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TMI Blog2014 (1) TMI 1909X X X X Extracts X X X X X X X X Extracts X X X X ..... that basis. Your appellants pray that the AO be directed to compute capital gains by considering FMV of land at Rs. 14,12,00,000. 2. The CIT(A) erred in determining FMV of land without giving an opportunity to your appellants by holding that, in his opinion it was not necessary to give one more opportunity. Your appellants submit that determining the FMV without giving an opportunity has resulted in gross injustice to your appellants and action of the CIT(A) is against the principle of natural justice. Your appellants pray that, the arbitrary FMV determined by the CIT(A) should be set aside and the FMV as furnished by your appellant's registered valuer be taken into account in determining capital gains. 3. The CIT(A) erred in holding that the valuation made by the registered valuers of your appellants was on the basis of some imaginary situations, highly subjective and against the realities and therefore the reports were to be rejected. Your appellants submit that FMV determined by the CIT(A) is also based on imaginary situation and subsituting his judgement which is again highly subjective. Your appellants further submit that value arrived at by the CIT(A) is ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of property at Mumbai". (2). The Ld. CIT(Appeals) erred in not accepting the values adopted in the assessment which was arrived at on the basis of facts and authentic publications. (3). The Ld. CIT(Appeals) erred in treating the land as developed land in the absence of supporting documentary evidence. (4). Any other ground that may be urged at the time of hearing of appeal. ITA 429/Hyd./2003/AY.2001-02 Effective ground of appeal is about valuation of a plot of land.During the assessment proceedings AO found that the assessee-company had sold 5,61,333 sq.fts of its factory land at Sakinaka, Andheri,Mumbai,that out of that plot land admeasuring 28,737 sq. fts.was covered under Urban Land Ceiling Act(ULCA),that as per the Wealth-tax Returns filed for AYs. 1993-94 to 2000-01 value of the land covered under ULCA was shown at Rs. 26,700/-,that the assessee had sold the land for a sum of Rs. 48,70,00,000/-on 03.02.2000, that the property was acquired for Rs. 4,68,000/-on 30.03.1959. As per the AO, assessee had worked out its income under the head capital gains as under: "LAND: Sale consideration 48,70,00,000/- Less: Brokerage @ 1.5% 73,05,000/- Net consideration 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1981 was Rs. 530/- Rs. 700/- per sq.fts. After considering the valuers' report AO held that it was not known as when the plan of the assessee for construction of factory was approved, that the assessee had not proved that the area, in which the assessee's property was situated, was a developed industrial area, that land sold by the assessee was under developed industrial land, that the Registered Valuers had totally ignored the Stamp Duty Reckoner-2000, according to which the rate for developed industrial land in 1990 was Rs. 140/- per sq.fts. and the rate for an undeveloped industrial land was Rs. 55/- per sq.fts., that as per the IVDRB the rate for the developed industrial land was Rs. 56/- per sq.fts. and Rs. 22/- per sq.fts. for an undeveloped industrial land as on 1-4-1981. As a result, AO adopted the rate for undeveloped industrial land, as on 1-4-1981,as given in the IVDRB. 2. Assessee preferred an appeal before the First Appellate Authority(FAA) and filed paper book giving the details of the letters it had written to the AO and the letters received from the AO. Before him, it is argued that the FMV returned by the assessee was on the basis of the Regd. Valuer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot, that the DVO has not given the registration numbers of the sale instances and therefore the assessee was not able to cross-verify the genuineness of the sale instances, that the area for which the sale instances were quoted by the DVO was not similar to the conditions prevailing in the area in which the assessee's land was situated .Before the FAA assessee again reiterated its stand that the FMV adopted on the basis of the Regd. Valuer's Certificate should be accepted, that the land should be treated as was situated in a developed industrial area and should be treated as a land lying between two different zones, that the average for the different zones should be adopted. After considering the submissions of the assessee, FAA held that the valuation made by the Regd. Valuers was on the basis of some imaginary situations, that that the Valuation Reports submitted by the assessee were highly subjective and against the realities. Therefore, he rejected the Valuation Reports filed by the assessee. He further held that the assessee had purchased the property under appeal in 1959 for a sum of Rs. 4,68,000/- and had sold the same in 2000 for a sum of Rs. 48,70,00,000/-, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair and reasonable. He rejected the submission that the assessee's land was situated at the end of the area marked as 'L' and, therefore, the average of the rate for the area marked as 'K' and the area marked 'M' should be adopted. He held that Kurla-Andheri road and Sakinaka-Ghatcopar road found place in the Reference Book and the writers of the reference-book had consciously included even some areas situated on the West side of these two roads as belonging to the area 'L'. FAA also referred to the Stamp Duty Ready Reckoner-2000 and held that the reckoner had been prepared after a great deal of research, that according to the reckoner the rate for the developed land in 1990 was Rs. 140/- per sq.fts., that the cost inflation index was 182 for 1990 and 100 as on l-4-1981,that the rate as on 1-4-1981 would be Rs. 76.92 per sq.fts. (140 x 100/ 182). After considering four different methods, he adopted a rate of Rs. 52.23/- for the area not covered under ULCA. Accordingly, he held that FMV of plot of land (5,32,596 sq.fts.) not covered under ULCA as on 1-4-1981 would be Rs. 2.78 Crores (5,32,596 52.23). As regards to the land of 28,737 sq.fts. cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prudent purchaser would pay for the property, all factors having any depressing or appreciating effect on the value of the property have to be taken into account. (iii) An ascertainment of FMV, on the relevant date, has to be made on the basis of evidence. The burden is upon the authorities to find out the true value and there should be an earnest endeavour on their part to arrive at such value in accordance with the accepted principles of valuation. Though the value adopted by an expert is not binding on the departmental authorities, in case they decide not to act upon that evidence, and adopt another valuation, that valuation must be on the basis of some material. (iv) In fixing or estimating the correct market value of an asset, though there are different methods and approaches, the problem being difficult and a choice as to which of the methods should be preferred, raises imponderable. It may be necessary to take even two or all those methods into account and determine the market value. It is clear that to insist on finding out the market value by applying only one particular method would not give the correct estimation of the fair market value of a property. (v) It is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land at all. It cannot be sold in the open market. When land cannot be sold in the open market, the question of valuation on the hypothetical basis as to what price it would have fetched had it been sold in the open market, could not arise even assuming that such land may be sold subject to the restrictions imposed by the ULCA. In that process, one has to take into account the remote possibility of such land being granted full or partial exemption giving liberty to the assessee to dispose of it as he likes or subject to such restrictions as may be imposed as the conditions for exemption. In valuing such a property, one has to take into account the state of affairs as prevailing on the relevant valuation date. (xi) Not making available valuation report or the sale instances to the assessee, is a failure to comply with the principles of natural justice and fair play and on this ground alone the orders of the AOs can be set aside. Moreover while considering the fair market value, it was incumbent on the appropriate authority to have dealt with the objections raised by the assessees. (xii) It is for the, Appellate Tribunal as the final fact finding authority to determine on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the valuer was totally improper. Concept of FSI was not prevalent in the year 1981. Secondly as per the report he 'assumed' the market value of the full potential of land available for development. We agree that for valuation purposes some kind of assumption has to allowed especially if valuation is to be done in 2001 for the year 1981. But, assumption should have some base. In our opinion 'commercial basis' of 2001,as proposed by the valuer, could not held a reasonable and fair basis of valuation. Valuer has himself at the beginning of the part three of the valuation report has stated that the plot fell in Special Industrial Zone I-3,that in 1981 the D C Rules did not permit change of user from Industrial to Commercial or Residential or vice versa. If in 1981 commercial use was permissible then to value the plot on commercial basis cannot be endorsed. It should have been valued as Industrial plot. As per the Valuer he had conducted a search in the Registrar's office and he had not been able to locate any instance of sale of similar properties from 1979-83. Even if it is agreed that no instance of similar properties were available but some kind of instances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e FAA that there could not be very high variation in the value of plot of land for the period 1959 to 1981 and 1981 to 2001.In absence of any other more reliable method his reliance on annual rate of appreciation method. It is known fact that price of land do not appreciate by uniform percentage every year, but for a period of more than forty years, some method has to adopted and method adopted by him is one of the reasonable method. It is also a fact that after the winds economic liberalisation swept the country in year 1991 price of land in Mumbai appreciated considerably than the earlier period-especially when internal emergency was declared in the country i.e. 1975-77.We find that FAA has also used the reference books as one of the sources for arriving at the FMV. In our opinion method adopted by him is a better 'guesswork' than the guesswork done by the valuer. His estimation is also very near to the valuation made by the DVO. We have considered the case of S.Krishnan (supra) cited by the AR of the assessee. We find that decision delivered by the Hon'ble jurisdictional High Court dealt with acquisition of property. Therefore same is not of any help for deciding the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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