2023 (6) TMI 724 - AT - Income Tax

Capital gain computation - FMV determination - Scope and validity of Expert Opinion - AO determined the FMV using Compounded Annual Growth Rate Method (CAGR) which AO considered more rational and reasonable method for calculating fair market value - HELD THAT - Act specifically provides that if the AO is not satisfied with the fair market value of the capital asset then reference can be made to DVO for the valuation. That is the only way with the Ld. AO to shift the onus on the assessee to justify any other valuation adopted by the assessee. Tribunal Mumbai Bench in Macrotech Developers Ltd. 2023 (5) TMI 153 - ITAT MUMBAI has deleted addition made u/s 43CA on the ground that revenue failed to follow the mandate of Section 43 CA(2) r.w.s. 50C(2) by not referring valuation of property sold to Valuation Officer. The opinion of an expert cannot be brushed aside in a whimsical manner. Specially when law mandates the evidence of an expert to be admissible for proving specific question of fact as in the present case, the fair market value of the property. Thus, at one hand having failed to take opportunity and mandate under law to call for a DVO report and on the other hand having discredited the valuation report of the assessee without substantial reasons makes the order of Tax Authorites Below erroneous and not sustainable under law. The factual submissions made on behalf of the assessee with regard to the fact that actual saleable land was two third itself makes the fair market value of property arrived at Rs. 38 by AO to be not sustainable. The substantial expenses also indicate that the market value of the land had to be taken on a more reasonable basis. Acceptance of market in the subsequent years also benefits the assessee as the same shows that in the present AY the Tax Authorities, while passing the impugned orders, did not appreciate the facts in correct perspective. Appeal of assessee is allowed.

Summary

Issues Involved:
1. Fair Market Value (FMV) determination for the property as on 01.04.1981.
2. Legitimacy of the valuation method used by the Assessing Officer (AO).
3. Admissibility and consideration of the assessee's valuation report.
4. Procedural compliance by the AO and CIT(A).

Summary:

Issue 1: Fair Market Value (FMV) Determination
The primary issue revolves around the FMV of the property as on 01.04.1981. The assessee declared the FMV at Rs. 100 per Sq. Mtr. based on a valuer's report, while the AO determined it at Rs. 38 per Sq. Mtr. using the Compounded Annual Growth Rate (CAGR) method.

Issue 2: Legitimacy of the Valuation Method
The AO rejected the FMV of Rs. 100 per Sq. Mtr. taken by the assessee, considering it arbitrary. The AO used the CAGR method to determine the FMV, concluding it to be Rs. 38 per Sq. Mtr. The Tribunal found that the AO did not notify the assessee about the rejection of their FMV and the application of the CAGR method, which is a procedural lapse.

Issue 3: Admissibility and Consideration of the Assessee's Valuation Report
The CIT(A) dismissed the assessee's valuation report, calling it "cursory and self-serving" without substantial reasons. The Tribunal held that the valuation report should not be dismissed whimsically, especially when the AO did not dispute it on factual grounds or provide a remand report despite being given an opportunity.

Issue 4: Procedural Compliance by AO and CIT(A)
The Tribunal noted that the AO failed to refer the valuation to the Departmental Valuation Officer (DVO) as mandated by Section 55(2) of the Income Tax Act. The CIT(A) also erred by not considering the valuation report submitted by the assessee and failing to appreciate the factual submissions regarding the actual saleable land and substantial expenses incurred.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned addition made by the AO. The Tribunal emphasized that the AO and CIT(A) did not follow the correct procedural mandates and failed to appreciate the facts in the correct perspective. The appeal of the assessee was allowed, and the addition on account of FMV taken by the AO was set aside.