2015 (3) TMI 107 - HC - Income Tax

Determination of value of property - under valuation of the property as held by AO - ITAT upholding the assessee s contention that the value determined by the Assessing Officer (AO) in respect of the property was unsustainable - Held that - ITAT took into consideration the suit for injunction filed by the purchaser Sh. M.P.Jain and the compromise statement dated 18.09.1989. It is also evident that despite the statement being recorded on 18.09.1989, title was not conveyed to the purchaser even though he continued to be in the possession of the property. It is matter of fact that original owner Sh.Tarsem Singh died in 1996; Sh.Gurdayal Singh, his agent/guardian died in 1994. After his death, the LRs continued to contest the title and eventually the purchaser agreed to pay a further amount of ₹35 lakhs. The ITAT took note of several decisions, including CIT vs. Naveen Gera (2010 (8) TMI 194 - Delhi High Court) and K.P. Varghese vs. Income Tax Officer 1981 (9) TMI 1 - SUPREME Court to show that the AO has to base his view with regard to under valuation, upon objective material. The intervening death of the original owner only aggravated the problem inasmuch as the LRs apparently refused to honour the agreement which eventually forced the purchaser to shell out the further amount mentioned in the original agreement even though substantial amounts had been paid earlier. The fact that in the agreement, the parties ultimately agreed to abide by the statement recorded by the court in the year 1989, ifso facto, could not have been the ground for suspecting its bonafide. Given the fact that an order XXII Rule 3 CPC application was filed and the compromise duly recorded in the Court, we are of the opinion that the ITAT s order does not lead to any substantial question of law requiring consideration. - Decided against revenue.

Summary

Issues:
1. Valuation of property for tax purposes based on agreement and subsequent transactions.
2. Dispute over property ownership and valuation leading to tax liability determination.
3. Interpretation of settlement agreement and tax implications.

Analysis:
1. The Revenue challenged the ITAT's order regarding the property's valuation, questioning the sustainability of the value determined by the Assessing Officer (AO). The property, E-24, South Extn., Part-I, New Delhi, was subject to an agreement between the guardian and the legal heir, with a tenant involved since 1985. Disputes arose, leading to a suit and subsequent compromise. The AO doubted the valuation due to delayed execution of the sale deed, referring the matter to the District Valuation Officer (DVO), who determined the property value at Rs. 2,75,25,780. Tax liability was calculated at Rs. 60,06,445.

2. The CIT (Appeals) directed assessment based on circle rate, which was appealed by both parties. The ITAT, however, accepted the assessee's appeals, disputing the Revenue's claim of under-valuation. The Court noted the sequence of events, emphasizing that the settlement in 2006 was genuine, and there was no dispute to avoid tax. The ITAT considered the suit for injunction, compromise statement, and subsequent events leading to the final settlement of Rs. 35 lakhs.

3. The Court analyzed the facts, highlighting the lack of title conveyance to the purchaser despite the compromise statement in 1989. The deaths of the original owner and the guardian complicated the situation, with the LRs contesting the title. The ITAT referenced legal precedents to emphasize the need for the AO to base valuation decisions on objective material. The Court concluded that the ITAT's order did not raise substantial legal questions, as the compromise recorded in court and subsequent transactions supported the property's valuation and tax treatment.

In conclusion, the Court dismissed the appeal and application, affirming the ITAT's decision regarding the property valuation and tax liability determination based on the agreement, subsequent events, and legal principles governing such disputes.