2020 (4) TMI 618 - AT - Income Tax

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

Shri Naranbhai Govindbhai Ahir Versus Income Tax Officer, Ward- 2 (3) (6) Surat

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 ... Capital gain computation - reference to DVO - methods of valuation of land addition by allowing lesser deduction on account of cost / fair market value of land in rejecting fair market value as on 01.04.1981 claimed by the assessee as per Registered Valuer - HELD THAT:- Assessee had provided the reasons for determining ₹ 225/- per sq. ft. as the fair market value of the property by producing the relevant material, including valuation report of a registered valuer, which all have been ignored while arriving at the price of ₹ 84/- per sq. ft. AO assessed the value of the property as on 1.4.1981 on the basis of sale deeds of some nearby properties registered for such price in the year 1981 and thus, arrived at that figure. Same cannot be the proper mode of arriving at the 'fair market value' of the property in question as on 1.4.1981, for determining 'Capital gains' under the Act. AO is directed to apply rate of ₹ 380 per sq. meter for calculation if long-term capital gain in the hands of the assessee. Unexplained investment in property - HELD THAT:- Even if the source is not proved, then no addition of this amount can be made for the assessment year under consideration. Further, the assessee has explained that payment were made by cheque out of sale consideration received against agreement to sale. The payment received from K B Patel has been duly reflected in confirmation account appearing at Paper Book Page No. 7. This facts shows that funds were received as part of advance from Shri K B Patel for sale of said property. These funds were utilized for purchase of ne property. Later on said party has changed his mind and agreement to sale was cancelled. Since, the assessee has purchased another land out of part sale consideration received on sale of impugned land, he returned amount to K B Patel only when he sold impugned land to another person and received payments for the same. AO has wrongly made addition hence, same is therefore, deleted. Claim of deduction u/s 54B - HELD THAT:- Investment is not made out of sale proceeds of impugned land under consideration. Hence, same is rightly denied by the AO. Accordingly, Ground of appeal is dismissed. 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.