2021 (5) TMI 520 - AT - Income Tax

Long Term Capital Gains (LTCG) addition as per Department Valuation Officer (DVO's) report after invoking section 50C - Revenue's case as per the Assessing Officer's stand is that the DVO's report herein had determined final valuation of the assessee's property and the same ought not to have been disturbed in the CIT(Appeals) order keeping in mind all the corroborating material facts- HELD THAT - No substance in the foregoing argument of Revenue for the clinching reason that the relevant capital asset herein is situated in industrial area developed by APIIC (a state government body itself) carrying necessary in-built conditions regarding the proposed activity to be carried out thereupon. The said asset could only be used for industrial and other specified purposes in an institutional/industrial area otherwise therefore. DR failed to dispute that the DVO report therein has not taken into consideration the same as he had gone by other consideration regarding plot size, location, approach from the main road and nature of the locality only. It is further evident that the CIT(Appeals) has already adopted twice the specified value fixed by M/s. APIIC value for industrial plots and still the same comes to ₹ 8,91,93,400 as against the declared sum of ₹ 9,06,00,000. We thus find no reason to interfere with the CIT(Appeals) conclusion under challenge deleting the impugned addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Long Term Capital Gains (LTCG) addition based on the Department Valuation Officer (DVO)'s report.
2. Appropriateness of the valuation method and the factors considered by the DVO.
3. Admission of additional evidence by the CIT(A) and ITAT.
4. Justification of the valuation adopted by the Assessing Officer (AO) and CIT(A).

Issue-wise Detailed Analysis:

1. Validity of Long Term Capital Gains (LTCG) Addition Based on DVO's Report:
The Revenue appealed against the CIT(A)'s order that had deleted the LTCG addition of ?11,34,93,000 made by the AO based on the DVO's report after invoking Section 50C of the Income Tax Act, 1961. The property in question was sold by the assessee, a partnership firm, and the capital gain was declared at ?4,39,59,860. The AO reopened the assessment and proposed to adopt the market value as per the Stamp Valuation Authority, which was higher than the sale consideration shown in the agreement. The AO referred the matter to the DVO, who valued the property at ?15,99,81,400. The AO adopted the stamp duty valuation for computing the LTCG, resulting in an addition to the assessee's income.

2. Appropriateness of the Valuation Method and Factors Considered by the DVO:
The assessee objected to the DVO's valuation, arguing that the valuation was excessive and did not consider the restrictive use of the property for industrial purposes. The CIT(A) initially upheld the AO's action, but the ITAT noted that additional evidence provided by the assessee, such as letters from APIIC, was relevant and should have been considered. The ITAT set aside the matter to the AO for fresh consideration in light of this additional evidence.

3. Admission of Additional Evidence by the CIT(A) and ITAT:
The ITAT admitted additional evidence, including letters from APIIC, which indicated that the land rate in the Industrial Estate was ?3,750 per sq. meter. The ITAT found that the CIT(A) erred in not admitting this evidence, as it was obtained after the completion of the assessment and was crucial for determining the fair market value of the property. The ITAT directed the AO to re-evaluate the valuation considering this additional evidence.

4. Justification of the Valuation Adopted by the AO and CIT(A):
Upon re-evaluation, the DVO valued the property at ?12,86,44,000. The AO adopted this value but the assessee contested the valuation, arguing that factors like nearness to the main road and residential area were inappropriately considered for an industrial plot. The CIT(A) found the DVO's valuation method flawed, noting that the rate fixed by APIIC should have accounted for locational advantages. The CIT(A) determined that a fair market value would be twice the APIIC rate, resulting in a valuation of ?8,91,93,400, which was less than the sale consideration of ?9,06,00,000. Consequently, the CIT(A) deleted the addition made by the AO.

Conclusion:
The ITAT upheld the CIT(A)'s decision, agreeing that the DVO's valuation did not appropriately consider the restrictive use of the property and the rate fixed by APIIC. The ITAT found no reason to interfere with the CIT(A)'s conclusion, which was based on a reasonable valuation method. The Revenue's appeal was dismissed, and the order was pronounced on 6th May, 2021.