SHRI NARANBHAI G. AHIR,SURAT vs. INCOME TAX OFFICER, WARD -2(3)(6), SURAT

आदेश /O R D E R PER O. P. MEENA, AM: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-1, Surat(in short “the CIT (A)”) dated 05.10.2017 pertaining to Assessment Year 2013-14, which in turn has arisen from the assessment order passed under section 143 (3) dated 08.03.2016 of Income Tax Act, 1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 2(3)(6) Surat(in short “the AO”). 2. Ground No. 1 & 2 : states that the CIT (A) has erred in confirming action of the AO in making addition of Rs. 2,00,29,039 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.

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Sultanbad admeasuring 7234 sq. meter area for Rs. 2,82,11,000 during the

year under consideration on which long-term capital gain is disclosed at

Rs. 42,18,883 by claiming fair market value as on 01.04.1981 at Rs.380 per

sq. meter as per Registered Valuer report of Shri B. H. Patel dated

17.10.2013. However, the AO considered fair market value rate at Rs.

64.30 per sq. meter as per report of DVO. The AO issued a show-cause

notice as to why FMV rate be adopted at Rs. 64.30 per sq. meter as

estimated by the DVO. The assessee has explained that DVO report is not

valid and irrelevant, as no base has been given. There DVO stated that

Registered Valuer valued the land by comparing price with RBI gold price,

which is not correct. It was submitted that Registered Valuer has

considered 1 to 10 various factors and shown his valuation report in para

10(A). These ten ground are not considered by the DVO and DVO report is

based only on sale instances which is irrelevant and far from truth. The

sale of contemporary was not determined by any qualified valuer person

or not technical qualified person. Whereas the Approved Valuer has valued

the land on the basis of reverse valuation. The same is supported by the

judgements of Jahanganj Cold storage v. ACIT 133 TTJ 278 (Agra).

However, the AO was not satisfied with explanation and worked out long-

term capital gain at Rs.2,42,47,922 on the basis of DVO report by taking

rate @64.30 per sq. meter as on 01.04.1981as against Rs.380 PSM by the

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assessee which resulted in addition of Rs. Rs. 2,00,29,039 on account of

long-term capital gain. 4. Being, aggrieved, the assessee filed an appeal before the Ld. CIT

(A). Wherein it was contended that the AO has wrongly referred to DVO

without pointing out any defects in the report of Registered Valuer. It was

contended that that Registered Valuer was entitled to carry out valuation

of agricultural land. He has given valuation report in Form No. 2 giving

detailed reasons for applying reverse method for valuation of impugned

land. The DVO is not qualified technically person to undertake valuation

of agricultural land. Whereas the Registered Valuer has taken various

factors such as fertility of land, availability of water, infrastructure facility

availability of labour etc. However, CIT (A) observed that the DVO is

competent to carry out valuation and valuation has been done by

comparable sale instances, hence, same is more authentic. In view of this

matter, the CIT (A) has confirmed the findings recorded by the AO. 5. Being, aggrieved the assessee filed this appeal before the Tribunal.

The learned counsel for the assessee referring the provision of section 55A

(a) submitted that reference to DVO can be made whereas the AO has

formed the opinion that fair market value shown by the assessee is at

variance. Therefore, provisions of section 55A(a) is akin to provisions of

section 148 where reason to belief has to be formed before issuance of

notice under section 148 of the Act. In the instant case, the AO issued a

show-cause notice to the assessee based on DVO report, which means that

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before referring to valuation for DVO the AO did not form an opinion and

not considered any material on record. The learned counsel for the

assessee placed reliance in the case of Myrtle D`Souza v. ITO [2012] 53

SOT 0236 (URO) (Mumbai- Trib) wherein it was held that before making

reference under section 55A (b) (ii) , it is necessary that for the AO to

record the relevant circumstances on the basis of which he forms the

opinion that reference to the Valuation Officer is called for – from the

assessment order it is manifest that there is no reference to any material

on record prompting the AO to form an opinion that reference to the DVO

for ascertaining the fair market value of assets was necessary having

regard to nature of assets and other relevant circumstances. The learned

counsel for the assessee referred para No. 4.1 of the assessment order and

submitted that the AO has issued show-cause notice based on DVO report

i.e. after receipts of DVO report. Hence, the AO has not formed an opinion

before referring the Valuation Officer for ascertaining fair market value of

land sold by the assessee and how the Registered Valuer report submitted

by the assessee was not correct. The learned counsel for the assessee

further submitted that the assessee has filed Government Approved Valuer

from Shri B.H. Patel, copy of which is placed at Paper Book Page No. 12 to

explained the methodology adopted for computation of agricultural land

as on 01-04.1981. The Registered Valuer observed that all factors like land

rate, size, shape m, situation, location, utility frontage, time leg,

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potentiality, surrounding development and prevailing market rate to be

considered for fixing the market price of agricultural land for specific

period. Accordingly, the Registered Valuer has calculated market rate as

on 01.04.1981 by taking reverse method by calculating a decrease about

10% per year rate applicable. The learned counsel for the assessee relying

on the decision of tribunal in the case of Ahmedabad Tribunal in the case

of Shri Madhusudan P. Patel v. ITO, Ward-3 Gandhinagar [I.T.A.No. 2579/

Ahd/ 2010 /A.Y. 2007-08 dated 05.04.2013] (copy filed Paper Book Page

No. 64 to 79], wherein in para “5.12, the tribunal observed that the

learned Registered Valuer has categorically stated in his report that the

sale instances are not available for the relevant period and for the near

about period very less as compared to market price and , therefore, he has

not relied on the same. The method adopted by him is the fair market

value of the land as on date reduced by 10% (correction factor 0.909%) for

each year worked out reversely till 01.04.1981, which amounts to Rs. 227.6

per sq. meter”. In the instant case, the same Shri B H Patel Registered

Valuer of the assessee has valued the land price by reverse method and

same needs be accepted by the AO. The decision in the case of Kaushik

Sureshbhai v. ITO-Wd-7(2) Surat [I.T.A.No.3374-3380/Ahd/2009 dated

09.04.2010], Smt. Krishna Bajaj v. ACIT 86 CCH 0299 (Kar) , CIT v. Smt.

Hiraben G Patel [2014] 362 ITR 59 (Gujarat) were also relied. In view of

this matter, it was submitted that DVO has only considered three sale

instances of agricultural land for the year 1981 or 1982 etc. of the same

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area and adopted 64.30 per sq. meter, but DVO has adopted / applied by

taking other factors of adjustment /influence and not given any weightage

even though clear guidelines published by the IT Department, hence,

Rs.64.30 per sq. meter as on 01.04.1981 fixed by the DVO is quite unfair,

unreasonable and on lower side also and rate at 380 fixed by the Registered

Valuer of the assessee be accepted. It was also stated that there are 50

factors; hence, same were also required to be considered for fixing the

agricultural land price as on 01.04.1981. The learned counsel for the

assessee further relied in the case of Sataydev Sharma v. ITO 39 CCH 317

(Jp-trib). The learned counsel for the assessee further relied in the case

of N Govindraju v. ITO [2015] 377 ITR 243( Karn) /93 CCH 314 ( KarHC)

wherein it was held that “52. In the present case, the assessee had

provided the reasons for determining Rs. 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 Rs. 84/- per sq. ft. The Assessing Officer 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. In our opinion, the same cannot be the proper mode

of arriving at the 'fair market value' of the property in question as on

1.4.1981, for the purpose of determining 'Capital gains' under the Act.”

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The ld. Sr. D.R. submitted that the AO clearly formed his opinion that fair

market value adopted by the assessee is not correct. 7. We have heard the rival submissions and perused the relevant

material on record. We find that the observation of the CIT (A) that B.H.

Patel valuation report is not based on guidelines of the Department. We

find that there are three methods of valuation of land first one relates to

sale instances multiplied by 11.94 factors, which is based on Hon`ble

Supreme Court and Hon`ble High Court judgements. Second method is to

consider increase in agricultural land price per month one percent. Third

method is based on reverse method per year reduction of 10% of Jantri

rate/Circle rates. The Government Registered Valuer of the assessee has

based his valuation report on the reverse method of valuation out of these

three method for valuation of land, which in our opinion is correct method

to be considered, where only few sale instances of relevant period are

available. The DVO has considered at Rs.380 per sq. meter land price as

on 01.04.1981 as against the DVO rate of Rs.64.30 per sq. meter.

Therefore, we are of the view that the Registered Valuer has quite

considerate in taking rate at 380 per sq. meter. This view is further

supported by the decision of Ahmedabad Tribunal in the case of Shri

Madhusudan P. Patel v. ITO Ward-3 Gandhinagar dated 05.04.2013 (supra)

wherein the Co-ordinate Bench of Tribunal held wherein in para 5.12, the

tribunal observed that the learned Registered Valuer has categorically

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stated in his report that the sale instances are not available for the

relevant period and for the near about period very less as compared to

market price and , therefore, he has not relied on the same. The method

adopted by him is the fair market value of the land as on date reduced by

10% ( correction factor 0.909%) for each year worked out reversely till

01.04.1981, which amounts to Rs. 227.6 per sq. meter. Considering these

factors, we are of the considered opinion that the valuation report of B.H.

Patel in the case of the assessee is quite reasonable and therefore, the

issue is decide in favour of the assessee. We find that the learned counsel

for the assessee relied in the case of N Govindraju v. ITO [2015] 377 ITR

243(Karn) /93 CCH 314 (KarHC) wherein it was held in para No. “52. In the

present case, the assessee had provided the reasons for determining Rs.

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 Rs. 84/- per sq. ft. The

Assessing Officer 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. In our opinion, the 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. Accordingly, the AO is directed to apply rate of Rs.380 per sq.

meter for calculation if long-term capital gain in the hands of the assessee.

Accordingly, Ground No. 1 and 2 of appeal are allowed.

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the assessee, ex-consequenti, it is treated as dismissed as not pressed. 9. Ground No. 4 and 5 relates confirming addition of Rs. 73,13,300 as

unexplained investment in property and not allowing deduction under

section 54B of the Act. 10. Brief facts are that the AO found that the assessee has purchased

land from Shri Mohan Bhai for which first payment was made on 20.06.2011

of Rs. 25 Lakh, Rs. 12.50 Lakh was made on 08.07.2011, Rs. 12.50 Lakh was

made on 12.07.2011, and Rs. 23.13 Lakh was made on 08.05.2012. The

assessee was asked to explain source of payment. It was submitted that

cheques made the payment from saving bank account no. 10/3712 of Surat

District Co-operative Bank Ltd. As regards source, the assessee has sold

land to Shri K B Patel, who stated after some time that he is not

agriculturist. As such, they cannot purchase the agricultural land. Thus,

the assessee sold said land to another person and returned the above-

received amount to old purchaser later on. The contra confirmation was

filed. However, the AO observed that there is no evidence to show that

the land was sold to K B Patel and later on sold to another person and out

of sale proceeds, the purchase of land was made. If the source of payment in 2011 is out of land sold in 2012 , then purchase of land should have been

made after receiving the sale proceeds. Therefore, the assessee has been

not able to prove source of investment in land hence, the AO made

addition of Rs. 73,13,300 as unexplained investment.

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(A). Wherein it was contended that immovable property amounting to Rs.

73,13,300 out of funds which were received out of advance received for

sale of property to Shri K.B.Patel. However, CIT (A) confirmed the addition

so made on the ground that the appellant was not able to furnish copy of

agreement to sale and the agreement to sale was subsequently got

cancelled. 12. Being, aggrieved the assessee filed this appeal before the Tribunal.

The learned counsel for the assessee submitted that the has made payment

of Rs. 50 Lakh during period from 22.06.2011 to 12.07.2011, hence,

payment so made does not fall during the assessment year under

consideration. Therefore, even if the source is not proved then no addition

on this account cannot be made during 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 and

confirmation account appearing at Paper Book Page No. 7. This amount is

also reflected in bank statement placed at Paper Book Page No. 8 to 11.

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. However, later on said party has changed his mind and

agreement to sale got cancelled. Since, the assessee has purchased

another land out of part sale consideration received on sale of impugned

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land , he returned amount to K B Patel only when he sold impugned land

to another person and received payments for the same. 13. Au contraire, the ld. Sr. D.R. relied on lower authorities. 14. We have heard the rival submissions and perused the relevant

material on record. We find that payment of Rs. 50 Lakh during period

from 22.06.2011 to 12.07.2011, hence, payment so made does not fall

during the assessment year under consideration. Therefore, 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.

Page No. 8 to 11. 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. However, 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. In

view of these facts, we are of the considered opinion that the AO has

wrongly made addition of Rs. 73,13,300 hence, same is therefore, deleted.

Accordingly, Ground No. 4 of appeal is allowed. However, with regard to

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claim of deduction under section 54B of the Act, We find that the

investment is not made out of sale proceeds of impugned land under consideration. Hence, same is rightly denied by the AO. Accordingly,

Ground No. 5 of appeal is dismissed. 15. In the result, the appeal of the assessee is partly allowed. 16. Order pronounced in the open Court on 11.02.2020

Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 11th February, 2020/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order // TRUE COPY // Assistant Registrar, Surat