2017 (2) TMI 953 - AT - Income Tax

Long term capital gain - FMV adoption - Held that - The AO has adopted ₹ 13.81 per sq.yd. whereas the valuation done by the assessee at ₹ 3,875/-, which are at extremes. The CIT(A) has accepted the contention of the assessee because the assessee had adopted the valuation done by a registered valuer on sales as well as FMV as on 01/04/1981. In the absence of any comparative sale during the period, the value adopted by the assessee seems to be higher side compared to the value adopted by the AO. This appeal is second round of appeal and there is no possibility of remitting back to the AO for recalculation as there will not be any benefit to either side. In our considered view, we need to find a via media so that it could be beneficial to either side. The Registered Valuer has discounted the value of sale price i.e. ₹ 45,000/- in the year 2006 to arrive at the value as at 01/04/1981 at ₹ 3,875/-. We can adopt the same discounted method to arrive the SRO value of ₹ 33,000/- in 2006 to arrive the SRO value as at 01/04/1981. It may give some relief to the assessee as well as to the department. The valuation is done as under; the resultant value comes to ₹ 2841/-. Thus In view of the above discussion, we direct the AO to adopt the FMV at ₹ 2,841/- per sq.yd. and calculate the long term capital gains accordingly. - Decided partly in favour of revenue

Summary

Issues Involved:
1. Determination of Fair Market Value (FMV) of property as on 01-04-1981.
2. Validity of reopening of assessment proceedings.
3. Adoption of SRO rates versus valuation report for FMV.
4. Consideration of comparable sale instances for FMV.
5. Application of Section 55(2)(b)(ii) of the Income Tax Act.

Detailed Analysis:

1. Determination of Fair Market Value (FMV) of property as on 01-04-1981:
The primary issue revolves around the correct determination of the FMV of the property as of 01-04-1981. The assessee initially declared an FMV of ?3,875 per sq. yard based on a valuation report. The AO rejected this and adopted an SRO rate of ?8 per sq. yard. The CIT(A) later directed the AO to adopt ?12 per sq. yard. Upon further appeal, the ITAT directed the AO to determine the FMV based on comparable transactions and not rely solely on SRO rates. The High Court modified the ITAT's order, directing a fresh hearing without basing it on the Tribunal's observations. Ultimately, the AO adopted ?13.36 per sq. yard based on comparable cases, but the CIT(A) reverted to the original ?3,875 per sq. yard. The Tribunal, considering the lack of comparable sales, decided to adopt a middle ground, using a reverse indexation method to arrive at an FMV of ?2,841 per sq. yard.

2. Validity of reopening of assessment proceedings:
The reopening of assessment proceedings was upheld by the CIT(A) and sustained by the ITAT. The Tribunal found no mistake in its earlier order and rejected the assessee's Misc. petition under section 254(2) of the Act, stating that allowing the same issues to be raised again would amount to recalling the appeal order entirely, which is beyond the scope of section 254(2).

3. Adoption of SRO rates versus valuation report for FMV:
The Tribunal noted that SRO rates do not necessarily reflect the market value as they are not based on scientifically generated data. It emphasized that the AO should resort to other methods for determining FMV if comparable transactions are unavailable. The CIT(A) accepted the valuation report's FMV of ?3,875 per sq. yard, but the Tribunal found this to be on the higher side and instead adopted ?2,841 per sq. yard using a reverse indexation method.

4. Consideration of comparable sale instances for FMV:
The AO initially gathered three comparable sales from 1981-1982 but, due to objections, only one was considered, which was between Jubilee Hills Cooperative Housing Society and Mr. Tyagi. The Tribunal found this insufficient to determine the actual market value and suggested relying on the valuation report in the absence of adequate comparable sales. The Tribunal also highlighted that the AO could have referred the matter to the Departmental Valuation Officer (DVO) but failed to do so.

5. Application of Section 55(2)(b)(ii) of the Income Tax Act:
The assessee opted to adopt the FMV as of 01-04-1981 under section 55(2)(b)(ii), which allows the FMV or the actual cost as of that date to be considered. The Tribunal acknowledged the assessee's right to choose the FMV based on the valuation report but adjusted it to a more reasonable figure of ?2,841 per sq. yard after considering all available data.

Conclusion:
The Tribunal partly allowed the revenue's appeal and dismissed the assessee's cross-objections, directing the AO to adopt an FMV of ?2,841 per sq. yard for calculating long-term capital gains. This decision was applied consistently to both brothers involved in the case.