2025 (10) TMI 1294 - AT - Income Tax

Disputed FMV, cost and transfer expenses sent back for fresh AO valuation; DVO valuation as of 01.04.1981 ordered

ITAT restored the disputed FMV determination and related cost and transfer-expense issues to the AO for de novo adjudication, directing the AO to refer ... Addition being LTCG by rejecting valuation of Registered Valuer - No mandatory reference to the Departmental Valuation Officer (DVO) under section 55A made - HELD THAT:- We are of the view that the issue relating to the determination of FMV as on 01.04.1981 requires fresh examination by the AO. The determination of fair market value is essentially a technical matter which calls for expert evaluation, and therefore, in the interests of justice, we deem it appropriate to restore the issue to the file of the AO for denovo consideration. AO is directed to refer the valuation of the property as on 01.04.1981 to the Departmental Valuation Officer (DVO) as per the specific request of the assessee, and thereafter, re-compute the Long-Term Capital Gain after giving due opportunity of being heard to the assessee and after considering the report of the DVO as well as any evidence or explanation that the assessee may submit in support of its claim. Since the main issue relating to FMV is being restored to the file of the AO for fresh adjudication, we also consider it appropriate to restore the issues relating to the assessee’s claim of cost of improvement and expenditure on transfer of sale of aforesaid property to the Assessing Officer for reconsideration. AO shall examine these claims afresh in accordance with law after affording reasonable opportunity of hearing to the assessee. The assessee shall be at liberty to furnish all necessary documentary evidence, including bills, vouchers, confirmations, or any other material in support of its claim of expenditure towards cost of improvement and transfer expenses. We make it clear that we have not expressed any opinion on the merits of the issues involved and all contentions of both sides are left open for adjudication before the Assessing Officer. The AO shall decide the matter de novo, after carrying out necessary verification and in accordance with law. Addition being short term capital gains - disallowing the assessee’s claim of expenditure towards cost of improvement and transfer expenses - AO rejected the claim mainly on the ground that the bills furnished by the assessee were handwritten, lacked necessary details, and pertained to a period prior to the purchase of the property - CIT(Appeals) confirmed the addition on the basis that the assessee failed to substantiate the genuineness of the expenses and could not produce verifiable evidence to prove that the improvement work was actually carried out on the said land - HELD THAT:-We find that the authorities below have not made any independent verification of the evidence furnished by the assessee. AO instead of examining the genuineness of the claim through necessary enquiries, proceeded to make the addition solely based on assumptions. In our considered view, the matter requires fresh examination to ensure that a proper and fair verification is made in accordance with law. Therefore, in the interest of justice, we set aside the orders of the lower authorities on this issue and restore the matter to the file of the AO for de-novo consideration. AO is directed to conduct a proper inquiry into the assessee’s claim of improvement and transfer expenses, including verification of the persons whose names and details are appearing in the bills, by issuing necessary notices or summons and allowing the assessee an effective opportunity to substantiate the claim. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether a registered valuer's FMV as on 01.04.1981 can be rejected by the Assessing Officer without making a reference to the Departmental Valuation Officer (DVO) under section 55A when Assessing Officer relies on contemporaneous registered sale deeds from the Sub-Registrar's office. 2. Whether the assessee discharged the onus to prove genuineness of claimed cost of improvement and transfer expenses (handwritten bills lacking PAN/TIN/service-tax/vehicle details), and whether such claims can be disallowed without independent verification (notices/summons) of the parties. 3. Whether an Assessing Officer's correction under section 154 (mistake apparent from record) increasing sale consideration under section 50C (stamp valuation exceeding declared consideration) should be adjudicated afresh when related issues of cost of acquisition / FMV are being reopened. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Rejection of registered valuer's FMV without DVO reference (section 55A) Legal framework: Determination of Fair Market Value (FMV) for computation of capital gains is a technical question; section 55A permits the Assessing Officer to refer valuation to the Valuation Officer (DVO) - the provision uses the word 'may refer' and confers discretion on the Assessing Officer. The Assessing Officer may also rely on documentary evidence such as registered sale deeds obtained from Sub-Registrar. Precedent treatment: The assessee relied on authority holding that registered valuer's report cannot be disregarded without DVO reference; the Tribunal observed such authorities were distinguishable on facts where direct cogent documentary evidence was available to the Assessing Officer. Interpretation and reasoning: The Court analysed the competing evidence - a registered valuer's report based on oral/local enquiries and without written comparable sale instances versus registered sale deeds/sale instances obtained from Sub-Registrar's records. The Tribunal found the valuer's valuation to be subjective and unsupported by verifiable documentary comparables, while the Assessing Officer possessed direct documentary evidence from the Sub-Registrar. Given the technical character of valuation and the specific request of the assessee for DVO reference, the Tribunal considered it appropriate in the interests of justice to remit the valuation issue to the Assessing Officer for de novo consideration and directed a reference to the DVO to obtain an expert opinion, with opportunity to the assessee to file evidence and be heard. Ratio vs. Obiter: Ratio - where a registered valuer's report lacks documentary comparables and the Assessing Officer has cogent registered sale-deed evidence, the AO may rely on the latter; nevertheless, where valuation remains contentious and technical, the matter may be remitted for DVO reference, especially when requested by assessee. Obiter - distinction of cited authority was factual, not a blanket rule that a DVO reference is always mandatory. Conclusions: The valuation issue was restored to the file of the Assessing Officer for fresh adjudication; the AO was directed to refer the valuation to the DVO and to re-compute Long-Term Capital Gain after considering the DVO report and any supporting material from the assessee. No final view was expressed on the merits. Issue 2 - Genuineness of cost of improvement and transfer expenses supported by handwritten bills Legal framework: Burden lies on the assessee to prove genuineness of claimed expenditures; tax authorities may call for verification (notices under section 133(6), summons under section 131, enquiries under section 142) to test veracity of documents. Suspicion alone cannot substitute for evidence, but absence of corroboration and presence of contradictory facts permit disallowance. Precedent treatment: The Tribunal referenced the settled principle that suspicion cannot replace evidence, but also reiterated that where bills/receipts are self-serving, lack necessary statutory particulars, and relate to periods prior to acquisition, the AO may disallow unless corroboration is produced. Prior case law relied upon by the parties were treated as distinguishable on their facts. Interpretation and reasoning: On facts the authorities below found that the bills were handwritten, in same handwriting, lacked PAN/TIN/service-tax/vehicle numbers and, in one instance, pre-dated acquisition of the property - facts that materially undermined relevance/genuineness. However, the Tribunal noted the AO did not undertake independent verification (no summons/notice to the parties named), and the lower authorities made findings without fresh independent enquiries. Given these procedural deficiencies and the need for proper verification, the Tribunal directed restoration for de novo adjudication, directing the AO to conduct necessary verification, issue notices/summons, allow the assessee to produce confirmations, vouchers, bank entries, and then decide afresh. Ratio vs. Obiter: Ratio - genuineness of expenditure must be proven by assessee; if documents are suspicious or inconsistent with chronology, AO may disallow but should undertake verification where feasible. Obiter - emphasis that mere suspicion is insufficient absent corroboration; procedure for verification should be followed before drawing adverse inference. Conclusions: The Tribunal set aside the disallowances and restored the claims for cost of improvement and transfer expenses to the Assessing Officer for fresh consideration with directions to verify the parties and evidence and to afford the assessee an opportunity to substantiate the claims. Issue 3 - Section 50C uplift and section 154 correction where related acquisition/FM Vissues are pending Legal framework: Section 50C mandates adoption of stamp valuation (stamp valuation authority/ready reckoner) as sale consideration for capital gains where that value exceeds declared consideration; section 154 permits correction of 'mistake apparent from the record.' When related issues (e.g., cost of acquisition / FMV) are restored for de novo adjudication, interlinked computations must be reconciled. Precedent treatment: The Tribunal recognized that the Assessing Officer, on verification of Sub-Registrar records, had applied stamp valuation under section 50C and subsequently made an amendment under section 154 to rectify the earlier computational error. However, because the related issue of cost of acquisition/FM V has been remitted for fresh adjudication, a fresh adjudication on sale consideration and section 50C applicability was warranted. Interpretation and reasoning: The Tribunal observed that the STCG computation and section 50C uplift are factually linked to the cost of acquisition/FM V determinations already remitted. To avoid inconsistent adjudication and to ensure correct computation after the AO's fresh consideration of acquisition/FM V, the Tribunal directed that the section 50C/section 154 issue be restored to the Assessing Officer for de novo consideration along with the remitted matters. Ratio vs. Obiter: Ratio - where interdependent valuation/acquisition issues are remitted, any subsequent corrections under section 154 or application of section 50C arising from the same transaction should be reconsidered de novo by the Assessing Officer to ensure consistency. Obiter - no substantive view taken on correctness of the stamp valuation or of the section 154 exercise; matter left open. Conclusions: The Tribunal restored the section 50C/section 154 related addition to the file of the Assessing Officer for de novo adjudication together with the remitted FMV/acquisition and expenditure issues; no final determination was made on merits. Overall disposition and procedural directions 1. All contentious issues (FMV as on 01.04.1981, cost of improvement and transfer expenses, and the section 50C/section 154 computation arising from the same transactions) were remitted to the Assessing Officer for de novo consideration. 2. The Assessing Officer was directed to refer the valuation to the DVO (on the assessee's specific request), to conduct necessary verifications (including issuing notices/summons under appropriate provisions), to allow the assessee to produce documentary evidence and explanations, and then to re-compute capital gains and related additions in accordance with law. 3. The Tribunal did not express any opinion on the substantive merits of the valuation or expenditure claims; all contentions were left open for fresh adjudication. The appeals were allowed for statistical purposes to enable remand.