IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE BEFORE MS. SUSHMA CHOWLA, JM ITA No. 723/PN/2016 Assessment Year : 2010-11 Kunal Kishore Borawke, Shriniwas Garden, Opp. Police Ground, 1145/17, Shivaji Nagar, Pune 411016 Appellant PAN: FYPB2628G Vs. Income Tax Officer, Ward 3 (1), Pune Respondent Appellant by : Smt. Deepa Khare Respondent by : Shri Hitendra Ninawe Date of Hearing : 06.10.2016 Date of Pronouncement: 14.10.2016 ORDER PER SUSHMA CHOWLA, JM: This appeal filed by assessee is against order of CIT(A)-1, Pune, dated 05.02.2016 relating to assessment year 2010-11 against order passed under section 143(3) of Income-tax Act, 1961 (in short Act ). 2. assessee has raised following grounds of appeal:- 2 ITA No. 723/PN/2016 Kunal Kishore Borawke 1. learned CIT(A) erred in law and on facts in confirming valuation of land on conversion into stock u/s 45(2) at Rs.89,07,486/- as against Rs.1,04,24,000/- claimed by appellant on basis of Registered Valuer s Report. 2. learned CIT(A) erred in law and on facts in not appreciating comparable instances quoted by appellant that showed that valuation made by Registered Valuer was reasonable and had to be accepted. 3. learned CIT(A) erred in law and on facts in adopting capital gains at Rs.13,68,580/- and business profits at Rs.18,18,432/- as against Rs.28,85,094/- and Rs.3,01,918/- respectively as claimed by appellant. 3. assessee has also raised additional ground of appeal which reads as under:- Whether on facts and circumstances of case, learned AO was justified in adopting fair market value of land on date of conversion u/s 45(2) on basis of DVO Report which was obtained on basis of invalid reference as per Section 55A and failed to appreciate that reference u/s 55A can be made only when value adopted by assessee is less than fair market value. In face of Sec 55A of Act, it is not permissible to refer issue of valuation to Departmental Valuation Officer in terms of Section 131 of Act. value is claimed by assessee on basis of registered valuer s report may kindly be accepted. 4. learned Authorized Representative for assessee pointed out that additional ground of appeal raised is purely legal and hence, merits to be admitted. 5. issue raised by way of additional ground of appeal is against adoption of market value of land on date of conversion under section 45(2) of Act on basis of DVO report, where value adopted by assessee was higher as against report of DVO. issue raised by way of additional ground of appeal is purely legal and does not require any investigation into facts and consequently, same is admitted for adjudication. 6. Briefly, in facts of case, assessee for year under consideration had declared income from long term capital gains. assessee 3 ITA No. 723/PN/2016 Kunal Kishore Borawke had purchased plot of land in year 1996-97 for Rs.76,500/- and same plot was converted into business asset during financial year 2008-09. valuation of said plot as per Registered Valuer on date of conversion was Rs.1,04,24,000/-. assessee declared income on said conversion of plot since flats constructed in building were sold in assessment year 2010-11. assessee had declared business profit of Rs.3,01,918/- by taking market value of plot on conversion of asset at Rs.1,04,24,000/-. Assessing Officer made reference to Government Approved Valuer to determine fair market value during financial year 2008-09, which was arrived at Rs.72,85,432/-. difference between value shown by assessee and value as computed by DVO i.e. Rs.35,55,818/- was added as business income and capital gains of Rs.28,85,094/- was reduced to Nil. 7. CIT(A) upheld order of Assessing Officer. However, slight variation was accepted in computation of capital gains and business income. 8. assessee is in appeal against order of CIT(A). 9. issue raised by way of additional ground of appeal is against reference made by Assessing Officer to DVO, under which value worked out by DVO was lesser than value declared by assessee. learned Authorized Representative for assessee in this regard placed reliance on ratio laid down by Hon ble Bombay High Court in CIT Vs. Puja Prints (2014) 360 ITR 697 (Bom), wherein it is held that reference to 4 ITA No. 723/PN/2016 Kunal Kishore Borawke DVO under section 55A of Act has t o be made when value of property disclosed by assessee is less than fair market value and not vice-versa. 10. learned Departmental Representative for Revenue placed reliance on orders of authorities below. 11. On perusal of record and after hearing both learned Authorized Representatives, issue raised by way of additional ground of appeal is against valuation assessed by Departmental Valuation Officer. assessee was owner of land which was converted into business asset in financial year 2008-09. said asset was thereafter, developed and sold in assessment year 2010-11 and assessee offered long term capital gains on conversion of asset in instant assessment year. assessee also offered business profits on sale of flats. assessee had debited market value of plot as per valuation determined by Registered Valuer on date of conversion at Rs.1,04,24,000/-. assessee thereafter, computed long term capital gains at Rs.1,01,27,180/- and after claiming exemption under section 54F of Act, taxable long term capital gains were shown at Rs.28,85,094/-. cost of acquisition of said property which was purchased by assessee in 1996-97 was Rs.76,500/-. Assessing Officer was of view that valuation was without any basis since no sales instances were taken and hence reference was made to DVO, who vide report dated 18.03.2013 determined fair market value at Rs.72,85,432/- by adopting rate of Rs.15,400/- per sq. mtr instead of Rs.22,000/- per sq. mtr. assessee is aggrieved by said order of Assessing Officer in adopting market value of said plot on lesser figure than as declared. contention of assessee is that reference made to DVO by Assessing 5 ITA No. 723/PN/2016 Kunal Kishore Borawke Officer, wherein fair market value of property was determined at lower figure than that declared by assessee is not correct, since no such reference under section 55A of Act can be made . In this regard, I find support from ratio laid down by Hon ble Bombay High Court in CIT Vs. Puja Prints (supra), wherein it has been held that where Assessing Officer referred issue of valuation to DVO only because in his view, valuation of property as on 01.04.1981 as made by respondent- assessee was higher than fair market value, thus, in such cases, invocation of section 55A of Act was not justified. Hon ble High Court further held that amendment to section 55A of Act in 2012 was made effect ive from 01.07.2012 and hence, was to be applied prospectively. It was further held that where issue was covered by section 55A [clause (a)] of Act, resort could not be made to residuary clause provided in section 55A(b)(ii) of Act. CBDT circular dated 25.11.1972 was held to be not applicable. 12. Following above said proposition as laid down by jurisdictional High Court and applying same to facts of present case, in instant case also, reference was made to valuation officer in order to determine fair market value as on date of conversion on pretext that fair market value as declared by assessee which was backed by Registered Valuer Report, was higher, which is not correct. 13. issue arising in present appeal is squarely covered by ratio laid down by Hon ble Bombay High Court in CIT Vs. Puja Prints (supra), which in turn has been followed by Tribunal in Mrs. Anjali Bharat Kabra Vs. ITO in ITA No.547/PN/2013, relating to assessment year 2009-10, order dated 26.08.2016. Accordingly, there is no merit in substitution of fair market value 6 ITA No. 723/PN/2016 Kunal Kishore Borawke submitted by DVO since in pre-amended provisions of section 55A of Act, value lesser than value declared by assessee cannot be adopted by way of reference under section 55A of Act. Reversing order of CIT(A), additional ground of appeal raised by assessee is allowed. Since additional ground of appeal is decided in favour of assessee, other grounds of appeal become academic. 14. In result, appeal of assessee is allowed. Order pronounced on this 14th day of October, 2016. Sd/- (SUSHMA CHOWLA) JUDICIAL MEMBER Pune; Dated : 14th October, 2016. GCVSR Copy of Order is forwarded to : 1. Appellant; 2. Respondent; 3. CIT(A)-1, Pune; 4. Pr.CIT-2, Pune; 5. DR SMC , ITAT, Pune; 6. Guard file. BY ORDER, //True Copy // Sr. Private Secretary ITAT, Pune Kunal Kishore Borawke v. Income Tax Officer, Ward 3 (1), Pune