2016 (6) TMI 553 - AT - Income Tax

ITAT affirms valuation decision in land sale case, emphasizes fair market value for capital gains

The ITAT upheld the CIT(A)'s decision in a case involving disputes over the correct value for cost of indexation and fair market value of land sold by the ... Rate of land adopted for the period prior to 1981 for computation of long term capital gain - correct value to arrive at cost of indexation - Held that:- CIT(A) on perusal of the report of survey map submitted before him observed that assessee’s land has locational advantage with regards to the roads, civic amenities like schools, hospitals, offices, markets etc. Transportation in the form of auto-rickshaws and buses is available. Further, the land was on the main road and has its own potential. The land was in the vicinity of developed industrial area and since it is situated on the main road, it would always fetch higher valuation. In these circumstances, determining the land value at ₹ 2.23 per Sq. mtr. was found to be on lower side as assessee’s land as having more potential because of the advantages attached to it as discussed above. Therefore, taking into consideration that the Department had already accepted the value of the land of lesser advantages at ₹ 18/- sq. mtr. in vicinity and also considering the facts and circumstances, CIT(A) rightly estimated the value of the land at ₹ 25/- per sq. mtr. as against the value adopted by the Assessing Officer at ₹ 2.23/- per Sq. mtr. Accordingly, the Assessing Officer was directed to adopt the value of the land at ₹ 25/- per sq. mtr. and compute the long term capital gain. Thus, this reasoned finding of CIT(A) need no interference from our side. We uphold the same. Issues:- Dispute over deletion of addition made by the Assessing Officer regarding the correct value for cost of indexation.- Disagreement over the fair market value of the land sold by the assessee as on 1.4.1981.- Challenge to the assessment order on the grounds of violation of principles of natural justice and lack of opportunity for the assessee to be heard.Analysis:1. Dispute over Deletion of Addition:The Revenue appealed against the deletion of an addition of Rs. 1,10,90,848 made by the Assessing Officer due to the incorrect value adopted for cost of indexation. The CIT(A) had deleted this addition. The Revenue argued that the correct value was not adopted by the Assessing Officer. The ITAT upheld the CIT(A)'s decision, stating that the only dispute was the deduction allowable for computing capital gains.2. Fair Market Value Disagreement:The assessee sold agricultural land and the dispute arose over the fair market value of the land as on 1.4.1981. The Assessing Officer adopted a value of Rs. 2.23 per sq. mtr., while the assessee claimed Rs. 40 per sq. mtr. based on a valuation report. The CIT(A) restricted the value to Rs. 25 per sq. mtr., considering the land's locational advantages and potential. The ITAT upheld the CIT(A)'s decision, stating that the value adopted by the Assessing Officer was on the lower side and that the CIT(A) rightly estimated the value at Rs. 25 per sq. mtr.3. Assessment Order Challenge:The assessee challenged the assessment order on the grounds of violation of natural justice and lack of opportunity to be heard. The CIT(A) directed the Assessing Officer to compute the long term capital gain based on the revised fair market value of Rs. 25 per sq. mtr. The ITAT dismissed both the Revenue's appeal and the assessee's Cross Objection, upholding the CIT(A)'s reasoned finding and decision.In conclusion, the ITAT upheld the CIT(A)'s decision on both appeals, emphasizing the importance of fair market valuation and the need for proper consideration of locational advantages in determining land value for computing capital gains.