CHANDRASHEKHAR VISHNU PARANJPE (HUF),PUNE vs. ITO WARD 3(1), PUNE

Before the Ld. CIT(A) / NFAC the assessee challenged the addition made by the Assessing Officer on the ground that the Assessing Officer did not follow the principles of natural justice. Further, the Assessing Officer did not refer the matter to the DVO. It was argued that without considering the various submissions and evidences filed by the assessee from time to time, he replaced the fair market value as on 01.04.1981 at Rs.80/- per square meter as against the fair market value @ Rs.415/- per square meter adopted by the assessee as per the report of a registered valuer.

Violation of principle of natural justice (procedural lapses) - The ÇIT(A) has erred and replaced the FMV without any notice or opportunity to the appellant to rebut or cross-examine third-party data information submitted by different parties to the AO u/s 133(6) of the Act which is bas in law and not justified.

CIT(A) misinterpreted the scope of Section 55A and AO's duties, affecting substantial rights of the appellant.

The additions made by CIT(A) were made solely based on the AO's observations without appreciating the facts of the case, the true nature of the transactions, and the surrounding circumstances.

The Ld. Counsel for the assessee at the outset referring to various decisions submitted that when the assessee had submitted a report of the registered valuer and the Assessing Officer did not accept the same, he should have referred the matter to the DVO even if the assessee has not made any specific request to refer the matter to the DVO.

Referring to the following decisions he submitted that once the assessee produces a valuer’s report, the Assessing Officer cannot substitute his own valuation without obtaining the opinion of the competent valuation officer and failure to do so vitiates the assessment: i) CIT vs. Daulal Mohta (HUF) (2014) 360 ITR 680 (Bom) ii) Adarsh Kumar Agrawal vs. ACIT 66 taxmann.com 44 (ITAT-Lucknow)

Referring to the following decisions, he submitted that it is mandatory for the Assessing Officer to refer to the DVO before applying the provisions of section 50C of the Act: i) Hari Om Garg vs. ITO vide ii) ITO vs. Aastha Goel vide iii) Dr. Sanjay Chobey HUF vs. ACIT vide iv) Ajmal Fragnances & Fashions (P) Ltd. Vs. ACIT (2009) 34 SOT 57 (Mumbai) v) Sunil Kumar Agarwal vs. CIT 372 ITR 83 vi) Pune Bench of the Tribunal in the case of K.K. Nag Ltd vs. Addl.CIT vii) Anil Kumar Jain vs. ITO (2013) 7 Taxcorp (A.T.) 32286 (Delhi)

Referring to the decision of Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal vs. CIT reported in 47 taxmann.com 158, he submitted that the Hon’ble High Court in the said decision has held that even where the assessee does not specifically requests, the Assessing Officer has a duty to act fairly and refer the matter to the DVO to avoid miscarriage of justice.

Referring to the following decisions, he submitted that the ready-reckoner or circle rates fixed for stamp duty purposes are administrative instruments designed for revenue collection and they do not represent the actual market value of individuals properties:

Referring to the decision of the Pune Bench of the Tribunal in the case of Subhash Supnekar vs. ITO vide and he submitted that the Tribunal in the said decision has held that information obtained from the Joint Sub-Registrar, Haveli for estimating 1981 value cannot be used to substitute fair market value determined by an approved valuer. He accordingly submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to refer the matter to the DVO and determine the long term capital gain.

The Ld. DR on the other hand strongly supported the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that since the Assessing Officer after obtaining information from the District Sub-Registrar and other co-owners has adopted the fair market value as on 01.04.1981 at Rs.80/-, the same should be upheld and the grounds raised by the assessee be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has received an amount of Rs.3,10,00,000/- out of total sale consideration of Rs.9,10,73,028/- towards his share. After considering the cost of acquisition as on 01.04.1981 at Rs.14,83,000/- which gives an effective rate of Rs.415/- per square meter, the assessee computed the indexed cost of acquisition at Rs.1,51,85,920/- and declared the long term capital gain at Rs.40,40,671/-. We find the Assessing Officer, after obtaining the report from the DSR and after considering the value adopted by the other co- owners, adopted the cost of acquisition as on 01.04.1981 @ Rs.80/- per square meter and thus he determined the cost of acquisition of the land as on 01.04.1981 at Rs.2,85,600/-. Thus, according to the Assessing Officer, the indexed cost of acquisition was Rs.29,24,500/-. After deducting the same from the net sale consideration of Rs.2,89,00,000/-, the Assessing Officer determined the long term capital gain in the hands of the assessee at Rs.76,53,322/-. Considering the capital gain already declared by the assessee at Rs.40,40,671/-, the Assessing Officer made addition of Rs.76,53,322/-. We find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that without referring the matter to the DVO, the Assessing Officer should not have made the addition and the Ld. CIT(A) / NFAC should not have sustained the long term capital gain determined by the Assessing Officer.

We find some force in the above arguments of the Ld. Counsel for the assessee. We find under somewhat identical circumstances the Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal vs. CIT (supra) has held that even where the assessee does not specifically requests, the Assessing Officer has a duty to act fairly and refer the matter to the DVO to avoid miscarriage of justice. The relevant observations of the Hon’ble High Court read as under: “For the aforesaid reasons, we are of the opinion that the valuation by the departmental valuation officer, contemplated under Section 50C, is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub Registrar for the purpose of stamp duty. The legislature has taken care to provide adequate machinery to give a fair treatment to the citizen/taxpayer. There is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. Even in a case where no such prayer is made by the learned advocate representing the assessee, who may not have been properly instructed in law, the assessing officer, discharging a quasi judicial function, has the bounden duty to act fairly and to give a fair treatment by giving him an option to follow the course provided by law. For the aforesaid reasons, the order under challenge is set.”

We find the Delhi Bench of the Tribunal in the case of ITO vs. Aastha Goel (supra) has held that when the assessee during the course of assessment proceedings has filed the valuation report from a registered valuer, the Assessing Officer should have referred the matter to the DVO before making addition on the basis of difference in the purchase price and the value adopted by the stamp valuation authorities. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that it is mandatory for the Assessing Officer to refer the matter to the DVO before applying the provisions of section 50C of the Act where the assessee has filed a copy of valuation done by a registered valuer.

In view of the above discussion and respectfully following the decisions cited (supra), we deem it proper to restore the issue to the file of the Assessing Officer with a direction to refer the matter to the DVO for determination of the fair market value of the property as on 01.04.1981 and thereafter determine the long term capital gain in the hands of the assessee. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.