SHRI ASHOKKUMAR GOVINDBHAI PATEL,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-4(2)(1),, AHMEDABAD

per the jantri rate because of encroachment on the land and the same was sold at the discounted value. The matter was referred to the DVO who has valued the loan at Rs. 2,32,04,000/- as against the sale consideration of Rs. 2,02,50,000/-. During the course of assessment it was explained to the Assessing Officer vide letter dated 31st March, 2015 that DVO has not considered the material fact that the land was fully encroached by unauthorized person and it was virtually and legally impossible to get it vacated. During the course of assessment the assessee has also brought to the notice of the Assessing Officer the decision of Hon’ble Supreme Court in the case of C.B. Gautam vs. Union of India 199 ITR 530 wherein the Hon’ble Supreme Court has allowed to consider the actual consideration, if the valuation report of DVO is within the tolerance limit of 15%. The ld. counsel has submitted that Pr. CIT Ahmedabad has not duly considered the submission of the assessee and improperly passed the order u/s. 263 of the Act. The ld. counsel has also referred the decision of Hon’ble Supreme Court in the case of G.B. Gautam vs. Union of India 199 ITR 560 (SC). The ld. counsel has also placed reliance on the decision of Co-ordinate Bench of the ITAT in the case of Smt. Shardaben B. Patel vs. Principal CIT 112 taxman.com 118 UTD 328 and the decision of Hon’ble High Court of Gujarat High Court in the case of Aryan Arcade Ltd. vs. CIT 84 taxman.com 293 and the decision of the Hon’ble High Court of Gujarat in the case of Pr. CIT vs. Lalitaben Gobindbhai Patel 94 taxmann.com 396 (Gujarat). On the other hand, ld. Departmental Representative has submitted that once the Assessing Officer had the valuation of DVO available with him he was bound to follow the same and the assessment order passed by him at a valuation lower than that of the DVO makes the order erroneous and

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prejudicial to the revenue. The ld. Departmental Representative has relied upon the following judicial pronouncements:- (i) CIT Vs. Dr. Indra Swaroop Bhatnagar [2012] (30 taxmann.com 293 dated 19-09-2011 (Allahabad HC) (ii) Anil Murlidhar Deshmukh Vs. ITO (101 taxmann.com 93) dated 13- 12-2018 (Pune ITAT) (iii) Sri Pattabhiram Vs. ITO (45 taxmann.com 141) dated 13-12-2013 (Visakhapatnam ITAT) (iv) Suresh C. Mehta Vs. ITO (35 taxmann.com 230) dated 17-05-2013 (Mumbai ITAT)

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2,32,04,000/- determined by the DVO. After perusal of the material placed in the record it is noticed that during the course of assessment proceedings vide notice u/s. 142(1) dated 9th July, 2014 the Assessing Officer has made specific investigation and verification on the issue of claim of interest expenditure of Rs. 64,46,142/-. The Assessing Officer has asked the assessee vide point no. 28 in the notice u/s. 142(1) dated 9th July, 2014 to furnish the copies of ledger accounts detail of lenders and purpose for which borrowed funds have been used. Again vide notice u/s. 142(1) dated 27-02- 2015, the Assessing Officer has also asked the assessee to prove nexus between deduction claimed of Rs. 64,46,142/- and income earned. In response to query raised by the Assessing Officer, the assessee has duly furnished the copies of ledger account of interest paid on borrowed fund of Rs. 64,46,142/- along with copies of ledger account of all the parties to whom the interest was paid. In his submission dated 22nd August, 2014 the assessee has specifically explained that funds were utilized for the business purpose and also filed copies of balance sheet and ledger account for verification. It is noticed that again vide letter dated 9th March, 2015 the assessee has pointed out that he has submitted copies of balance sheet, confirmation of all the persons from whom the funds were borrowed and also given the break-up of the gross income of Rs. 2,12,71,129/- before deducting any expenses. The assessee has also explained that many of the borrowed funds were carried forward from the earlier years and in all these earlier years he has claimed the deduction of interest on borrowed funds. The scrutiny assessments have been carried out in the earlier years also and the same have been allowed as deduction. On perusal of the material on record, it is observed that during the course of assessment proceedings,

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Assessing Officer has made detailed verification and investigation on the issue of claim of interest expenditure of Rs. 64,46,142/ and these material facts were also brought to the knowledge of the Pr. CIT-4 during the course of proceeding u/s. 263 of the act. In the light of the above facts and material placed on record in respect of claim of interest expenditure, we consider that ld. Pr. CIT has failed to substantiate how the Assessing Officer has not examined the admissibility of interest expenses, therefore, the ld. Pr. CIT is unjustified in treating the interest payment as not allowable. Therefore, we consider that order passed u/s. 263 of the Act on the issue of payment of interest is not sustainable in law. Regarding second point raised by ld. CIT in his order u/s. 263 of the Income Tax Act that the Assessing Officer has taken the sale consideration at Rs. 2,02,50,000/- instead of Rs. 2,32,04,000/- while determining the capital gain in the order u/s. 143(3) of the act, in this regard it is noticed that during the course of assessment in the notice u/s. 142(1) dated 27th Feb, 2015 the Assessing Officer has raised specific query regarding the applicability of jantri value to determine the capital gain on the sale of the land. The assessee has made submission vide letter dated 9th March, 2015 wherein specifically mentioned that the sold land was situated on the back side with encroachment over this land of Muddy Kaccha house and in spite of all the efforts the assessee failed to vacate this zoppad patti therefore the land was sold to realize what they could have fetched. During the course of assessment, the assessee has also submitted the copies of purchase deed and sale deed wherein it has been specifically mentioned the fact about the encroachment on the land. It was also discussed during the course of

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assessment that DVO has valued the land at Rs. 2,34,04,000/- and there was small variation of only 12.73% against the value shown in the sale deed. Vide submission dated 31st March, 2015 it was specifically brought to the notice of the Assessing Officer that DVO has not considered that there was encroachment on the impugned land by the unauthorized person and it was virtually and legally impossible to get it vacated. In support of his submission the assessee has also submitted copies of court cases pending for this land before the Assessing Officer during the course of assessment proceedings. Apart from this during the course of assessment, the assessee has also brought to the notice of the Assessing Officer the decision of Hon’ble Supreme Court in the case of C.B. Gautam vs. Union of India 199 ITR 53 (SC) wherein the Apex Court has allowed to consider the actual sale consideration if the valuation report of the DVO is within the tolerance limit of 15%. After considering all these material facts and judicial finding the Assessing Officer has taken the value as per sale deed. During the course of appellate proceedings before us the ld. Departmental Representative has cited the following decisions:- (i) CIT Vs. Dr. Indra Swaroop Bhatnagar [2012] (30 taxmann.com 293 dated 19-09-2011 (Allahabad HC) (ii) Anil Murlidhar Deshmukh Vs. ITO (101 taxmann.com 93) dated 13- 12-2018 (Pune ITAT) (iii) Sri Pattabhiram Vs. ITO (45 taxmann.com 141) dated 13-12-2013 (Visakhapatnam ITAT) (iv) Suresh C. Mehta Vs. ITO (35 taxmann.com 230) dated 17-05-2013 (Mumbai ITAT)

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We have gone through the aforesaid judicial pronouncements referred by the ld. Departmental Representative. In the case of CIT Vs. Dr. Indra Swaroop Bhatnagar supra the DVO determined the fair market valuation of Rs. 58 lacs. However, the Assessing Officer has adopted the value determined by the stamp valuation authority on higher side of Rs. 1.3 crores therefore the valuation done by DVO which was lower than the value determined by the stamp valuation authority was adopted. In the case of Anil Murlidhar Deshmukh Vs. ITO the value determined by the DVO was taken since no litigation was pending as on date of sale and it was held that there can be no relevance of any future litigation in the valuation of the property. In the case of Sri Pattabhiram Vs. ITO supra it is held that neither the assessee has contested the correctness of the valuation made nor has brought any contrary material to prove that the mode and method of fair market value determined by the DVO is more than the actual fair market value. In the case of Suresh C. Mehta Vs. ITO supra, the DVO has determined the sale value of the property at Rs. 13.79 lacs, however, the Assessing Officer has adopted the value determined by the stamp valuation authority at Rs. 20 lacs. In this case, the ITAT has held that if the assessee has made various objections to the valuation officer’s report the Commissioner (Appeal) was bound to look into these objections so as to arrive on proper fair market value. He was also bound to consider the contention of the assessee that in case of difference of less than 15% between the sale value estimated by the DVO, the benefit should be given to the assessee and such difference can be ignored. As summarized above, the facts of the cases referred by the Ld. Departmental Representative are distinguishable from the case of the assessee as in those cases the issue was

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pertained to adopting of higher value than the value determined by the DVO and in one of case the value determined by the DVO was adopted since there was no litigation pending in that case. During the course of appellate proceedings before us, the ld. counsel has filed the copy of order of Hon’ble High Court of Gujarat vide Special Appeal No. 67 to 71 in the case of the assessee vs. State of Gujarat & 4 wherein direction was sought against the corporation not to regularize the unauthorized and illegal constructions of the respondents therein on the land of the petitioners. It was demonstrated from the order of the Hon’ble High Court as referred above that there was unauthorized and illegal construction on the impugned land which was sold by the assessee. The assessee has also filed a copy of order of Hon’ble High Court of Gujarat vide Special Appeal 6089 of 2014 in the case of the assessee pointing out that there was illegal encroachment on the impugned land of the assessee and the Hon’ble Gujarat High Court has directed the Municipal Corporation to take immediate and appropriate steps for vacating the encroachment on the said land of the assessee. The assessee has also placed reliance on the various pronouncements in the case of Machinery Agencies (India) vs. Deputy CIT Vide ITA 800/Kol/2010 wherein ITAT Kolkatta has held that there was no statutory provision requiring assessee to adopt value as per DVO as purchase consideration to result any addition in hands of assessee for that reason and order passed by Assessing Officer cannot be said to erroneous or prejudicial to interest of revenue and CIT was not justified in exercising jurisdiction u/s. 263 of the Act. The ld. counsel has also placed reliance on the decision Hon’ble High Court of Gujarat in the case of Aavkar Infrastructure Company vs. DCIT (2016) 67 taxman.com 39 (Guj) dated 4th Nov, 2015

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wherein it is held that reopening of assessment merely on the basis of report of DVO was without authority of law and could not be sustained. The ld. counsel has also referred decision of Hon’ble Gujarat High Court in the case of Vinayak Builders vs. B.D. Garsar (OR) Successor (2012) 27 taxman.com 116 (Guj) dated 18th March, 2011 wherein it is held that reopening of assessment by Assessing Officer on sole basis of report of DVO without applying his own mind to facts was not sustainable. The ld. counsel has also placed reliance on the decision of High Court of Allahabad in the case of CIT vs. Vrindaben Real Estate (P) Ltd. (2013) 31 taxman.com 12 (Ald) dated 24th July, 2012 wherein it is held that reopening of assessment u/s. 147 only on basis of report of DVO is invalid. The ld. counsel has placed reliance on the decision of Hon’ble Supreme Court in the case C.B. Gautam Vs. Union of India (1992) 65 taxman 440 (SC) dated 17th December, 1992. In this case pertaining to compulsory purchase of property u/s. 269UD of the Act, the Hon’ble Supreme Court has allowed to consider the actual sale consideration, if the valuation report of DVO is within the tolerance limit of 15%. We do not find merit in the observation of the Ld. PCIT stating that decision was in respect of compulsory purchase made under section 269UD because in this case the Hon’ble Supreme Court referred the decision in the case of K.P. Verghese Vs. ITO (1981) 131 ITR 597 on the liability of the assessee u/s. 45 of the Act on capital gains while recognizing variation less than 15% as to tolerable limits. The relevant para no. 21 from the decision of the Hon’ble Supreme Court is reproduced as under:- “The conclusion that the provisions of Chapter XX-C are to be resorted to only where there is significant under-valuation of the immoveable property to be sold in the agreement of sale with a view to evading tax finds support from the decision of this court in the case of K.P. Varghese Vs. ITO [1981] 597 ITR 597. Section 52 in the 1961 Act which has now been deleted, came up for

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consideration before a Bench comprising two learned Judges of this Court, Very briefly put that section provided that where a person acquired a capital asset from an assessee connected with him and the ITO had reason to believe that the transfer was effected with a view to avoid or reduce the liability of the assessee under section 45 of the Act to the tax on capital gains any with that object that the transfer of the capital asset was being made at an under- value of not less than 15 per cent for the purposes of taxing the assessee, the full value of the consideration was, taken to be its fair market value on the date of the transfer. It was pointed out by the Bench that sub-section (I) of section 52 did not deal with income to accrue or to be received, which in fact was never accrued and was never received. It sought to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset and since it would not be possible for the ITO to determine possibly how much more consideration is received by the assessee than that declared by him, sub-section (1) provides that the fair market value of the property as on the date of transfer shall be taken to be the full value of the consideration which has accrued or has been received by the assessee. The onus of establishing that the conditions of taxability are fulfilled is always on the revenue. In that case it was urged on behalf of the revenue that under the provisions of section 52(2) once the ITO is satisfied that the condition of the consideration declared by the assessee in respect of the transfer is less by 15 per cent or more than the fair market value, the capital gains can be computed on the footing that the fair market value was the consideration received by the assessee. This submission was rejected by this Court. It was pointed out that the submission would be justified only on a strict literal reading of sub-section (2) of section 52 but that such a construction could not be adopted. The Court observed that the task of interpretation of a statutory enactment is not a mechanical task. The famous words of Judge Learned Hand of the United States of America that"... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing : be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning" were quoted with approval. After considering various authorities and the historical setting in which the provisions of the said section were enacted, it was held that the fair and reasonable construction to put on the provisions of sub-section (2) of section 52 would be to so construe it that it would apply only when the consideration for the transfer is under-stated or, in other words only where the assessee has actually received a larger consideration for the transfer than that what is declared in the instrument of transfer and it could have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee (see page 606 of the report), We may point out that although it was submitted by the learned Attorney General that the decision in the case of K.P. Varghese (supra)requires reconsideration, he

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did not seriously challenge the correctness of that decision. No argument has been advanced by him which could lead us to the conclusion that the said case was not correctly decided nor has he pointed out any error in the judgment in that case.” We have also gone through the decision of Gujarat High Court in the case of Arvind Jewellers (259 ITR 502) held that:- "Held, that the finding of fact by the Tribunal was that the assesses had produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the act and after considering the material and explanations, the Income-tax Officer had come to a definite conclusion. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263. The order of revision was not justified."

The ratio laid down by the Hon’ble Gujarat High Court in the case of aforesaid decision is that when the assessee had produced relevant material and offered explanation in pursuance of the notice u/s. 143(2) and 142(1) of the Act and after considering the material and explanation the Assessing Officer had come to a definite conclusion, the mere fact a different view can be taken should not be the basis for a valid action u/s. 263 of the Act. During the course of assessment proceedings, assessee has discussed and reported the aforesaid decision of the Hon’ble Supreme Court before the Assessing Officer and the Assessing Officer has not made any addition as the variation between the sale consideration as per the sale deed and the value as per the DVO report was only of 12.73% which was below the tolerance limit of 15%. Apart from the small variation, it is also noticed that assessee has specifically demonstrated from the material and order of the Hon’ble High Court of Gujarat as supra that there was encroachment on the impugned land upto to the date sale and the possession of the land was not in the hands of the assessee and the plot of land was occupied by illegal

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encroachers. These material facts were very well demonstrated with the documentary evidences in the form of judicial order of the Hon’ble High Court of Gujarat on the issue of existence of encroachment on the land of the assessee as discussed supra in this order. As discuss above, the judicial pronouncements referred by the ld. Departmental Representative are specifically pertained to the issue wherein the Assessing Officer had adopted the value at higher side as assessed by the stamp valuation authority after ignoring the lower value determined by the valuation officer and no evidence of encroachment were existed. During the course of assessment proceedings, the Assessing Officer has considered that the DVO has not taken into consideration the material fact that there was encroachment on the impugned land and even on the date of selling of this land the assessee could not take the possession of the land because of existence of encroachment. The DVO has not discussed any of these factors in his report. Further, we have noticed that on the similar facts Pune Bench of ITAT in the case of CIT vs. Harpreet Hotels Pvt. Ltd. vide ITA 1156 to 1160/Pn/2000 held that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10% therefore addition was deleted. The ITAT Pune in the case of ITO vs. Kaaddu vide ITA No. 441/Pn/20004 following the decision of Hon’ble J & K High Court in the case of Honest Group of Hotel Pvt. Ltd. vs. CIT (2002) 177 CTR ( J & K) 232 had held that when the margin between the value as given by the assessee and the department valuer was less than 10% the difference is liable to be ignored and the addition made by the Assessing Officer cannot be sustained. We have also noticed that ITAT Jaipur in the case Sitebia Khetan Vs. ITO vide ITA 826/JP/2013 held that valuation is a matter of estimation and some degree of difference is bound to

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be there. If the difference between the stamp duty valuation and the declared sale consideration is less than 10% then addition u/s. 50C should not be made. The ITAT Pune in the case of Rahul Construction vs. DCIT in ITA 1543/Pn/2007 (2010) 38 DTR Pune Tribunal has held that since difference is less than 10% and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur therefore the Assessing Officer is not justified in substituting the sale consideration at Rs. 20.50 lacs as against actual sale consideration of Rs. 19 lacs disclosed by the assessee. All the aforesaid judicial findings justify that small variation is bound to occur considering the fact that valuation is always a matter of estimation. In the case of the assessee apart of small variation of 12.73% between the sale consideration as per sale deed and the value as per DVO report, there was also encroachment on the impugned land till the time of sale and assessee was not having the possession of the land. In this regard, we have gone through the report of the DVO placed in the paper at page no. 169 to 175 and it is noticed that nowhere in his report the DVO has discussed the encroachment of the land which compelled assessee to sell the land at the price which was only less by about 12% from the value determined by the DVO in his report. The Assessing Officer has considered the material facts of the existence of encroachment on the land and the finding of the Hon’ble Supreme Court since the variation in the value shown in the sale deed and the value reported in the DVO report was only 12.73% which was within the tolerable limit of 15% variation as recognized by the Hon’ble Supreme Court in the case of C.B. Gautam vs. Union of India 199 ITR 530. We consider that judicial findings as discussed in this order articulate the fact that small variation within the tolerable limit of 15% as

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held by Hon’ble Supreme Court as elaborated supra between the value shown by the assessee and the value of the DVO is liable to be ignored because of element of estimation involved in valuation of immoveable property. In this light of the above findings and considering the specific enquiries made by the Assessing Officer before framing assessment order and subsistence of encroachment which compelled the assessee to sell the land without possession, we consider that order passed under section 263 of the act is not sustainable, therefore, order passed u/s. 263 is quashed. Accordingly, the appeal of the assessee is allowed.

Sd/- Sd/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 18/06/2021 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आय(कर अपील�य अ�धकरण, अहमदाबाद