Tribunal rules for Assessee, deletes additions for fair market value and unexplained investment. Deduction denial under section 54B upheld.

The Tribunal ruled in favor of the Assessee by deleting the additions of Rs. 2,00,29,039 and Rs. 73,13,300 due to lesser deduction on account of the fair market value of land and unexplained investment in property, respectively. However, the denial of deduction under section 54B of the Income Tax Act was upheld. The decision was announced on 11.02.2020.

---

---

Issues Involved:
1. Addition of Rs. 2,00,29,039 due to lesser deduction on account of cost/fair market value of land.
2. Addition of Rs. 73,13,300 as unexplained investment in property.
3. Denial of deduction under section 54B of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 2,00,29,039 Due to Lesser Deduction on Account of Cost/Fair Market Value of Land:
The Assessee sold land for Rs. 2,82,11,000 and disclosed a long-term capital gain of Rs. 42,18,883, claiming the fair market value (FMV) as on 01.04.1981 at Rs. 380 per sq. meter based on a Registered Valuer’s report. The AO, relying on the DVO’s report, considered the FMV at Rs. 64.30 per sq. meter, resulting in an addition of Rs. 2,00,29,039 to the long-term capital gain. The CIT (A) upheld the AO's decision, stating that the DVO’s valuation based on comparable sale instances was more authentic.

The Tribunal observed that the AO did not form an opinion before referring to the DVO, which is required under section 55A(a). The Registered Valuer’s report, which used a reverse method of valuation, was deemed reasonable and supported by various judicial precedents. The Tribunal concluded that the valuation report of Rs. 380 per sq. meter by the Registered Valuer was appropriate and directed the AO to apply this rate for calculating the long-term capital gain. Consequently, the addition of Rs. 2,00,29,039 was deleted, and the issue was decided in favor of the Assessee.

2. Addition of Rs. 73,13,300 as Unexplained Investment in Property:
The AO added Rs. 73,13,300 as unexplained investment, questioning the source of payments made for purchasing land. The Assessee explained that the payments were made from funds received as an advance for the sale of another property to Shri K.B. Patel. The CIT (A) confirmed the addition due to the lack of evidence supporting the Assessee’s claims.

The Tribunal noted that payments amounting to Rs. 50 Lakh were made during a period not relevant to the assessment year under consideration. The Assessee provided bank statements and confirmation of the advance received from Shri K.B. Patel, which were used for purchasing the new property. The Tribunal found the Assessee’s explanation satisfactory and deleted the addition of Rs. 73,13,300, ruling in favor of the Assessee.

3. Denial of Deduction Under Section 54B of the Income Tax Act:
The Assessee’s claim for deduction under section 54B was denied by the AO, as the investment was not made out of the sale proceeds of the impugned land. The Tribunal upheld the AO’s decision, stating that the deduction under section 54B was rightly denied since the investment was not sourced from the sale proceeds of the land under consideration.

Conclusion:
The Tribunal partly allowed the Assessee’s appeal, deleting the additions of Rs. 2,00,29,039 and Rs. 73,13,300, while upholding the denial of deduction under section 54B. The decision was pronounced in the open Court on 11.02.2020.

---