2019 (12) TMI 687 - AT - Income Tax

Long term capital gains - Valuation determined by the DVO - adoption of SRO value for the purpose of capital gains - show cause notice to the assessee proposing to adopt the SRO value instead of Fair Market Value determined by the DVO for the purpose of capital gains and the assessee objected for adoption of the SRO Value due to the disadvantages in selling the property - AO rejected the objections raised by the assessee, since, the assessee did not dispute the guideline value before Stamps and Registration Authorities or in any Court of Law - HELD THAT - Since the property in question was referred to valuation officer and the value assessed by the valuation officer is binding on the department, there is no reason to enhance the value assessed by the Valuation Officer when the Act does not permit the AO or the CIT(A) to do so. In case the CIT(A) is not convinced with the value determined by the DVO, as an extension of assessing authority, the CIT(A) ought to have referred the issue to the DVO again for reconsideration of the value. The valuation officer being expert, the CIT(A) is not allowed to tinker with the expert opinion without further reference to the DVO and in the process, the CIT(A) also has to give opportunity to the assessee to cross examine and to present his case before Departmental Valuation Officer along with the observations of the CIT(A). The entire process of examination, reexamination, reference was not conducted in the instant case. Therefore, there is no reason to not to accept the value determined by the valuation officer. Thus we are unable to sustain the order of the CIT(A) and hold that the assessing authority has no option except to accept the FMV determined by the DVO after making reference and proceed to compute capital gains by following provisions of sub section 50C(3) of the I.T.Act. Except the general remarks neither the CIT(A) nor the AO has found the specific defaults in the valuation report. Accordingly, we direct the AO to compute the capital gains adopting the value determined by the DVO in place of guideline value of Stamps and Registration Authority. The next contention raised by the assessee is to accept the sum of ₹ 4,79,00,000/- as full value of consideration. DVO has considered all the issues raised by the assessee with regard to various disadvantages and determined the fair market value as on 30.07.2009. No other evidence or material brought on record by the assessee to disturb the fair market value assessed by the DVO. Therefore, we do not find any reason to interfere with the valuation determined by the DVO and the contention of the assessee is rejected. Accordingly, appeals of the revenue are dismissed and the appeals of the assessee are partly allowed.

Summary

Issues Involved:
1. Adoption of Stamp Valuation Authority (SRO) value for capital gains computation.
2. Validity of the Departmental Valuation Officer (DVO) report.
3. Allowance of deductions for various factors affecting property value.
4. Binding nature of DVO’s valuation on the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)].
5. Acceptance of actual sale consideration as full value consideration for capital gains.

Issue-wise Detailed Analysis:

1. Adoption of Stamp Valuation Authority (SRO) value for capital gains computation:
The AO found that the property was sold for ?4,79,00,000, whereas the SRO value was ?20,93,55,000. The AO proposed to adopt the SRO value for taxing capital gains as per Section 50C of the Income Tax Act, 1961. The assessee objected, leading the AO to refer the matter to the DVO, who valued the property at ?6,28,06,500. Despite this, the AO adopted the SRO value for capital gains computation, which was subsequently challenged by the assessee.

2. Validity of the Departmental Valuation Officer (DVO) report:
The DVO’s valuation report valued the property at ?6,28,06,500, considering various factors affecting the property value. The Ld.CIT(A) held that the DVO’s report is not binding on him, although it is binding on the AO. The Ld.CIT(A) allowed a 65% deduction from the base rate for various factors, directing the AO to recompute the capital gains accordingly. However, this approach was contested by both the revenue and the assessee.

3. Allowance of deductions for various factors affecting property value:
The Ld.CIT(A) considered factors such as location, leasehold rights, legal restrictions, encumbrances, and other disadvantages, allowing a 65% deduction from the base rate. This decision was challenged by the revenue, arguing that such deductions should not have been allowed as these factors exist in every land transaction. The assessee argued that the property’s specific disadvantages justified the deductions.

4. Binding nature of DVO’s valuation on the AO and CIT(A):
The Tribunal held that once the AO refers the matter to the DVO, the AO is bound to follow the DVO’s valuation unless it exceeds the SRO value. The Tribunal emphasized that the CIT(A) does not have the power to reject the DVO’s valuation or make further deductions without referring the matter back to the DVO. The Tribunal directed the AO to compute capital gains based on the DVO’s valuation.

5. Acceptance of actual sale consideration as full value consideration for capital gains:
The assessee argued that the actual sale consideration of ?4,79,00,000 should be accepted as the full value consideration due to the property’s litigation and other disadvantages. The Tribunal noted that the DVO considered these factors and determined the fair market value as ?6,28,06,500. The Tribunal found no reason to disturb the DVO’s valuation and rejected the assessee’s contention to accept the actual sale consideration.

Conclusion:
The Tribunal concluded that the AO must adopt the DVO’s valuation for computing capital gains, rejecting the SRO value and the further deductions allowed by the CIT(A). The appeals of the revenue were dismissed, and the appeals of the assessee were partly allowed, directing the AO to recompute the capital gains based on the DVO’s valuation.