Gujarat High Court Quashes Income Tax Reassessment Over Pre-2012 Property Valuation Rule

The Gujarat High Court has quashed an income tax reassessment notice issued over the valuation of land sold in 2009. It held that the reassessment in the case was unsustainable because the assessing officer sought to adopt a lower fair market value despite the unamended law governing the assessment.

A division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati held that the amendment made to Section 55A through the Finance Act, 2012 applied only prospectively. It therefore could not govern Assessment Year 2010-11.

"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 tribunal observed.

The petition was filed by the legal heir of Late Padmaben Zinabhai Trivedi. The assessee sold land in June 2009. While computing long-term capital gains, she adopted the property's fair market value as on April 1, 1981 at ₹81 per sq. metre based on a registered valuer's report.

In March 2017, nearly five years after the assessee's death, the assessing officer issued a reassessment notice. Relying on sale instances obtained from the Sub-Registrar's office, the officer worked out the fair market value at ₹1 per sq. metre and alleged that income had escaped assessment.

The legal heir argued that, under the unamended provision, a reference to the Departmental Valuation Officer could be made only where the value declared by the assessee was lower than the fair market value. Since the assessee had adopted a higher value based on a registered valuer's report, that condition was not satisfied. The petitioner also challenged the notice on the ground that it had been issued in the name of a deceased person.

The Income Tax Department maintained that the reassessment was justified because the assessee had adopted a fair market value of ₹81 per sq. metre, while comparable sale instances indicated a value of ₹1 per sq. metre. It also contended that the legal heir had participated in the proceedings without objecting to the notice having been issued in the deceased assessee's name.

Rejecting the department's stand, the court 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 Assessing Officer less than its fair market value."

Holding that the reassessment had been initiated on an erroneous understanding of the law governing valuation references, the court quashed the notice. Since the petition succeeded on that ground, it left open the question of whether participation by a legal heir could validate a notice issued in the name of a deceased person.

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

For Respondent: Rutvij R. Patel