Ved Kumari Subhash Chander Vs ITO (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal heard the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals)-2, Gurgaon for Assessment Year 2011-12. The dispute concerned the determination of the fair market value (FMV) of a residential property as on 1 April 1981 for computing long-term capital gains. The assessee also challenged the computation of capital gains based on the reduced FMV adopted by the Assessing Officer.
During the relevant year, the assessee, along with four other co-owners, sold a residential property situated at Maya Bungalow, Mithakhali, Ahmedabad for ₹9 crore. The assessee’s share of the sale consideration was ₹1.80 crore. After deducting brokerage and adopting the fair market value as on 1 April 1981 on the basis of a registered valuer’s report, the assessee computed indexed cost of acquisition at ₹77,48,905 and long-term capital gain at ₹1,01,61,095. The entire capital gain was claimed as exempt under Section 54 on account of investment in a residential flat in Mumbai.
The Assessing Officer observed that the registered valuer had adopted the land value at ₹5,800 per square metre, whereas the average rate reflected in the sale instances referred to in Annexure ‘A’ of the valuation report was ₹1,160 per square metre. The Assessing Officer issued a show cause notice proposing adoption of the lower rate. Although the assessee submitted that the registered valuer had adopted the higher value because the market value exceeded the circle rate, the Assessing Officer rejected the explanation. He adopted the land value at ₹1,160 per square metre, reduced the cost of construction from ₹1,800 per square metre to ₹1,000 per square metre based on Ahmedabad Urban Development Authority rates, recomputed the indexed cost of acquisition at ₹18,18,112 and determined the taxable long-term capital gain at ₹1,61,81,888. The Assessing Officer also initially restricted the exemption under Section 54 on the ground that the Mumbai property had three co-owners and allowed exemption only to the extent of one-third of the investment.
Before the Commissioner (Appeals), the assessee challenged both the computation of capital gains and the restriction of exemption under Section 54. The Commissioner (Appeals) directed the Assessing Officer to refer the valuation issue to the Departmental Valuation Officer (DVO). The Assessing Officer reported that although a reference had been made, the DVO expressed inability to value the property because, by the time of inspection, the original structure had been demolished and new apartments were under construction. The Commissioner (Appeals) nevertheless upheld the Assessing Officer’s adoption of ₹1,160 per square metre as the fair market value, observing that the registered valuer himself had referred to sale instances at that rate. However, the Commissioner (Appeals) allowed the assessee’s entire claim for exemption under Section 54 after recording the Assessing Officer’s report that the assessee alone had made the investment and was the sole beneficiary of the Mumbai property.
Before the Tribunal, the assessee contended that the registered valuer, being a technical expert, had considered the property’s location and development potential while adopting the higher value of ₹5,800 per square metre. It was argued that the lower authorities, lacking technical expertise, could not substitute their own valuation without obtaining a valuation from the DVO. The Revenue supported the orders of the lower authorities and submitted that the registered valuer had no basis for adopting a value five times higher than the prevailing rate and that subsequent sale prices could not determine the fair market value as on 1 April 1981.
The Tribunal held that the valuation carried out by an empanelled registered valuer of the Income Tax Department deserved precedence over a valuation independently adopted by the Assessing Officer without expert support. It observed that the Assessing Officer had rejected the registered valuer’s report during assessment proceedings without referring the matter to the DVO and had thereby undertaken the valuation himself. The Tribunal held that once the assessee had furnished a registered valuer’s report, the Assessing Officer could not discard it without obtaining contrary expert evidence. It referred to several judicial precedents holding that where the Assessing Officer does not refer the matter to the DVO, the registered valuer’s report should ordinarily be accepted.
Following these precedents, the Tribunal held that the Assessing Officer was not justified in rejecting the registered valuer’s report without a DVO’s valuation. It set aside the order of the Commissioner (Appeals) on the valuation issue and directed the Assessing Officer to recompute the fair market value of the property as on 1 April 1981 by adopting the rate determined by the registered valuer. The appeal of the assessee was accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-2, Gurgaon {CIT (A)} dated 28.01.2016 for assessment year 2011-12.
2.0 Brief facts of the case are that during the year under consideration, the assessee had sold a residential house bearing no. 451/4, Maya Bungalow, Mithakhali, Ahmedabad, Gujarat. The assessee was co-owner of this property with four other co-owners. The total sale consideration was Rs. 9 crore and the assessee’s share worked out to Rs. 1.80 crore. The assessee’s case was selected for scrutiny and the assessee was asked to furnish details of moveable/immoveable property sold/purchased by her during the year. In response, the assessee submitted before the Assessing Officer that the sale consideration was Rs. 1.80 crore and after deducting Rs. 90,000/- towards brokerage paid, the net consideration came to Rs. 1,79,10,000/-. From this, the assessee deducted the cost of acquisition by taking fair market value as on 1.4.1981 (which was based on the valuation report obtained by the assessee from a registered valuer). The indexed cost of acquisition came to Rs. 77,48,905/- and the resultant long term capital gain was computed at Rs. 1,01,61,095/- which was claimed as exempt u/s 54 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) as amount spent towards purchase of a flat in Mumbai.
2.1 The Assessing Officer noted that in the valuation report submitted by the assessee, the rate of land had been taken at Rs. 5800/- per sq mtr. The Assessing Officer also noted that the average rate of land as per the various sales instances given in Annexure ‘A’ of the valuation report was only Rs. 1160/- per sq mtr. The Assessing Officer noted that the assessee had increased the rate of land by five times. Accordingly, a show cause notice was issued to the assessee wherein the assessee was asked to show cause as to why the average rate of Rs. 1100/- per sq mtr not be applied for computing the quantum of capital gains. In response to the show cause notice, it was the assessee’s contention that the fair market value adopted at Rs. 5800/- per sq. mtr as per the valuation report was correct as the market value was much higher than the circle rate. However, the Assessing Officer did not agree with the submissions of the assessee and held that the fair market value as on 1.4.1981 was to be taken at Rs. 1160/- per sq mtr and the total cost of acquisition was computed at Rs. 10,12,680/-. The Assessing Officer also noted that the assessee had adopted the cost of construction at Rs. 1800/- per sq mtr whereas the rate fixed by Ahmedabad Urban Development Authority was @1000 per sq mtr. Accordingly, the indexed cost of acquisition was computed at Rs. 18,18,112/- and the long term capital gain was computed at Rs. 1,61,81,888/-. The Assessing Officer also did not allow the exemption u/s 54 claimed by the assessee completely by noting that there were three co-owners of the property purchased in Mumbai and, therefore, only 1/3rd of the investment in the property was to be allowed. Accordingly, the exemption u/s 54 was restricted to Rs. 33,87,032/- and long term capital gain for the purpose of taxability was computed at Rs. 1,27,94,856/-.
2.2 Aggrieved, the assessee approached the Ld. First Appellate Authority and challenged the computation of long term capital gains as well as the partial disallowance with respect to exemption u/s 54. The Ld. CIT (A) directed the Assessing Officer to refer the valuation of property to the DVO for ascertaining correct fair market value as on 1.4.1981. The Assessing Officer was also directed to examine the assessee’s contention regarding the claim of deduction u/s 54.
2.3 With respect to the assessee’s claim u/s 54, the Assessing Officer submitted before the Ld. CIT (A) that necessary inquiries were made and it was found that although there were three co-owners of the property purchased, the payment was made only by the assessee and that she was the sole beneficiary of the property. With respect to the direction regarding determination of fair market value of the property sold, it was submitted by the Assessing Officer that reference was made to the DVO, Ahmedabad and in response to the reference made, the Valuation Officer at Ahmedabad had reported that the property in question was inspected along with the assessee. However, the property was non-existent on the date of inspection as the purchaser had dismantled the old construction and new apartments were being constructed. The DVO expressed his inability to carry out the valuation of the property as there was no existing structure which could be measured for the purpose of arriving at the fair market value of the property.
2.4 The Ld. CIT (A), while disposing the assessee’s appeal, noted that the Assessing Officer had pointed out that the valuation report itself had referred to actual sale deeds wherein the sale price of the land in the area was around Rs. 1160/- per sq mtr and, therefore, there was no justification whatsoever for valuing the fair market value at five times the value at which a number of other sale deeds in that area were registered. The Ld. CIT (A) held that the Assessing Officer was fully justified in estimating the fair market value as on 1.4.1981 at Rs. 1160/- per sq mtr. Accordingly, this ground of the assessee was dismissed. However, the Ld. CIT (A), after duly noting the observations of the Assessing Officer with regard to the assessee’s claim of exemption u/s 54F, allowed the entire claim made in this regard.
2.5 Now, the assessee is before this Tribunal and has raised the following grounds of appeal:-
“1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law in upholding the action of the Ld. A.O. in disregarding the L.M.V. of the transferred property as on 01.04.1981 claimed by the appellant at Rs. 10,89,860/- and has erred in adopting Fair Market value at Rs. 2,55,71 2/- and has thus erred in computing capital gain accordingly.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the F.M.V. as on 01.04.1981 at Rs.2,55,712/- is bad in law and against the facts and circumstances of the case.
3. That in any case and in any view of the matter action of Ld. CIT(A) in confirming the action of Ld. A.O in making the impugned addition is bad in law and against the facts and circumstances of the case.
4. That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.”
3.0 The Ld. Authorised Representative (AR) submitted that the fair market value adopted by the assessee was correct as the same was based on the report of the registered valuer who was a technical expert and who had duly taken note of the fact that the impugned property was located in a highly developed area and was amenable for residential/commercial development. It was submitted that the registered valuer had specifically mentioned that although the circle rate was Rs. 1160/- per sq mtr but he had taken the fair market value at five times of the said circle rate because of several special features of this property. The Ld. AR further submitted that when an expert was determining the fair market value by using his professional and technical skill, after duly taking into account the factors which were having direct, proximate and inextricable bearing on the fair market value, it was not justified on the part of the lower authorities, who were certainly not technical experts, to contend that circle rate would alone represent the fair market value. It was further submitted that the fair market value applied by the registered valuer was fortified from the fact that the circle rate of the same plot which had been sold by the assessee along with the co-owners at the time of sale was Rs. 1500/- per sq mtr whereas the said plot had been actually sold at Rs. 1 lakh per sq mtr which was more than 61/2 times of the circle rate. It was submitted that if the circle rate of the fair market value are to be the same, then there was no reason for the actual sale price of the impugned plot to be Rs. 1 lakh per sq mtr. It was submitted that, thus, the registered valuer had correctly taken the rate of Rs. 5800/- per sq mtr for the purpose of determining the fair market value. The Ld. AR also placed reliance on certain judicial precedents of the Coordinate Benches of the Tribunal in support of the contention that the rates of the registered valuer could not be rejected by the Assessing Officer without having referred the matter to the DVO.
4.0 In response, the Ld. Senior Departmental Representative (Sr. DR) supported the orders of the lower authorities. It was submitted that there was no basis for the registered valuer to have adopted a rate which was five times more than the existing rates for the purpose of determining the fair market value. It was submitted that subsequent sales @Rs.1 lakh per sq mtr had no bearing on the determination of fair market value on 1.4.1981. The Ld. Sr. DR also submitted that the assessment in case of other two co-owners namely Smt. Bimala Kumar Lajpatrai and Smt. Kailashben J. Sachdev had also been re-opened u/s 148 because of the error in fair market value. The Ld. Sr. DR also submitted that the case laws which were being relied upon by the ld. AR were distinguishable on facts.
5.0 We have heard the rival submissions and have also perused the material available on record. It is the contention of the assessee that the lower authorities have erred in overriding the report of the registered valuer without supporting evidence and, therefore, the same is bad in law. It is also the contention of the assessee that the Assessing Officer should have referred the matter to the DVO if he was not in agreement with the valuation as computed by the registered valuer and that in absence of any evidence on record, the report of the registered valuer should have been accepted with regard to fair market value as on 1.4.1981 for the purpose of computing the capital gains. It is seen that the Assessing Officer while rejecting the registered valuer’s estimate at Rs. 5800/- per sq mtr has noted that the average rate at which the sales deeds were being executed was Rs. 1160/- per sq mtr. However, it is our considered opinion that valuation done by the empanelled registered valuer of the Income Tax Department would certainly take precedence over a value which the Assessing Officer might adopt on his own without making a reference to the DVO. The fact of the matter remains that the Assessing Officer, during the course of assessment proceedings, did not make any reference to the DVO even though he chose not to accept the rate adopted by the registered valuer. Therefore, in our considered opinion, the Assessing Officer exceeded the powers entrusted to him in this regard by undertaking to compute the fair market value on his own without being supported by the expert knowledge of the DVO. The law is fairly settled in this regard and coordinate benches of the Tribunal have time and again held that where the assessee had submitted valuation report of a registered valuer and the matter was not referred by the Assessing Officer to the DVO, the Assessing Officer is bound to accept the report of the registered valuer regarding the market value of the land as claimed by the assessee. We take support from the order of ITAT Chandigarh Bench in the case of Barjidner Singh Bhatti vs. ITO in ITA No. 1101/CHD/2014 wherein vide order dated 15.7.2015, the Bench had ruled in favour of the assessee by holding that if the Assessing Officer was not satisfied with the report of the registered valuer, he should have made a reference to the DVO and in absence of such a reference, the Assessing Officer should not have made his own calculation for the purpose of computation of capital gains. Reliance is also placed on the order of the ITAT, Lucknow Bench in the case of Adarsh Kumar Agrawal vs. ACIT in ITA No. 66/LKW/2014 wherein vide order dated 23.03.2014, it was held that where the assessee had submitted the valuation report of the registered valuer and the matter was not referred by the Assessing Officer to the DVO, the Assessing Officer has to accept the report of the registered valuer regarding the fair market value of the land as claimed by the assessee. ITAT Cochin Bench in the case of Mrs. Susamma Paulose Vs JCIT reported in 79 TTJ 573 (Coch.) on identical facts held as under:
“….. A registered valuer is competent to value properties as per the provisions of the IT Act and Rules made there under. The AO is not justified in brushing aside the report of the registered valuer without pointing out any specific reason for that. The AD did not have any materials with him to rebut the valuation worked out by the registered valuer. The AD was rejecting the report of the registered valuer with a stroke of pen as if the law does not recognise the valuation made by a registered valuer. The method followed by the AO is quite unlawful and arbitrary. The report of a registered valuer is a valid piece of evidence in deciding matters of valuation. Such report can be modified or questioned or rebutted by the AO only in the light of reliable materials available with him. In the present case, the AO himself has not referred the matter to valuation. In the facts and circumstances of the case, the AO as well as the CIT(A) have erred in coming to their conclusions regarding the valuation of the property as on 1st April, 1981. Fair market value of the land as on 1st April, 1981, estimated by a registered valuer being based on sound factual basis and the phenomenal development in that area could not be rejected by the AO without assigning any specific reasons.”
5.1 Similarly, in the case of Pyare Mohan Mathur HUF Vs ITO (in ITA No. 471/Agra/2009 vide order dated 21/04/2011) the Agra Bench of the ITAT has held that in view of the provision of section 55A once the assessee has submitted the necessary evidence by way of the valuation report made by the registered valuer, the onus gets shifted on the AO to contradict the report of the registered valuer. The registered valuation officer is a technical expert and the opinion of an expert cannot be thrown out without bringing any material to the contrary on record. In case the AO was not agreeable with the report of the registered valuer, he was duty bound to refer the matter to the DVO for determining the fair market value of the land as on which he failed to do so. The tribunal held that the revenue has not discharged the onus but merely rejected the fair market value taken by the assessee. It set aside the order of the CIT (A) and directed the AO to recompute the capital gain after taking the fair market value of the land as on 1/4/1981, as claimed by the assessee. Fair market value of the land as on 1/4/1981 estimated by the registered valuer being based on sound factual basis and the phenomenal development in that area could not be rejected by the AO without assigning any specific reasons.
5.2 In the case of CWT Vs Raghunath Singh Thakur (304 ITR 268 HP) the Hon’ble High Court of Himachal Pradesh held that if the Assessing Officer does not agree with the report regarding the valuer relied upon by the assessee, rejection of such valuer’s report without making reference to the valuation, order is invalid and the report of the registered valuer shall be accepted.
5.4 The Hon’ble Bombay High Court in the case of C.I.T. vs. Raman Kumar Suri reported in (2013) 255 CTR 107 had held that the valuation done by the registered valuer is with regard to a specific property and the same takes into account its various advantages and disadvantages, all of which would influence the valuation of property. The Hon’ble Bombay High Court went on to hold that the valuation done by an empanelled registered valuer of the Income Tax Department would certainly take precedence over other indicators.
5.5 Therefore, respectfully following the aforesaid juridical precedents, we have no option but to accept the assessee’s contention that the Assessing Officer was not right in discarding the report of the registered valuer without having made a reference to the DVO and, therefore, the rate adopted by the Assessing Officer for the purpose of computation of fair market value cannot be upheld. Accordingly, we set aside the order of the Ld. CIT (A) and direct the Assessing Officer to re-compute the fair market value of the land as on 1.4.1981 by taking into account the rate as adopted by the registered valuer.
4. In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 26th August, 2019.
