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Facts
The appellant, an individual, sold an inherited property and filed a return of income. The Assessing Officer (AO) completed the assessment under Section 143(3) and made an addition under the head capital gains. The AO rejected the appellant's adopted fair market value (FMV) as of 01.04.1981 and the claimed cost of improvement, using a backward calculation for FMV and reducing the cost of improvement. The CIT(A) confirmed the AO's action.
Held
The Income Tax Appellate Tribunal (ITAT) held that the AO's methodology for determining the fair market value as of 01.04.1981 was erroneous and not in accordance with law. The Tribunal observed that the AO should have referred the matter to the Departmental Valuation Officer (DVO) if disputing the assessee's declared FMV, which was not done. It also held that the AO should have accepted the cost of improvement shown by the appellant in the absence of any contrary evidence. Therefore, the ITAT directed the AO to delete the addition.
Key Issues
Whether the Assessing Officer was justified in rejecting the assessee's adopted fair market value and cost of improvement for capital gains calculation without referring to the DVO or providing contrary evidence.
Sections Cited
143(3), 54EC
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Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
Asst.Year 2015-2016 Sri.Suryanarayanan The Income Tax Officer Ramchandran, 22/47D MNRA v. Ward - 3 No.83, Nandanam, 7th Cross, Aluva. Pipeline Road, Changampuzha Nagar PO Cochin – 682 033. PAN : AITPR9384F. (Appellant) (Respondent) Appellant by : Sri.K.Sankaranarayanan, CA Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing : 13.03.2025 Pronouncement : 28.03.2025 O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income- tax (Appeals) [“CIT(A)” for short] dated 07.01.2025 for the assessment years 2015-2016.
The brief facts of the case are that the appellant is an individual, deriving income from salary, capital gain and income from other sources. The return of income for the assessment year 2015-2016 was filed on 18th August, 2015 disclosing income of Rs.3,80,670. Against the said return of income, the assessment was completed by the Assessing Officer (“the AO” hereinafter) vide order dated 5th December, 2017 passed u/s.143(3) of the Act at a total income of
The brief factual background of the case is that during the previous year relevant to the assessment year under consideration, the appellant sold a property inherited from his father situated at 40/905, Karithala Deson, Kanayannur Taluk, Ernakulam (Survey No.686). The said property was sold for a total consideration of Rs.2,80,00,000. While computing capital gains, the appellant had adopted fair market value of the property as on 01.04.1981 at Rs.4,89,900 and the cost of improvement at Rs.2 lakh in the financial year 1990-1991. However, the AO rejecting the above method, had adopted the fair market value of the property at Rs.2,12,108 by adopting backward calculation based on the value as per the sale deed. The Assessing Officer adopted the cost of improvement at Rs.1,50,000 as against Rs.2 lakh claimed by the assessee, in the absence of proof. Based on the above methodology, the appellant’s share worked out at Rs.16,00,000 after allowing sec.54EC of Rs.50 lakh and balance capital gain of Rs.10,71,015 was brought to tax.
Being aggrieved by the above, the appellant filed an appeal before the CIT(A) contending that the method of working adopted while computing the capital gains is unfair. However, the CIT(A) confirmed the action of the AO by holding that in the absence of valuation report from the registered Valuer in respect of cost of acquisition as on 01.04.1981, the AO was justified in adopting the SR value.
. Sri.Suryanarayanan Ramachandran. 5. Being aggrieved, the appellant is in appeal before me in the present appeal. It is submitted that the lower authorities were not justified in adopting the value provided by the Sub-Registrar as per document No.386/1981 as the location of the property is not clear and whereas the property sold by the appellant is residential area.
The learned Sr.DR placing reliance on the orders of the lower authorities and submits that no interference is called for therein.
I heard the rival submissions and perused the material available on record. The issue in the present case is adoption of fair market value as on 01.04.1981 as well as the cost of improvement done in the year 1981. As regards the adoption of fair market value as on 01.04.1981 is concerned, the methodology adopted by the AO is erroneous and strange to the law. When the AO disputes the cost of fair market value adopted by the appellant, the only option available to the AO is to refer the matter to the DVO for estimation of fair market value as on 01.04.1981, which the AO had failed to do so. Further, there is no material brought on by the AO to show that the fair market value adopted by the assessee is wrong. Similarly, with regard to the cost of improvement is concerned, in the absence of any evidence on record, the AO should have accepted the cost of improvement as shown by the appellant. Therefore, in the facts and circumstance of the case, I am of the considered opinion that the CIT(A) was not justified in confirming the addition made by the AO. I, therefore, direct the AO to delete the addition.
Order pronounced on this 28th day of March, 2025.