2015 (12) TMI 128 - AT - Income Tax

Validity of the reference made to DVO under Section 58 - which report to be adopted either of DVO or of Registered Valuer? - Held that - Both the registered valuer as well as the DVO had not referred to any comparable instances and simply adopted the value without any reference of the supporting material. The term fair market value has been defined under the provisions of Section 2(22B) of the Act to mean that the fair market value to the value which asset would ordinarily fetch on the sale in the open market on the relevant date. In our opinion, the concept of fair market value envisages of hypothetical seller and hypothetical buyer in hypothetical market. The value assessed by registering authorities for stamp duty purpose cannot be the basis for estimating the fair market value. Therefore, any valuation report based on the value as per the register maintained by the Registering Authorities cannot be taken as the basis for the purpose of valuing fair market value. Hence, we are of the considered opinion that interest of justice would be met, if the matter is restored back to the file of the Assessing Officer for de novo assessment. Accordingly, the matter is restored back to the file of the Assessing Officer for de novo assessment, after affording reasonable opportunity of being heard to the assessee. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Determination of cost of acquisition for computation of capital gains based on Fair Market Value (FMV) estimated by a Registered Valuer versus Departmental Valuation Officer (DVO).
2. Reliability of the Registered Valuer's report in adopting land rates and construction rates for FMV estimation.
3. Consideration of comparable sale instances by the Registered Valuer in determining land rates.
4. Evaluation of the objective and scientific methodology used by the DVO in estimating FMV.
5. Comparison of the present case with the judgment in CIT v Raman Kumar Suri regarding valuation methodology.
6. Validity of the reference to DVO under Section 58 of the Income-tax Act.

Analysis:
1. The appeals by the Revenue questioned the CIT(A)'s direction to adopt the cost of acquisition based on the FMV estimated by a Registered Valuer over the DVO's estimation as on 01.04.1981. The Tribunal decided to consolidate the appeals due to common issues.

2. The respondent assessee declared long term capital gains on the sale of a property and adopted FMV as on 01.04.1981 for cost of acquisition, leading to a dispute with the Assessing Officer who relied on the DVO's report. The CIT(A) allowed the appeal, citing the Bombay High Court's decision and rejecting the DVO's valuation.

3. The Sr. DR argued for adopting the DVO's report, emphasizing its basis on comparable instances. In contrast, the respondent's counsel challenged the DVO's reference and the use of 'Nabhi's Guide to House Tax' for valuation, citing relevant case laws in support.

4. The Tribunal analyzed the reports of both the Registered Valuer and the DVO, noting the absence of comparable instances in their valuations. Emphasizing the concept of fair market value and hypothetical market scenarios, the Tribunal concluded to restore the matter to the Assessing Officer for a fresh assessment.

5. The Tribunal addressed the issue of reference to the DVO under Section 58 of the Act, upholding the CIT(A)'s decision and emphasizing the need for a fair market value assessment based on hypothetical market scenarios. The matter was remanded to the Assessing Officer for a fresh assessment.

6. Ultimately, the appeals by the Revenue were allowed for statistical purposes, and the decision was pronounced on 23rd September 2015.