2013 (9) TMI 636 - AT - Income Tax

Fair Market Value - Capital Gains - Section 55A - determination of FMV as on 1-4-1981 - average value of land adopted by the Revenue at Rs. 27, 030 per acre on the basis of registered sale deeds Held that - Fair market value in relation to a capital asset has been defined under section 2(22B) of the Act. The fair market value in relation to capital asset means the price that the capital asset would ordinarily fetch on its sale in the open market on the relevant date - Therefore adoption of the average value of land by the Revenue at Rs. 27, 030 per acre on the basis of registered sale deeds cannot be considered as fair market value within the definition of fair market value in relation to a capital asset as contained under section 2(22B) of the Act. The rationale and philosophy behind insertion of section 50C of the Act is that there is a wide gap between the sale consideration shown in the registered sale deed and the fair market value of the asset sold. Therefore the Legislature deemed it fit to introduce the deeming provisions of section 50C which contemplate a deeming situation in respect of full value of consideration for the purpose of levy of capital gains - Conceptually and factually there is wide difference between the sale consideration as recorded in the registered sale deed and the fair market value of the asset. The fair market value represents the price that a seller is willing to accept and a buyer is willing to pay in the open market. The price or sale consideration as specified in the registered sale deed of an asset in India represents the price or sale consideration negotiated or determined not in the open market but in the parallel operating market where such transactions crystallised in a clandestine manner. In view of this the sale consideration of an asset as recorded in the registered sale deed is generally understated and hence cannot be taken as the fair market value as on April 1 1981 for the purpose of computation of capital gains - Having regard to the fairness the fair market value of the land in question deserves to be taken at Rs. 3.50 lakhs per acre as on April 1 1981 for the purpose of computation of capital gains Appeal of assessee partly allowed.

Summary

Issues Involved:
1. Adoption of fair market value of land as on April 1, 1981.
2. Consideration of documentary evidence and reports from Patwari and Tehsildar.
3. Contradiction in adopting sale value and circle rate.
4. Comparison with other cases and consistency in assessment.

Issue-wise Detailed Analysis:

1. Adoption of Fair Market Value of Land as on April 1, 1981:
The primary issue revolves around the fair market value (FMV) of the land as on April 1, 1981. The assessee adopted Rs. 5 lakhs per acre based on a certificate from the Patwari, endorsed by the Tehsildar, while the Assessing Officer (AO) and Commissioner of Income-tax (Appeals) adopted Rs. 27,030 per acre. The Tribunal noted that the AO's adoption of the average rate from registered sale deeds did not align with the FMV definition under section 2(22B) of the Act, which considers the price the asset would fetch in an open market.

2. Consideration of Documentary Evidence and Reports from Patwari and Tehsildar:
The assessee presented a certificate from the Patwari, endorsed by the Tehsildar, indicating an FMV of Rs. 5 lakhs per acre based on local enquiries. The AO and Commissioner of Income-tax (Appeals) rejected this, favoring documentary evidence from registered sale deeds. The Tribunal highlighted that the Tehsildar's report mentioned both an average price of Rs. 27,030 based on mutations and Rs. 5 lakhs per acre for land on the main Rahon Road, emphasizing the difference in location and market rates.

3. Contradiction in Adopting Sale Value and Circle Rate:
The assessee argued that the sale consideration of Rs. 43.25 lakhs per acre, as recorded in a seized agreement, should influence the FMV as on April 1, 1981. The Tribunal criticized the AO and Commissioner of Income-tax (Appeals) for adopting this sale consideration for capital gains computation but ignoring it for determining FMV, deeming this approach contradictory and unsupported by civil jurisprudence.

4. Comparison with Other Cases and Consistency in Assessment:
The assessee cited the Amritsar Bench decision in Abdul Rashid v. ITO and the Chandigarh Bench decision in Deputy CIT v. Smt. Baljinder Kaur, which supported higher FMVs based on agreements and registered valuers' reports. The Tribunal emphasized the principle of consistency, noting that the AO had accepted Rs. 1,80,000 per acre in a previous assessment year for similar land, and this should influence the current assessment.

Conclusion:
The Tribunal concluded that the FMV of the land as on April 1, 1981, should be Rs. 3.50 lakhs per acre, balancing the evidence from the Patwari's certificate, the Tehsildar's report, and the principle of consistency. The appeal was partly allowed, correcting the AO's and Commissioner of Income-tax (Appeals)'s approach, which failed to align with the legislative intent and factual circumstances.