2014 (3) TMI 1173 - AT - Income Tax

Penalty u/s 271(1)(C) - Addition of long term capital gains by taking a different fair market value as on 01-04-1981 - HELD THAT - Addition is purely based on difference of opinion. The assessee has undisputedly disclosed the basis of valuation of fair market value adopted as on 01.04.1981. It is pertinent to note that the fair market value as on 01.04.1981 is always determined by considering the instance of sale and purchase in the area and by making certain adjustment. Even by taking the utmost care while determining the value. It need not necessarily give the actual value of the property as on 01.04.1981. Since the actual cost or value of the property is based on the opinion therefore any addition made on the basis of difference of opinion and estimate would not automatically lead to the conclusion that the assessee has concealed particulars of income or furnished inaccurate particulars of income. The assessee has relied upon the various decisions wherein it has been held that the report of the DVO is merely an expression of opinion and on the basis of opinion and estimates penalty cannot be levied u/s 271(1)(C) as the concealment has not been proved in such a situation. We are of the considered opinion that the penalty u/s 271(1)(c) is not warranted in respect of the addition based on different fair market value as on 01.04.1981 when the assessee has substantiated its claim by the valuation report of a registered valuer. - Decided in favour of assessee.

Summary

Issues Involved:
Penalty u/s 271(1)(C) for long term capital gains based on fair market value as on 01.04.1981.

Analysis:
1. The appeal challenged the penalty order passed u/s 271(1)(C) of the Income Tax Act for A.Y. 2007-08 regarding long term capital gains. The Assessing Officer (AO) initiated penalty proceedings due to a variance in the fair market value as on 01.04.1981 used by the assessee and the AO's assessment.

2. The AO assessed long term capital gain at a higher value than claimed by the assessee, leading to the penalty. The assessee based their valuation on a registered valuer's report, while the AO relied on a reference book. The assessee contended that their valuation was bonafide, supported by expert opinion, and not a deliberate attempt to evade tax.

3. The assessee argued that the valuation discrepancy was due to differing expert opinions, emphasizing that the valuation was based on a registered valuer's report. The AO's rejection of this valuation without referring to the Departmental Valuation Officer (DVO) was challenged as arbitrary.

4. The Tribunal observed that the valuation of property can vary based on factors like location and size, leading to differing opinions. The assessee's disclosure of valuation basis was considered genuine, supported by expert opinion. The Tribunal noted that discrepancies in valuation do not automatically imply concealment of income.

5. Relying on precedents, the Tribunal concluded that penalty u/s 271(1)(C) was unwarranted when the assessee had substantiated their valuation with a registered valuer's report. The penalty was deleted, and the appeal was allowed.

6. The judgment highlighted the importance of substantiating valuation claims with expert opinions and emphasized that differences in valuation do not necessarily indicate concealment of income. The decision underscored the need for a genuine basis for valuation to avoid penalties under the Income Tax Act.