2014 (1) TMI 1909 - AT - Income Tax

Computation of capital gain - determining Fair Market Value (FMV) of land as on 1st April, 1981 - AO wanted that FVM should be taken as valued by the DVO - As argued that the FMV returned by the assessee was on the basis of the Regd. Valuers' certificate and therefore it was fair and reasonable, that the land should be treated as a developed industrial land and not as an undeveloped industrial land, that the plot of land fell in two different zones that the average of the rate for each zone should be adopted - HELD THAT - We are aware that IVDRB and Ready Recknor 2000 cannot be applied as it is for valuing FMV of a property as on 01.04.1981, but after considering relevant facts same could be used as starting point. We also agree with the FAA that there could not be very high variation in the value of plot of land for the period 1959 to 1981 and 1981 to 2001. In absence of any other more reliable method his reliance on annual rate of appreciation method. It is known fact that price of land do not appreciate by uniform percentage every year, but for a period of more than forty years, some method has to adopted and method adopted by him is one of the reasonable method. It is also a fact that after the winds economic liberalisation swept the country in year 1991 price of land in Mumbai appreciated considerably than the earlier period-especially when internal emergency was declared in the country i.e. 1975-77. We find that FAA has also used the reference books as one of the sources for arriving at the FMV. In our opinion method adopted by him is a better 'guesswork' than the guesswork done by the valuer. His estimation is also very near to the valuation made by the DVO. We have considered the case of S.Krishnan 1997 (4) TMI 22 - BOMBAY HIGH COURT cited by assessee. We find that decision delivered by the Hon'ble jurisdictional High Court dealt with acquisition of property. Therefore same is not of any help for deciding the issue before us especially in light of the principle mentioned at paragraph 4 of our order. Considering all we are of the opinion that FMV adopted by the FAA is a more reasonable and better proposition as compared to the FMV quoted by the valuer. Therefore, confirming his order, we decide the effective ground of appeal against the assessee-company.

Summary

Issues Involved:
1. Determination of Fair Market Value (FMV) of land as on 1st April 1981.
2. Opportunity to the assessee for determining FMV.
3. Rejection of valuation reports by the registered valuers.
4. Basis of land appreciation rate.
5. Consideration of values from Indian Valuers Dictionary and Reference Book (IVDRB).
6. Basis for determining FMV of industrial land.

Issue-wise Detailed Analysis:

1. Determination of Fair Market Value (FMV) of Land as on 1st April 1981:
The assessee-company and the Assessing Officer (AO) filed cross-appeals challenging the order of the CIT(A) regarding the FMV of land. The assessee argued that the FMV should be Rs. 14,12,00,000 based on the registered valuer's reports, while the AO adopted a FMV of Rs. 1.17 Crores. The CIT(A) determined the FMV at Rs. 2,78,28,432. The tribunal noted that valuation of land in Mumbai, especially retrospectively, is complex. The registered valuer's method was deemed improper as it assumed commercial development potential not prevalent in 1981. The tribunal upheld the CIT(A)'s method, which considered compound annual rate of appreciation and other valuation principles.

2. Opportunity to the Assessee for Determining FMV:
The assessee contended that the CIT(A) erred by not providing an opportunity to present their case regarding FMV determination, violating the principles of natural justice. The tribunal observed that the CIT(A) had called for a remand report from the AO and considered submissions from both parties before arriving at the FMV, thus providing adequate opportunity to the assessee.

3. Rejection of Valuation Reports by the Registered Valuers:
The CIT(A) rejected the valuation reports by the registered valuers, stating they were based on imaginary situations and subjective judgments. The tribunal agreed, noting that the valuer's assumption of full FSI development potential in 1981 was unrealistic. The tribunal emphasized that valuation should be based on evidence and reasonable assumptions, which the registered valuer's report lacked.

4. Basis of Land Appreciation Rate:
The CIT(A) used the compound annual rate of appreciation to determine the FMV, considering the land's purchase price in 1959 and sale price in 2000. The tribunal found this method reasonable, noting that while land appreciation rates are not uniform, the method provided a fair estimate over the long period.

5. Consideration of Values from Indian Valuers Dictionary and Reference Book (IVDRB):
The AO adopted rates from the IVDRB for undeveloped industrial land to calculate FMV. The CIT(A) considered these rates but also factored in other methods and evidence. The tribunal upheld the CIT(A)'s approach, noting that while IVDRB rates provided a starting point, a comprehensive valuation required multiple methods and evidence.

6. Basis for Determining FMV of Industrial Land:
The assessee argued that the FMV should be based on industrial land rates, not residential property sales instances. The CIT(A) and tribunal agreed, stating that the land was a developed industrial area and should be valued accordingly. The tribunal noted that the CIT(A) used a combination of methods, including the IVDRB and Stamp Duty Ready Reckoner, to arrive at a reasonable FMV.

Conclusion:
The tribunal upheld the CIT(A)'s determination of FMV at Rs. 2,78,28,432, finding it more reasonable than the valuations proposed by the assessee and the AO. The appeals filed by both the assessee and the AO were dismissed. The tribunal emphasized the importance of evidence-based valuation and reasonable assumptions in determining FMV.