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2020 (9) TMI 724 - AT - Income TaxExemption u/s 54F with reference to long term capital gains on sale of land - Whether AO was not given an opportunity by the ld. CIT(Appeals) to contest the additional claim / evidence produced by the assessee? - HELD THAT - This ground was allowed by ld. CIT(Appeals) without giving an opportunity to AO to contest this additional claim / evidence produced by the assessee which is as per the decision in the case of Humayun Suleman Merchant 2016 (9) TMI 70 - BOMBAY HIGH COURT . That further before us, assessee fairly conceded that this ground is in favour of the Revenue. Hearing the parties and considering the facts and legal parameters on this issue, ground No.3 of the appeal of the Revenue is allowed. Capital gain computation - FMV determination - HELD THAT - CIT(Appeals) has adjudicated the matter in a balanced way whereby the valuation report sanctity has been upheld but at the same time, it has been brought on record that such valuation report is also not 100% sacrosanct since there is an element of estimate involved and therefore there is a probability of error of 20% in such value. CIT(Appeals) has correctly estimated the Fair Market Value (F.M.V) of the land at ₹ 45,00,000/- as against the value of ₹ 57,02,000/-. After considering the probability of errors at 20% in the valuation report done by the registered valuer for the purpose of computing long term capital gains, we do not find any reason to interfere with the findings of the ld. CIT(Appeals) and therefore the relief provided to the assessee on both these grounds are sustained.
Issues Involved:
1. Competency of the valuer to submit a valuation report for agricultural land. 2. Legality of referring the valuation of land to the District Valuation Officer (DVO) under Section 55A of the Income Tax Act. 3. Allowance of additional ground of exemption under Section 54F of the Income Tax Act without giving the Assessing Officer an opportunity to contest. Issue-wise Detailed Analysis: 1. Competency of the Valuer: The Revenue contended that the valuer, registered under Section 34AB of the Wealth Tax Act, 1957, was not competent to submit a valuation report for agricultural land. The CIT(Appeals) found that the valuer's report should not be dismissed merely because the land was specified as agricultural. The valuer's report considered several factors, such as the land's location within an agricultural zone, the cessation of agricultural activities since 1978, and its proximity to urban amenities and transportation. The CIT(Appeals) concluded that the potential value of the land was higher than the AO's assumption and determined the Fair Market Value (FMV) at ?45,00,000 after considering a 20% probability of error in the valuer's estimate. 2. Legality of Referring Valuation to DVO: The Revenue argued that the CIT(Appeals) erred in calling the AO's action of referring the valuation to the DVO as illegal, citing an amendment in Section 55A(a) of the Income Tax Act. The CIT(Appeals) held this referral as illegal but noted that the AO did not use the DVO's value in the assessment. Instead, the AO used the Ready Reckoner Rate from 1989, which was not specific to the year 1981. The CIT(Appeals) highlighted that the Ready Reckoner rates are not foolproof and referenced several judicial pronouncements, including the Supreme Court's judgment in R. Sai Bharati vs. J. Jayalalitha, which stated that guideline values are not final but only prima facie rates. The CIT(Appeals) upheld the valuer's report with a 20% error margin, estimating the FMV at ?45,00,000. 3. Additional Ground of Exemption under Section 54F: The Revenue's ground was that the CIT(Appeals) allowed an additional ground of exemption under Section 54F without giving the AO an opportunity to contest. The CIT(Appeals) allowed the exemption without considering the AO's input, which was contrary to the Bombay High Court's decision in Humayun Suleman Merchant vs. CCIT. The Tribunal agreed with the Revenue, noting that the CIT(Appeals) should have allowed the AO to contest the additional claim. Consequently, this ground of the Revenue's appeal was allowed. Conclusion: The Tribunal upheld the CIT(Appeals)'s decision on the valuation of the land, determining the FMV at ?45,00,000 instead of ?57,02,000. The Tribunal dismissed the Revenue's grounds on the valuer's competency and the legality of referring the valuation to the DVO. However, it allowed the Revenue's appeal regarding the additional exemption under Section 54F, agreeing that the AO should have been given an opportunity to contest the claim. The assessee's Cross-Objection was dismissed, and the Revenue's appeal was partly allowed.
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