2020 (2) TMI 1522 - AT - Income Tax

Calculation of long-term capital gain - methods of valuation of land - Acceptability of weightage of Registered Valuer report - HELD THAT - We are of the considered opinion that these were not additional evidence under Rule 46A, hence, the ld. CIT (A) ought to have given weightage of Registered Valuer report of B. H. Patel. There are three methods of valuation of land first one relates to sale instances multiplied by 11.94 factors, which is based on Hon ble Supreme Court and Hon ble High Court judgements. Second method is to consider increase in agricultural land price per month one percent. Third method is based on reverse method per year reduction of 10% of Jantri rate/Circle rates. The Government Registered Valuer of the assessee has based his valuation report on the average out of these three method for valuation of land, which in our opinion is correct method to be considered, in the case, where no specific sale instances of relevant period are available Therefore, we are of the view that the Registered Valuer has quite considerate in taking rate at 600 per sq. meter as against ₹ 833 being average rate. As considered the average of three method and has relied upon sale instances of sale price prevalent in the neighborhood in the near about dates of 01.04.1981 . No other factors to determine the value of assets as on 01.04.1981 while the Registered Valuer has examined the relevant factors, which is important to estimate the market value of the land - the valuation report of B.H. Patel in the case of the assessee is quite reasonable and therefore, the issue is decide in favour of the assessee. Accordingly, the AO is directed to apply rate of ₹ 600 per sq. meter for calculation if long-term capital gain in the hands of the assessee. Accordingly, Ground No. 1 to 3 of appeal are allowed. Non-admission of claim of deduction under section 54B on the ground that it was not made during the course of assessment proceedings - HELD THAT - We find that that Appellate Authorities have power to admit bona fide claim of deduction if is made during appellate proceedings before them. The decision relied by the assessee supports its case. Therefore, we are of the considered opinion that claim of additional ground is admissible and the AO should be allowed deduction under section 54B of the Act if consideration are prescribed in that section are satisfied. Hence, we allow these grounds of appeal.

Summary

Issues Involved:
1. Determination of Fair Market Value (FMV) for the purpose of computing Long-Term Capital Gain (LTCG).
2. Non-admission of the claim for deduction under Section 54B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Determination of Fair Market Value (FMV) for the purpose of computing Long-Term Capital Gain (LTCG):

The primary issue in these appeals was the determination of the Fair Market Value (FMV) of the land as of 01.04.1981 for computing the Long-Term Capital Gain (LTCG). The Assessee, along with joint co-owners, sold three pieces of non-agricultural land and computed a loss in LTCG based on a valuation report by a Government Approved Registered Valuer, who estimated the FMV at ?600 per sq. meter. However, the Assessing Officer (AO) referred the matter to the District Valuation Officer (DVO), who determined the FMV at ?60 per sq. meter. Consequently, the AO computed the LTCG at ?41,03,549, significantly higher than the loss reported by the Assessee.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's determination, rejecting the Assessee's valuation report as fresh evidence under Rule 46A of the Income-Tax Rules, 1962. The CIT (A) noted that the initial valuation report by the Assessee's valuer was not based on comparable sale instances and was thus unreliable.

The Tribunal found that the CIT (A)'s rejection of the Assessee's valuation report was incorrect, as the report was already submitted to the DVO during the valuation process. The Tribunal held that the valuation methods used by the Assessee's valuer, which included multiple approaches (sale instances, agricultural land price increase, reverse method), were appropriate in the absence of specific sale instances from the relevant period. The Tribunal concluded that the average FMV of ?833 per sq. meter derived by the Assessee's valuer was reasonable and directed the AO to apply the rate of ?600 per sq. meter for calculating the LTCG, thereby allowing the Assessee's appeal on this ground.

2. Non-admission of the claim for deduction under Section 54B of the Income Tax Act:

The second issue pertained to the non-admission of the Assessee's claim for deduction under Section 54B of the Income Tax Act, which was not made during the assessment proceedings. The Assessee had not claimed this deduction initially, as they had reported a loss in LTCG. However, when the AO computed a gain, the Assessee sought to claim the deduction.

The CIT (A) rejected this claim on the grounds that it was not made in the original or revised return of income and was instead introduced during the appellate proceedings. The CIT (A) held that the AO could not entertain such a claim without a revised return.

The Tribunal, however, noted that appellate authorities have the power to admit bona fide claims for deductions made during appellate proceedings, citing relevant case law. The Tribunal allowed the Assessee's appeal on this ground, directing the AO to consider the deduction under Section 54B if the conditions prescribed in the section were satisfied. However, since the Tribunal had already allowed the appeal concerning the FMV determination, making the LTCG a loss again, this ground became academic and was not adjudicated further.

Conclusion:

The Tribunal allowed the appeals of all five Assessees, directing the AO to apply the rate of ?600 per sq. meter for calculating the LTCG and acknowledging the admissibility of the Section 54B deduction claim. The order was pronounced in open court on 06.02.2020.