Tribunal rules in favor of assessee, directs AO to adopt declared value & FMV. Invalidates DVO reference.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection. It directed the Assessing Officer to adopt the transaction value declared by the assessee, the Fair Market Value determined by the registered valuer, and to allow the deduction of Rs. 1 crore under Section 48. The Tribunal held the reference to the Departmental Valuation Officer (DVO) as invalid and emphasized the importance of following proper valuation practices.

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Issues Involved:

1. Deletion of addition on account of Long Term Capital Gain.
2. Deletion of disallowance of deduction claimed under Section 48.
3. Adoption of value by the Stamp Authority instead of transaction value.
4. Validity of reference to DVO under Section 55A.
5. Determination of Fair Market Value (FMV) of property as on 01.04.1981.
6. Application of the fair market value determined by DVO.
7. Directions issued by the Additional Commissioner of Income Tax.

Issue-wise Detailed Analysis:

1. Deletion of addition on account of Long Term Capital Gain:

The Revenue challenged the deletion of the addition of Rs. 16,53,86,672/- made by the Assessing Officer (AO) on account of long-term capital gains. The AO adopted the value determined by the stamp duty authority as the full value of consideration under Section 50C of the Act, which was higher than the sale consideration stated in the sale deed. The CIT(A) upheld the adoption of the stamp duty value but deleted the addition made by the AO by adopting the indexed cost of acquisition based on the DVO’s report, holding the reference to the DVO invalid. The Tribunal affirmed the CIT(A)'s decision, noting that the variance between the stamp duty value and the sale consideration was only 1.49%, which should be ignored as per the Coordinate Bench decision in Sita Ben Khetan vs. ITO.

2. Deletion of disallowance of deduction claimed under Section 48:

The Revenue contended that the CIT(A) erred in allowing a deduction of Rs. 1 crore under Section 48 while computing the long-term capital gains. The assessee argued that the amount was paid to withdraw the rights of an earlier purchaser, enabling the sale to another party at a higher consideration. The Tribunal upheld the CIT(A)'s decision, finding a direct and close linkage between the payment and the transfer of the property, making it an allowable deduction under Section 48.

3. Adoption of value by the Stamp Authority instead of transaction value:

The assessee challenged the adoption of the stamp authority's value of Rs. 18,99,70,208/- instead of the transaction value of Rs. 18,63,71,000/-. The Tribunal noted that the difference was only 1.49%, which should be ignored based on the Coordinate Bench decision in Sita Ben Khetan vs. ITO, and directed the AO to adopt the transaction value declared by the assessee.

4. Validity of reference to DVO under Section 55A:

The Revenue argued that the AO was justified in referring the matter to the DVO under Section 55A. The Tribunal held that the amendment to Section 55A(a) by the Finance Act, 2012, which allowed reference to the DVO when the value claimed by the assessee is at variance with its fair market value, was effective from 01.07.2012 and not applicable retrospectively. Therefore, the reference made by the AO was invalid as the transaction pertained to the period before the amendment.

5. Determination of Fair Market Value (FMV) of property as on 01.04.1981:

The assessee argued that the AO did not consider the registered valuer’s report correctly and referred the matter to the DVO based on incorrect assumptions. The Tribunal found that the AO had not formed a proper opinion as required under Section 55A before making the reference and that the DVO’s report was based on incorrect assumptions and did not follow standard valuation practices.

6. Application of the fair market value determined by DVO:

The Tribunal noted several discrepancies in the DVO’s report, including incorrect assumptions about the property’s use and failure to consider relevant factors such as the property’s commercial potential, frontage, and locality. The Tribunal held that the DVO’s report could not be relied upon due to these deficiencies and directed the AO to adopt the value determined by the registered valuer.

7. Directions issued by the Additional Commissioner of Income Tax:

The assessee challenged the directions issued by the Additional Commissioner of Income Tax under Section 144A, directing the AO to complete the assessment based on the DVO’s report. The Tribunal found that the directions were in line with the provisions of Section 16A of the Wealth Tax Act, which applies to Section 55A of the Income Tax Act. However, since the reference to the DVO was invalid, the directions based on the DVO’s report could not be sustained.

Conclusion:

The Tribunal dismissed the Revenue’s appeal and partly allowed the assessee’s cross-objection, directing the AO to adopt the transaction value declared by the assessee and the FMV determined by the registered valuer, and to allow the deduction of Rs. 1 crore under Section 48.

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