Section 55A Of Income Tax Act

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.

Dive into this blog to understand to these key points:

• Why Assessing Officer refer a capital asset to a Valuation Officer
• Circumstances that warrant reference to Valuation Officer
• Other conditions to refer to a Valuation Officer

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—

• 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 the opinion that the value so claimed is less than its fair market value;
• 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 on this behalf; or 
  (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary 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 Valuer

Registered Valuers are also referred to as Private Valuers. They are authorised by the Board and 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 Officer

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 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 who 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 valuation, the Assessing Officer must refer the valuation to a Valuation Officer as per the provisions of Section 55A.

Section 142A: The Assessing Officer may, for the purposes of assessment or reassessment, refer to a Valuation Officer to estimate the value, including fair market value, of any asset, property, or investment and submit a copy of the report to him.

Other Conditions

An Assessing Officer can make the reference to the valuation Officer despite the absence of the above circumstances when: 

• 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 on this behalf. 
• Having regard to the nature of the asset and other circumstances, it is relevant to do so.

A reference to determine the cost of acquisition u/s 55A can be made under the following circumstances:

To determine

(i) The FMV of the asset as of 1-4-1981/1-4-2001 (either in the hands of the assessee or in the hands of the previous owner) is to be taken as the cost of acquisition for computation of capital gains in the assessee's hands.

(ii) FMV of the security/shares for determination of cost of acquisition u/s 49(2AA) or u/s 49(2AB).

(iii) The FMV of the asset, to be considered the cost of acquisition, has been taken into account for the purposes of the Income Declaration Scheme, 2016, as per section 49(5).

(iv) FMV of the asset to be adopted as cost of acquisition, which has been taken into account for computation of accreted income on the specified date as referred to in section 115TD(2) as per section 49(8).

(v) FMV of the asset to be taken as the cost of acquisition on the date when the asset is converted from stock-in-trade into investment as provided in section 28(via) as per section 49(9).

(vi) FMV of the asset on the date on which the previous owner became the owner.

(vii) FMV of an asset as on 01-04-1981/01-04-2001 u/s. 55.

A reference u/s 55A can be made for the determination of FMV to be deemed as Full Value of Consideration under the following circumstances:

To determine

(i) FMV on the date when capital asset is received under insurance from the insurer u/s. 45(1A).

(ii) FMV on the date when a capital asset is converted into stock-in-trade u/s. 45(2).

(iii) FMV on the date when the capital asset was received by the specified person from the specified entity on its reconstitution as provided u/s. 45(4).

(iv) MV (or FMV) of the assets received by the shareholder on the liquidation of the company as required u/s. 46(2).

(v) FMV of the asset on the date of transfer deemed as the full value of consideration u/s. 50B(2).

(vi) FMV of the asset being land or building or both as required u/s. 50C(2).

(vii) FMV of the asset to be treated as full value of consideration as required u/s. 50D.

(viii) FMV, where an asset is exchanged with another asset [Section 2(47)].