2024 (10) TMI 343 - AT - Income Tax

LTCG - FMV determination - CIT(A) confirming action of AO in adopting Fair Market Value (FMV) as per DVO s report without computing FMV using reverse indexation method - AR s only contention is such that the lower-authorities ought to have computed FMV on the basis of reverse indexation method - HELD THAT - But the modus in this method is such that the present sale-consideration of sold asset is divided by present inflation index and multiplied by inflation index as on 01.04.1981. During hearing, we have clearly indicated to AR that this method is the last resort when there is no other basis available for determination of FMV as on 01.04.1981. And in the present case, the AO has made a reference to DVO and the DVO has given a detailed working of his estimation and the DVO has also mentioned the method of valuation adopted by him as FMV by Collectors Guidelines for registration of immovable property . Therefore, there is a good working done by DVO on the basis of a strong undisputable method. Hence, in this situation, the reverse indexation method cannot be allowed. AR could not controvert this. Consequently, we do not find any error in the order of AO in accepting FMV of Rs. 4,43,000/- reported by DVO. Accordingly, this ground is also dismissed. Restricting the cost of improvement as against the cost of improvement claimed by assessee - We find that even while giving benefit of assessee s own withdrawals, the CIT(A) has made a mistake. Admittedly, the assessee has incurred cost of Rs. 94,136/- in FY 1989-90, Rs. 1,59,494/- in FY 1990-91 and Rs. 81,440/- in FY 1991-92 but the CIT(A) has allowed deduction of first two items only and not allowed deduction of Rs. 81,440/- incurred by assessee during the FY 1991-92. Therefore, to that limited extent, there is a mistake in CIT(A) s order. Hence, we allow claim of cost of Rs. 81,440/- incurred by assessee during the FY 1991-92 with indexation benefit in addition to what has already been allowed by AO and CIT(A). AR pointed out that the AO has made a mathematical mistake and allowed deduction of total indexed cost of improvement at Rs. 3,01,627/- ( ) 4,82,863/- Rs. 6,41,370/- whereas the total comes to Rs. 7,84,490/- Thus, there is an apparent mistake in the order of AO. We direct the AO to modify his assessment-order to remove this mistake and allow correct amount to assessee. In the final conclusion, we direct the AO to allow a further deduction of cost of improvement of Rs. 81,440/- in FY 1991-92 incurred by assessee with indexation benefit as per law and also to remove the mistake narrated in preceding para. This way, the assessee succeeds partly.

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Legality of the reference to the Departmental Valuation Officer (DVO) for determining Fair Market Value (FMV).
3. Adoption of FMV as per DVO's report versus reverse indexation method.
4. Restriction of the cost of improvement of the property.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The appeal was delayed by 63 days. The assessee argued that the delay was due to the impugned order being sent to the email of the previous counsel, not the assessee's own email. The assessee became aware of the order only when the new counsel reviewed the e-filing portal. The tribunal found that there was a sufficient cause for the delay, citing Section 253(5) of the Income-tax Act, 1961, which allows for condonation of delay if there is a sufficient reason. The tribunal also referenced the Supreme Court's decision in Collector, Land Acquisition Vs Mst. Katiji, emphasizing a justice-oriented approach. The delay was condoned, and the appeal was admitted.

2. Legality of Reference to DVO:

The assessee contested the legality of the AO's reference to the DVO for determining the FMV of the property as of 01.04.1981. However, the tribunal noted that this issue was not part of the remand in the first round of litigation and was not raised in the consequential proceedings. The tribunal found that the issue was closed in the first round, and the assessee did not file any application against the ITAT's order. Consequently, the tribunal dismissed this ground as non-maintainable.

3. Adoption of FMV as per DVO's Report versus Reverse Indexation Method:

The assessee argued that the FMV should have been computed using the reverse indexation method instead of relying on the DVO's report. The tribunal noted that the reverse indexation method is not prescribed under the Income-tax Act and is only a last resort. Since the DVO provided a detailed valuation based on the "FMV by Collectors Guidelines for registration of immovable property," the tribunal found no error in the AO's adoption of the DVO's reported FMV of Rs. 4,43,000/-. This ground was dismissed.

4. Restriction of the Cost of Improvement:

The assessee claimed a cost of improvement of Rs. 15,24,870/-, whereas the AO allowed only Rs. 2,53,650/-. Initially, the assessee claimed Rs. 8,95,000/- in the return, which was contested in the first round. The tribunal found merit in the revenue's objection that the assessee could not escalate the claim beyond Rs. 8,95,000/- in the second round. The tribunal agreed with the CIT(A) that the assessee frequently changed the claimed amounts and sources. The tribunal allowed only the costs incurred by the assessee himself, totaling Rs. 3,35,070/-, and directed the AO to allow an additional cost of Rs. 81,440/- incurred in FY 1991-92 with indexation benefit. The tribunal also identified a mathematical error in the AO's computation of the indexed cost of improvement and directed correction. Consequently, this ground was partly allowed.

Conclusion:

The appeal was partly allowed, with directions to correct the computation of the indexed cost of improvement and to allow further deduction for the cost incurred by the assessee in FY 1991-92. The tribunal pronounced the order in open court on 21.05.2024.

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