upheld the validity of the reference, we proceed to adjudicate the grounds of the revenue as well as the assessee on merits in the following paragraphs.

Assessee’s appeal ITA No. 552/M/06

20. The facts of the issue have already been provided in the preceding paragraphs. Briefly, the assessee owns a flat No. 4C, New Ridge Apartments Co-operative Housing Society, Ridge Road, Mumbai and sold the same and for the purpose of computing the capital gains, assessee adopted the FMV for determining the cost of acquisition of the asset in accordance with the estimate of the Registered valuers, who valued the asset basing on the rent capitalisation method. Per contra, the DVO valued the same property based on the comparable cases, which the assessee disputes. Registered Valuer’s arrived at the market value of the asset at Rs. 2, 200 per sq. ft., whereas, the DVO figure is Rs. 1, 154, which is the average figure of three sale instances as discussed in his report adopted by the Assessing Officer. Considering the above variations, CIT(A) held that it will be fair and reasonable to fix the FMVs of the property at Rs. 1, 750 per sq. ft. as on 1-4-1981 and directed the Assessing Officer to recalculate the long- term capital gains adopting the above figure of Rs. 1, 750.

21. In the background of the above factual position, both the parties have argued to uphold their respective points of views. In this regard, the DR argued that the CIT(A) erroneously directed the Assessing Officer to compute the Long-Term Capital Gain on sale by arbitrarily adopting the fair market value at Rs. 1, 750 per sq. ft. as on 1-4-1981 relying on the submission of the assessee. He also stated that CIT(A) erred in not entirely accepting DVO, the expert, opinion who fixed up the FMV at Rs. 1, 154 per sq. ft. Regarding, the rent capitalization method adopted by the Registered

Valuer i.e., Shri Kishor C. Dabhawala, Ld. DR argued that the said method although an approved cannot be applied in the case of the asset in question, which under self occupation and more so, when there are comparable cases as gathered and relied upon by the DVO. Thus he argued for restoring the order of the Assessing Officer.

22. On the other hand, Learned counsel for the assessee put forward various arguments and stated that the rent capitalisation method is an approved method and there are no any exactly comparable cases. Further, he reiterated all the objections taken before the CIT(A) as well as the DVO, the objection reproduced at page 4 of this order. Further, the counsel stated that the three instances given by the DVO in his report do not reflect real status and they are not comparable instances. The counsel reasoned that in order to determine the price of the property, the instances of the sale should be of similar property and from the same locality. Thus, as per the assessee, the estimate of the CIT(A) determining at Rs. 1, 750 per sq. ft. is arbitrary, exorbitant and without any rational basis. Further, the Counsel also took objection to the rejection of the rent capitalisation method adopted by the assessee. Regarding ground No. 5 of his appeal, the counsel stated that the CIT(A) erred in not allowing deduction of Rs. 7, 875 while computing the capital gains under section 48 of the Act. In this regard, he mentioned that the said expenses were incurred in connection with the valuation charges paid to the Registered valuers.

23. We have heard both the parties ad perused the relevant orders and the records. It is noticed that the value of the asset as on 1-4-1981 based on the ‘rent capitalisation method’ as per the Registered Valuers is Rs. 45, 58, 268; whereas, the value as per the DVO based on his comparable sale instances is Rs. 23, 20, 306. In our opinion, the gap is unbridgeable and none of the two methods enjoys perfection as criticised by both the parties in the preceding paragraphs. Considering the self occupied nature of the flat as well as the assessee’s inclination to inflate the FMV for cost of acquisition, the ‘rent capitalisation method’ relied on by the assessee is not acceptable. Further, considering the comparable sale instances relied on by the DVO as well as the Assessing Officer’s tendency to reduce the cost of acquisition of an asset, in our opinion, the DVO’s figures also suffer from inadequacy. In view of the above, we are of the opinion that the CIT(A) has rightly rejected both the figures. On having held so, we have examined the basis for the CIT(A) to arrive the value of the flat at Rs. 1, 750 per sq. ft., which is not even the average sq. ft. figures of Rs. 2, 200 plus Rs. 1, 154, which in fact, works out Rs. 1, 677, In the absence any other reliable data in this regard, we are of the opinion that average of both the valuations based on rent capitalisation method of the Registered Valuer as well the averaging of three sale instances gathered by the DVO, though incomparable, would be appropriate. In other words, determining the FMV of the flat for the cost of acquisition at Rs. 1, 677 per sq. ft., in our opinion, would meet both ends of justice. Accordingly, the order of the CIT(A) is set aside to that extent and the Assessing Officer is directed to recompute the capital gains on the sale of the said flat adopting the value of the flat at the rate of Rs. 1, 677 per sq. ft. after giving reasonable opportunity of being heard to the assessee.

24. Regarding ground No. 5, we have noticed that the valuation charges incurred by the assessee cannot be construed to have been spent in connection either with the cost of the acquisition or cost of the improvement or transfer of the asset. Therefore, we find no reason to interfere with the order of the CIT(A). Accordingly, ground No. 5 of the assessee’s appeal is dismissed.

25. So far as the revenue appeal is concern, the ground is covered by our discussion in the preceding paragraphs. Accordingly, the sole of the revenue appeal is partly allowed.

26. In the result, appeal of the assessee is dismissed and that of the revenue is partly allowed.