SANJAY A. JIVANI,SURAT vs. INCOME TAX OFFICER, WARD-3(1)(5), SURAT

Assessee represented by Miss Chaitali Shah, C.A. Department represented by Shri Vinod Kumar Sr. DR Date of hearing 17/05/2023 Date of pronouncement 31/07/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-3 (in short, the ld. CIT(A)) dated 11/06/2019 for the Assessment Year (AY) 2015-16. The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law, the learned CIT(Appeals) has erred in partly confirming the action of Assessing Officer by adopting cost of construction of the property at Rs. 9,490/- per sq. meter being average rate of cost of construction as per DVO of Rs. 13,600/- and as per the registered valuer of Rs. 5,380/-.

2. It is, therefore, prayed that the above assessment framed u/s 143(3) of the Act and/or addition made by Assessing Officer and confirmed by learned Commissioner of Income Tax (Appeals) may please be deleted.

3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

2. Brief facts of the case are that the assessee is engaged in the business of manufacturing of grey cloths, filed his return of income for A.Y. 2015- Sanjay A. Jivani Vs ITO 16 on 23/09/2015 declaring income of Rs. 7,61,003/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee has purchased immovable property at plot No. 4/B, Karanj, Surat having 1/4th share and plot No. G-1, Karanj for a consideration of Rs. 25.11 lacs having 100% share. The aggregate consideration of both the properties were Rs. 50.22 lacs. In order to ascertain the value as per stamp duty authority, the Assessing Officer issued notice under Section 133(6) of the Income Tax Act, 1961 (in short, the Act) to Sub-Registrar Office, Mandvi. In response to such notice, Sub-Registrar Mandvi furnished copy of purchase deeds of both properties alongwith valuation sheet of Jantri value determined. On perusal of such details, the Assessing Officer found that the Stamp Valuation authority assessed the value of property higher than the value shown by assessee in the purchase deed. For No. 4/B, the value was determined at Rs. 46,60,500/- and for plot No. G-1, the value was determined at Rs. 45,15,200/-. On the basis of such details, the Assessing Officer worked out the difference of Rs. 21,49,500/– and Rs. 20,04,200/- respectively in respect of both the properties. On confronting such fact, the assessee requested the Assessing Officer to refer the case for valuation to DVO in term of Proviso to Section 56(2)(vii) of the Act. The Assessing Officer accordingly made a reference to the DVO. The Assessing Officer recorded that report of DVO was not Sanjay A. Jivani Vs ITO received till finalization of assessment order. The matter was going to be time barring, accordingly, the Assessing Officer made addition of Rs. 25,41,575/- under the head “income from other sources”.

3. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee besides challenging the addition on merit, also raised specific ground that the assessee purchased very old buildings in a damaged condition. Such fact was not appreciated by the Assessing Officer and not allowing depreciation while consideration the value of property. The assessee also filed detailed written submissions. The submission of assessee is recorded in para 5 of order of ld. CIT(A). The assessee in its submission submitted that the assessee purchased the property which was 15 to 20 years old. The assessed value of these properties as per record of local authority is Rs. 25.00 lacs and Rs. 15.00 lacs only. The assessee further stated that the construction of work of industrial property, a maximum cost of construction is Rs. 500/- per square fit thereby Rs. 5,380/- per square meter. However, the Jantri rate is Rs. 11,200/- per square meter which is absolutely on higher side in case of industrial property. The assessee submitted that he has submitted valuation of properties by the Government Approved Valuer. The assessee also stated that due to inadvertence mistake, the Advocate (deed writer) has not calculated depreciation on old property at the time of registration of sale deed. The Sanjay A. Jivani Vs ITO Jantri price is the guidelines of Government but in some cases, negotiation between the seller and purchaser are made as per prevailing conditions and other factor effecting the cost of property. The assessee purchased old property in a dilapidated condition. The assessee also objected against valuation adopted by the DVO and submitted that the DVO has taken base of sale instances of open plots instead of factory building so the basis of valuation is completely erroneous, illegal, invalid and hence void ab initio. The valuation as per DVO is Rs. 13,600/- per square meter and no comparable instance of construction of cost is given. Value of cost of construction is unjustified and invalid and without evidence. No single instances of comparables were given. Report of DVO is not based on evidence. The location of assessee’s properties at site are totally different. The assessee also objected against the instances of comparables of open plots referred by DVO in his report.

Sanjay A. Jivani Vs ITO 9. I have considered the rival submissions of the parties and have gone through the orders of the lower authorities, including the valuation reports of Government Approved valuer and report of DVO, carefully. I have also deliberated on the various case laws relied by the ld AR for the assessee. The assessing officer made addition of Rs. 25,41,575/- being difference in value adopted by stamp valuation and the value shown on the sale deeds, by taking view that he has made reference to DVO, at the instance of assessee and that the report of DVO is not received and the matter was going to be time barred, accordingly he made addition of differential amount of Rs. 25,41,575/- under section 56(2) (vii) (b) in the head ‘other sources’. Before ld CIT(A) the assessee raised various plea by filing detailed written submission as recorded above. The assesse also furnished valuation report prepared by Government approved valuer. I find that the report of DVO was also received by that time of hearing in first appeal / ld CIT(A). The ld CIT(A) instead of considering various details and the comparable stances narrated by Government registered valuer and the basis of report of DVO and comparable mentioned therein, took the average of both the valuation and directed the assessing officer to recalculate the fair market value for additions under section 56(2)(vii)(b) and granted partial relief to the assessee. I find that the finding of ld CIT(A) is not based on good reasoning, therefore, the same is set aside/ quashed. The ld CIT(A) ought to have Sanjay A. Jivani Vs ITO considered the basic details of comparable stances narrated by DVO in his report, whether such comparable are good comparable vis-a vis the location, size, quality of construction or not. Further if the value suggested by the DVO is more than the value adopted by the stamp valuation authority, whichever is less is to be considered. Hon’ble Delhi Court in CIT Vs Khoobsurat Resorts (P) Limited (supra) also held that without considering the real market price, additions cannot be made merely on the basis on higher consideration was declared for the purpose of stamp duty.

raised by the assesse are partly allowed.

11. In the result, the grounds of appeal raised by the assessee is partly allowed. Order announced in open court on 31st July, 2023.