ITAT Deletes LTCG Addition as DVO Reference Was Invalid for Pre-July 2012 Transaction

Virendra Natwarlal Jariwala Vs DCIT (ITAT Surat)

The appeals before the Income Tax Appellate Tribunal (ITAT), Surat, related to Assessment Year 2013-14 and involved co-owners of a piece of land sold during the relevant period. The assessees challenged the adoption of the fair market value (FMV) of the land as on 01.04.1981 based on the Departmental Valuation Officer’s (DVO) report instead of the valuation furnished by a Government-approved registered valuer.

The assessees had sold the land through a conveyance deed dated 04.06.2012. For computing long-term capital gains (LTCG), they adopted the FMV of the land as on 01.04.1981 at ₹700 per square metre based on a valuation report prepared by a Government-approved valuer. The Assessing Officer (AO), however, relied on a DVO report obtained in the case of one of the co-owners, which determined the value at ₹550 per square metre. Based on this lower valuation, the AO recomputed LTCG and made an addition of ₹7,52,950. The Commissioner of Income Tax (Appeals) upheld the AO’s action, accepting the DVO’s methodology and comparable sale instances.

Before the Tribunal, the assessees contended that the valuation adopted by the registered valuer reflected the location and commercial potential of the property. More importantly, they argued that the AO could not validly invoke Section 55A to refer the matter to the DVO because the amendment to Section 55A(a), introduced by the Finance Act, 2012 with effect from 01.07.2012, was not retrospective. The transaction in question had occurred on 04.06.2012, prior to the amendment coming into force.