Income Tax Amendment Of 2012 Allowing Officers To Dispute Any Property Value Not Retroactive: Gujarat High Court

The Gujarat High Court ruled that the 2012 amendment to Section 55A(a) of the Income Tax Act, which expanded the Assessing Officer's power to refer capital assets for valuation, cannot be applied retrospectively.

The court ruled that assessments relating to the period prior to 1 July 2012 would continue to be governed by the unamended provision and, on that basis, quashed a reassessment notice issued to the assessee.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati passed the ruling while allowing a writ petition filed by the legal heir of late Padmaben Zinabhai Trivedi, who had challenged a notice issued under Section 148 for AY 2010-11.

The court observed, "The amendment to Section 55A(a) of the Act introduced vide Finance Act, 2012 w.e.f 01-07-2012, by which the words “is less than the fair market value” is substituted by the words “is at variance with its fair market value” does not have retrospective effect, since the amendment has been made effective only from 01.07.2012. Thus, the case of the petitioner will be governed by un-amended Section 55A(a) of the Act as existing during the period relevant to the A.Y. 2009/10"

The deceased taxpayer had sold a parcel of his land in 2009 for ₹92.65 lakh and computed long-term capital gains by adopting the fair market value of the land as of 1 April 1981 at ₹81 per sq. metre, based on the report of a registered valuer.

Nearly five years after her death, the Income Tax Department reopened the assessment after determining the fair market value at ₹1 per sq. metre based on sale instances collected from the Sub-Registrar's office, alleging escapement of capital gains.

The petitioner contended that under the unamended Section 55A(a), an Assessing Officer could refer a matter to the Departmental Valuation Officer only where the value declared by the assessee was less than the fair market value.

Since the assessee had adopted a higher value than that determined by the Department, the provision had no application. It was further argued that the 2012 amendment substituting the words "is less than its fair market value" with "is at variance with its fair market value" operated only prospectively.

The Revenue argued that the reassessment was valid because the amendment had already come into force by the time the notice was issued in 2017 and that the fair market value adopted by the assessee was substantially higher than the value determined by the Department.

Accepting the petitioner's submissions, the High Court relied on the Bombay High Court's decision in CIT v. Puja Prints and its own earlier decision in Hiaben Jayantilal Shah, holding that the amendment was expressly made effective from 1 July 2012 and could not govern transactions relating to earlier assessment years. It held that the reopening itself was based on an incorrect application of the amended provision.

The Court further observed, "At the relevant time, very clearly reference could be made to the Departmental Valuation Officer only if the value declared by the assessee is in the opinion of the Assessing Officer less than its fair market value."

Accordingly, the court quashed the reassessment notice, holding that the Assessing Officer had failed to appreciate the legal position governing Section 55A(a). Since the petition succeeded on this ground, the Court left open the issue relating to the validity of a notice issued in the name of a deceased person.

For Petitioner:  Senior Advocate Tushar Hemani with Vaibhavi K. Parikh.

For Respondent: Advocate Rutvij R. Patel