2012 (5) TMI 441 - AT - Income Tax

Revision u/s 263 - computation of Capital gains - determination of cost of acquisition - It is on record that A.O. has issued show cause notice to the assessee to enquire about the working of the capital gains. It is also on record that assessee has replied in detail as stated in the arguments with reference to the working of long term capital gain of lese hold land and relied on the valuer s report - In the year 1989, for the first time Ready Reckoner was prepared and relevant instructions were issued in respect of how to adopt the valuation of properties of 1981 on the basis of the valuation adopted in the year 1989 - As seen from the above letter it is very clear that there was no fixed guidelines as of year 1981 and it is only on estimation and presumptions the valuation was done, therefore, even the rate at which the CIT took decision of Rs.72/-per sq.ft. is not based on any authentic documentation but only on certain instructions given how to adopt valuation of property based on Ready Reckoner 1989. At the time of passing the assessment order the A.O. has relied on the valuation report in which the valuer for the reasons stated therein has adopted the average value of the value of open land and value of land with buildings and adopted an average value so arrived at - A.O. has taken one of the possible views in adopting the cost of acquisition as supported by the valuation report - the action of the CIT in invoking of section 263 is without any jurisdiction for the reasons stated - Decided in favor of the assessee

Issues Involved:
1. Validity of the show cause notice under section 263.
2. Valuation report of the registered valuer.
3. Role of the Commissioner in adopting the valuation.
4. Jurisdiction of the Commissioner under section 263.

Detailed Analysis:

1. Validity of the Show Cause Notice under Section 263:
The assessee contested the jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, which allows the CIT to revise an order if it is considered erroneous and prejudicial to the interests of the Revenue. The CIT issued a show cause notice to reassess the income under the head 'Capital Gains'. The assessee argued that the conditions precedent to the application of section 263 were not satisfied as the order sought to be revised was neither erroneous nor prejudicial to the interest of the Revenue. The assessee also pointed out that the Assessing Officer (A.O.) had already considered the Government Approved Valuer's report while computing the long-term capital gains.

2. Valuation Report of the Registered Valuer:
The assessee had filed a valuation report from M/s. V.S. Modi Associates, Government Approved Valuers, which valued the property as on 01.04.1981. The valuer used the "Indian Valuers Directory and Reference Book" to determine the value of the land, arriving at a rate of Rs.168 per sq.ft. by averaging Rs.264 per sq.ft. and Rs.72 per sq.ft. The CIT, however, argued that the correct value should be Rs.72 per sq.ft. based on the Indian Valuers Directory and the stamp duty authorities' valuation. The CIT believed the valuation report was erroneous and directed the A.O. to adopt the cost of acquisition at Rs.72 per sq.ft.

3. Role of the Commissioner in Adopting the Valuation:
The CIT's contention was that the A.O. did not correctly inquire about the cost of acquisition and relied on an incorrect valuation report. The CIT believed that the A.O.'s order was erroneous because the valuer's report was not aligned with the stamp duty authorities' valuation. However, the tribunal noted that the A.O. had issued a show cause notice to the assessee and had considered the valuer's report in detail. The A.O. had reworked the capital gains by adopting the sale price as per the stamp duty authority and had disallowed certain expenses claimed by the assessee.

4. Jurisdiction of the Commissioner under Section 263:
The tribunal examined whether the CIT had the jurisdiction to invoke section 263. It was observed that the A.O. had indeed examined the issue of capital gains and had relied on the valuer's report. The tribunal cited the case of Grasim Industries Ltd. (321 ITR 92) to emphasize that an order cannot be considered erroneous and prejudicial to the interest of the Revenue unless the view taken by the A.O. is unsustainable in law. The tribunal also referred to the case of CIT vs. Gabriel India Ltd. (203 ITR 108) to highlight that section 263 does not allow the CIT to substitute his judgment for that of the A.O. unless the decision is held to be erroneous. The tribunal concluded that the CIT had not established that the A.O.'s order was erroneous. Moreover, the information from the stamp valuation authority, which the CIT relied upon, was obtained after the completion of the assessment and could not be used to justify the invocation of section 263.

Conclusion:
The tribunal concluded that the A.O. had taken a possible and plausible view supported by the valuation report and had passed a detailed order after due examination. The CIT's action of invoking section 263 was deemed without jurisdiction as the A.O.'s order was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the tribunal set aside the CIT's order and allowed the assessee's appeal.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 31.10.2011.

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