2019 (5) TMI 1128 - AT - Income Tax

Capital gain computation - determination of the FMV of the property as on the date of conversion - reference to DVO for valuation - taxable event - HELD THAT - As apparent that the report of the Registered valuer does not have any authentic basis for the FMV of the land as on the date of conversion. On the other hand, the view taken by the AO in fixing the FMV of the land at ₹ 8.41 crore is equally not proper in as much as he has taken such value on 10-10-2013, whereas the land was converted into stock in trade on 01-04-2012. It is thus seen that both the values do not represent the FMV of the property on the date of conversion. FMV of the property on the date of conversion needs to be determined afresh on a rational basis. Set aside the impugned orders and remit the matter to the AO for making a reference to the Departmental Valuation Officer (DVO) for a fresh determination of the FMV of the property as on 01-04-2012, after entertaining objections, if any, from the assesses and then proceeding accordingly. Unexplained investment - AR contended that the assessee were not given proper opportunity to explain their position regarding the source of investments in the bank accounts - HELD THAT - Without commenting on the merits, it would be in the interest of justice if the impugned orders are set-aside and the matter is restored to the file of the respective AOs - Appeals are allowed for statistical purposes.

Summary

Issues:
1. Valuation of ancestral agricultural land converted into stock in trade.
2. Determination of fair market value for tax purposes.
3. Treatment of capital gain and business income.
4. Source of investment in bank accounts.

Issue 1: Valuation of Ancestral Agricultural Land:
The appeals involved a common issue of determining the fair market value (FMV) of ancestral agricultural land converted into stock in trade. The Assessing Officer (AO) disputed the valuation done by a Registered valuer, opting for a lower value based on stamp valuation. The Income-tax Act, 1961, specifically Section 45(2), addresses income tax on such conversions, with the taxable event arising upon actual transfer. The Tribunal noted that the FMV determination lacked a rational basis and remitted the matter to the AO for a fresh valuation by the Departmental Valuation Officer (DVO) as of the conversion date.

Issue 2: Determination of Fair Market Value:
The Tribunal observed discrepancies in the valuations provided by the Registered valuer and the AO based on stamp valuation. The Registered valuer's report lacked an authentic basis for FMV, while the AO's value was dated after the conversion date. Consequently, the Tribunal set aside the previous orders and directed a fresh determination of FMV by the DVO, emphasizing the need for a rational basis for valuation.

Issue 3: Treatment of Capital Gain and Business Income:
Regarding the computation of capital gain and business income, the Tribunal clarified that these would be determined in the year of actual transfer, not the conversion year. The FMV on the conversion date is crucial for calculating capital gain, with business income based on the actual price realized. The Tribunal highlighted the distinction between the two components and emphasized the importance of accurate valuation for tax purposes.

Issue 4: Source of Investment in Bank Accounts:
Two appeals involved challenges related to the source of investments in bank accounts. The assessees attributed the funds to family settlements and sale proceeds from shops. The Tribunal, without delving into the merits, set aside the previous decisions and instructed the Assessing Officers (AOs) to reevaluate the issue, ensuring the assessees are given a fair opportunity to present their explanations. The Tribunal prioritized justice and directed a fresh assessment by the AOs.

In conclusion, the Tribunal allowed all appeals for statistical purposes, emphasizing the importance of accurate valuation, fair market value determination, and due process in assessing the source of investments. The judgments underscored the need for a rational and authentic basis for valuation in tax assessments.