Reference to Valuation Officer.

91(1)

For ascertaining the fair market value of a capital asset for this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer,—

• (a) if the value of the asset claimed by the assessee is as per the estimate by a registered valuer, but the Assessing Officer is of the opinion that the value so claimed is at variance with its fair market value;
• (b) in any other case, if the Assessing Officer is of the opinion that–– (i) the fair market value of the asset exceeds the value claimed by the assessee by more than the percentage or amount, as prescribed; or (ii) having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.

91(2)

The provisions of section 269(3) to (8) shall , with necessary modifications, apply in relation to such reference made under sub-section (1).

Explanation

Section Summary:

Section 91(1) of the new income tax law allows the Assessing Officer (AO) to refer the valuation of a capital asset to a Valuation Officer if there is a discrepancy between the value claimed by the taxpayer and the fair market value (FMV) of the asset. This is particularly relevant when determining the FMV for capital gains or other tax-related purposes. Section 91(2) states that the procedural rules outlined in Section 269(3) to (8) will apply to such references.

Key Changes:

1. Expanded Scope for Valuation Reference: The AO can now refer a valuation to a Valuation Officer not only when the taxpayer’s claimed value is based on a registered valuer’s estimate but also in other cases where the AO believes the FMV exceeds the claimed value by a prescribed percentage or amount, or if the nature of the asset warrants it.
2. Incorporation of Section 269 Procedures: Section 91(2) explicitly links the process to the procedural framework of Section 269(3) to (8), ensuring consistency in how valuation disputes are handled.

Practical Implications:

• For Taxpayers: If the AO disagrees with the value of a capital asset declared by the taxpayer, the taxpayer may face delays in assessments and potential disputes. This could lead to additional scrutiny, especially for high-value assets.
• For Businesses: Businesses dealing with significant capital assets (e.g., real estate, machinery) must ensure their valuations are accurate and well-documented to avoid disputes.
• For Compliance Processes: Taxpayers may need to provide detailed documentation supporting their valuation claims, including reports from registered valuers, to minimize the risk of a valuation reference.

Critical Concepts:

• Fair Market Value (FMV): The price an asset would fetch in the open market, assuming both buyer and seller act knowledgeably and willingly.
• Registered Valuer: A professional authorized by the government to provide valuation reports for tax purposes.
• Section 269(3) to (8): These sections outline the procedural steps for valuation references, including timelines, the role of the Valuation Officer, and the rights of the taxpayer during the process.

Compliance Steps:

1. Accurate Valuation: Ensure the declared value of the capital asset is supported by a registered valuer’s report.
2. Documentation: Maintain all relevant documents, such as purchase agreements, valuation reports, and market data, to substantiate the claimed value.
3. Respond to AO Queries: If the AO questions the valuation, provide additional evidence or explanations promptly to avoid a formal reference to the Valuation Officer.

Examples:

• Scenario 1: A taxpayer sells a property and declares its value at ₹1 crore based on a registered valuer’s report. The AO believes the FMV is ₹1.2 crore and refers the matter to a Valuation Officer. The Valuation Officer’s final assessment will determine the taxable capital gains.
• Scenario 2: A business sells machinery and claims its value at ₹50 lakh. The AO, considering market trends, suspects the FMV is ₹60 lakh and refers the case to a Valuation Officer. The taxpayer must provide additional evidence to support their claim or accept the Valuation Officer’s determination.

This section ensures that valuations are accurate and consistent, reducing disputes and ensuring fair taxation.