Assessee's declared property value higher than DVO estimate cannot be reduced for capital gains calculation

The ITAT Chennai held that when an assessee declares a fair market value higher than the District Valuation Officer's (DVO) estimate, the DVO's lower valuation cannot be adopted for capital gains computation. The assessee declared property value at Rs. 21,58,689 as on 01.04.1981, while DVO estimated Rs. 27,000. Following Bombay HC precedent in Daulal Mohta case, the tribunal ruled that DVO reference is only permissible when assessee's declared value is less than fair market value, not when it exceeds it. The appeal was allowed, reversing lower authorities' orders.

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Issues Involved:
1. Assessment of capital gains.
2. Jurisdictional ground.

Summary:

1. Assessment of Capital Gains:
The primary issue concerns the assessment of capital gains related to the sale of the assessee's 1/3rd share of vacant land. The assessee declared a capital loss of Rs. 87,57,468/- based on a sale consideration of Rs. 41,94,664/- and a cost of acquisition as on 01.04.1981 at Rs. 21,58,689/-. The AO issued a notice under section 148 of the Income Tax Act, 1961, assuming jurisdiction under section 147 due to an alleged inflation of the cost of acquisition, which led to the escapement of income. The AO, referencing the DVO's valuation, determined the cost of acquisition as Rs. 27,000/- and computed the capital gains at Rs. 40,32,664/-.

The CIT(A) upheld the AO's decision, stating that the value adopted by the assessee was exorbitantly high and lacked basis, thereby confirming the assessment order without interference.

On appeal before the Tribunal, the Amicus Curie argued that the reference to the DVO was invalid as per the Hon'ble Bombay High Court's decision in CIT vs. Puja Prints, which held that a reference to the DVO could only be made when the value adopted by the assessee was less than the fair market value. The Tribunal agreed, noting that the amendment to section 55A(a) by the Finance Act, 2012, effective from 01.07.2012, does not apply retrospectively. Consequently, the Tribunal reversed the lower authorities' orders on this issue, allowing the assessee's appeal.

2. Jurisdictional Ground:
The jurisdictional ground raised by the assessee was not argued and thus dismissed.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the capital gains assessment issue and dismissing the jurisdictional ground. The decision was pronounced in the open court on 9th February 2024 at Chennai.

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