2019 (11) TMI 1092 - AT - Income Tax

Valuation of the property - determining the fair market value - valuation determined by the DVO - determining the fair market value on the basis of the comparable sale instances of the similarly situated property - residential property v/s commercial property - DVO has determined the fair market value of the property, the AO has to consider the same for the purpose of section 56(2)(vii) - HELD THAT - Property which is otherwise residential as per the record cannot be treated as a commercial property for the purpose of determining the fair market value though the locational advantage being a factor, influence the value of the property. However, so long the property is a residential property it cannot be treated as commercial property. Fair market value determined by the DVO and considered by the AO is not sustainable in law as an arbitrary exercise without considering the relevant factors. The assessee has already brought on record the comparable sale instances and, therefore, instead of going by the DLC rates of the area and that too for commercial property, the fair market value has to be determined based on the actual character of the property and the sale instances of the similarly situated property. In the case in hand, when the sale instances are available and which support the case of the assessee that the fair market value of the property cannot be more than the purchase consideration, then no addition is called for under section 56(2)(viii) of the Act. The addition by the AO and sustained by the ld. CIT (A) is deleted.

Summary

Issues Involved:
1. Legality and factual correctness of the CIT(A)'s order.
2. Addition of ?32,84,000/- as undisclosed income.
3. Alleged violation of principles of natural justice.
4. Ignoring details and documents available with the assessee.
5. Application of Section 56(2)(vii) of the IT Act.
6. Deemed purchase value of the property.
7. Change of property title from residential to commercial.
8. Valuation of property based on commercial title.
9. Ignoring stamp authority's valuation.
10. Valuation by Assistant Valuation Officer.
11. Addition based on wrong estimates without corroborative evidence.

Detailed Analysis:

1. Legality and Factual Correctness of CIT(A)'s Order:
The assessee contended that the CIT(A)'s order was flawed both legally and factually. The Tribunal examined the grounds of appeal and found that the CIT(A) had erred in sustaining the addition made by the AO without proper consideration of the facts and evidence provided by the assessee.

2. Addition of ?32,84,000/- as Undisclosed Income:
The AO added ?32,84,000/- to the assessee's income based on the differential amount between the purchase consideration and the revised stamp duty valuation. The Tribunal noted that the AO invoked Section 56(2)(vii) of the IT Act without proper basis, as the property in question was residential and not commercial.

3. Alleged Violation of Principles of Natural Justice:
The assessee argued that the CIT(A)'s order violated natural justice principles by not considering the evidence and details provided. The Tribunal agreed, stating that the CIT(A) failed to provide a fair opportunity to the assessee to present their case.

4. Ignoring Details and Documents Available with the Assessee:
The Tribunal observed that the CIT(A) ignored crucial documents and details available with the assessee, which substantiated their claim regarding the property’s valuation. This oversight contributed to the erroneous addition.

5. Application of Section 56(2)(vii) of the IT Act:
The Tribunal found that the AO incorrectly applied Section 56(2)(vii) by treating the property as commercial for valuation purposes. The property was residential as per the records, and any potential commercial use was irrelevant without proper conversion.

6. Deemed Purchase Value of the Property:
The Tribunal noted that the AO and the CIT(A) considered the deemed purchase value of ?56,09,000/- based on the Stamp Authority’s revised valuation. However, this valuation was for commercial property, while the actual property was residential.

7. Change of Property Title from Residential to Commercial:
The Tribunal emphasized that the property’s title remained residential as per the Jaipur Development Authority (JDA) records. The DVO and Stamp Duty Authority erred by considering the property as commercial based on its location and surrounding commercial establishments.

8. Valuation of Property Based on Commercial Title:
The Tribunal held that the DVO’s valuation, based on commercial rates, was unjustified. The property’s actual character as residential should have been the basis for valuation, not its potential or surrounding commercial use.

9. Ignoring Stamp Authority's Valuation:
The Tribunal criticized the DVO for ignoring the comparable sale instance of the remaining half of the property, which was sold for ?23,50,000/-. This sale instance should have been considered in determining the fair market value.

10. Valuation by Assistant Valuation Officer:
The Tribunal found that the Assistant Valuation Officer’s assessment of ?56,09,000/- was higher than the Sub Registrar’s valuation and was based on commercial rates. This was incorrect as the property was residential.

11. Addition Based on Wrong Estimates without Corroborative Evidence:
The Tribunal concluded that the AO’s addition was based on incorrect estimates and lacked corroborative evidence. The fair market value should have been determined based on comparable sale instances and the actual residential nature of the property.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the addition of ?32,84,000/- was unjustified. The fair market value should be based on the property’s residential character and comparable sale instances, not on commercial rates. The addition made by the AO and sustained by the CIT(A) was deleted.