2025 (3) TMI 1410 - AT - Income Tax

LTCG - valuation of the property as on 01.04.1981 - valuation of the property as determined by the Departmental Valuation Officer (DVO) - HELD THAT - The Government approved valuer has considered nearest data comparable considered by him was 10.04.1981 whereas the DVO has considered from the period January 1990 to March 1990 and he dragged back rates from 31.03.1990 to 01.04.1981. There is basic difference of valuation adopted by the DVO which is clearly visible that he has considered leasehold property against the freehold property and we observed that ld. CIT (A) has tabulated the various variation for the purpose of valuation adopted by the DVO which are (a) adopted properties involving leasehold property; (b) considered the comparables for the leasehold properties dated 31.03.1990 and dragged back the valuation to 01.04.1981 i.e. 9 years later than the date of valuation; (c) ignored size of the property; (d) ignored the location advantage and frontage of the existence of the property and date of inspection of the property is 13.11.2017 on which the property was not in possession of the assessee and building was demolished at the time of valuation. Considering the major issues involved in valuation report submitted by the DVO ld. CIT (A) gave relief to the assessee by observing that the fair market value of the property determined by the Government approved valuer is closer and correct fair market value and can be adopted for computation of capital gain. Therefore he directed the AO to delete long term capital gain and rejected the fair market value of the property by the DVO in its report on 01.12.2017 - Decided against revenue.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment revolve around the valuation of a property for the purpose of computing long-term capital gains under the Income Tax Act, 1961. Specifically, the issues include:

Whether the valuation of the property as determined by the Departmental Valuation Officer (DVO) was appropriate and reliable for computing long-term capital gains.
Whether the Learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in rejecting the DVO's valuation report and instead relying on the valuation provided by a Government Approved Valuer (GAV).
Whether the provisions of Section 50C of the Income Tax Act, 1961, were correctly applied or ignored in the valuation process.

ISSUE-WISE DETAILED ANALYSIS

1. Valuation of Property by DVO vs. GAV

Relevant Legal Framework and Precedents: The valuation of property for tax purposes is governed by the Income Tax Act, 1961, particularly sections related to capital gains and the role of the DVO under Section 55A. The CIT(A) and the Tribunal considered various precedents where courts have allowed challenges to DVO's valuation methods.
Court's Interpretation and Reasoning: The Tribunal upheld the CIT(A)'s decision, finding that the DVO's valuation was flawed due to reliance on incomparable properties and failure to account for differences between leasehold and freehold properties. The Tribunal agreed that the GAV's valuation, based on government-approved circle rates, was more reliable.
Key Evidence and Findings: The DVO's report was based on auction details from a later period (1990) and involved leasehold properties, whereas the GAV's report used contemporaneous circle rates for freehold properties. The DVO did not adjust for significant factors such as property size, location, and freehold status.
Application of Law to Facts: The Tribunal applied the principles of fair market valuation, emphasizing the need for comparable instances and reliable data. The GAV's use of government-approved rates and physical inspection was deemed more appropriate for determining the property's value as of April 1, 1981.
Treatment of Competing Arguments: The Tribunal considered the Revenue's arguments supporting the DVO's report but found them unconvincing due to the methodological flaws identified by the CIT(A). The assessee's objections to the DVO's reliance on non-comparable properties and incorrect adjustments were upheld.
Conclusions: The Tribunal concluded that the CIT(A) rightly rejected the DVO's valuation and accepted the GAV's valuation for computing capital gains, resulting in the deletion of the addition made by the AO.

2. Application of Section 50C of the Income Tax Act

Relevant Legal Framework and Precedents: Section 50C of the Income Tax Act deals with the adoption of the value assessed by the Stamp Valuation Authority for the purpose of computing capital gains. The Tribunal considered whether this section was applicable or ignored in the present case.
Court's Interpretation and Reasoning: The Tribunal did not find any specific error in the application or non-application of Section 50C, as the primary issue was the determination of the fair market value as of 1981, not the value at the time of sale.
Key Evidence and Findings: The Tribunal focused on the valuation reports rather than specific issues surrounding Section 50C, as the dispute was centered on historical valuation rather than stamp duty valuation.
Application of Law to Facts: The Tribunal did not delve deeply into Section 50C due to the nature of the issues, which were more concerned with the historical valuation methodology.
Treatment of Competing Arguments: The Tribunal noted the Revenue's arguments regarding Section 50C but found them peripheral to the main valuation issue.
Conclusions: The Tribunal did not make a specific ruling on Section 50C, focusing instead on the valuation discrepancies.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The valuation report of the DVO dated 07.12.2017 suffered from manifold defects and cannot be acceptable under the law. The defects are so patent that the fair market value cannot be correctly determined."
Core Principles Established: The Tribunal reinforced the principle that valuation must be based on comparable instances and reliable data, with adjustments for significant factors such as property type and location.
Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s decision to reject the DVO's valuation and accept the GAV's valuation, resulting in the dismissal of the Revenue's appeal and the deletion of the addition made by the AO.

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