2014 (5) TMI 879 - AT - Income Tax

Computation of capital gains nature of land at the time of valuation i.e. as on 1-4-1981 - conversion of agricultural land into non-agricultural land in the year 2005 - Held that - The assessee s consistent contention has been that land should have been valued as non-agricultural land as on 01-04-1981 and the valuation of non-agricultural land as on 01-04-1981 should be adopted for calculating the long term capital gain on the ground that since the land when sold was non-agricultural land after conversion, it should be treated as non-agricultural land even before the date of conversion - This contention was backed by another argument that such treatment of agricultural land would bestow greater benefit on assessee which was the purpose of the provisions of law regarding applying cost inflation index while calculating long term capital gain. This argument is devoid of merit in view of the factual matrix of this case that as on 01-04-1981 land was agricultural land and to apply cost inflation index the same cannot be treated as non-agricultural land as on 01-04-1981 simply because the same was converted into non-agricultural land subsequently in the year 2005 when the same was sold as non-agricultural land - lower authorities have rightly treated this land as agricultural land as on 01- 04-1981 and assessing officer has rightly taken the valuation of the land @ 2.32 per sq. ft on the basis of comparable instances obtained by him from the concerned authorities - as per the provisions of section 55A of the Act, the AO may refer the matter to DVO in case valuation of any property on the basis of registered valuer has been shown by the assessee less than the market value - the situation is revere as in this case the assessee has shown value of the land as on 01-04-1981 more than the market value the order of the CIT(A) is upheld Decided against Assessee.

Summary

Issues Involved:
1. Taxability of long-term capital gain on the sale of land.
2. Determination of the fair market value of the property as of 01-04-1981.
3. Consideration of the property as agricultural or non-agricultural land for valuation purposes.

Detailed Analysis:

1. Taxability of Long-Term Capital Gain on Sale of Land:
The primary issue in this appeal is the taxability of long-term capital gain arising from the sale of ancestral land. The assessee sold land situated at village Atladara, which was converted from agricultural to non-agricultural land before the sale. The assessee reported a capital loss, but the Assessing Officer (AO) recalculated it as a capital gain, leading to the dispute.

2. Determination of Fair Market Value of the Property as of 01-04-1981:
The AO valued the land as of 01-04-1981 at Rs. 2.32 per sq. ft. based on local inquiries and official records, while the assessee used a valuation of Rs. 18 per sq. ft. from a registered valuer. The AO's valuation was based on sale instances from the Talati and Mamlatdar, which indicated lower values for agricultural land. The assessee argued that the land should be valued as non-agricultural land as of 01-04-1981 because it was sold as non-agricultural land.

3. Consideration of the Property as Agricultural or Non-Agricultural Land for Valuation Purposes:
The assessee contended that the land should be valued as non-agricultural land as of 01-04-1981, citing that it was sold as such and that the valuation should reflect its status at the time of sale. The AO and CIT(A) treated the land as agricultural as of 01-04-1981, leading to a lower valuation. The CIT(A) upheld the AO's valuation but allowed for the inclusion of costs incurred for conversion and improvement in the capital gain calculation.

Judgment:
The tribunal upheld the CIT(A)'s decision, agreeing that the land should be valued as agricultural land as of 01-04-1981 because it was converted to non-agricultural land only in 2005. The tribunal found no merit in the assessee's argument that the land should be treated as non-agricultural land for valuation purposes as of 01-04-1981. Additionally, the tribunal rejected the assessee's request to refer the matter to the DVO under section 55A of the Income Tax Act, as the provisions apply when the reported value is less than the market value, which was not the case here.

Conclusion:
The tribunal dismissed the assessee's appeal, affirming the lower authorities' decision to treat the land as agricultural as of 01-04-1981 and to use the AO's valuation of Rs. 2.32 per sq. ft. for calculating the long-term capital gain. The tribunal found no need to interfere with the CIT(A)'s order, which was upheld in its entirety. The appeal was dismissed, and the order was pronounced in open court.