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2009 (2) TMI 501 - AT - Income TaxAscertaining Fair Market Value of capital asset - reference made to the DVO by the AO u/s 55A( a ) is invalid, bad in law and without jurisdiction - HELD THAT - From perusal of the documents relating to the reference by AO, placed at the paper book, revealed that AO mentioned u/s 55A against the relevant columns of the said reference. Thus, it does not specify the particulars of the clause ( a ) or ( b ) of the said section. Regarding the purpose the reference, AO mentioned that the reference is to determine the FMV of the property as on 1-4-1981 for the purpose of computing capital gains on the long-term capital assets . Being the issue relating to the determination of the cost of acquisition, it is obvious that AO is certainly inclined to adopt lesser FMV and per contra , the assessee attempt to inflate the FMV as on 1-4-1981 with view to reduce the capital gains. In these circumstances, the provision of clause ( a ) cannot be resorted to by AO while making a reference to the DVO, as the said clause ( a ) deals with the cases of assets of value lesser than the fair market value. Therefore, we are of the considered opinion that this is the case, where the subject-matter of the reference u/s 55A revolves around the determination of the cost of acquisition based on the FMV as on 1-4-1981 for the purpose of computation of the capital gains and in such circumstances, the provisions of section 55A( a ) and ( b )( i ) will not apply and under such circumstances, it will, however, be open to the ITO to make a reference to the Valuation Officer u/s 55A( b )( ii ) as explained in the aforesaid Explanatory notes. Hence, the reference made by the DVO is valid and we confirm the order of CIT(A). Accordingly, the additional ground filed by the assessee is dismissed. On having upheld the validity of the reference, we proceed to adjudicate the grounds of the revenue as well as the assessee on merits in the following paragraphs. Estimation of fair market value of the property - Method of valuation - rent capitalization method or comparable instances - difference between the FMV ascertain by assessee and DVO - assessee owns a flat and and sold the same and for the purpose of computing the capital gains - appellant submits that the three instances given by the DVO in his report do not reflect real status and are not comparable instances - he also submits that in order to determine the price of the property the instances of the sale should be of similar property in similar locality. HELD THAT - It is noticed that the value of the asset as on 1-4-1981 based on the rent capitalisation method as per the Registered Valuers; whereas, the value as per the DVO based on his comparable sale instances. In our opinion, the gap is unbridgeable and none of the two methods enjoys perfection. Considering the self occupied nature of the flat as well as the assessee s inclination to inflate the FMV for cost of acquisition, the rent capitalisation method relied on by the assessee is not acceptable. Further, considering the comparable sale instances relied on by the DVO as well as AO s tendency to reduce the cost of acquisition of an asset, in our opinion, the DVO s figures also suffer from inadequacy. Therefore, we are of the opinion that CIT(A) has rightly rejected both the figures. On having held so, we have examined the basis for CIT(A) to arrive the value of the flat at Rs. 1,750 per sq. ft., which is not even the average sq. ft. figures of Rs. 2,200 plus Rs. 1,154, which in fact, works out Rs. 1,677, In the absence any other reliable data in this regard, we are of the opinion that average of both the valuations based on rent capitalisation method of the Registered Valuer as well the averaging of three sale instances gathered by the DVO, though incomparable, would be appropriate. In other words, determining the FMV of the flat for the cost of acquisition at Rs. 1,677 per sq. ft., in our opinion, would meet both ends of justice. Accordingly, the order of CIT(A) is set aside to that extent and AO is directed to recompute the capital gains on the sale of the said flat adopting the value of the flat at the rate of Rs. 1,677 per sq. ft. In the result, appeal of the assessee is dismissed and that of the revenue is partly allowed.
Issues Involved:
1. Adoption of fair market value of the property as on 1-4-1981. 2. Validity of the reference made to the District Valuation Officer (DVO) under section 55A of the Income-tax Act. 3. Method of valuation (rent capitalization method vs. comparable sales method). 4. Deduction of valuation charges from capital gains under section 48 of the Act. Detailed Analysis: 1. Adoption of Fair Market Value of the Property as on 1-4-1981: The Commissioner of Income-tax (Appeals) [CIT(A)] adopted the fair market value (FMV) of the property at Rs. 1,750 per sq. ft. as against Rs. 2,200 per sq. ft. claimed by the assessee based on the report of a Registered Valuer. The DVO estimated the FMV at Rs. 1,154 per sq. ft. The CIT(A) found the DVO's figure of Rs. 1,154 was an average of three sale instances and decided to fix the FMV at Rs. 1,750 per sq. ft. The Tribunal, however, determined that neither the rent capitalization method nor the DVO's comparable sales method was perfect. It concluded that an average of both valuations, i.e., Rs. 1,677 per sq. ft., would be appropriate for computing the capital gains. 2. Validity of the Reference Made to the DVO Under Section 55A: The assessee argued that the reference made to the DVO under section 55A(a) was invalid since the value claimed by the assessee was more than its FMV. The Tribunal examined the provisions of section 55A, which allows the Assessing Officer (AO) to refer the valuation to a DVO if the AO believes the FMV exceeds the value claimed by the assessee by a significant amount. The Tribunal found that the reference was valid under section 55A(b)(ii) because the AO had reasons to believe the FMV was substantially lower than claimed by the assessee. The Tribunal dismissed the additional ground raised by the assessee challenging the validity of the reference. 3. Method of Valuation: The assessee used the rent capitalization method, while the DVO used comparable sales instances. The Tribunal noted the significant gap between the valuations and found that both methods had their flaws. The Tribunal held that the rent capitalization method was not suitable for a self-occupied property and that the DVO's comparable sales instances were not entirely reliable. Therefore, the Tribunal decided to average both valuations, resulting in an FMV of Rs. 1,677 per sq. ft. 4. Deduction of Valuation Charges from Capital Gains Under Section 48: The assessee claimed a deduction of Rs. 7,875 for valuation charges paid to the Registered Valuer. The CIT(A) did not allow this deduction. The Tribunal upheld this decision, stating that the valuation charges could not be considered as expenses incurred in connection with the cost of acquisition, improvement, or transfer of the asset. Conclusion: The Tribunal concluded by directing the AO to recompute the capital gains based on an FMV of Rs. 1,677 per sq. ft. and dismissed the assessee's claim for deduction of valuation charges. The assessee's appeal was dismissed, and the revenue's appeal was partly allowed.
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