Tribunal rules in favor of assessee, rejects cost substitution, permits additional property transfer expenditure.

The Tribunal allowed the assessee's appeal, ruling in favor of the assessee. It invalidated the substitution of the cost of acquisition based on the Departmental Valuation Officer's valuation and permitted the addition of Rs. 20,00,000 as an expenditure related to the property transfer. The decision was announced on 19th December 2013.

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Issues Involved:
1. Determination of indexed cost of acquisition and consequential increase in capital gains computation.
2. Legality of the reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act.
3. Addition of Rs. 20,00,000 claimed as expenditure while computing long-term capital gains.

Issue-wise Detailed Analysis:

1. Determination of Indexed Cost of Acquisition and Consequential Increase in Capital Gains Computation:
The assessee sold 27.69 Kattah of land along with a structure for Rs. 4,50,00,000, while the Stamp Valuation Authority valued it at Rs. 4,70,00,000. The assessee calculated the indexed cost of acquisition at Rs. 4,03,26,616, based on the cost as of 1.4.1981 for 12.97 Kattah of land and the purchase cost on 12.08.1997 for 14.72 Kattah of land. The Assessing Officer (AO) referred the matter to the Departmental Valuation Officer (DVO), who fixed the cost as of 1.4.1981 at Rs. 11.90 lakhs for 12.97 Kattah, leading to a revised indexed cost of Rs. 65,56,900. Consequently, the total indexed cost of acquisition was reduced to Rs. 2,18,70,871, significantly increasing the capital gains.

2. Legality of the Reference to the DVO under Section 55A of the Income Tax Act:
The assessee challenged the reference to the DVO, arguing it was illegal under Section 55A of the Act. The assessee relied on the jurisdictional High Court's decision in CIT v. Umedbhai International (P.) Ltd., which states that a reference under Section 55A can only be made if the value declared by the assessee is less than the fair market value. The AO's opinion that the value shown was very high did not satisfy this condition. The Tribunal agreed, noting that Section 55A(a) requires the AO to form an opinion that the value claimed is less than the fair market value, which was not the case here. Consequently, the reference to the DVO and the subsequent substitution of the cost of acquisition were deemed invalid.

3. Addition of Rs. 20,00,000 Claimed as Expenditure While Computing Long-Term Capital Gains:
The assessee claimed Rs. 20,00,000 paid to a confirming party, Shri Nikhil Chanda, as an expenditure under Section 48(i) of the Act. The AO and CIT(A) rejected this claim, questioning its genuineness. However, the Tribunal found that the payment was necessary for the sale, as evidenced by the sale agreement and receipt memo. The Tribunal concluded that the payment was an expenditure incurred wholly and exclusively in connection with the transfer of the property, thus allowable under Section 48(i). Therefore, the addition of Rs. 20,00,000 was deleted.

Conclusion:
The appeal of the assessee was allowed. The Tribunal quashed the substitution of the cost of acquisition based on the DVO's valuation and allowed the addition of Rs. 20,00,000 as an expenditure incurred in connection with the transfer of the property. The order was pronounced in the open Court on 19th December 2013.

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