2024 (8) TMI 218 - AT - Income Tax

Capital gain computation - Disallowance of Indexed cost of acquisition on the basis of report issued by DVO u/s 142A - determination of cost of acquisition of land as on 01.04.2001, the valuer of the assessee has determined the cost @ Rs. 89,800 per sq. yard whereas the DVO determined the value @ of 72,000/- per square meter - HELD THAT - We find that none of the properties pertained to the exact location of the property in question i.e, Gulmohar Colony. Hence, the realistic estimation of the cost of property is resorted to, based on the land area, road width, land cost, FMV of structure, land rate per sqm (as per DVO) etc. The land area of the assessee property is 418.06 square meters whereas the land area of the base line the property at SDA was 337.11 square meters. The road width of the assessee property was 100 ft. and on the main road whereas the road width of the base line the property at SDA was 45 ft. internal road. Further, the assessee property as a back side service lane and base line the property at SDA do not have any service lane. Further, the property of the assessee was valued based on the comparable date of 2nd May, 2001 whereas base line the property at SDA date of sale was 19.10.2000. Thus, the property valued taken by the valuer of the assessee was at a closer date than that of the DVO. Hence, keeping in view, the tangible differences it can be held that the absence of any mistake pointed out in the valuation report submitted by the assessee no addition on account of cost of land is warranted in this case. Disallowance of cost of improvement and transfer expenses - We hold that the expenses of brokerage, documentation fee, litigation expenses mutation / conversion expenses and probate expenses or commonly incurred expenses in regularizing the will , transfer of the property to the assessee and for sale of the such acquired property. In the absence of any contrary evidences to prove that the expenses are bogus or not incurred, we hereby direct that no disallowance is called for on such compulsory expenses required for acquisition and sale of property. Appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of Indexed cost of acquisition by amount of Rs. 1,97,79,784/- on the basis of report issued by DVO under section 142A of the Act.
2. Disallowance of Rs. 22,61,728/- on account of cost of improvement.
3. Disallowance of Rs. 27,49,400/- on account of transfer expenses.

Analysis:

1. The assessee contested the disallowance of indexed cost of acquisition based on the report by the District Valuation Officer (DVO) under Section 142A. The assessee inherited a property and provided detailed expenses and documentary evidence to support the claimed costs. The total long-term capital gain was recalculated by the assessee, increasing the gross total income.

2. The Assessing Officer (AO) referred the property to the DVO for Fair Market Value determination. The AO relied on the DVO's valuation report, leading to a discrepancy between the valuations by the DVO and the assessee's valuer. The issue centered on the valuation of the capital asset by the two parties.

3. The AO's addition based on the DVO's report was upheld by the Dispute Resolution Panel (DRP). The assessee then appealed to the Tribunal, arguing that the AO disregarded the valuation report by the assessee's registered valuer. The Departmental Representative contended that the AO was bound to follow the DVO's report once available.

4. The Tribunal examined the conflicting valuations regarding the cost of land as of a specific date. The valuations were based on different properties, leading to discrepancies in land costs. After a detailed analysis of various factors like land area, road width, and comparable sale dates, the Tribunal concluded that no addition on account of land cost was warranted.

5. Regarding expenses like brokerage, documentation, and legal fees, the Tribunal found that these were common expenses in property transactions. The Tribunal noted that the Revenue did not dispute the genuineness of these expenses, and in the absence of evidence proving them as bogus, no disallowance was justified.

6. Ultimately, the Tribunal allowed the assessee's appeal, emphasizing that the expenses incurred were legitimate and necessary for property acquisition and sale. The judgment was pronounced in the Open Court on 30.05.2024.