2006 (11) TMI 357 - AT - Income Tax

Computation of Long term capital gain - reference to DVO u/s 55A - agricultural land - estimation of the fair market value - assessee is an individual in status - HELD THAT - Nothing has been said by the DVO in respect of this sale instance except merely saying that it is not substantiated by any evidence nor submitted for examination before him. He has also stated that the sale instance has been highly valued and cannot be compared with assessee s land. We are unable to agree with the DVO. The entire land of about 1,75,000 sq. yds. fell to the share of late Shriman Bawa Maharaj Singhji and on his death on 24-8-1982, his children succeeded to the land. There was also a family settlement on 15-1-1992 under which land admeasuring 19,133 sq. yds. in Plot Nos. 1199, 1120, 1201 etc., Plot No.1169 measuring 1,384 sq. yds. in all and a 44 per cent share in 1,365 sq. yds. of land fell to the share of the assessee and Bawa Abhai Singh, each having 50 per cent share. If a part of the entire holdings of late Shriman Bawa Maharaj Singhji, when sold on 24-3-1981, could fetch a price of Rs. 828 per sq. yd., we do not see why this sale instance cannot form the basis of the estimate of the fair market value of the assessee s land as on 1-4-1981. We are afraid that the DVO has not attached due importance and weight to this sale instance and has brushed it aside unreasonably. In our view, there is no justification for adopting the fair market value of the land as on 1-4-1981 at Rs. 19,96,000 being 50 per cent of the estimated value of Rs. 39.92 lakhs as per the DVO. Taking into consideration all the circumstances and the factors stated elaborately in the two valuation reports filed by the assessee and having regard to the huge potential of the land for being converted into residential use and being fully aware of the fact that as on 1-4-1981, the land has not been officially converted into non-agricultural use, we are of the view that a reasonable estimate of the fair market value would be that estimated by the registered valuer at Rs. 1,42,53,000 on the basis of the sale instance dated 24-3-1981 of a part of the lands originally owned by late Shriman Bawa Maharaj Singhji. No strong grounds have been made out by the income-tax authorities or the DVO as to why this figure cannot be adopted as a fair estimate of the value. The assessee s valuation being supported by the aforesaid report, we hold that the same requires to be accepted and the computation of the capital gains may be made on that basis. In the result, the assessee s appeal is partly allowed with no order as to costs.

Issues Involved:
1. Jurisdiction of the Assessing Officer to refer valuation to the District Valuation Officer (DVO) under section 55A.
2. Validity and applicability of section 55A in the context of the fair market value declared by the assessee.
3. Preference between the valuation report of the registered valuer and the DVO.
4. Charging of interest under sections 234A and 234B.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to refer valuation to the DVO under section 55A:
The assessee challenged the jurisdiction of the Assessing Officer to refer the valuation to the DVO under section 55A. The reference was made during the original assessment proceedings, but the DVO's report was received after the assessment was completed, leading to the reopening of the assessment. The Tribunal noted that the assessee's writ petition challenging the reassessment notice was dismissed by the Delhi High Court, which held that the DVO's report could provide the Assessing Officer with "reason to believe" that income chargeable to tax had escaped assessment. Thus, the Tribunal concluded that the jurisdiction to reopen the assessment was not in question.

2. Validity and applicability of section 55A:
The Tribunal examined whether the reference to the DVO under section 55A was valid. Section 55A(a) applies if the Assessing Officer believes the value claimed by the assessee is less than its fair market value. Since the Assessing Officer believed the declared value was more than the fair market value, section 55A(a) did not apply. Section 55A(b) applies in other cases, but both sub-clauses under 55A(b) are governed by the expression "in any other case," which refers to situations not covered by 55A(a). Since the value declared by the assessee was based on a registered valuer's estimate and was more than the fair market value, section 55A(b) also did not apply. Therefore, the Tribunal concluded that the reference to the DVO was invalid.

3. Preference between the valuation report of the registered valuer and the DVO:
On the merits, the Tribunal compared the valuation reports. The registered valuer's report, based on actual sale instances and a detailed analysis of the land's potential for development, estimated the fair market value as on 1-4-1981 at Rs. 1,42,53,000. The DVO's report, which estimated the value at Rs. 39.92 lakhs, was based on sale instances from 1982 and 1984 and did not adequately consider the land's development potential. The Tribunal found the registered valuer's report more reliable and reasonable, considering the land's location and potential for development. Consequently, the Tribunal preferred the registered valuer's estimate and directed that the capital gains be computed based on it.

4. Charging of interest under sections 234A and 234B:
The Tribunal noted that the issue of charging interest under sections 234A and 234B should be reconsidered by the Assessing Officer in light of the Special Bench decision in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 269 (Delhi). The Tribunal set aside the orders of the departmental authorities on this issue and restored the matter to the Assessing Officer for a fresh decision in accordance with the Special Bench's directions.

Conclusion:
The appeal was partly allowed, with the Tribunal holding that the reference to the DVO under section 55A was invalid and preferring the registered valuer's report for computing capital gains. The issue of charging interest under sections 234A and 234B was remanded to the Assessing Officer for reconsideration.

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