2018 (5) TMI 1270 - HC - Income Tax

Fair Market Value Key in Capital Gain Tax Calculation: Land Valuation Criteria Emphasized

Commissioner of Income-Tax (International Taxation And Transfer Pricing) Versus Charusheela M. Bhatia

The High Court affirmed the Tribunal's decision to consider the fair market value of the land at Rs. 120 per sq.mtr as on 01.04.1981 for calculating long ... Capital gain computation - ITAT not accepting cost of acquisition as on 01.04.1981 of the land sold - in the present case as per the certificate of the Mamlatdar (S), Diu & Dadaranagar Haveli submitted by the assessee herself in the assessment proceedings showing the Fair Market Value at ₹ 50/per sq. mtrs.- Held that:- AO has without any other reference, compared the sale instance of another village and arrived at the valuation of ₹ 10 per sq.mtr. As recorded by the Tribunal, the assessee's lands were situated on BhiladNaroli road which connected NH8 and Silvassa city. Thus, the lands of the assessee were situated abutting on a highway. The assessee therefore had been contending that it had greater potential and therefore market value. We have no data on the situation of the land, sale of which was referred to by the Assessing Officer. While adopting valuation of immovable properties, several factors need to be kept in mind. Situational advantages and disadvantages are important factors. We do not even know how far the two pieces of lands i.e. assessee's land and the nearby land with which the Assessing Officer carried out the comparison. All in all, it is a pure question of fact. Tax Appeal is dismissed. Issues:1. Dispute over the fair market value of land for long term capital gain tax calculation as on 01.04.1981.Analysis:The issue in this case revolves around the assessment year 2012-13, where the assessee sold land and declared the gain for long term capital tax. The contention arose regarding the fair market value of the land as on 01.04.1981. The assessee presented a valuation report by a Government Approved Valuer stating the value at Rs. 120 per sq.mtr. However, the Assessing Officer disagreed with this valuation and instead relied on sale instances of land in a nearby village in 1981, valuing the land at Rs. 10 per sq.mtr. The Commissioner of Income Tax (Appeals) upheld this valuation, leading to the matter being brought before the Tribunal.The Tribunal, in its judgment, noted that the Assessing Officer did not refer to the District Valuation Officer (DVO) but collected information on sale instances in a nearby village. The Tribunal observed that the assessee's land was situated on a highway, giving it greater potential and market value compared to the land used for comparison by the Assessing Officer. The Tribunal emphasized the importance of situational advantages and disadvantages in determining the valuation of immovable properties. It highlighted that crucial factors like the proximity and characteristics of the compared lands were not considered. Ultimately, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to compute the long term capital gain considering the cost of acquisition at Rs. 120 per sq.mtr as on 01.04.1981.Upon reviewing the orders on record, the High Court noted that the Assessing Officer's valuation solely based on sale instances from a different village was inadequate. The Court concurred with the Tribunal's findings that the situational advantages of the assessee's land, being situated on a highway, were not factored into the valuation process. The Court emphasized that various factors play a crucial role in determining the value of immovable properties and highlighted the lack of information regarding the proximity and characteristics of the lands used for comparison. Ultimately, the High Court dismissed the Tax Appeal, affirming the Tribunal's decision to consider the fair market value of the land at Rs. 120 per sq.mtr as on 01.04.1981 for calculating long term capital gain tax, based on the expert valuation and situational advantages of the assessee's land.