Section 55A of the Income Tax Act confers powers on the Assessing Officer to revalue the capital asset and bring it to fair valuation. The discretion of the Assessing Officer plays a major role in the application of the said powers.
Section 55A of the Income Tax Act reads as follows:
Reference to Valuation Officer.
55A.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 7[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,
and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the 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.
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).]
As stated in the Section, the Assessing Officer may refer to the valuation of a capital asset to a Valuation Officer under certain circumstances. Prior to understanding the circumstances for the same, the following terms must be understood:
Registered Valuers are also referred to as Private Valuers. They are authorised by the Board and are recognised by the Income Tax Department. They work in a private capacity, and their valuation is not binding on the tax authorities, but the Assessing Officer cannot ignore such valuation unless he has approached the Departmental Valuation Officer for valuation.
Valuation Officers, also known as Departmental Valuation Officers, are recognised by the Income Tax Department. They are authorised/approved by the Income tax Department. When the tax authorities require the revaluation of a capital asset, then the tax authorities may request a Valuation Officer to ascertain the same. The valuation will be considered by the tax authorities.
Circumstances that warrant reference to the Valuation Officer:
According to Section 55A of the Income Tax Act, the Assessing Officer may refer the valuation of the capital asset in the following circumstances
Value of an asset as claimed by an assessee and the fair market value vary
An Assessing Officer should be of the opinion that the valuation of the capital asset as claimed by an assessee based on the valuation given by a registered valuer, varies from the Fair Market Value of the asset. The difference in the amount does not need to meet any limits, as long as an Assessing Officer is of the opinion that there is some variation, the Valuation Officer that is the Departmental Valuation Officer can be referred to.
The powers conferred by the section can be used by the Assessing Officer in the following circumstances:
Section 50C – This section was introduced to curb tax avoidance by taxpayers, on the sale of immovable property. As per this Section, the Stamp Valuation Authorities can provide the valuation that must be adopted for the sale agreement of the immovable property. However, when the taxpayer disputes the said valuation, the Assessing Officer must refer the valuation to a Valuation Officer as per the provisions of Section 55A.
An Assessing Officer can make the reference to the valuation Officer despite the absence of the above circumstances.
– The fair market value of an asset exceeds the value of the asset so claimed by the taxpayer by such percentage or value as prescribed in this behalf.
– That having regard to the nature of the asset and other circumstances, it is relevant to do so.