2023 (4) TMI 564 - AT - Income Tax

LTCG - Sale of immovable property of urban agricultural land - consideration of indexation cost on the basis of report of Govt. approved Valuer - assessee is NRI staying at Arizona, USA since many years and did not maintain the books of account - argument of ld Counsel to the effect that in case of assessee s co-owner the FMV as on 01.04.1981 was accepted at Rs.175 per sq. meter. - HELD THAT - We note that in case of assessee s co-owner, there was no scrutiny assessment under section 143(3) of the Act, hence there is no opinion of the assessing officer. Therefore, return of income accepted by the Department under section 143(1) of the Act, in case of assessee s co-owner, cannot be accepted to determine FMV as on 01.04.1981, therefore arguments advanced by ld Counsel is hereby rejected. AO has calculated long term capital gain on sale of two pieces of land by applying the fair market value of the said land as on 01.04.1981 at Rs. 3.44 per sq. mtr. as against the assessee's claim of fair market value of the said land as on 01.04.1981 at Rs. 175 per sq. mtr. - As both the DVO valuation as well as Government approved valuations are nothing but estimation of value as on specific date, it will be reasonable and justified if the average of two rates are taken as fair market value of the said land as on 01.04.1981. This way ld CIT(A) took the average rate of FMV of land vide RS No.118/97 will be Rs.69 (Rs.135 2.55/2) and FMV of land vide Rs no.123/103/1 will be Rs.69 (Rs.135 3.14/2). Average FMV as on 01.04.1981 determined by ld CIT(A) is still lower side therefore, considering the facts of the assessee as narrated above, the FMV of land as on 01.04.1981 should be adopted at Rs.90 per sq. meter. We note that determination of fair market value as on 01.04.1981, after all, is an estimate only and therefore we are of the view that ends of justice would be met, if a rate of Rs.90 per sq. meter is adopted as fair market value as on 01.04.1981 for the purpose of indexed cost of acquisition, as the same would take care of the inconsistencies between DVO report and report of registered valuers of the assessee. Therefore, we direct the assessing officer to recompute capital gain on sale of land by taking fair market value of land at Rs.90 per. Sq. meter, as on 01.04.1981, for the purpose of indexation. Appeal of assessee is partly allowed.

Summary

Issues Involved:
1. Addition under Long Term Capital Gains.
2. Determination of the value of land as of 01/04/1981.
3. Ignoring the valuation report provided by the assessee.
4. Re-computation of taxable Long Term Capital Gain.
5. Partial upholding of the addition made by AO.
6. Acceptance of valuation reports from Government approved valuers.

Summary:

1. Addition under Long Term Capital Gains:
The assessee filed a return declaring total income, including Capital Gain, which was processed under section 143(1) of the Income Tax Act. The case was selected for scrutiny, and statutory notices were issued. The AO noted that the assessee sold immovable property and derived income from capital gain. The AO found discrepancies in the cost of acquisition claimed by the assessee and issued a show cause notice, proposing an addition of Rs.91,68,824/- to the total income due to the higher claimed indexed cost of acquisition.

2. Determination of the value of land as of 01/04/1981:
The AO calculated the fair market value (FMV) of the land as on 01.04.1981 at Rs.3.44 per sq. mtr. based on nearby land valuation, which was significantly lower than the valuation provided by the assessee's valuer at Rs.175/- per sq. mtr. The AO made an addition to the total income based on this lower valuation.

3. Ignoring the valuation report provided by the assessee:
The assessee contested the AO's valuation and provided valuation reports from Government approved valuers, which were significantly higher. The CIT(A) partly allowed the appeal, taking an average of the valuations provided by the DVO and the assessee's valuers, arriving at a FMV of Rs.69 per sq. mtr.

4. Re-computation of taxable Long Term Capital Gain:
The CIT(A) directed the AO to recompute the capital gain based on the averaged FMV of Rs.69 per sq. mtr. The assessee further appealed, arguing that the FMV should be between Rs.135 and Rs.175 per sq. mtr. as per the valuation reports provided.

5. Partial upholding of the addition made by AO:
The CIT(A) partly upheld the AO's addition, considering the average of the DVO's and the assessee's valuers' reports. The assessee argued that the FMV determined by the CIT(A) was on the lower side and should be revised upwards.

6. Acceptance of valuation reports from Government approved valuers:
The Tribunal considered the arguments from both sides, noting the discrepancies and the basis of valuation by the DVO and the assessee's valuers. The Tribunal decided that the FMV as on 01.04.1981 should be Rs.90 per sq. mtr., considering it a reasonable estimate that balances the inconsistencies between the different valuation reports.

Conclusion:
The Tribunal directed the AO to recompute the capital gain on the sale of land by taking the FMV of land at Rs.90 per sq. mtr. as on 01.04.1981 for the purpose of indexation, thereby partly allowing the appeal filed by the assessee.