TaxTMI 
TaxTMI 
2025 (7) TMI 423
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....tion report of the DVO for arriving at the market value of the immovable property as on date of registration, without appreciating that the Id DVO has failed to refer the nature and character of land correctly in the report, thereby arriving at incorrect valuation. 3. The Id CIT(A) failed to appreciate that the AO wrongly applied the valuation rate as on date of registration i.e 28/8/2014 whereas the land in questions was initially purchased on 14-09-2013 by payment of cheque of Rs. 10,00,000/-. 4. The Ld. CIT(A) - (NFAC) erred in not providing proper & effective opportunity of hearing before deciding the matter. 2. The assessee is an individual and filed the return of income for AY 2015-16 on 31.10.2015 declaring a total income of Rs. 2,57,150/-. The case was selected for scrutiny and statutory notices were duly served on the assessee. During the year under consideration the assessee along with two other persons purchased a piece of land admeasuring 5060 sq.mtr at Kalyan for a consideration of Rs. 1,00,00,000/- vide document registered on 28.08.2014. The AO called on the assessee to furnish details pertaining to the acquisition of the property. The assessee in....
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....passed by AO by applying the provision of section 56(2)(vii)(b). The appellant has stated that AO was not justified on relying on the valuation report of the Department Valuer (DVO) of the land which is lease hold and is not subject to provision of section 56(2)(vii)(b). Further the appellant has stated that the AO has wrongly applied the provision which has come into force from 01.04.2014, whereas land in the question was purchased in the year 2013. 5.3 I have duly considered the facts of the case, the issue raised by appellant vide these grounds of appeal, the findings of the AO in his assessment order on the issue of addition of Rs. 50,96,667/- and reply given by appellant during the appellate proceedings. From the perusal of assessment order, it is seen that the appellant had purchased along with two persons a piece of land at Kalyan bearing survey no. 89 vide registration document no 5927/2014 dated 28.08.2014 for the consideration of Rs. 10000000/- against the market value assessed at Rs. 6.87.49,000/- during the year under consideration. The AO noted that this transactions attracted the provision of section 56(2)(vii)(b) of IT Act and accordingly sought explanation ....
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.... valuation of the immovable property. The DVO after examining, all the factors involved in the valuation of the land, has assessed the market value of the land at Rs. 2.52.00.000 From the perusal of DVO report itself is evident that he was well aware of the nature and the character of land in question Therefore the valuation of the land by the DVO can't be questioned in my considered opinion, the assessment of the purchased land has been done correctly by the DVO. Hence the action of the AD by invoking section 56(2)(vii)(h) is valid and correct in view of the factual matrix of the present case. In The light of above discussion I am inclined to concur with the findings of AO in his assessment order with regard to addition of its 50.96.6671- made u/s 56(2)(vii)(b). Accordingly hereby sustain the addition of Rs. 50.96.667-made by AO in his assessment order. Therefore these Grounds of appeal are dismissed." 4. The assessee is in appeal before us against the order of the CIT(A). There is a delay of 411 days in filing the appeal before us. The ld. AR in this regard filed a petition for condonation of delay along with affidavit from the assessee. The primary reason as stated by the....
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....davit that no further notice was received. During the course of hearing the ld DR could not refute with any evidence the claim of the ld AR that the appellate order which is passed 2 years after the last of the notices was not received by the assessee. Considering these facts and circumstances in our considered view there is merit in the submission of the ld AR that the delay in filing the appeal is not deliberate and that there is no culpable negligence on the part of the assessee. Hence respectfully following the above decision of the Apex Court we condone the delay of 411 days in filing the appeal before us and admit the appeal for further adjudication. 7. On merits, the ld. AR during the course of hearing primarily made submissions with regard to the valuation of the DVO being not correct. In this regard the ld. AR submitted that the impugned land consisting of 2 plots is under lease for 50 & 75 years on which the lessee has constructed a school. The ld. AR further submitted that the original owner was suffering from cancer and therefore made a distress sale to the assessee and two others for a consideration of Rs. 1,00,00,000/- and that the assessee has not obtained the pos....
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....e addition of Rs.50,96,667 is supported by a thorough valuation process. Initially, the stamp duty value of the property was astronomically high at Rs.6.87 crore. Recognizing that this value might not reflect the reality (due to the lease and other issues), the AO invoked Section 142A and referred the matter to the Departmental Valuation Officer (DVO). This was done upon the assessee's own request/objection to using the stamp value, evidencing that the AO followed due process to ensure fairness (as later commended by the CIT(A)). The DVO, after inspecting the site and considering all factors, determined the fair market value (FMV) as Rs.2,52,90,000. This is less than 40% of the stamp value a drastic downward revision acknowledging factors like the encumbrance of the old lease, the unauthorized construction by the lessee (a school building), potential litigation impact, etc. In effect, the DVO gave substantial benefit to the assessee by lowering the benchmark from Rs.6.87 cr to Rs.2.53 cr. The AO then strictly followed the mandate of section 56(2)(vii)(b), substituting this FMV in place of stamp value and taxing the difference over purchase price, allocating Rs.50.96 lakh to the....
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....inted out that the DVO "after examining all the factors... assessed the market value" and that such valuation "can't be questioned" under these facts. It is also notable that even after the DVO's generous scaling down, the FMV (22.529 cr) is still 2.5 times the purchase price. This strongly indicates that the purchase price was abnormally low. While the assessee argues that "our advantage is zero at present" because of the lessee, that is a subjective assessment. The fact remains the assessee acquired a valuable reversionary interest for example, the lessee might be induced to surrender the lease for a price, or if the lease term expires or is breached, the land's full value can be realized by the assessee. The market clearly prices in those future prospects. The existence of civil litigation is a temporary cloud, but not a permanent damper on value; indeed, the purchasers presumably bought the land hoping to eventually derive benefit (which is why they paid Rs.1 crore). Thus, the argument of "zero value" is not credible. The Rs.2.53 crore figure strikes a balance it is the fair market value accounting for all encumbrances as of the transaction date. L....
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....on of property transactions, even if it means relying on State-determined values. The device of using stamp duty valuation has been upheld in context of section 50C by multiple High Courts as a reasonable anti-avoidance measure. While stamp values may not be perfect, the law provides the safety valve of DVO reference, which was utilized here to arrive at a more accurate figure. Moreover, potential "double taxation" of the same differential in hands of buyer and seller is not a bar to the legislative design. The seller is taxed on capital gains (a different income) and the buyer on deemed other income conceptually different taxable events, though arising from one transaction. Courts have not struck down these provisions on that ground. The judiciary's general stance is that these provisions create a tax on unaccounted income flowing through under-valued transactions, and unless proven arbitrary or confiscatory, they are valid. In our case, the outcome is far from confiscatory - the assessee still acquired an asset worth Rs.2.5 crore for Rs.1 crore, and is simply being taxed on the real enrichment of Rs.51 lakh (his one-third share). Even after paying tax on Rs.51 lakh, the asses....
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....nsidered by the DVO not being correct, for a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. The reasons as submitted by the ld AR for the sale instances considered are not correct comparables are that - a) The land size in the sale instances is much smaller than the size of the impugned land that the size of the land impacts the rate per sqm. b) Two of the sale instances are sale of TDR and not land c) One of the sale instances is a free hold land and not lease hold as in assessee's case d) In one of the sale instances the encumbrance is of different nature 10. From the preliminary review of the additional evidences, we notice that there is merit in the contentions of the ld AR regarding the facts pertaining to the lands. Further in our view the following observations of the Hon'ble Supreme Court while considering an appeal under Land Acquisition in the case of Manilal Shamalbhai Patel vs Officer on Duty (Land acquisition) & Anr, are relevant while considering the first of the above contentions - "12. It is also a settled principle of law that large areas do....
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....om the public road and the access thereto was only through a property which the end buyer had already purchased. Given these serious restrictions on the right of the seller, which are also fully recognized in the DVO's report, the stamp duty valuation report can indeed not be adopted as a fair market price in this case. The DVO himself has given a discount of 50% on account of deem and these encumbrances. In annexure 2A of the DVO report, it is specifically stated that "as the same encumbrances were prevailing hence similar discount at the rate of 50% is considered reasonable as on 20.08.2010". In annexure 2 these encumbrances are described as "1. the property was land locked and located in the interior side from the main road, 2. The plot is irregular in size and tapering in shape, 3. The plot was not is possession of the Assessee etc. hence on the facts an circumstances of the case cumulative discount of 50% is considered reasonable for deduction on account of the above encumbrances". The short question before us is whether in these circumstances, there is any good reasons reject valuation of Rs. 50 lac on which the sale deed as entered into an....
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.... a distress sale inspite of the stamp duty value being high. To that limited extent we agree with the contention of the ld DR that the valuation submitted by the assessee cannot override the statutory DVO's report. In view of these discussions we are of the view that the valuation of the property needs to be revisited by the DVO given that the additional evidences are now submitted by the assessee. Accordingly we remit the issue back to the AO with a direction to obtain a revised detailed valuation report from the DVO taking into consideration the additional evidences now submitted by the assessee. The AO is further directed to call for any further details / evidences from the assessee as may be required. The assessee is directed to provide the required relevant information and documents as may be called for and cooperate with the proceedings. It is ordered accordingly. 14. During the course of hearing, the ld AR did not present any argument with regard to the grounds contending the applicability of section 56(2)(vii)(b) to lease hold land and that property being acquired prior to insertion of section 56(2)(vii)(b) in the Act. Hence these grounds are not adjudicated and left....