2025 (4) TMI 1348 - AT - Income Tax

LTCG - addition without referring to the valuation to DVO - HELD THAT - AO made reference to DVO for estimate of Fair Market Value of asset as on 01.04.1981. Admittedly report of DVO was not received by AO before completion of assessment. AO on his wisdom adopted the value of land/asset as on 01.04.1981 @ Rs. 5/- per meter (wrongly mentioned at Rs. 5.00/- per square feet). AO after adopting the value of asset as on 01.04.1981 Rs. 5.00/- per re-computed the capital gains and made addition of capital gains at Rs. 87, 86, 472/-. Admittedly the appeal of assessee was dismissed ex parte order by Ld.CIT(A). Additional ground of appeal by making fair request that by admitting additional claim of section 54B the matter may be restored back to the file of AO for further verification of claim u/s 54B and further to consider the report of DVO and report of Government Registered Valuer. We find in case of Mitesh Impex 2014 (4) TMI 484 - GUJARAT HIGH COURT held that Appellate Authorities have discretion to permit additional claim which was available when return was filed. Legal position that AO is not empowered to accept additional claim in absence of revised return though such discretion is vested with the Appellate Authority. Therefore keeping in view of the fact that assessee has sold ancestral agricultural land and have claimed to have purchase another agricultural land and claiming exemption u/s 54B. Therefore additional claim of assessee is admitted subject to verification of fact by AO. Considering the fact that report of DVO was not available at the time passing assessment order and CIT(A) has confirmed the action of AO. Therefore matter is restored back to the file of AO to consider the report of DVO and the report of Government Registered Valuer and to pass fresh order in accordance with law. The assessee is at liberty to file objection if any against the report of DVO if so desire. Needless to direct AO before passing the order afresh the AO shall give reasonable opportunity of being heard to assessee and to file requisite as required and explanation and evidence as and when called for. As we have already admitted additional claim raised by assessee u/s 54B therefore AO is also directed to consider the claim of assessee and after verification of fact pass order in accordance with law. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) erred in making an addition of Rs. 87,86,742 as long-term capital gain on the sale of ancestral agricultural land by not accepting the valuation as on 01.04.1981 based on the government-approved valuer's report, contending that the value taken was on the higher side.

(b) Whether the Assessing Officer was justified in making the addition without referring the valuation matter to the Departmental Valuation Officer (DVO) and making the addition on his own estimation.

(c) Whether the valuation adopted by the Assessing Officer as on 01.04.1981, based on average sale instances available with him, was appropriate.

(d) Whether the Commissioner of Income Tax (Appeals) erred in passing an ex parte order without providing adequate opportunity of hearing to the assessee.

(e) Whether the assessee is entitled to raise an additional claim of exemption under section 54B of the Income Tax Act for investment in new agricultural land, which was not raised before the Assessing Officer or the Commissioner of Income Tax (Appeals), and whether such claim can be admitted at the appellate stage.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a), (b) and (c): Valuation of ancestral agricultural land as on 01.04.1981 for computation of long-term capital gains

Relevant legal framework and precedents: The valuation of capital asset as on 01.04.1981 is crucial for computation of long-term capital gains where the asset was acquired prior to that date, as per the provisions of the Income Tax Act. The fair market value (FMV) as on 01.04.1981 is to be determined either by reference to the valuation report of government-approved valuers or by the Departmental Valuation Officer (DVO) under the Act. The Assessing Officer is expected to rely on such expert valuation reports rather than making arbitrary assessments.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer had made a reference to the DVO for estimation of FMV as on 01.04.1981 but the report was not received before the assessment order was passed. Instead, the Assessing Officer adopted a rate of Rs. 5 per meter (erroneously mentioned as per square feet) based on his own assessment, without considering the government-registered valuer's report or the awaited DVO report. The Commissioner of Income Tax (Appeals) confirmed this addition in an ex parte order without considering the DVO report or the objections of the assessee.

Key evidence and findings: The assessee had filed the return showing LTCG based on a valuation of Rs. 89,10,500 as on 01.04.1981, derived from a government-approved valuer's report. The Assessing Officer disregarded this and computed capital gains on a much lower valuation rate, increasing the addition to Rs. 87,86,472. The DVO report was not considered at any stage by the Assessing Officer or the CIT(A). The assessee's appeal was dismissed ex parte due to procedural issues.

Application of law to facts: The Tribunal found that the Assessing Officer's adoption of valuation without the DVO report or proper consideration of the government valuer's report was improper. The CIT(A) also erred by confirming the addition without hearing the assessee or considering the valuation reports. The Tribunal emphasized the necessity of considering expert valuation reports and providing the assessee an opportunity to contest them.

Treatment of competing arguments: The Revenue contended that the addition was justified and supported by available sale instances. The assessee argued that the valuation adopted was arbitrary and that neither the DVO report nor the government valuer's report was considered. The Tribunal found merit in the assessee's contention that the valuation should be reconsidered after considering all relevant reports and objections.

Conclusions: The Tribunal concluded that the matter required restoration to the Assessing Officer for fresh adjudication after considering the DVO report, government valuer's report, and the assessee's objections. The Assessing Officer was directed to provide reasonable opportunity of hearing before passing a fresh order.

Issue (d): Adequacy of opportunity of hearing before the Commissioner of Income Tax (Appeals)

Relevant legal framework and precedents: The principles of natural justice require that the assessee be given adequate opportunity of hearing before any adverse order is passed. Ex parte orders without hearing the party are generally not sustainable unless the party deliberately abstains from participation.

Court's interpretation and reasoning: The Tribunal noted that the appeal before the CIT(A) was dismissed ex parte because the previous consultant withdrew authority and the new consultant did not receive notice of hearing. This procedural lapse resulted in the assessee not being heard on the merits of the valuation and capital gains addition.

Key evidence and findings: The record showed that the CIT(A) passed the order without considering the DVO report or hearing the assessee's representative. The assessee's inability to contest was due to procedural and communication lapses.

Application of law to facts: The Tribunal held that the lack of adequate opportunity to the assessee rendered the CIT(A) order unsustainable. The principles of natural justice necessitated restoration of the matter for fresh consideration after hearing the assessee.

Treatment of competing arguments: The Revenue did not dispute the procedural lapse but suggested restoration to the CIT(A) for fresh hearing. The Tribunal agreed with this approach.

Conclusions: The Tribunal directed restoration of the matter to the Assessing Officer for fresh adjudication, implicitly recognizing the need for proper hearing at all stages.

Issue (e): Admission of additional claim under section 54B for exemption on reinvestment in agricultural land

Relevant legal framework and precedents: Section 54B of the Income Tax Act provides exemption from capital gains tax on transfer of agricultural land if the capital gains are invested in purchase of new agricultural land within prescribed time. Jurisprudence, including decisions of the jurisdictional High Court, establishes that appellate authorities have discretion to admit additional claims or grounds available at the time of filing the return, even if not raised before the Assessing Officer, but such claims cannot be entertained by the Assessing Officer in the absence of a revised return.

Court's interpretation and reasoning: The Tribunal relied on the decision of the jurisdictional High Court in CIT vs. Mitesh Impex, which held that the appellate authorities have discretion to permit additional claims that were available at the time of filing the return. The Tribunal admitted the assessee's additional claim under section 54B, which was raised for the first time before the Tribunal. The Tribunal emphasized that the Assessing Officer is not empowered to accept such additional claims without a revised return but the appellate authority can admit them.

Key evidence and findings: The assessee filed an affidavit before the Tribunal claiming exemption under section 54B on reinvestment in agricultural land purchased within the prescribed time. This claim was not made before the Assessing Officer or CIT(A).

Application of law to facts: The Tribunal admitted the additional claim subject to verification of facts by the Assessing Officer. The matter was restored to the Assessing Officer with directions to consider the claim under section 54B after due verification and to pass a fresh order.

Treatment of competing arguments: The Revenue supported restoration to the CIT(A) for reconsideration of the section 54B claim. The Tribunal, however, directed restoration to the Assessing Officer for fresh adjudication, allowing the assessee to file objections and evidence.

Conclusions: The Tribunal admitted the additional claim under section 54B and directed the Assessing Officer to consider it afresh after verification, thus ensuring the assessee's right to claim exemption is duly examined.

3. SIGNIFICANT HOLDINGS

"The Assessing Officer is not empowered to accept additional claim in absence of revised return though such discretion is vested with the Appellate Authority."

"Keeping in view the fact that assessee has sold ancestral agricultural land and have claimed to have purchased another agricultural land and claiming exemption under section 54B of the Act, the additional claim of assessee is admitted subject to verification of fact by Assessing Officer."

"The matter is restored back to the file of Assessing Officer to consider the report of DVO and the report of Government Registered Valuer and to pass fresh order in accordance with law. The assessee is at liberty to file objection, if any, against the report of DVO."

"Before passing the order afresh, the Assessing Officer shall give reasonable opportunity of being heard to assessee and to file requisite explanation and evidence as and when called for."

The Tribunal established the principle that valuation of capital assets must be based on expert reports and that both the Assessing Officer and appellate authorities must provide reasonable opportunity to the assessee. It also reaffirmed the discretionary power of appellate authorities to admit additional claims available at the time of filing the return, ensuring substantive justice.

On each issue, the Tribunal's final determination was to allow the appeal for statistical purposes, admit the additional claim under section 54B, and restore the matter to the Assessing Officer for fresh adjudication after considering all relevant valuation reports and the assessee's objections, with directions to provide adequate opportunity of hearing.