2012 (10) TMI 796 - AT - Income Tax

FMV of capital asset on 01-04-1981 Land & building held on partition of HUF Assessee had taken FMV as on 01-04-1981 calculated by register valuer - AO found difference in the FMV as on 01-04-1981 in comparison with as comparable sales instances in the same area AO compute cost of acquisition as FMV on 01-04-1981 on the basis of comparable sales of same area Held that - The matter of valuation of FMV as on 01-04-1981 there is always an element of estimation and guess work as the data available cannot be comparable with the property in question in all aspects. In the matter of valuation FMV as on 01-04-1981, the revenue always takes a stand that the same is less than what is adopted by the assessee, because doing so, will increase the quantum of capital gains. The assessee on the other hand, will content with the FMV as on 01-04-1981 is higher, because that will result in capital gains being computed at a lower figure. Keeping in mind that valuation can never be exact, we would be much more magnanimous than the AO and fix the value of FMV of the property as on 01-04-1981 at Rs.5,000/- per cent for the first and second property. In relation to Property sold on 10-07-1981 - There is evidence available that the value of the land was adopted as on 10-07-1981 at Rs.14,000/- per cent. The assessee has also adopted the same value while computing the capital gains. The reasons assigned by the AO for rejecting the comparable sale instances are not justified. The valuation as declared by the assessee for this property is directed to be accepted. Thus, the appeals are partly allowed.

Issues Involved:
1. Adoption of Fair Market Value (FMV) as on 01-04-1981 for properties sold.
2. Computation of Long-Term Capital Gains (LTCG).
3. Acceptance of valuation reports by registered valuers.
4. Use of comparable sale instances for determining FMV.

Detailed Analysis:

1. Adoption of Fair Market Value (FMV) as on 01-04-1981 for properties sold:
The core issue in the appeals was the determination of the FMV of three properties as on 01-04-1981. The properties were part of a partition of the HUF of Mizar Annappa Pai and were sold by the co-owners, including the appellants. The appellants computed the FMV based on a registered valuer's report, adopting Rs.11,000/- per cent for the first property, Rs.10,000/- per cent for the second property, and Rs.14,000/- per cent for the third property. The Assessing Officer (AO) rejected these valuations, arguing that they were not based on comparable sale instances and lacked credibility. Instead, the AO procured comparable sale instances from the Sub-registrar's office and adopted lower values: Rs.2,000/- per cent for the first property, Rs.3,000/- per cent for the second property, and Rs.7,000/- per cent for the third property.

2. Computation of Long-Term Capital Gains (LTCG):
The appellants calculated their LTCG based on their FMV estimates, resulting in lower capital gains. The AO recomputed the LTCG using his lower FMV estimates, leading to higher capital gains. For instance, the AO computed the LTCG on the first property as Rs.26,45,219/- after adopting Rs.3,500/- per cent as the FMV for the land and Rs.20 per sq.ft for the building. Similarly, the AO recomputed the LTCG for the second and third properties using his FMV estimates, resulting in higher capital gains than those declared by the appellants.

3. Acceptance of valuation reports by registered valuers:
The appellants relied on the valuation report of a registered valuer, Mr. Satish Rao Iddya, to determine the FMV of the properties. The AO questioned the credibility of the valuer's report, noting that it was based on local enquiries without verifiable data. The AO summoned the valuer, who could not provide concrete evidence for his valuations. Consequently, the AO rejected the valuer's report and adopted FMV based on comparable sale instances from the Sub-registrar's office.

4. Use of comparable sale instances for determining FMV:
The AO emphasized the use of comparable sale instances to determine the FMV of the properties as on 01-04-1981. The AO obtained sale instances from the Sub-registrar's office and used these to derive the FMV, arguing that they provided a more accurate reflection of market values at the relevant time. The appellants, however, contended that the registered valuer's report should be accepted as it was prepared by an expert.

Tribunal's Findings:
The Tribunal acknowledged the complexities involved in determining FMV as on 01-04-1981 and noted that both the revenue and the assessee have inherent biases in their valuations. The Tribunal found that the AO's approach of using comparable sale instances was generally justified but also recognized the limitations and estimation involved in such valuations. The Tribunal decided to be more magnanimous than the AO and fixed the FMV of the first and second properties at Rs.5,000/- per cent, higher than the AO's estimates but lower than the appellants' claims. For the third property, the Tribunal accepted the appellant's valuation of Rs.14,000/- per cent, rejecting the AO's reasons for not accepting the comparable sale instances provided by the appellants.

Conclusion:
The appeals were partly allowed. The Tribunal adjusted the FMV for the first and second properties to Rs.5,000/- per cent and accepted the appellant's valuation of Rs.14,000/- per cent for the third property. This adjustment resulted in a partial acceptance of the appellants' claims and a recalibration of the LTCG computations accordingly.

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