HARSHADKUMAR HARGOVANDAS PATEL,KALOL vs. THE ITO, WARD-4, MEHSANA

3.1 The dispute was with respect to the fair market value (FMV) of the land as on 01.04.1981. The assessee had adopted the value of Rs. 72,84,500/- based on a registered valuer’s report and claimed an indexed cost of acquisition of Rs. 6,20,63,940/-. However, the Assessing Officer, being dissatisfied with the valuer’s report, obtained sale instances of similar nearby lands from the Sub-Registrar’s Office for the year 1981 and determined the FMV at Rs. 28,05,287/-. In appeal, the CIT(A) observed that the valuer’s report was not based on any documentary evidence or sale instances which &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 3– were verifiable, but only on oral enquiries. The assessee’s valuer himself admitted that no written comparable sale instances were available and that the valuation was based on informal local discussions. The CIT(A) held that (such subjective valuation, which was not supported by any documentary proof, could not be relied upon, especially when the Assessing Officer had obtained direct evidence from the Sub-Registrar’s Office regarding actual sale instances of similar properties). The assessee’s argument that the Assessing Officer ought to have made a reference to the Departmental Valuation Officer (DVO) under section 55A of the Act was rejected. The CIT(A) held that section 55A uses the expression “may refer” and confers discretion on the Assessing Officer; where the Assessing Officer already possesses direct and cogent evidence in the form of registered sale deeds, there is no necessity for DVO reference. The case laws cited by the assessee were held to be distinguishable on facts. Accordingly, the CIT(A) upheld the AO’s valuation based on sale instances from the Sub-Registrar’s Office and dismissed the assessee’s appeal.

3.2 Further, the Assessing Officer made a disallowance of Rs. 13,00,000/- claimed by the assessee towards indexed cost of improvement and expenditure on transfer. The assessee had produced certain handwritten bills and notes to substantiate the claim. The Assessing Officer found that all the bills were written in the same handwriting, they were lacking in essential details such as PAN, TIN, or service tax numbers, and apparently were self- prepared. The assessee failed to furnish confirmations or income-tax details of the concerned parties and also did not produce them for verification. The CIT(A) thus held that the onus to prove the genuineness of such expenditure &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 4– lay upon the assessee, and having failed to do so, the disallowance made by the Assessing Officer was justified.

3.3 Further, while framing the assessment, the Assessing Officer made a disallowance of Rs. 3,05,400/- towards cost of improvement and expenditure claimed while computing Short-Term Capital Gain on another property sold for Rs. 50,00,000/-. The Assessing Officer noted that the assessee had produced handwritten bills to support the claim, but all were found to be in the same handwriting and pertained to a period prior to the date of acquisition of the property. The assessee failed to produce any confirmations or independent evidence. The CIT(A) held that since the assessee could not establish the genuineness of the claim, the Assessing Officer was justified in disallowing the same. Accordingly, Ground No. 6 was also dismissed.

Ground Number 1: CIT(Appeals) erred in confirming addition of Rs. 1,48,61,085/- being LTCG by rejecting valuation of Registered Valuer: 5. Before us, the Counsel for the assessee submitted that the learned CIT(A) has erred in confirming the addition of ₹1,48,61,085/- made by the Assessing Officer towards Long-Term Capital Gain by rejecting the valuation report of a registered valuer without making a mandatory reference to the Departmental Valuation Officer (DVO) under section 55A of the Act. It was submitted that the assessee had sold land during the relevant assessment year and, for the purpose of computing Long-Term Capital Gains, had adopted the Fair Market Value (FMV) as on 01.04.1981 at ₹250 per square meter based &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 5– on a detailed valuation report prepared by a Government-approved registered valuer. The said report, containing all relevant details, was furnished before the Assessing Officer and is placed at pages 61 to 76 of the paper book. Despite this, the Assessing Officer overlooked the valuation report and instead obtained certain sale instances from the Sub-Registrar’s office, Vadodara, and on the basis of one such instance, adopted the FMV as on 01.04.1981 at ₹11.30 per square meter, which is reflected at page 18 of the assessment order. The Counsel argued that the Assessing Officer, not being an expert in valuation matters, could not have substituted his own judgment for that of a qualified registered valuer without referring the matter to the DVO. It was contended that section 55A of the Act provides a clear mechanism for the Assessing Officer to make a reference to the Valuation Officer if he is not satisfied with the value adopted by the assessee. However, in the present case, the Assessing Officer did not invoke this provision and instead determined the FMV arbitrarily on the basis of a single sale instance, without establishing its comparability or relevance. It was therefore submitted that in the absence of a reference to the DVO, the Assessing Officer’s action in adopting a lower FMV is contrary to the provisions of law and unsustainable in view of the decision of the Hon’ble Delhi High Court in Ved Kumari Subhash Chander v. ITO [(2019) 109 taxmann.com 542 (Delhi)], wherein it was held that the Assessing Officer cannot disregard a registered valuer’s report without making a reference to the DVO. Accordingly, the Counsel urged that the addition made on account of alleged understatement of FMV deserves to be deleted on this short legal ground itself. With regard to the claim of cost of improvement of ₹12,50,000/-, the Counsel submitted that the assessee had furnished complete details and &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 6– supporting bills before the Assessing Officer, which are recorded at pages 13 to 16 of the assessment order and at pages 173 to 181 of the paper book. The bills contained the names and addresses of the contractors and workers who carried out the improvement work. However, the Assessing Officer, without issuing any notices under section 133(6) or summons under section 131 to verify the genuineness of the transactions, summarily disallowed the entire claim merely on the basis of suspicion. The Counsel for the assessee submitted that such an approach is contrary to the settled principle that suspicion, however strong, cannot take the place of evidence. The Counsel pointed out that no adverse material was brought on record by the Assessing Officer to doubt the veracity of the evidence produced by the assessee. Therefore, the disallowance of cost of improvement is wholly unjustified and the same ought to be allowed. As regards the claim of transfer expenses of ₹50,000/-, the Counsel drew attention to the details furnished before the Assessing Officer as appearing at page 14 of the assessment order and the confirmation letter of the concerned broker placed at page 182 of the paper book. It was argued that despite having all relevant details including the name, address, and confirmation of the broker, the Assessing Officer made no attempt to verify the same. Neither any notice under section 133(6) nor any summons under section 131 was issued to cross-verify the transaction. Instead, the Assessing Officer disallowed the expenditure merely on the basis of conjecture and surmise. The Counsel submitted that both the Assessing Officer and the CIT(A) failed to appreciate that the expenditure was supported by records and confirmations and that the disallowance made in the absence of any contrary evidence is unsustainable in law. In summary, the Counsel for the assessee submitted that the addition made by the &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 7– Assessing Officer and confirmed by the CIT(A) suffers from serious legal and factual infirmities. The Assessing Officer, being not competent to undertake valuation on his own, ought to have referred the matter to the DVO before rejecting the registered valuer’s report. Similarly, the disallowances of cost of improvement and transfer expenses were made without any inquiry or verification despite the availability of supporting evidence on record. It was thus pleaded that the impugned addition of ₹1,48,61,085/- deserves to be deleted in its entirety and appropriate relief be granted to the assessee in the interest of justice.

&125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 9– 8. Since the main issue relating to FMV is being restored to the file of the Assessing Officer for fresh adjudication, we also consider it appropriate to restore the issues relating to the assessee’s claim of cost of improvement and expenditure on transfer of sale of aforesaid property to the Assessing Officer for reconsideration. The Assessing Officer shall examine these claims afresh in accordance with law after affording reasonable opportunity of hearing to the assessee. The assessee shall be at liberty to furnish all necessary documentary evidence, including bills, vouchers, confirmations, or any other material in support of its claim of expenditure towards cost of improvement and transfer expenses.

Ground Number 2: CIT(Appeals) erred in confirming addition of Rs. 3,05,400/- being short term capital gains: 11. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the Assessing Officer noticed from the Individual Transaction Statement (ITS) that the assessee, along with two co- owners, had sold a non-agricultural land situated at Chhatral, Block No. 1165, &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 10– admeasuring 3345 sq. meters, for a total sale consideration of ₹50,00,000/- vide sale deed dated 23.07.2012. The property had been purchased earlier on 17.05.2011 for ₹21,00,000/- along with two others, and additional amounts of ₹25,000/- and ₹21,300/- were paid towards stamp duty and registration charges respectively. Thus, the total cost of acquisition was taken at ₹21,46,300/-. Based on these figures, the Assessing Officer worked out the total short-term capital gain at ₹28,53,700/-, out of which the assessee’s share, being one-third, came to ₹9,51,234/-. The Assessing Officer issued a show cause notice asking the assessee to explain why this amount should not be added to his total income. In response, the assessee filed a return of income on 07.12.2018 declaring a short-term capital gain of ₹6,45,834/- and claimed deduction of ₹3,05,400/- towards cost of improvement and transfer expenses. On examination of the evidence furnished, the Assessing Officer found that the bills submitted by the assessee were all handwritten, appeared to be in the same handwriting, and they apparently lacked necessary details such as PAN, TIN, or service tax registration of the concerned parties. The bills also did not mention the vehicle numbers of the JCBs and tractors allegedly used in the land development work, which raised doubts about their genuineness. Further, the Assessing Officer observed that the bills produced by the assessee pertained to the period between 02.02.2009 and 11.05.2010, whereas the property in question had been purchased only on 17.05.2011, clearly showing that the expenses could not relate to the said property. Despite repeated notices under sections 142(1) and 133(6), the assessee failed to furnish confirmations, income-tax details, or bank statements of the parties to whom payments were allegedly made. The assessee also did not produce any of those parties for verification. The Assessing Officer, therefore, held &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 11– that the bills were self-serving and fabricated documents created merely to inflate the cost of improvement and reduce taxable gain. The explanation of the assessee that the expenses were incurred out of agricultural income was also rejected as no documentary proof of such agricultural income was submitted. The Assessing Officer, after giving ample opportunities to the assessee, held that the claim of improvement expenses was bogus. Accordingly, the short-term capital gain was computed at ₹9,51,234/-, and since the assessee had declared only ₹6,45,834/-, the difference of ₹3,05,400/- was added to the total income of the assessee. Penalty proceedings under sections 271(1)(c) and 271F of the Income Tax Act were also initiated separately.

&125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 12– 13. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

&125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 14– 16. We have heard the rival contentions and perused the material on record. The issue under consideration relates to the addition of ₹3,05,400/- made by the Assessing Officer in respect of Short-Term Capital Gain by disallowing the assessee’s claim of expenditure towards cost of improvement and transfer expenses. The Assessing Officer rejected the claim mainly on the ground that the bills furnished by the assessee were handwritten, lacked necessary details, and pertained to a period prior to the purchase of the property. The CIT(Appeals) confirmed the addition on the basis that the assessee failed to substantiate the genuineness of the expenses and could not produce verifiable evidence to prove that the improvement work was actually carried out on the said land. Before us, the assessee has contended that all relevant details, including the names and addresses of the parties who allegedly carried out the improvement work, were placed on record, but no inquiry or verification was conducted by the Assessing Officer. It was submitted that the Assessing Officer did not issue any notice under section 133(6) or summon the parties under section 131(1) of the Act for verification. The addition, therefore, was made merely on suspicion without any concrete evidence or cross-verification. Having considered these submissions and the material available on record, we find that the authorities below have not made any independent verification of the evidence furnished by the assessee. The Assessing Officer, instead of examining the genuineness of the claim through necessary enquiries, proceeded to make the addition solely based on assumptions. In our considered view, the matter requires fresh examination to ensure that a proper and fair verification is made in accordance with law. Therefore, in the interest of justice, we set aside the orders of the lower authorities on this issue and restore the matter to the file of the Assessing &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 15– Officer for de-novo consideration. The Assessing Officer is directed to conduct a proper inquiry into the assessee’s claim of improvement and transfer expenses, including verification of the persons whose names and details are appearing in the bills, by issuing necessary notices or summons and allowing the assessee an effective opportunity to substantiate the claim. The assessee shall be at liberty to file all relevant supporting documents, confirmations, and any other material evidence to substantiate the genuineness of the expenditure claimed. The Assessing Officer shall then decide the issue afresh after examining all materials on record and in accordance with law.

Now we shall come to assessee’s appeal in (A.Y. 2013-14) 20. The assessee has raised the following grounds of appeal:

“1. The ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi grossly erred in law and on facts in confirming addition of Rs.5,85,632/- u/s. 50C of the Income Tax Act, made by Income Tax Officer, Ward: 4, Mehsana vide &125/Ahd/2023 Harshadkumar Hargovandas Patel vs. ITO Asst. Year –2013-14 - 16– order u/s. 154 and that too without referring valuation to the District Valuation Officer (DVO).

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 15/10/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��थ� / The Respondent. 2. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,