Tribunal allows appeal on Fair Market Value for capital gains tax

The Tribunal allowed the appeal of the assessee concerning the computation of Fair Market Value (FMV) as on 1.4.1981 for capital gain tax purposes. The Tribunal held that the assessee's adoption of FMV at Rs. 750 per square yard was reasonable based on a valuation officer's report considering the location and infrastructure. It rejected the Assessing Officer's adoption of Rs. 8 per square yard based on outdated guideline values. The Tribunal directed the Assessing Officer to compute the capital gain tax using the FMV of Rs. 750 per square yard.

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Issues Involved:
1. Computation of Fair Market Value (FMV) as on 1.4.1981 for the purpose of capital gain tax.

Summary:

Issue 1: Computation of Fair Market Value (FMV) as on 1.4.1981 for the purpose of capital gain tax

The appeal by the assessee is directed against the order of the CIT(A)-II, Hyderabad dated 30.12.2009 and pertains to assessment year 2006-07. The only issue arises for consideration is computation of fair market value (FMV) as on 1.4.1981 for the purpose of capital gain tax. The assessee received a plot of land admeasuring 8091 square yards (SY) at Hydernagar, Kukatpally, Hyderabad by a gift deed dated 24.1.2006 and sold it for a sale consideration of Rs. 5,58,30,000. For the purpose of capital gain, the assessee adopted the FMV as on 1.4.1981 at Rs. 750 per SY based on the valuation report of the registered valuer. However, the Assessing Officer adopted the FMV as on 1.4.1981 at Rs. 8 per SY based on the guideline value of the State Registration Department.

The learned representative for the assessee argued that the guideline value of the Registration Department is only a guidance for the Sub-Registrar to find out the market rate for the purpose of collecting stamp duty and does not reflect the FMV. The guideline value in Andhra Pradesh was fixed in 1976 and not revised until 1995. Therefore, adopting the guideline value fixed in 1976 as the FMV as on 1.4.1981 is not justified. The assessee has rightly adopted the FMV as on 1.4.1981 on the basis of the report of the valuation officer.

On the contrary, the learned DR submitted that the assessee adopted Rs. 750 per SY as on 1.4.1981 after reverse indexation of the cost of inflation, which is not permissible as per the decision of the Special Bench of this Tribunal in Hiralal Lokchandani vs. ITO (2007) 106 ITD 45 (KOL) (SB). Therefore, the Assessing Officer rightly adopted Rs. 8 per SY as per guideline value of the Registration Department.

The Tribunal considered the rival submissions and perused the material on record. It was found that the guideline value of the State Registration Department was fixed in 1976 and not revised till 1995. The Tribunal had previously considered an identical issue in the case of G. Vijay & Ors. and found that the guideline value was fixed without any scientific data and cannot be treated as comparable value of the market value as on 1.4.1981. The Tribunal observed that the guideline value/basic value register was not prepared scientifically.

The CIT(A) erroneously adopted the market value of the property as on 1.4.1981 at Rs. 8 per SY based on the certificate issued by the Registration Department, which is an extract of the basic value register. The Tribunal noted that the guideline value/basic value register was not revised till 1995 and was not prepared scientifically. Therefore, the lower authorities were not justified in placing reliance on the guideline value fixed by the Government in 1976.

The Tribunal also considered the decision of the Kolkata Special Bench in Hiralal Lokchandani and found that the application of the cost inflation index in reverse direction is not permissible. However, in this case, the valuation officer fixed the value after considering the locality and infrastructure available in the area. The valuation officer's report, which considered the location, infrastructure, and potential for future development, was found reasonable. The Tribunal concluded that the property would fetch Rs. 750 per SY if sold in the open market as on 1.4.1981. Therefore, the assessee reasonably estimated the FMV as on 1.4.1981 at Rs. 750 per SY.

In conclusion, the Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to take the FMV as on 1.4.1981 at Rs. 750 per SY and compute the capital gain tax accordingly. The appeal of the assessee was allowed.

Order pronounced in the open court on 29th October, 2010.

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