2020 (9) TMI 664 - AT - Income Tax

Addition on account of valuation of a property - assessee jointly purchased the commercial property having 1/6th share along with the other five co-owners - Addition on the basis of the DVO s report - HELD THAT - Rate adopted in the DVO s report at ₹ 77,640/- per sq. mtr is without any basis. Our attention has also been drawn towards the Preliminary valuation report by the DVO, whose copy has been made available at page 5 onwards of the Paper Book. Annexure-2 to the said report refers to seven comparable sale instances with per sq. mtr sale rate at ₹ 84,859/-, ₹ 57,498/-, ₹ 63,223/-, ₹ 56,740/-, ₹ 71,443/-, ₹ 59,613/- and ₹ 41,130/- . In the absence of any elaboration of the rate adopted by the DVO in his final report, we consider it expedient to restrict the fair market value rate at the average of the seven sales instances given in the Preliminary report, which comes to ₹ 62,073/-. Assessing Officer is directed to adopt this as per sq. mtr. fair market rate and then work out addition, if any, u/s 56(2)(vii) of the Act accordingly. The impugned order is set-aside to this extent.

Summary

Issues: Valuation of property for tax assessment

Analysis:
1. Issue: Addition on account of valuation of a property
- Summary: The appeal pertains to an addition made on account of the valuation of a property purchased by the assessee. The Assessing Officer observed a variance between the stamp value and the purchase price of the property, leading to the addition under section 56(2)(vii) of the Income Tax Act.

2. Analysis:
- The property in question was jointly purchased by the assessee and five co-owners for a total consideration of ?1,80,00,000. The assessee's share was 1/6th, amounting to ?30,00,000.
- The Assessing Officer, noting the variance, calculated the excess amount attributable to the assessee at ?13,62,326. The assessee requested a valuation by the DVO under section 55A, but no report was received before the assessment order was passed.
- Subsequently, the DVO's report valued the property at ?2,11,42,000, which was challenged by the assessee. The CIT(A) upheld the addition based on the DVO's report, leading to the appeal before the Tribunal.

3. Analysis:
- The Tribunal found discrepancies in the DVO's valuation, particularly the rate of ?77,640 per sq. mtr used without a proper basis. The DVO's preliminary report cited seven comparable sale instances with varying rates.
- In the absence of clarity on the rate adopted by the DVO, the Tribunal determined the fair market value rate at ?62,073 per sq. mtr, the average of the seven sales instances. The Assessing Officer was directed to adjust the addition accordingly under section 56(2)(vii) of the Act.

4. Outcome:
- The Tribunal partly allowed the appeal, setting aside the impugned order to the extent of the valuation discrepancy. The decision was pronounced in the Open Court on 28th July 2020.