ACIT, CIRCLE-2(1)(1), AGRA vs. ASHOK KUMAR AGARWAL, AGRA

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA(DB) BENCH, AGRA BEFORE: SHRI M BALAGANESH, ACCOUNTANT MEMBER AND SHRI SUNIL KUMAR SINGH, JUDICIALMEMBER ITA No. 50 & 52/Agr/2025 Assessment Year: 2015-16 ACIT, Cirlce 2(1)(1) Vs. Ashok Kumar Agarwal, 6/26, Aayakar Bhawan, Agra- Barah Bhai Ki Gali, Belanganj, 282002 Agra-282004 PAN :ABIPA7741F (Appellant) (Respondent) Assessee by Shri Dr. Rakesh Gupta Department by Shri Sukesh Kumar Jain, PCIT (DR) Date of hearing 19.03.2026 Date of pronouncement 19.05.2026 ORDER

PER: SUNIL KUMAR SINGH, JM. The facts and issues involved in both these matters are identical, hence for the sake of convenience and brevity, both these matters are being decided by this common order. The facts of ITA No 50/Agr/2025 are only being narrated as under: ITA 50/Agr/2025 2. Appellant revenue has preferred this appeal against the impugned order dated 14.11.2024 passed in appeal No. CIT(Appeal) 2, Agra/10010/2018-19 by the ld Commissioner of Income Tax/ National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the

ITA No. 50&52/Agr/2025 “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act), for the A.Y. 2015-16, wherein ld CIT(A) has allowed assessee’s appeal. 3. The facts in brief are that the respondent assessee e-filed his return of income on 29.09.2015 for A.Y. 2015-16, declaring total income at Rs. 18,35,16,990/- which was revised on 31.10.2015 as the same income. The return was processed u/s. 143(1) of the Act. The case was selected for limited scrutiny under CASS to examine long term capital gain and business loss. Statutory notice u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee, seeking him to explain the genuineness of assessee’s claim in respect of expenses incurred in relation to the sale of land. Assessee submitted that he had sold land, Khasra No. 660/3KA, Mauza Artoni, NH-2 Agra on 09.04.2014, measuring 11,800 sq m to M/s Maruti Suzuki India Ltd for a consideration of Rs. 27,04,49,066/-. Assessee further submitted that the land was inherited by him from his father, who had purchased it on 25.03.1965. As the land was purchased in 1965, the assessee submitted a valuation report to establish the fair market value (F.M.V) of the land as on 01.04.1981. Assessing Officer did not accept the valuation report submitted by the assessee and made a reference to the District Valuation Officer (DVO). The DVO, vide report dated 24.10.2017, valued the fair market value of the property at Rs. 2,27,900/- as against the valuation of Rs. 71,74,423/- made by the 2 | P a g e

ITA No. 50&52/Agr/2025 assessee’s registered valuer Shri. A.M. Jain for the computation of LTCG. After considering assessee’s response, the assessing officer computed the long term capital gain on the basis of indexation of cost submitted by the DVO and computed the indexed cost of acquisition at Rs. 23,33,696/-. Ld assessing officer also allowed the expenses towards transfer to the extent of Rs. 33,68,115/- as against assessee’s claim of Rs. 68,33,115/- and computed the long term capital gain accordingly. The assessing officer, thus, disallowed assessee’s claim of Rs. 34,15,000/- as compensation paid to the illegal occupants and encroachers. Further, the amount of Rs. 50,000/- claimed as legal fee paid to the lawyer engaged for the purpose, was also disallowed by the assessing officer. 4. Aggrieved, assessee preferred an appeal before ld CIT(A), who allowed assessee’s appeal. 5. Appellant revenue has raised the following grounds under appeal: “1) That the CIT(A) has erred on facts and in law in deleting the addition of Rs.7,45,97,396/-by relying upon the report of the Registered Valuer filed by the assessee in which circle rate of Hari Parwat Ward of Nagar Mahapalika Area as on 17.03.1979 was taken by the valuer on the basis that sale deed of plot with M/s. Maruti Suzuki India Ltd. states that the plot is situated in the Hari Parvat area of Agra Municipal Corporation ignoring the fact that the land in question is situated at Mauza Artoni which was not the part of Hari Parwat Ward of Municipal Area in the year 1979 and even situated far away from the Municipal limits of Agra in the year 1979 as is evident from the circle rate list issued on 17.03.1979 by the Stamp authority in which circle rate of Agricultural / Industrial land situated at Artoni were mentioned separately from the rate of land situated within the area of various wards of Nagar Mahapalika, Agra. 2) That the CIT(A) has erred on facts and in law in deleting the addition of Rs.7,45,97,396/- by relying upon the report of the Registered Valuer filed by the assessee in which circle rate of Hari Parwat Ward of Nagar Mahapalika Area as on 17.03.1979 was taken by the valuer ignoring the fact that the DVO has duly adopted the average of circle rates determined by the Stamp Authority for the 3 | P a g e

ITA No. 50&52/Agr/2025 agricultural land situated in Village Artauni as well as industrial land situated at Agra Mathura Road, Artauni. 3) That the CIT(A) has erred on facts and in law in observing that the District Valuation Officer (DVO) did not give weightage to the surrounding facts and circumstances associated with the plot of land in its valuation report dated 24.10.2017 ignoring the fact that the DVO has explicitly considered the surrounding facts and circumstances in para 9.3 of the valuation report and, therefore, reasonably considered a rate between the rate for industrial land and agricultural land to determine the fair market value of the land. 4) That the CIT(A) has erred on facts and in law in establishing that the valuation method adopted by the District Valuation Officer (DVO) to determine the Fair Market Value (FMV) of the plot of land as on 01.04.1981 is not prescribed under the valuation rules issued by the Income Tax Department ignoring the fact that in the valuation report at Para 7.1, the report features that the FMV was determined using well-established methods, including Land & Building method, Comparable sale instances method & Guidelines rate method. The methods adopted by the DVO are in conformity with the instructions issued by the Central Board of Direct Taxes (CBDT), specifically Instruction No. 1671 dated 06.12.1985 and Instruction No. 319/6/92-WT dated 13.12.1998. These instructions validate the use of such methods for determining FMV. 5) That the CIT(A) has erred on facts and in law in deleting additions of Rs. 34,15,000/- and Rs. 50,000/-, disallowed by the AO, ignoring the fact that no documentary evidences of these expenses having been incurred, has ever been submitted or produced by the assessee before the AO or the appellate authority and when the occupants of the land were termed as 'illegal' by the assessee himself, any amount paid to purported 'illegal' occupants cannot be termed as 'compensation' 6) That the CIT(A) has erred on facts and in law in deleting additions of Rs. 34,65,000/- and Rs. 50,000/-, disallowed by the AO, ignoring the fact that the expenses incurred in cash and have no documentary substantiation. The purported compensation, without prejudice to its non-incurrence, is not based on any legal direction of any court of law or arbitration. 7) That the appellant craves leave to add or delete or alter or modify any one or more ground(s) of appeal during the appellate proceedings. 8) That the order of the CIT(A) being erroneous in law and on facts be set aside and that the order of the Assessing Officer be restored.”

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ITA No. 50&52/Agr/2025 7. The main points for consideration on the basis of the grounds raised under appeal are as to – (i) whether ld CIT(A) has erred in deleting the additions of Rs. 7,45,97,396/- as difference amount of long term capital gain by placing reliance on the valuation report of registered valuer, ignoring DVO’s report. (ii) whether ld CIT(A) has erred in allowing the assessee’s claim of Rs. 34,65,000/- incurred in clearing the land from illegal occupants and fee paid to the lawyer engaged for the purpose? 8. At the very outset, it is worth mentioning that ld representative for the assessee has filed an application dated 10.12.2025, seeking to raise the ground under Rule 27 of ITAT Rules, 1963 “that the reference made to the DVO is vitiated to legal infirmity and therefore the said valuation cannot be acted upon for computing capital gain earned by the assessee on sale of land in this year; and that having regard to the facts and circumstances of the case, the valuation report of the DVO made u/s. 142A is without jurisdiction and legally unsustainable.” 9. Ld representative for the respondent assessee has submitted that the ld A.O. has made reference u/s. 142A after invoking section 145(3) of the Act, whereas in the instant case of computation of capital gains, F.M.V. of a capital asset can be referred only u/s. 55A and not u/s. 142A, which is confined to section 69, 69A, 69B etc. Ld AR has further submitted that, though A.O. has referred section 142A at various places however, he has made a running reference as section 142A r.w.s 45A only in para 4 at page 5 | P a g e

ITA No. 50&52/Agr/2025 5 of the assessment order. In response to assessee’s RTI application, assessing officer has admitted that the letter issuing reference to the DVO was not traceable and the required reference could not be furnished. In such a situation, section 142A expressly mentioned in the DVO’s report is sufficient to conclude that the reference was made u/s. 142A and the report was also submitted u/s. 142A only, whereas the F.M.V for the purpose of computing capital gains cannot be referred/valued u/s. 142A. The reference has to be made only u/s. 55A of the Act. In such circumstances the reference made by the assessing officer u/s. 142A be held as illegal and the consequent report be treated as non-existent in the eye of law. 10. Ld AR has referred:- (i) Dashrathbhai G.Patel vs. DCIT (2020) 182 ITD 327 (Ahd.) (CLC 1-12). (ii) ITO vs. Chandrakant R. Patel & Ors., ITA No. 3139/Ahd/2009 & Ors., order dated 08.04.2011 (ITAT-Ahd) (CLC 13- 28). (iii) Anil Malhotra vs. DCIT, ITA No. 239/Chd/2018, order dated 30.04.2019 (ITAT Chd.) (CLC 29-46). (iv) Sumit Khurana vs. CIT/ACIT, ITA No. 1877/Del/2011, order dated 15.07.2011 (ITAT Del.) (CLC 47-53) in support of his submissions and prays to dismiss revenue’s appeal. 11. Ld PCIT (DR) for the appellant revenue has filed his rejoinder against assessee’s application moved under Rule 27 of ITAT Rules, 1963. Ld DR has submitted that it is true that the assessing officer has mentioned in his order that the reference to DVO was made u/s. 142A of the Act, whereas show cause notice issued to the assessee and reproduced at page 5 of the 6 | P a g e

ITA No. 50&52/Agr/2025 assessment order mentions that the reference to DVO was made u/s. 142A r.w.s 55A of the Act. The reference to DVO is legally valid and such a mistake is curable u/s. 292B of the Act. 12. Ld DR has referred- (i) Sky Light Hospitality LLP v. ACIT, (2018) 92 taxmann.com 93 (SC), wherein, the Apex Court has held that wrong mentioning of a provision does not invalidate proceedings when jurisdiction otherwise exists. (ii) CIT v. Jagat Novel Exhibitors (P.) Ltd., (2012) 18 taxmann. com 138 (Delhi), wherein it has been held that incorrect citation of section is a curable defect when authority to act exists. (iii) CIT v. Shyamal Sarkar, (2017) 84 taxmann.com 146 (Cal), wherein, it has been held that procedural mistake in quoting section cannot invalidate proceedings if the action is otherwise lawful. (iv) ACC Ltd. v. District Valuation Officer, (2013) 357 ITR 160 (Delhi), wherein it has been held that DVO report is only an aid in assessment and forms part of the record for tax authorities to act upon. (v) DCIT v. K.M. Nagaraj (2017), 82 taxmann.com 359 (ITAT Bangalore), wherein it has been held that wrong mentioning of statutory provision does not invalidate proceeding, where the assessee participated and suffered no prejudice. Ld PCIT (DR), thus, prays to allow revenue’s appeal. 13. It is relevant to reproduce part of para 4 of the impugned order as under: “4. ……..I have perused the facts of the case and have examined the assessment order passed by the AO and also the detailed submission of the 7 | P a g e

ITA No. 50&52/Agr/2025 appellant. The valuation report of the District Valuation Officer (DVO) and of the registered valuer of the appellant have also been perused by me. The issue which needs to be adjudicated here is whether while determining the Fair Market Value (FMV) of a plot of land one must look only at its nature as entered in the revenue/land records or does equal weightage have to be given to surrounding facts and circumstances. The DVO while determining the FMV as on 01.04 1981 observed that the plot of land in question was listed as 'Agricultural Land' in the revenue records of Artoni village. Thus, the DVO applied the existing rates of agricultural land and calculated the FMV of 11,800 sq. m. of land at Rs. 2,27,900/- as on 01.04.1981. The DVO report submitted on 24.10.2017 was carefully examined and the following important points emerge from it. (i) In para 9.3 of the valuation report the DVO observes as under- "As per Agreement of sale dated 19.08.2014, the assessee will have to get the land converted to non-agriculture before execution of sale deed. The assessee got the land converted to non-agriculture somewhere in Sep/Oct, 2014 & therefore the title of land in the sale deed dated 09.10.2014 is non agriculture. At the time of inspection, it was found that the land is surrounded by industries & is located on National Highway at a very good location. Also the land in the nearby/adjoining area was of UPSIDC. Due to its very good location & surroundings, the assessee was able to sell the land at the rate above the circle rate of non-agriculture land at the time of sale in Oct. 2014. The sale deed provides that the assessee in the year 1970 acquired the land under consideration (660/3) in exchange of his land in Khasra no. 659 from L.M.C. (Gaon Sabaha) Land Management Committee. This was done as the land in Khasra No. 660 was found suitable for extension of existing industrial venture of the family in Khasra no. 657. But though the land was located in the industrial area on the National Highway but due to its title being agriculture as on 01.04.1981, it would be appropriate if a rate somewhere between the rate of industrial land and the rate of agriculture land is considered as fair market value in 1981. Thus the average of the two rates i.e. agriculture & industrial has been taken." (ii) From these comments of the DVO, it is clear that's he accepts the contention of the assessee that the plot of land in question enjoyed a locational advantage in that it was located on NH-2 and was adjacent to areas that had been taken over by the Uttar Pradesh State Industrial Development Corporation (UPSIDC). The plot of land was also surrounded by industries. (iii) The DVO notes that the assessee's land in Khasra No. 660 was found suitable for extension of industrial ventures. (iv) The DVO has used an average of the existing agricultural and industrial rates to value this plot of land. It seems that the DVO is not clear himself about the nature of this land and in his confusion has resorted to a method of valuation that has not been prescribed anywhere in the Valuation Rules issued by the Income Tax department.

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ITA No. 50&52/Agr/2025 (v) The low rate of valuation adopted by the DVO is primarily due to the fact that the title of the land in 1981 was agricultural though he himself concedes that the plot was located in an industrial area on National Highway-2. The sole comparable sale instance used by the DVO to arrive at the valuation was never confronted to the assessee and thus could not be rebutted by the assessee. Now, during the course of the appellate proceedings, the assessee filed documentary evidence to establish that the plot of land in question fell in an area that was being brought under the U.P. Govt's Schemes for urbanization and planned development. The following steps were taken by the Govt. of Uttar Pradesh:- a. Vide notification no. 1291/37-3-284/NKV dt. 26.04.1972, the UP Govt. declared 143 revenue villages into regulated/notified area. b. Vide Gazette no. 3923/37-2-4 dt. 11.09.1974 UP Govt. converted regulated area into Agra Development area including 143 villages. The notification published in the U.P. Gazette shows that Artauni falls within Agra Development Authority Area, i.e., Special Urban Area. c. Agra Development Authority was formed on 13.09.1974 for the administration of planned development and urbanization in regulated area. d. Agra Master Plan for 1971-2001 was declared by the Govt. vide notification no. 1616/7-3-35 RB dt. 17.07 1975 wherein land at Artauni was falling under Specific Urban Area. e. Vide notification no. 2666-A/11-NV-7-8K(1)79 dt. 08.07.1982, the Municipal limits were altered and as per altered Municipal limits, the land under consideration was just 1 km away from these limits. From the above it is clear that in the years preceding 1981 the plot of land sold by the assessee came under an area that was set aside for industrial use. Hence, even though the title of the land remained 'agricultural it increasingly came in an area that was marked for planned urbanization. It cannot be doubted that these factors brought about an enhancement of the land rates in and around the areas where the appellants plot of land was situated. The appellant has also provided recent examples to establish that his plot of land at Artoni road was enjoying a rapid increase in value. For example, when land was acquired for expansion of the NH-2 highway the Govt. Gazetted that all lands abutting NH-2 were to be treated as non-agricultural and the Govt. circle rate in this area for the years 2008 to 2010 was. Rs. 11,000 per sq. m. Further, it is seen from the sale deed with M/s Maruti Suzuki India Ltd that the company paid an astronomical sum of Rs. 27 crores for the assessee's plot of land. It should be mentioned that even at the time of the agreement to sell dt. 19.08.2014 signed by M/s Maruti Suzuki India Ltd, the title of the land was still 'agricultural as is evidenced by the fact that the appellant was required by M/s Maruti Suzuki India Ltd to apply for a 9 | P a g e

ITA No. 50&52/Agr/2025 change of land use certificate. Hence, the point which emerges is that the appellant's plot was commanding a high price in the open market even though its title was 'agricultural'. The DVO was therefore not justified in adopting a low FMV in 1981 for the appellants plot of land merely on the ground of its title being 'agricultural and by ignoring its locational advantage and the fact of it being surrounded by an industrial area. It is also worth noting that the sale instance of agricultural land of a near by plot of land that was used by the DVO in his report was never confronted to the appellant. Even the appellants own search for this document in the revenue record department of Artauni proved unsuccessful. Hence, no reliance can be placed on this instance of agricultural sale used by the DVO. The valuation report prepared by the registered valuers of the appellant captures in a better way the price which the plot of land would have fetched on being sold in the open market in 1981. The sale deed with M/s Maruti Suzuki India Ltd states that the plot is situated in the Hari Parvat area of Agra. Hence, the registered valuer took the circle rate of Hari Parvat ward as on 17.03.1979 and after suitable enhancements arrived at the value of approximately Rs. 606 per sq.m. The departmental valuation officer (DVO), on the other hand devised his own method of valuation and took an average of rates for agricultural and non-agricultural rates. The DVO was himself not sure about the nature of this plot of land and ended up using a valuation method that has not been prescribed by the valuation rules. Hence, in conclusion it is held that the valuation reports issued by the appellants registered valuers are more accurate in estimating the FMV in 1981 of the appellants plot of land. The DVO's report has grossly under estimated this value by focusing only on the lands title as 'Agricultural in the revenue records and by ignoring all the evidence which clearly pointed in the direction of the land being far more valuable inspite of it being 'Agricultural land in the revenue records. The cost of acquisition of the land as on 01.04.1981 is thus directed to be taken as Rs. 71,14,423/- and the Capital gain is to be calculated after applying the proper indexation rates. The assessee's ground of appeal is allowed. The next ground of appeal relates to the disallowance of Rs. 34,6 5,000/- paid by the appellant to clear his plot of land of illegal occupants and of disallowance of Rs. 50,000/- paid by the appellant to a lawyer engaged for this purpose. Now, as per section 48 of the I.T. Act, all expenses incurred in order to make possible the sale of a capital asset are deductible expenses. Admittedly the sale of the assessee's land could not have materialized if it had not been cleared of illegal occupants. The appellant has furnished affidavits of the illegal occupants where in they have agreed to vacate the land on payment of compensation. The AO has erroneously labelled them as 'Illegal expenses u/s 37(1). Now, an expense is 'Illegal and is disallowed only when the assessee has infringed a law and has been penalised for it and has then gone on to claim this penalty as an expense. The facts of the present case are on a different footing entirely. As per the sale agreement with M/s Maruti Suzuki's India Itd, the 10 | P a g e

ITA No. 50&52/Agr/2025 appellant was required to clear his land of illegal occupants. This is a fully allowable expenditure u/s 48 of the I.T. Act, 1961 and has been upheld in numerous judicial decisions viz. CIT v/s Abrar Alvi in 247 ITR 312 (Bombay High Court, 2007), CIT v/s A. Venkataraman & Ors, 137 ITR 846, (Madras High Court), CIT v/s Miss Piroja C. Patel in 242 ITR 582 (Bombay High Court). Hence, the disallowances of Rs. 34,65,000/- and Rs. 50,000 incurred for vacating the land of illegal occupants are deleted. These are bonafide expenses incurred for improving the land and making it fit for sale. ……”

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ITA No. 50&52/Agr/2025 submitted by the assessee speaks that A.O’s. response on assessee’s RTI application was that the letter issuing reference to DVO was not traceable. We take guidance from section 119(g) of the Bhartiya Sakshya Adhiniyam, 2023, which speaks that “evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it”. This provision is the replica of section 114(g) of the then existing The Indian Evidence Act, 1872. It is easily inferred that the reference for valuation for estimating fair market value in order to compute the capital gain on the land in dispute was to be made u/s. 55A only. Had the reference been made u/s. 55A, the same could be procured by the department in response to assessee’s RTI application. As the DVO’s report has also been submitted u/s. 142A only, hence, revenue’s claim that the reference was made u/s. 55A of the Act, is unacceptable. 16. That apart, in Dashrathbhai G.Patel (supra), the coordinate Ahmedabad bench of this tribunal has held that the jurisdictional defect in issuing firstly unlawful reference u/s. 142A and secondly, adopting F.M.V as per the valuation order passed under a wholly different section 55A is in gross contradiction of mandate was prima facie not curable. It was further held that the valuation report of the registered valuer cannot be demonstrated to be not worthy of acceptance. Similar view was also expressed by another Ahmedabad bench of this tribunal in Chandrakant R. Patel (supra). In Anil Malhotra (supra), and in Sumit Khurana (supra), also 12 | P a g e

ITA No. 50&52/Agr/2025 the Chandigarh and Delhi benches of this tribunal respectfully, have held that the F.M.V for the purpose of computing capital gain cannot be referred/valued u/s. 142A and the reference must be made u/s. 55A only. These decisions give strength to the submissions made by the ld AR. Ld CIT(A) has, thus, rightly relied on the valuation report submitted by the registered valuer, as against the DVO’s report. Due to incurable jurisdictional defect, ld DR’s submissions do not rescue the department there from. The aforesaid point No (i) is accordingly determined in negative against the appellant revenue and in favour of the respondent assessee. 17. As regards point No (ii), admittedly, the sale of assessee’s land could have materialized only if the land in question was clear from the illegal occupants as per the sale agreement with buyer M/s Maruti Suzuki India Ltd. Hence the expenses of Rs. 34,15,000/- paid as compensation to the illegal occupants were allowable expenses u/s 48 of the Act. Similarly, the expenses of Rs. 50,000/- incurred in the payment of fee to a lawyer engaged for this purpose are also allowable expenses. Ld CIT(A), has thus rightly allowed such expenditures u/s. 48 of the Act. The second point No (ii) is thus, determined in negative against the appellant revenue and in favour of the respondent assessee. Revenue’s appeal is thus, liable to be dismissed.

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ITA No. 50&52/Agr/2025 ITA 52/Agr/2025 18. This appeal has been preferred against the impugned order dated 25.11.2024 (14.11.2024 as per Form-36) passed by ld CIT(A), confirming the revised penalty of Rs. 1,50,00,000/- imposed u/s. 271(1)(c)/ 154 of the Act imposed vide, penalty order dated 30.03.2019 passed u/s. 271(1)(c)/154 of the Act. As the quantum addition has already been deleted, the penalty order does not survive. This revenue’s appeal against the deletion of penalty order, being consequential to the quantum addition, is also liable to be dismissed. 19. In the result, both the revenue appeals, ITA No. 50 & 52/Agr/2025, are dismissed. Order pronounced on 19.05.2026

Sd/- Sd/- (M BALAGANESH) (SUNIL KUMAR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19.05.2026 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, Agra

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