LALITA TREHAN,NEW DELHI vs. DCIT, CIRCLE INT. TAX 3(1)(1), NEW DELHI

(i) Long Term Capital Gain (Rs.23,63,00,000 – Rs.14,32,26,825/-):- Rs.9,30,73,175/- (ii) Less: Deduction u/s 54EC (NHAI Bonds):- (Rs.50,00,000/-) Long Term Capital gain Rs.8,80,73,175/- 7. Against the above draft assessment order, the assessee raised objections before the DRP. The DRP considered the findings of the AO in the draft assessment order and the submissions of the assessee and largely agreed with the AO for the rejection of the cost of construction and its basis adopted by the assessee. Before the ld. DRP, the assessee submitted following table of circle rates of her locality to prove her case as under:-

Year Residential Commercial Institutional 2000-2001 6,500 8,000 _ 2001-2002 6,500 8,000 _ 2005-2006 _ _ 12,000 20006-2007 15,000 27,000 15,000 2007-2008 16,000 34,000 19,000 2007--2008 Revised _ _ 20,900 2008-2009 Revised _ _ 22,000 2009-2010 _ _ 24,000 2010-2011 _ _ 26,000 7.1. The ld. DRP noted from the above table that between 2000-01 and 2006-07, the circle rate of residential land more than doubled and for the commercial land more than tripled within just five years. The ld. DRP compared between these aforesaid rates for the FY 2006-07 for the reason that for the first time circle rates of all the three types of property appears. The ld. DRP noted that the AO had applied the circle rates of 2010. The ld. DRP was of the view that better comparison would be to compare with the rates of 2006-07, since, the circle rates of 2000-01 are not available and the only option was to estimate on the basis of most reliable and closet data available. Following this principle, the ld. DRP was of the opinion that if the same percentage of increase in circle rates of residential and commercial property between 2000-01 and 2006-07 is applied to the institutional land then the rate would be somewhere between Rs.4500 and Rs.6450. The Ld. DRP observed that though this was not perfect method of calculation but under the circumstances, it is the one closest to the year under reference and directed the AO to recalculate the per sq. yd. cost taking guidance from the logic given as above. Further, the ld. DRP also took note of the fact that in respect of two sale deeds submitted by the assessee as an additional evidence, no remand report could be called due to the paucity of time and the AO may examine the same at his end also. In coming to the above conclusion, the Ld. DRP in para-7 of its order also noted that the rate of Rs.7,250/- taken by the approved valuer has been rejected by the AO as well as the assessee on the ground that the AO found the rates over quoted and the assessee found the rate under quoted. Accordingly, the ld. DRP held that since valuation report are unacceptable to both and therefore it considered the rate submitted by the assessee as reproduced in para-5 of its order. However, the ld. DRP also did not refer the matter to the Valuation Officer for ascertaining the valuation of the property being sold during the year.

7.2. Following the above directions, the AO determined the average rate i.e. Rs.5472 per sq. yd. for the calculation of cost of acquisition of institutional land rate as on 01.04.2001. The findings of the AO in this regard is discussed in para-8 of the Final Assessment Order, which is reproduced as under:-

“8. The Hon'ble DRP has directed to recalculate the per sq yard cost on the basis of the logic given by the Hon'ble DRP. The Hon'ble DRP has stated that "Since the circle rates of 2000-01 are not available, the only option would be to estimate on the basis of most reliable and closes data available." Following the principle, the percentage increase of circle rates between 2001-02 and 2006-07, for the commercial land is 237.5% and for the residential land is 130.77%. The circle rate of 2006-07 for the institutional land is Rs. 15,000/- per square yard. If we apply the above principle here, then the circle rate as on 01.04.2001 will be in between Rs.4444.44/- and Rs.6500/-. The average rate i.e. Rs. 5,472/-(per sq yards) is being taken for the calculation of cost of acquisition of institutional land rate as on 01.04.2001.” 7.3. The AO also did not accept the two sale deeds for the reasons that the same were not comparable. The findings of the AO in para no.8.1 of the final assessment order is reproduced as under:-

“8.1 Further, as directed by the Hon'ble DRP, the two sale deeds submitted by the assessee as additional evidence has been examined. The assessee has submitted sale deed of educational institute lands purchased by Sh. Vinod Kumar Dua on 13.04.2006 and by Sukhjeet Kaur Mann on 20.09.2004 as additional evidence. The Hon'ble DRP has given its view on the same wherein it is stated that the land of Sh. Vinod Kumar Dua is in the same locality but the it is 1674 sq yards which is much less than 7000 sq yards. In view of the fact that rate of property is inversely proportional to the size of property, the above institutional land purchased by Sh. Vinod Kumar Dua is not comparable with the assessee's land. Similarly, the of Miss. Mann is located in Phase-3 which is different from the locality of the assessee and it is less than 1000 sq yards which is much smaller than the land of the assessee and hence is not comparable as mentioned above. The view of the Hon'ble DRP is logical and hence the same is being applied in this case.”

7.4. As stated above, in the foregoing paragraphs, the AO had disallowed the entire claim of cost of construction/improvement and land development charges amounting to Rs.91,09,820/- and Rs.21,31,493/- on which indexed cost amounting to Rs.3,10,42,524/- was claimed.

7.5. Based on the above discussion, the AO determined the capital gains of the assessee as under:-

Sl. Particulars Calculation FY in CII for CII Indexed COA FY No. which the FY in 2020- 2020-2021 (in payment which 21 Rs.) made/ payment Value as was per made valuation report 1 Land 7502 Sq. Yd. X 1990-91 100 301 12,35,63,341/- measuring Rs.5472 per Sq. /2001-02 Yd. = Rs.4,10,50,944/-

2. Cost of 13236.40 Sq. Ft. 1997-98 100 301 2,24,22,832/- Construction X Rs.562.80 Per /2001-02 Sq. Ft. =Rs.74,49,446/- 3 Cost of 13236.40 Sq. Ft. FY 2003- 109 301 Disallowed by construction x Rs.688.24 Per 04 the AO NIL / Sq. Ft.= improvement Rs.91,09,820/-

4. Cost of Land 60899.80 Sq. Ft. FY 2003- 109 301 Disallowed by Development X Rs.35 Per Sq, 04 the AO NIL ft. = Rs.21,31,493/- Grand Total 14,59,86,173/- The income of the assessee is recomputed as under:- Total Sale consideration Rs.23,63,00,000/- 50C value of property:- Rs.23,12,34,240/- Indexed cost of acquisition Rs.14,59,86,173/-

(i) Long Term Capital Gain (Rs.23,63,00,000 – Rs.14,59,86,173/-)= Rs.9,03,13,827/- (Taxed @ 20% on Long Term Capital Gain) (ii) Less : Deduction u/s 54EC (NHAI Bonds):-(Rs.50,00,000/-) Long Term Capital gain Rs.8,53,13,827/-

i. Sushiladevi R Somani vs. ACIT in A.Y. 2012-13, order dated 26.08.2022 (Page No.150 to 154 of the Paper book) ii. Ved Kumari Subhash Chander vs ITO in A.Y. 2011-12, order dated 26.08.2019 (Page No.155 to 160 of the Paper book) iii. Harivadanbhai Manganlal Patel vs ITO in order dated 08.05.2023 (Page No.161 to 167 of the Paper book) iv. DCIT vs Ajanata Tubes Ltd. In order dated 05.09.2019 (Page No.168 to 174 of the Paper book)

9.1. In this regard, the ld. AR drew our attention to letter dated 26.12.2022, placed at page no.98 of the Paper book, in which, it was submitted that if needed, the AO may refer the matter to the valuation sale, who could confirm that the land rate taken by the assessee as on 01.04.2001 was very reasonable and that the assessee’s valuer had taken the land value on a very conservative basis at Rs.7,250/-. The said letter of the assessee is reproduced as under:-

9.2. Further, in this regard, the AR referred to the valuation report dated 05.12.2019 of M/s Sehgal and Associates, government registered valuers, on the basis of which, the cost of acquisition was worked out by the assessee while computing her capital gain. The said valuation report appearing on page no.35 to 37 of the paper book is reproduced as under:-

9.3. The ld. AR strongly relied upon the decision of the Co- ordinate Bench in the case of Ved Kumari Subhash Chandra (supra) and drew our attention towards para-5 of the said order, wherein, it has been held that the AO was not right in discarding the report of the registered valuer without having made a reference to the DVO and therefore the rate adopted by the AO for the purpose of computation of fair market value cannot be upheld.

Further, the assessee was also requested to clarify the date on which the valuation report dated 05.12.2019 was placed before the AO during the assessment proceedings. In this regard, the ld. Counsel for the assessee submitted that the assessee had made an application for lower deduction of tax at source u/s 197 of the Act before the AO on 16.01.2021. It was further submitted that during these proceedings, the valuation report was filed before the AO as per letter dated 12.02.2021. The submission dated 08.08.2024 of the ld. Counsel is reproduced as under:-

“The Hon'ble Tribunal has sought for the clarification as to how in the Second Ground of Appeal the figures of Rs. 6, 18,38,946/- was arrived at evidencing the Fair Market Value as at 01.04.2001. It is submitted that the assesses valuer, whose report has been placed on record at Page No. 28 to 37 has valued the property as at 01.04.2001, which was constructed prior to 01.04.2001, as under: -

Value of Construction 13,236.40 Sq. = Rs. 74,49,445.92 ft. @ 562.8 Sq. ft As on 31.03.2001 (Page No. 36) Value of Land = Rs. 7502 Sq. Yard @ 7,250 / Sq. Yards 5,43,89,500.00 (Page No. 37)

Total = Rs. 6,18,38,945.92

Rounded off = Rs. 6,18,38,946/-

6. It was also argued that the Tribunal in the case of Ved Kumari Subhash Chander vs. ITO Ward 11(1), Gurgaon in ITA

No. 2041/Del/2016 A. Y. 2011-12 dated 26.08.2019 in Para 5.2 has relied upon two high courts judgements in arriving at the decision that the A.O. was not right in discarding the report of a registered valuer without having made a reference to the DVO (Refer Page No. 159/160).

5.2 In the case of CWT Vs Raghunath Singh Thakur (304 ITR 268 HP) the Hon'ble High Court of Himachal Pradesh held that if the Assessing Officer does not agree with the report regarding the valuer relied upon by the assessee, rejection of such valuers report without making reference to the valuation, order is invalid and the report of the registered valuer shall be accepted.

5.4 The Hon'ble Bombay High Court in the case of C.I.T. vs. Raman Kumar Suri reported in (2013) 255 CTR 107 had held that the valuation done by the registered valuer is with regard to a specific property and the same takes into account its various advantages and disadvantages, all of which would influence the valuation of property. The Hon'ble Bombay High Court went on to hold that the valuation done by an empanelled registered valuer of the Income Tax Department would certainly take precedence over other indicators.”

The AO noted that in the valuation report submitted by the assessee, the rate of land had been taken at Rs.5800 per sq. mtr., whereas, average rate of land as per the various sale instances given in the Annexure-A of the valuation report was only Rs.1,160/- per sq. mtr. and the assessee had increased the rate of land by five times. The AO issued a show cause notice and after examining the submissions of the assessee, determined the fair market value of the land as on 01.04.1981 at Rs.1,160 per sq. mtr. as against Rs.5800 per sq. mtr. adopted by the assessee. The AO also noted that the assessee had adopted the cost of construction at Rs.1800 per sq. mtr. whereas, the rate fixed by Ahmedabad Urban Development Authority was Rs.1000 per sq. mtr. By adopting the said rates, the AO recomputed the Capital Gains of the assessee at Rs.1,61,81,888/-. Aggrieved with this order, the assessee filed an appeal before the Ld. CIT(A). The CIT(A) directed the AO to refer the valuation of the property to the DVO for ascertaining correct fair market value as on 01.04.1981, which was done by the AO. However, the valuation officer at Ahmedabad reported that the property in question was inspected along with the assessee but he noted that the property was non-existent on the date of inspection as the purchaser had dismantled the old construction and new apartments were being constructed. He, therefore, expressed his inability to carry out the valuation of the property as there was no existing structure, which could be measured for the purpose of arriving at the fair market value of the property. However, the ld. CIT(A) referring to actual sale deeds, wherein, the sale price of the land in the area was around Rs.1160 per sq. mtr. held the action of the AO to be justified in estimating the fair market value as on 01.04.1981 at Rs.1160 per sq. mtr. Aggrieved with this order, the assessee filed an appeal before the Tribunal. The Tribunal in paras-5 to 6, set-aside the order of the ld. CIT(A) and directed the AO to recompute the fair market value of the land as on 01.04.1981 by taking into account the rate as adopted by the registered valuer. The said finding of the Tribunal is as under:-

“5. We have heard the rival submissions and have also perused the material available on record. It is the contention of the assessee that the lower authorities have erred in overriding the report of the registered valuer without supporting evidence and, therefore, the same is bad in law. It is also the contention of the assessee that the Assessing Officer should have referred the matter to the DVO if he was not in agreement with the valuation as computed by the registered valuer and that in absence of any evidence on record, the report of the registered valuer should have been accepted with regard to fair market value as on 1.4.1981 for the purpose of computing the capital gains. It is seen that the Assessing Officer while rejecting the registered valuer's estimate at Rs. 5800/- per sq mtr has noted that the average rate at which the sales deeds were being executed was Rs. 1160/- per sq mtr. However, it is our considered opinion that valuation done by the empanelled registered valuer of the Income Tax Department would certainly take precedence over a value which the Assessing Officer might adopt on his own without making a reference to the DVO. The fact of the matter remains that the Assessing Officer, during the course of assessment proceedings, did not make any reference to the DVO even though he chose not to accept the rate adopted by the registered valuer. Therefore, in our considered opinion, the Assessing Officer exceeded the powers entrusted to him in this regard by undertaking to compute the fair market value on his own without being supported by the expert knowledge of the DVO. The law is fairly settled in this regard and coordinate benches of the Tribunal have time and again held that where the assessee had submitted valuation report of a registered valuer and the matter was not referred by the Assessing Officer to the DVO, the Assessing Officer is bound to accept the report of the registered valuer regarding the market value of the land as claimed by the assessee. We take support from the order of ITAT Chandigarh Bench in the case of Barjidner Singh Bhatti v. ITO in[IT Appeal No.1101 (Chd.) of 2014, dated 15-7-2015]wherein vide order dated 15.7.2015, the Bench had ruled in favour of the assessee by holding that if the Assessing Officer was not satisfied with the report of the registered valuer, he should have made a reference to the DVO and in absence of such a reference, the Assessing Officer should not have made his own calculation for the purpose of computation of capital gains. Reliance is also placed on the order of the ITAT, Lucknow Bench in the case of Adarsh Kumar Agrawal v. ACIT in [IT Appeal No.66 (LKW) of 2014, dated 23-9-2013]wherein vide order dated 23.03.2014, it was held that where the assessee had submitted the valuation report of the registered valuer and the matter was not referred by the Assessing Officer to the DVO, the Assessing Officer has to accept the report of the registered valuer regarding the fair market value of the land as claimed by the assessee. ITAT Cochin Bench in the case of Mrs. Susamma Paulose v. JCIT reported in 79 TTJ 573 (Coch.) on identical facts held as under:

". . . . .A registered valuer is competent to value properties as per the provisions of the IT Act and Rules made there under. The AO is not justified in brushing aside the report of the registered valuer without pointing out any specific reason for that. The AO did not have any materials with him to rebut the valuation worked out by the registered valuer. The AO was rejecting the report of the registered valuer with a stroke of pen as if the law does not recognise the valuation made by a registered valuer. The method followed by the AO is quite unlawful and arbitrary. The report of a registered valuer is a valid piece of evidence in deciding matters of valuation. Such report can be modified or questioned or rebutted by the AO only in the light of reliable materials available with him. In the present case, the AO himself has not referred the matter to valuation. In the facts and circumstances of the case, the AO as well as the CIT(A) have erred in coming to their conclusions regarding the valuation of the property as on 1st April, 1981. Fair market value of the land as on 1st April, 1981, estimated by a registered valuer being based on sound factual basis and the phenomenal development in that area could not be rejected by the AO without assigning any specific reasons." 5.1 Similarly, in the case of Pyare Mohan Mathur HUF v. ITO (in vide order dated 21/04/2011/Pyare Mohan Mathur HUF v. ITO [2011] 12 taxmann.com 170/ 46 SOT 315 (Agra)) the Agra Bench of the ITAT has held that in view of the provision of section 55A once the assessee has submitted the necessary evidence by way of the valuation report made by the registered valuer, the onus gets shifted on the AO to contradict the report of the registered valuer. The registered valuation officer is a technical expert and the opinion of an expert cannot be thrown out without bringing any material to the contrary on record. In case the AO was not agreeable with the report of the registered valuer, he was duty bound to refer the matter to the DVO for determining the fair market value of the land as on which he failed to do so. The tribunal held that the revenue has not discharged the onus but merely rejected the fair market value taken by the assessee. It set aside the order of the CIT (A) and directed the AO to recompute the capital gain after taking the fair market value of the land as on 1/4/1981, as claimed by the assessee. Fair market value of the land as on 1 /4/1981 estimated by the registered valuer being based on sound factual basis and the phenomenal development in that area could not be rejected by the AO without assigning any specific reasons. 5.2 In the case of CWT v. Raghunath Singh Thakur (304 ITR 268 HP) the Hon'ble High Court of Himachal Pradesh held that if the Assessing Officer does not agree with the report regarding the valuer relied upon by the assessee, rejection of such valuer's report without making reference to the valuation, order is invalid and the report of the registered valuer shall be accepted. 5.4 The Hon'ble Bombay High Court in the case of C.I.T. v. Raman Kumar Suri reported in [2013] 31 taxmann.com 122/255 CTR 107/213 Taxman 214 had held that the valuation done by the registered valuer is with regard to a specific property and the same takes into account its various advantages and disadvantages, all of which would influence the valuation of property. The Hon'ble Bombay High Court went on to hold that the valuation done by an empanelled registered valuer of the Income Tax Department would certainly take precedence over other indicators. 5.5 Therefore, respectfully following the aforesaid juridical precedents, we have no option but to accept the assessee's contention that the Assessing Officer was not right in discarding the report of the registered valuer without having made a reference to the DVO and, therefore, the rate adopted by the Assessing Officer for the purpose of computation of fair market value cannot be upheld. Accordingly, we set aside the order of the Ld. CIT (A) and direct the Assessing Officer to re-compute the fair market value of the land as on 1.4.1981 by taking into account the rate as adopted by the registered valuer.

The assessee challenged the above action of the Ld. CIT(A) with respect to the dispute relating to determination of the fair market value of the land.

The Tribunal set-aside the order of the Ld. CIT(A) and directed the AO to re-compute the fair market value of the land as on 1.4.1981 by taking into account the rate as adopted by the registered valuer on the ground that the AO had not refer the matter to the Valuation Officer for valuation once it was disputed by him. Similarly, in the present case also, the AO disputed the valuation of the land as on 01.04.2001 and the cost of construction/improvement and land development charges incurred by the assessee in FY 2003-04 but did not refer the matter to the Valuation Officer for its valuation. Similarly, the ld. DRP also did not conduct any enquiry as provided u/s 144(7)(a) of the Act or directed the AO u/s 144(7)(b) of the Act to refer the matter to the Valuation Officer for valuation of the property sold during the year in which the quantum of capital gains on account of valuation of the land has been disputed.

Therefore, respectfully following the aforesaid order of the Coordinate Bench of the Tribunal, we hold that the Assessing Officer was not right in discarding the report of the registered valuer regarding the determination of the fair market value of the land as on 01.04.2001 without making a reference to the DVO and, therefore, the rate adopted by the Assessing Officer for the purpose of computation of capital gains in the final assessment order cannot be upheld. Accordingly, we set aside the order of the AO and direct the Assessing Officer to re-compute the fair market value of the land as on 01.04.2001 at Rs.7,250/- per sq. yard as adopted by the registered valuer and allow indexation accordingly. Similarly, the cost of construction (Rs.91,09,820/-) and land development charges (Rs.21,31,493/-) incurred during FY 2003-04 was also valued by the registered valuer and being an integral part of the capital asset and which was again disputed by the AO but not referred to the Valuation Officer by the AO and therefore considering the same reasoning in the cited case of the Co-ordinate Bench of the Tribunal, the AO is directed to adopt the cost of construction (Rs.91,09,820/-) and land development charges (Rs.21,31,493/-) incurred during FY 2003-04 as adopted by the registered valuer and allow indexation accordingly. Grounds of appeal are allowed.

Order pronounced in the open court on 23rd October, 2024.