2017 (3) TMI 1182 - HC - Income Tax

Revision u/s 263 - determination of market value by D.V.O - adoption of value - Held that - It is true that A.O. made reference to D.V.O. for valuation of land in dispute under Section 50C(2) of the Act, 1961, but D.V.O. examined the matter erroneously by taking nature of land as agricultural, ignoring that in the sale deed itself it was also mentioned that land was within limits of Nagar Nigam and that being so, its value ought to have been examined as an urban land and not agricultural land. A.O. treated estimation of D.V.O. as final and proceeded accordingly. In our view, order of assessment passed by A.O. was clearly erroneous and also prejudicial to the interest of Revenue. Tribunal has dealt in detail, various inquires made by A.O. with regard to valuation of property but the basic fact regarding nature of land which was relevant for determination of fair market value was erroneous and has not been examined at all. The Assessee himself knew that the land was within the municipal limits of Nagar Nigam, therefore, fair market value mentioned in the sale deed was not taken by it, which was applicable to an agricultural land but Assessee admittedly applied the circle rate applicable to urban land. The land which was within the municipal limits, could not have been treated to be agricultural land on the basis of revenue record prepared under U.P. Z.A. & L.R. Act. A.O. also did not examine when Assessee admitted circle rate, applicable to urban land for the purpose of fair market value, for stamp duty, then, why for determination of market value by D.V.O., land should be taken as an agricultural land. C.I.T., therefore, rightly exercised power under Section 263 of Act, 1961, and Tribunal, in our view, has erred in law in taking otherwise cognizance and setting aside order of C.I.T. - Decided against assessee.

Summary

Issues:
Appeal arising from Tribunal's order under Section 260-A of Income Tax Act, 1961 for A.Y. 2004-05; Questions of law regarding quashing of Commissioner of Income Tax's order under Section 263; Assessment of capital gains; Validity of A.O.'s assessment order; Correct application of Section 50C for valuation of land; Exercise of revisionary power by C.I.T. under Section 263.

Analysis:
The judgment involves two appeals arising from a common order by the Tribunal concerning similar issues, thus heard together and decided jointly. The appeals pertain to the Assessment Year 2004-05 under Section 260-A of the Income Tax Act, 1961. The key questions revolve around the correctness of the Commissioner of Income Tax's order under Section 263, challenging the assessment order passed by the Assessing Officer (A.O.).

The crux of the matter lies in the valuation of a piece of land sold by the Assessee to a company, where the A.O. accepted the Assessee's disclosed sale consideration without applying Section 50C of the Act, which deems the stamp valuation authority's value as the full consideration. The Commissioner found discrepancies in the assessment, leading to the initiation of revisionary proceedings under Section 263. The Assessee argued that the A.O. conducted a thorough inquiry by referring the matter to the District Valuation Officer (D.V.O.) before accepting the Assessee's valuation.

However, the Commissioner observed that the A.O.'s order lacked detailed inquiry and failed to verify crucial evidence, indicating a lack of proper assessment. The Tribunal noted that the D.V.O. incorrectly treated the land as agricultural, overlooking its location within municipal limits, which should have classified it as urban land. The A.O.'s reliance on the D.V.O.'s valuation without considering the urban nature of the land was deemed erroneous and prejudicial to revenue.

Ultimately, the Court upheld the Commissioner's exercise of power under Section 263, emphasizing the A.O.'s flawed assessment and the need for a correct valuation based on the land's urban classification. The Tribunal's decision to set aside the Commissioner's order was deemed erroneous, leading to the judgment in favor of the Revenue and against the Assessee. Consequently, both appeals were allowed, the Tribunal's order was overturned, and the Commissioner's order was reinstated, with further consequences to follow as per law.