2015 (7) TMI 78 - AT - Income Tax

Valuation of the property - CIT(A) has upheld the valuation made by Registered Valuer and discarded the DVO Report relied by the AO - Held that - CIT(A) rightly repells the said reasoning of the DVO and opined that the valuation by the Registered Valuer was not made considering the structure as new one and held that it was an incorrect observation of DVO. The DVO further states in his letter that the cost of construction as on today i.e. in the year 2006 varied between ₹ 550 to ₹ 650 for a load bearing G 1 structure and how the rate could be ₹ 350/- pr sq. ft. as on 1.4.81 for an old building which was built in and around 1940. The Ld CIT(A) takes notes that the DVO s finding that the cost of construction in the year 2006 was between 550 to 650 is not supported with any evidence. The Ld CIT(A) rightly observes that there is a basic difference between determining the cost of construction and valuing the fair market value of any property and the fair market value is always higher than the cost of construction. Ld CIT(A) takes into account that in any case the salvage value of the structure in comparison to the overall value of the property was much less and negligible and even if there is some variation, it would not substantially reduce the value of the entire property as a whole. Finally the DVO finds fault that the Registered Valuer had not given any sale instances for the land and has only stated that the rates available from the registrar were 4-5 times lower as compared to the actual sale rate and so his finding could not be accepted as FMV since it had to be supported by the evidence. Ld CIT(A) agrees to the said observation of the DVO but rightly observes that even the sale instances adopted by him (DVO) also did not serve any purpose for the same reason ; and therefore the valuation of the property was just a matter of estimate of one expert versus another expert. We find considerable force in the observation of the Ld. CIT(A) that from the discussion in the foregoing para it would be clear that the basic purpose for which the case was remanded by the ITAT to the file of the Assessing Officer remained unfulfilled. The DVO ought to have controverted the report of the Registered Valuer s report, so it cannot be acted upon and the failure of the DVO as stated above, give us no other alternative but to uphold the valuation of the registered valuer for the purpose of computation of capital gain. The Ld CIT(A) has rightly taken note of the fact that Registered valuer report is based on the average of two different methods of valuation and DVO failed to controvert the said method nor could clarify as to his selection of single method was better. In the facts and circumstances we find that registered valuer report more acceptable, since the estimate of the DVO is based only on one method of valuation, where as we find that the Registered Valuer s estimate was based on two different methods; and moreover the fact remains that he could physically examine the property, so it is more acceptable being nearer to correct estimate. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made on account of long-term capital gain based on DVO's report.
2. Rejection of DVO's report in favor of the Approved Valuer's report by the assessee.
3. Validity of the assessment order by the AO.

Detailed Analysis:

Issue 1: Deletion of Addition Made on Account of Long-Term Capital Gain Based on DVO's Report
The Revenue's appeal contended that the CIT(A) erred in deleting the addition of Rs. 39,68,751/- made on account of long-term capital gain. The AO had assessed the income based on the DVO's report, which was in line with the ITAT's direction for re-examination. The AO adopted the DVO's valuation of the property for computing capital gains, which was significantly lower than the valuation provided by the assessee's Approved Valuer. The CIT(A) upheld the valuation made by the Registered Valuer and discarded the DVO's report, providing relief to the assessee.

Issue 2: Rejection of DVO's Report in Favor of the Approved Valuer's Report by the Assessee
The CIT(A) rejected the DVO's report, favoring the Approved Valuer's report submitted by the assessee. The assessee argued that the DVO's report was flawed, as it was prepared without providing the assessee an opportunity to present objections or evidence, violating principles of natural justice. The DVO's valuation was based on assumptions and lacked a proper basis, particularly regarding the value of the old structure and land rates. The CIT(A) found that the AO did not allow sufficient opportunity for the assessee to counter the DVO's report and that the DVO's report was based on surmises, making it unreliable. The Registered Valuer's report was considered more credible as it was based on physical inspection and detailed analysis.

Issue 3: Validity of the Assessment Order by the AO
The AO's assessment order was challenged on the grounds that it was not in accordance with the law. The CIT(A) observed that the AO failed to provide adequate reasons for accepting the DVO's report while rejecting the Registered Valuer's report. The AO did not address the objections raised by the assessee, which were submitted just days before the assessment order was passed. The CIT(A) concluded that the assessment order was vitiated due to the lack of proper opportunity for the assessee to be heard, making it legally unsustainable.

Conclusion:
The ITAT upheld the CIT(A)'s decision, agreeing that the DVO's report was unreliable and that the Registered Valuer's report was more credible. The AO's assessment was found to be flawed due to procedural lapses and lack of adherence to principles of natural justice. Consequently, the Revenue's appeal was dismissed, and the CIT(A)'s order was upheld, providing relief to the assessee. The appeal of the Revenue stands dismissed, and the order was pronounced in the Open Court on 24/06/2015.