2015 (9) TMI 1560 - AT - Income Tax

Adoption of amount of sale consideration - long term capital gain - valuation report of an approved valuer - Held that - It is an admitted fact that the properties sold by the assessee are tenanted properties having 52 tenants on both the properties and the assessee is not in possession of single square foot of land. At page 5 of the sale deed it has been clearly mentioned that the entire building and the said property is in vacant and peaceful possession of the party of the first part . From the sale instances given by the assessee, we find the tenanted property fetches lesser consideration which is apparent from the 4 sale instances given by the DVO. From the various details furnished by the assessee, we find the sq.ft rate of property at survey No.139 was ₹ 19,934/- and selling rate of property situated at survey No.540 was at ₹ 18,100/- whereas the property at survey No.273 which has been sold at ₹ 15,126/- per sq.ft. This shows that a tenanted property fetches lesser rate than a property free from any encumbrance and having vacant possession by the owner. Therefore, we find merit in the arguments of the assessee that when a property having 8 tenants fetches lesser price than a property free from encumbrance, the property having 52 tenants will definitely fetch lesser price than the property having 8 tenants. Therefore, the 4 instances taken by the DVO are not comparable instances. DVO has increased the valuation of the property of comparable instances on account of time gap and locational advantage. So far as the locational advantage is concerned we find all the properties are situated in the heart of the city and therefore benefit of locational advantage cannot be a factor for increasing the value of the property sold by the assessee. So far as the time gap is concerned, we find the DVO has not considered the cost inflation index published by the income tax department. Further the DVO has given reduction @25% on account of factors like size of the property, undivided share and occupation by the tenants etc. on presumption basis. There is no finding by the AO or material in his possession that the assessee has received any extra amount other than what is declared as sale consideration. The purchaser has also not given any evidence or stated before the AO that he has paid more than what is mentioned in the sale deed. Thus considering the objections raised by the assessee from the very beginning, i.e., before the DVO/AO and the CIT(A) that the valuation made by the DVO is not correct, we are of the considered opinion that the value determined by the DVO cannot be accepted. At the same time when the value adopted by the registered valuer appointed by the assessee herself has valued the property at Survey No.1157 & 1158 at ₹ 1,19,77,000/- the contention of the Ld. Counsel for adoption of ₹ 85,34,700/- as sale consideration also cannot be accepted since the registered valuer has considered all aspects as argued by the Ld. Counsel for the assessee. We accordingly hold that while the value of the property at Survey No.1157 & 1158 be held at ₹ 1,19,77,000/-, the value of the property at Survey No.990 be taken at ₹ 17,00,000/- as declared by the assessee. The AO is directed to recompute the capital gain accordingly.

Summary

Issues Involved:

1. Determination of the correct amount of sale consideration.
2. Acceptance of the fair market value determined by the Valuation Officer.
3. Objections regarding the valuation process and comparable sale instances.

Detailed Analysis:

1. Determination of the Correct Amount of Sale Consideration:

The primary issue is the discrepancy between the sale consideration declared by the assessee and the amount adopted by the Assessing Officer (AO). The assessee declared a sale consideration of Rs. 1,02,34,700/- for properties sold, while the AO adopted Rs. 2,86,87,000/-, based on the valuation by the District Valuation Officer (DVO). The AO noted that the property at CTS Nos. 1157 & 1158 was a joint property held by four persons, and only two of them sold their shares. The sale consideration was Rs. 1,50,00,000/- plus one flat valued at Rs. 10,34,700/-. The AO computed the long-term capital gain based on the DVO's valuation, resulting in a taxable gain of Rs. 2,06,42,926/-, later reduced to Rs. 1,96,42,926/- after adjustments.

2. Acceptance of the Fair Market Value Determined by the Valuation Officer:

The AO referred the matter to the DVO to ascertain the correct value of the land as on the date of sale. The DVO determined the fair market value at Rs. 2,86,87,000/-. The assessee objected to this valuation, arguing that the property was tenanted and jointly owned, affecting its market value. The CIT(A) upheld the AO's decision, stating that the provisions of section 50C were applicable, and the DVO's valuation was appropriate. The CIT(A) also rejected the assessee's objections regarding the lack of proper opportunity and the method of valuation used by the DVO.

3. Objections Regarding the Valuation Process and Comparable Sale Instances:

The assessee argued that the DVO did not consider the adverse factors affecting the property's market value, such as joint and undivided ownership, tenant occupation, and disputes among joint owners. The CIT(A) discussed these objections in detail but upheld the DVO's valuation. The assessee further contended that the comparable sale instances used by the DVO were not appropriate as they were not tenanted properties, unlike the assessee's property. The Tribunal found merit in the assessee's argument, noting that three out of the four comparable properties considered by the DVO were not tenanted, and thus not comparable.

Conclusion:

The Tribunal concluded that the properties sold by the assessee were tenanted and that the comparable instances used by the DVO were not appropriate. The Tribunal held that the value determined by the DVO could not be accepted. However, the value declared by the assessee was also not accepted entirely. The Tribunal directed that the value of the property at Survey No. 1157 & 1158 be taken as Rs. 1,19,77,000/- and the value of the property at Survey No. 990 be taken as Rs. 17,00,000/- as declared by the assessee. The AO was directed to recompute the capital gain accordingly.

Final Judgment:

The appeal filed by the assessee was partly allowed, with the Tribunal directing a recomputation of the capital gain based on the revised property values.