2019 (11) TMI 871 - AT - Income Tax

Capital gain computation - determining the cost of acquisition on sale of property for computing the capital gains - HELD THAT - The fair market value as on 01.04.1981 was adopted by the assessee on the basis of Chartered Engineers certificate issued by S.V.Ramana, who has valued the building after making personal visit. The question whether the fair market value and the SRO value is one and the same or not was considered by this Tribunal in the case law cited supra and held that the fair market value is not a guideline value In the instant case, both the lower authorities have simply brushed aside the Chartered Engineer s valuation report submitted by the assessee without assigning any reasons. Further the AO has adopted the SRO value as fair market value which is incorrect approach. The guide line value is the rate at which the properties are registered in and around the area, but not related to the exact premises of the assessee. Therefore for the purpose of determining the capital gains, the guide line value cannot be applied blindly when there is registered valuer s report made available to the AO. Since the facts of this case are identical to the facts of the case law relied upon by the assessee, we direct the AO to adopt the fair market value of the cost of acquisition as certified by the registered valuer s certificate, instead of substituting the same with SRO value. Accordingly, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. Appeal of the assessee is allowed.

Summary

Issues:
Determining cost of acquisition on sale of property for computing capital gains.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) related to the cost of acquisition on the sale of property for computing capital gains for the Assessment Year 2014-15. The Assessing Officer (AO) found that the assessee sold land and a building for a consideration of &8377; 1,63,00,000. The AO proposed to determine the cost of acquisition based on the Sub Registrar Office (SRO) rates, which the assessee objected to, stating that SRO rates are guideline values, not fair market values. The AO rejected the fair market value adopted by the assessee and computed the capital gains based on SRO rates, resulting in a significant difference in the capital gains calculation.

The CIT(A) dismissed the appeal, upholding the AO's decision to use SRO rates as fair market values. During the appeal hearing, the assessee argued that the fair market value was determined by a Chartered Engineer and should be accepted as the cost of acquisition. The assessee also cited a Tribunal decision supporting their argument. The Tribunal analyzed the case, highlighting the distinction between fair market value and SRO rates. The Tribunal emphasized that the AO erred in substituting SRO rates for fair market value without valid reasons and directed the AO to adopt the fair market value certified by the registered valuer, overturning the CIT(A)'s decision and deleting the addition made by the AO.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of considering fair market value over SRO rates for determining capital gains, especially when supported by a registered valuer's report. The decision highlighted the necessity of following proper valuation procedures in line with the Income Tax Act provisions to ensure accurate computation of capital gains.