SMT. VIMLA DEVI SAMARIYA,JAIPUR vs. INCOME TAX OFFICER, JAIPUR

Firstly, regarding Ground No. 1, briefly stated, the facts of the case are that during the year under consideration, the assessee has sold immovable properties at village Chaksu, Jaipur vide two sale deeds dated 24.12.2012 for a consideration of Rs. 1,27,00,000/- and Rs. 72,600/- respectively. The Sub Registrar, Chaksu, Jaipur has valued first property at Rs. 3,58,35,150/- and the 2nd property at Rs. 74,720/-. As per the Assessing Officer, the sale consideration as determined by the stamp duty authority should be taken by 2 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur the assessee. However, the assessee has not disclosed the capital gains in her return of income filed on 18.10.2013. During the course of assessment proceedings, the assessee has challenged the value adopted by the stamp duty authorities and requested to refer the case to the Valuation Officer for ascertaining fair market value of the properties u/s 50C(2) of the Act. Therefore, the case was referred to the Valuation Officer u/s 55A of the Act. The DVO has determined the fair market value of the properties at Rs. 3,58,21,800/- and Rs. 2,03,200/- respectively as on the date of sale.

Basis the DVO report, a show-cause notice was issued to the assessee as to why as per the provision of section 50C of the Act, an amount of Rs. 3,58,21,800/- as determined by the DVO and Rs. 74,720/- for 2nd property as determined by stamp duty authority i.e. Sub Registrar-Chaksu should not be taken for the purposes of determination of the capital gains. In response, the assessee filed her submissions stating that valuation made by the DVO is arbitrary, excessive and do not represent the fair market value and also listed down specific instances where the assessee disagrees with the finding of the Valuation Officer. The Assessing Officer however rejected the objections taken by the assessee and stating that the assessee herself requested to refer to the case to the Valuation Officer and the DVO has intimated the fair market value of the properties after visiting the properties and as per norms and after considering the objections of the assessee. Therefore, the contentions of the assessee were not found acceptable by the AO. Against the said findings, the assessee moved in appeal before the ld. CIT(A).

As per ld. CIT(A), the reference to the Valuation Officer was made by the AO on the request of the assessee and now the assessee is challenging the report of the DVO. As per ld CIT(A), the whole stand taken by the assessee is out of context as per law it was mandatory for the AO to accept 3 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur the DVO’s report and therefore, the AO has been fair in computing the long term capital gain taking the lower of the valuation determined by DVO and the stamp duty authority and accordingly he confirmed the finding of the Assessing Officer. Against the said finding, the assessee is now in appeal before us.

We now refer to the contentions advanced by the ld. AR. The ld. AR submitted that the assessee sold immovable property being land converted for non-agricultural use, however, without getting any regularization, map approval and any development, measuring 3.525 hectares and agricultural land measuring 0.045 hectares for consideration of Rs. 1,27,00,000/- and Rs. 72,600/- respectively. During the assessment proceedings, the assessee raised objections u/s 50C(2) of the I. T. Act regarding excessive valuation by stamp duty authority. For determination of fair market value of the impugned immovable properties, the AO accordingly referred the matter to the DVO and the DVO considering DLC rate as sacrosanct of fair market value made valuation at Rs. 3,58,96,520/- and Rs. 2,03,200/- solely relying on the DLC rate. Subsequently, the AO by virtue of provision of section 50C considered the full value of consideration at Rs. 3,58,21,800/- and Rs. 72,600/- respectively.

The first contention raised by the ld. AR is that DVO has solely relied on the DLC rate for evaluating fair market value. In this regard, it was submitted that the lower authorities have not appreciated the assessee’s contentions that the actual consideration of Rs. 1,27,72,600/- received by the assessee depicts true FMV of the property. The blind reliance over circle rates by DVO by considering them as sacrosanct & gospel truth and without putting any comparables on record has defeated very purpose of bringing section 50C(2) into statute books. It was submitted that the professional expertise & 4 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur skill expected by law from DVO being technical person, had not been exercised and so called DVO technical report is merely statement of duplicity of DLC rates without any reasoned & cogent basis. It was submitted that the DVO report built on erroneous foundation that DLC rates are sole basis of FMV without acknowledging that DLC rates are fixed for the entire locality without considering specific attributes of the property. The DVO overlooked sole purpose of reference was excessive of DLC rate over FMV then taking DLC as basis for FMV without assigning reason for same is arbitrary & unwarranted. It was submitted that the assessee has taken these contentions before the Assessing Officer and he has not appreciated the same in right perspective. It was further submitted that the ld. CIT(A) has also not appreciated the aforesaid contentions and stated that since reference to DVO was made on request of the assessee. Therefore, no question/objection on report of DVO can be made by the assessee. In this regard, it was submitted that the ld. CIT(A) overlooked the settled law that the DVO report is not binding upon appellate authorities. The ld. CIT(A) was duty bound to consider the objections of assessee on DVO report point by point. In this regard, our reference was drawn to the Co-ordinate Bench decision in case of Suresh C. Mehta vs. ITO (2013) 35 taxmann.com 230 (Mumbai) for the proposition that valuation report is not binding upon appellate authorities. Further, reliance was placed on the Hon’ble Madras High Court in case of M/s Jagannathan Sailaja Chitta vs. ITO [2019] 49 ITCD 121 (MAD) for the proposition that ld. CIT(A) was duty bound to consider point to point objection of assessee over DVO report. Further, reference was drawn to the Co-ordinate Bench decision in case of Ravi Kant vs. ITO (2007) 110 TTJ 297 for the proposition that sole reliance on DLC value by DVO will defeat the very purpose of bringing section 50C(2) into the statute books. Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur 7. The second contention which has been raised by the ld. AR is that the DVO has wrongly considered the land & building method as only method for evaluating fair market value. It was submitted that DVO overlooked that there were other allowable methods for evaluating FMV & in fact, the development method of valuation was more realistic & pragmatic considering the undeveloped status & large chunk size of the land and availability of sale instances of small plots on record in immediate vicinity of land in & around the date of transfer. It was further submitted that the observations of DVO itself supports that method of valuation should have been development cost method rather than Land & Building Method. In this regard, our reference was drawn to the guidelines for valuation of immovable properties issued by the Income Tax Department wherein our reference was drawn to Para 5.2.3 which reads as under:- “This method of valuation of large extent of land is adopted in the following situations. (a) When the comparable sales of large tracts are not available but sales of small plot are available. (b) When the land is ripe for use for building it possess necessary potentialities for urban use.”

In support, reliance was placed on the Hon’ble Bombay High Court in case of State of Maharashtra & others v/s Nanabhai Rathod & Others (AIR 1989 Bombay 9) wherein under similar circumstances & factual matrix, the development method was held as more justifiable for determining valuation of large tract of land in undeveloped status.

The third contention raised by the ld. AR is that the DLC rates applied by stamp valuation authorities were for plots in newly developed residential colony as they do not have independent rates for large chunk of undeveloped 6 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur converted land. In this regard, it was submitted that the action of DVO in solely relying on them for evaluating FMV is without understanding of the term ‘Colony’. The term “colony” means a place suitable for living of human being i.e. which is served by sanitation, school, college, market, electricity, water & roads and none of the above factors existed at the time of transfer of land. It was submitted that the impugned land was large chunk of land in undeveloped status and therefore in any stretch of imagination, it can’t be classified as plot in colony, on the contrary housing scheme colony itself. In this regard, our reference was drawn to assessee’s paper book page No. 48 and it was submitted that the consideration of DLC rate for the undeveloped/semi developed land i.e. Rs. 670/sq yds was more realistic instead of new colony DLC rates considering the fact that there were no electricity, sanitation, market, water supply, community centre & no development.

The next contention which has been raised by the ld. AR is that the evaluation of FMV by DVO by relying on DLC rates of Plots is like comparing raw materials value with finished goods without allowance for processing cost (Development Cost), wastage (earmarked facility land as per statutory provision & processing time ( Interest factor for delay). It was submitted that the DVO overlooked that any colonizer will be bound to incur massive development cost in the form of road construction, laying water & sewer lines, Electric Poles, Entry Gate, landscaping, plot demarcation, footpath parks & etc. which probably amount 20-25% of project cost. It was further submitted that the DVO overlooked that for converting land into residential plots, 40% of entire land would have to be earmarked for facility purposes i.e. for roads & parks & community service. Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur 11. In this regard, our reference was drawn to the Hon’ble Supreme Court decision in case of Major General Kapil Mehra and Ors. V. Union of India and Anr. (2015) 2 SCC 262 wherein it was held as under:- “P. 41……. In our view, it is appropriate to make 35% deduction towards utilization of the land area in the layout for roads, drains, parks, playgrounds and civic amenities. So far as the expenditure for development of the large extent of land into a developed area by construction of proper roads, underground drainage, sewerage and erection of electricity lines, it is appropriate to make further deduction of 25%, through 35% of the value was deducted in Lal Chand case (supra) towards development charges. Two components taken together, the total deduction to be made would be 60%. Rs. 14,974/- per sq. yard is maintained.”

Reliance was placed on the Hon’ble Supreme Court decision in Chandrashekar (D) By Lrs. & Ors vs. Land Acquisition Officer & Anr (Civil Appeal No. 1743 of 2006 dated 22 November, 2011) wherein it was held as under:- “Having given our thoughtful consideration to the analysis of the legal position referred to in the foregoing two paragraphs, we are of the view that there is no discrepancy on the issue, in the recent judgments of this Court. In our view, for the “first component” under the head of “development”, deduction of 33-1/3 percent can be made. Likewise, for the “second component” under the head of “development” a further deduction of 33-1/3 percent can additionally be made. The facts and circumstances of each case would determine the actual component of deduction, for each of the two components. Yet under the head of “development” the applied deduction should not exceed 67 percent. That should be treated as the upper benchmark. This would mean, that 8 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur even if deduction under one or the other of the two components exceeds 33-1/3 percent, the two components under the head of “development” put together, should not exceed the upper benchmark.”

Further, reliance was placed in the case of Subh Ram vs. State of Haryana, (2010) 1 SCC 444 wherein it was held as under:- “In the hypothetical layout method of determination of market value, as a first step, the areas that will be used up for roads, drains, parks/playgrounds and community areas, parks/playgrounds and community areas, will have to be excluded from the total extent of the acquired land. The standard deduction in this behalf is one-third (33%). But merely deducting the areas required for roads, drains, parks and community areas, will not convert a large tract of agricultural or undeveloped land into a developed residential layout. For that, considerable financial outlay has to be made. All these expenditure and factors are standardized into another one-third (33%) deduction towards expenses of development. Thus, if the valuation of a large extent of agricultural or undeveloped land is to be based on the sale price of a small developed plot in a private layout, then the standard deductions should be one-third (for roads etc.) plus one-third (for expenditure of development) in all two thirds (or 67%), as development cost from the value of small plot.”

Another contention raised by the ld. AR is that the DVO has not given any concession for IOCL pipe line passing from centre of land for which area of around 393 X 41.81/2 mtr i.e. 8214 sq mtr was unusable for plotting being Green Belt & no construction zone. In this regard, it was submitted that the DVO observed that IOCL pipe line was passing from centre of the land but rejected apparent fact just because evidence of timing of laying the same was 9 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur not in possession of Assessee ignoring the news paper cuttings evidencing the existence of pipe line in Chaksu prior to transfer of land. It was further submitted that in case, the DVO would have been desirous of unveiling truth, he would have contacted tehsil office, IOCL pump house Chaksu & even enquired from other nearby land holders. It was submitted that the DVO failed to exercise power of Civil Court conferred under Section 37 of Wealth Tax Act for enforcing attendance of person to collect evidenced therefore the assessee cannot be penalized for lack of enquiry/inadequate enquiry and non exercise of conferred statutory powers by the DVO. It was submitted that the assessee cannot be asked to prove the contrary when the existence of pipe line on date of inspection was evident & observed by the DVO. In this regard, reference was drawn to the Hon’ble Supreme Court decision in case of Daulat Ram Rawat Mul (1973) 87 ITR 349 wherein it was held that the apparent is real & assessee cannot be asked to prove the contrary. It was accordingly submitted that the area occupied by IOCL pipe lines is statutorily required to be left vacant for green belt & is no construction zone, thus non saleable as plot and a suitable adjustment should have been made by the DVO.

It was further submitted that the approved Valuer being a technical expert, his report cannot be discarded without assigning any reason. It was submitted that report of approved valuer is more realistic & reasoned and dealt with the status of land as on date of transfer and as per the report of approved valuer, the development cost method of valuation which is most suitable method in present factual matrix of the case. It was further submitted that the development cost method of valuation adopted by registered valuer is approved by Valuation Guidelines. In support, reliance was placed on the Hon’ble Rajasthan High Court decision in case of CIT v Hotel Joshi (2000) 242 ITR 478 (Raj.) and the decision of Hon’ble Supreme Court in case of Subh Ram v. State of Haryana, (2010) 1 SCC 444. 10 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur 16. Lastly, it was submitted that DVO has even evaluated FMV unconverted portion of the agriculture land (0.04 hectare) which is not/cannot be converted i.e. land occupied by well portion at DLC rate for converted land. The same shows sole arbitrariness in the report of DVO while determining the FMV.

The ld. DR is heard who has vehemently argued the matter and submitted that once the assessee has raised her objection in terms of adoption of the stamp duty authority and thereafter the matter has been referred by the Assessing Officer to the DVO u/s 50C(2) of the Act, the AO is bound to follow the report so submitted by the DVO. Further our reference was drawn to the assessment order wherein AO has given the finding that the various objections raised by the assessee have been duly addressed by the DVO and there is nothing further which is left to the discretion of the Assessing Officer in terms of examining the contentions so raised by the assessee. He accordingly supported the findings of the Assessing Officer and requested for affirming the order of the ld CIT(A).

We have heard the rival contentions and perused the material available on record including the valuation report dated 16.03.2016 issued by the DVO u/s 50C(2) of the Act and the valuation report of the registered Valuer dated 18.01.2016 as submitted by the assessee.

We find that the DVO has determined the fair market value of the land as on the date of transfer @ 850 per sq.yds which is the same rate as which the land has been valued by the stamp duty authorties. As per the DVO, he has written to Sub Registrar, Chaksu and the DLC rate of area was received. Further, the assessee did not provide the reliable contemporary sale instances and earlier submitted sale instances are not comparably relevant and the 11 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur subject property is situated just adjacent to main road of ward No. 23 of Chaksu, i.e. best locality of this ward. The property is already residential converted land and in the absence of reliable, comparable, contemporary sale instances, the rate adopted is fair market land rate of the property. We therefore find that the DVO has taken the DLC rate as determined by the stamp duty authority and in terms of determining the comparable sale instances, has put the onus entirely on the assessee. On her part, the assessee has submitted two comparable sale instances. Where such comparable sale instances are not accepted by the DVO, in our view, the DVO should specify the reasons as to why such comparable sale instances are not found acceptable and further, the DVO should independently carry out the necessary investigation and find comparable sale instances. Alternatively, where comparable sale instances are not available inspite of best efforts put in by the DVO, in our view, he should consider specific adjustments to the DLC rate as the DLC rate is more like a guideline rate laid down by the stamp duty authority and may not in all situations consider the specific of a particular property in terms of location, size, shape, frontage, connectivity etc. or consider exploring other valuation methodology so specified as may be applicable in the facts of the present case. We therefore find that where the DVO has finally adopted the DLC value which at first instance has been disputed by the assessee, the whole purpose of reference of matter u/s 50C(2) has not been correctly appreciated by the DVO.

Further, we find that the DVO in his report has observed that the property is very big residential converted land suitable for group housing scheme, residential plots could be laid out and has good potential for group housing and can fetch the best value of the property. Such a finding has not been disputed by either of the parties before us. In such a situation, we are of the considered view that the reliance solely on the DLC value of the land by 12 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur the DVO is not appropriate and the DVO should have considered and adopted other valuation methods which are more appropriate and elaborately discussed in the guidelines laid down by the Income Tax Department for valuation of immovable properties. In this regard, our reference was drawn to development method which can be adopted (as stated in the Department’s valuation guidelines) in situations where the comparable sales of large tracts of land are not available but sales of small plots are available and secondly, where the land is ripe for use for building purposes and it possesses necessary potential for urban use. In our view, the fact pattern of the present case and even as per the findings of the DVO that comparable sale instances are not available and that the property is very big residential converted land and has good potential for group housing which can fetch the best value of the property, the development method seems to be more appropriate rather than land and building method as presently adopted, however, we find that there is nothing on record to suggest that the DVO has even examined the feasibility of carrying out the necessary exercise for applying such valuation methodology as so specified in the guidelines laid down by the Department itself.

Further, we find that once the assessee has raised the objections against the valuation so determined by the DVO, the ld. CIT(A) should have considered those objections and should have given his findings on merits. The DVO report is no doubt binding on the Assessing Officer but once the matter is before the ld. CIT(A) and the assessee is aggrieved with the report of the DVO so adopted by the Assessing Officer, the ld. CIT(A) being the first appellate authority should have considered the assessee’s objections and should not have been guided solely by the report of the DVO. In other words, the report of the DVO is binding on the Assessing Officer, however, the same is not binding and can be challenged before the appellate authorities. The law is 13 Smt. Vimla Devi Samariya, Jaipur Vs. ITO, Jaipur very clear on this aspect as can be seen from the provisions of section 23A of the Wealth Tax Act which have been incorporated with necessary modification in section 50C of the Act.

We also found force in the other contentions of the ld. AR regarding the fact that no concession has been given for the IOC pipe line which is passing from centre of the land on which no construction activity is possible. The DVO having acknowledged the fact that the IOC pipe line is passing through the land, in our view, he should have provided adequate adjustment while determining the value of the land.

We have not dealt with other contentions so raised by the ld AR as we are of the considered view that the matter requires a fresh examination by the DVO in light of what we have discussed above. The assessee shall be at liberty to raise these contentions before the DVO.

In the entirety of facts and circumstances of the case, we are setting aside the matter to the file of the Assessing Officer who shall call for a fresh report from the DVO taking into consideration the aforesaid discussion and after providing reasonable opportunity to the assessee. The assessee is also directed to co-operate in the proceedings and furnish necessary information/documentation as called for by the AO/DVO so that the proceedings can be completed in a timely manner. In the result, the ground no. 1 is partly allowed for statistical purposes.

Since we have set-aside the matter relating to valuation of the property u/s 50C to the file of the AO, the other two issues relating to deduction u/s 54F and section 54B are also set-aside to the file of the AO. In the result, the ground no. 2 and 3 are allowed for statistical purposes. 14