IT: Where rate adopted by DVO for valuation of land had various flaws and, on other hand, rate adopted by assessee was based on report of an approved valuer which considering Collectorate rate seemed justified, rate adopted by assessee was to be accepted for computing capital gains
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[2013] 38 taxmann.com 9 (Jodhpur - Trib.)
IN THE ITAT JODHPUR BENCH
Tushir Kant Agarwal (HUF)
v.
Income-tax Officer*
HARI OM MARATHA, JUDICIAL MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
IT APPEAL NO. 451 (JODH.) OF 2010
[ASSESSMENT YEAR 2001-02]
[ASSESSMENT YEAR 2001-02]
MAY 31, 2013
Section 55, read with section 48, of the Income-tax Act, 1961 - Capital gains - Cost of acquisition [Valuation of land] - Assessment year 2001-02 - Assessee declared capital loss on sale of land and building - While computing capital gains, assessee adopted value of land at rate of Rs. 575 per sq. ft. as on 1-4-1981 on basis of valuation report of approved valuer - However, DVO worked out value of land by applying rate of Rs. 145 per sq. ft. on basis of land rate obtained from sub-Registrar's office - Whether since sub-Registrar provided five certified documents, and DVO considered only one document, there was merit in submission of assessee that DVO knowingly ignored other documents regarding DLC rates provided by sub-registrar and considered document which more suited him – Held, yes - Whether further, property of assessee was having better commercial prospects and being approximately 8 times bigger than property considered by DVO, same commanded higher price - Held, yes - Whether since rate adopted by assessee was based on report of approved valuer who had considered rates prescribed by Collectorate and there was various flaws in rate adopted by DVO, Assessing Officer was to be directed to adopt value of land as on 1-4-1981 at rate of Rs. 575 per sq. ft. - Held, yes [Para 8] [In favour of assessee]
Shailendra Baradia for the Appellant. G.R. Kokani for the Respondent.
ORDER
N.K. Saini, Accountant Member - This is an appeal by the assessee against the order dt. 17th May, 2010 of learned CIT(A), Udaipur. Following grounds have been raised in this appeal :
"1 That learned ITO as well as learned CIT(A) has not taken into consideration, the valuation report submitted by the assessee from the approved valuer.
2. That learned ITO as well as learned CIT(A) has not taken into consideration, the first report prepared by Departmental Valuer dt. 17th June, 2009 for Rs. 74,46,000 for the asst. yr. 2001-02 as on 31st March, 2001.
3. That learned ITO as well as learned CIT(A) has considered 2nd report of the Departmental Valuer prepared on 11th Dec, 2009 for Rs. 6,88,000. Assessee has filed the objection before the valuation officer as well as before the ITO, Departmental Valuer has not taken valuer of the other place instead of taking marshal charges commercial land where the property is situated.
4. That learned ITO as well as learned CIT(A) has mentioned in the order the property is commercial, but they have taken the land rate of non-commercial land situated at other place far from the one and half km. from our above mentioned property.
5. That learned ITO has wrongly taken the land rate for Rs. 180 whereas the land rate was Rs. 400 to Rs. 1500 per sq. ft. The evidences were submitted but the same has not been considered, the land rate taken by the valuation officer for Rs. 195 in his report without any basis.
6. That learned ITO has wrongly calculated the capital gain without taking into consideration that valuation dt. 15th July, 2009 where the land rate was taken for Rs. 3,700 per square feet.
7. That learned ITO has passed the order without any basis. Without going through the valuation report dt. 15th July, 2009, 29th Jan., 2009 and 11th Dec, 2009 the order is against the equity and natural justice. The order is not a speaking order.
8. That learned ITO has wrongly calculated the capital gain Rs. 11,06,720 whereas assessee has shown capital loss Rs. 8,66,440.
9. That the property was repaired and renovation was done many times. But the same has not been considered and depreciation was taken Rs. 57,793 without any basis.
10. That the order is against the provision of law, equity and natural justice.
11. That no proper opportunity has been given to the assessee before passing the order.
12. That assessee reserves the right of addition and alteration in the grounds of appeal at the time of hearing."
2. The main grievance of the assessee in this appeal relates to the working of the capital gain. The facts of the case in brief are that the original assessment in this case was completed under s. 143(3) of the IT Act, 1961 (hereinafter referred to as 'the Act') vide order dt. 30th March, 2004 which inter aliaincluded an addition of Rs. 17,00,608 being long-term capital gain as against the capital loss of Rs. 8,66,440 declared by the assessee on sale of the land and building situated at Marshal Choraha, Dhan Mandi Road, Udaipur for a sum of Rs. 39,00,000 to different parties. The said property was comprised of seven shops at ground floor and three residential units at first, second and third floor. For the capital loss arrived at, the assessee filed a report of the approved valuer who valued the shops and residential units at Rs. 11,74,000 as on 1st April, 1981. In this way by indexing method the assessee worked out (a capital loss of Rs. 8,66,440. The AO, however, did not accept this value shown by the assessee as on 1st April, 1981 and after conducting inquiries from the Sub-Registrar, Udaipur and Land & Building Department adopted the fair market value of the land sold as at 1st April, 1981 at Rs. 2,93,400 (Rs. 180 x 1630 sq. ft) and the cost of building at Rs. 2,37,140, as against the value of Rs. 11,74,000 adopted by the approved valuer (@ Rs. 575 per sq. ft. for the land i.e. Rs. 9,37,450 and rest of the amount for the structural built-up area admeasuring 452.85 sq. mtr.). Against the said order dt. 30th March, 2004 of the AO the assessee filed an appeal before the learned CIT(A) who vide order dt. 3rd Dec., 2004 confirmed the action of the AO in computing the capital gain Rs. 17,00,608. Thereafter the assessee took the matter before the Tribunal, Jodhpur Bench, Jodhpur wherein vide order dt. 19th Sept., 2008 passed in ITA No. 41/Jd/2005 the matter was restored to the file of the AO with the direction that the matter of valuation of the property as on 1st April, 1981 should be referred to the Departmental valuation cell and then to finalize the assessment. In view of the direction of the Tribunal the valuation of the property as at 1st April, 1981 had been referred by the AO to the Department valuation cell who vide valuation report dt. 25th Nov., 2009 valued the property sold, as on 1st April, 1981 at Rs. 6,88,000 (depreciated value of building Rs. 3,70,302 and cost of land @ Rs. 195 for 1630 sq. ft., 3,70,850 i.e. Rs. 6,88,152). A copy of the valuation report had also been supplied to the assessee and it was asked to state as to why the value determined by the DVO should not be adopted. The assessee repeated the very argument put forth before the AO and the learned CIT(A) and requested that the value adopted by the approved valuer being reasonable should be accepted for calculation of the capital gain. It was also stated that character of the commercial land had not been considered by the DVO while adopting the land rate as on 1st April, 1981. It was further stated that the prevailing land rate of commercial land at Marshal Choraha, Udaipur as on 1st April, 1981 was Rs. 400 and the same should have been adopted for capital gain purposes.
3. The AO after considering the submissions of the assessee observed that his predecessor while computing the original assessment had dealt all the objections raised by the assessee. He further observed that the approved valuer for valuing the land as on 1st April, 1981 in the valuation report mentioned that he had considered the circular issued by the Collectorate as on 1st April, 1973 and 1st April, 1997 as per which rates for Rs. 200 and Rs. 1,200 per sq. ft. He had arrived at the valuation as on 1st April, 1981 by interpolating the rate. The AO pointed out that the rate by interpolation had been taken at Rs. 575 per sq. ft. As regards the market value of the land as on 1st April, 1981 the AO pointed out that his predecessor conducted inquiries from the Sub-Registrar, Udaipur and Land & Building Tax Department and on inquiries it was found that the market value of the land in Zini Ret Area was fixed at Rs. 200 per sq. mtr. as on 1st April, 1973 for residential cum commercial land. He further pointed out that the approved valuer in his valuation report had also taken the rate of Rs. 200 as on 1st April, 1973 but wrongly taken the same for per sq. ft. instead of per sq. mtr. and when the statement of approved valuer was recorded by his predecessor no satisfactory explanation was given for this error except saying that generally the rate being adopted were per square feet and that is why he adopted this rate. The AO pointed out that if the rate of Rs. 200 was per sq. mtr. than the value of land per square feet works out to Rs. 20 approximately, therefore, the very basis adopted by the approved valuer for valuation of the land was incorrect and could not be accepted. The AO stated that the approved valuer had based his valuation on the DLC rate as on 1st April, 1997 but there was a DLC rate determined as on 24th Oct., 1992 and when the valuation was to be taken as on 1st April, 1981. The DLC rate which should have been considered was of the value determined after 1st April, 1981 i.e. of the rate determined on 24th Oct., 1992 and not the next valuation date i.e. 1st April, 1997 as had been adopted by the approved valuer for various reasons. The AO accordingly held that there was glaring mistake persisted in the valuation of the approved valuer insofar as the valuation of the land as at 1st April, 1981 and if interpolation was done with both the rates of 1st April, 1973 and 24th Oct., 1992 the rate of land per sq. ft. as on 1st April, 1981 would come more or less the rate adopted by the DVO who had considered the commercial as well as residential character of the land while valuing the property. The AO accordingly, adopted the value determined by the DVO at Rs. 6,88,000 and after indexation the cost was determined at Rs. 27,93,200. Accordingly capital gain was worked out at Rs. 11,06,720.
4. Being aggrieved the assessee carried the matter to the learned CIT(A) who summarised the submission of the assessee in para 3.2 of the impugned order which are reproduced verbatim as under :
"1. The impugned addition has been made by the AO due to the failure of the DVO for not taking the land rate correctly. The DLC rate declared by the Collector range from 480-1500. The valuer of the assessee has taken the correct rate of land for the valuation.
2. The assessee has received property in HUF partition. The said property was sold by Shri Tushir Kant Agarwal to the person purchaser as mentioned in registered copy of the sale deed.
3. The assessee has sold the aforesaid property situated at (Marshal Chauraya) corner plot of Suraj Pole and Dhanmandi for Rs. 39,00,000. It is a commercial plot assessee's forefather has constructed this in the year 1935. There are seven shops on ground floor.
4. The assessee has submitted valuation report from the approved valuer Sh. M.L. Bapna. He has valued the property at Rs. 11,74,000 and the land was valued at Rs. 9,37,250 as on 1st April, 1981. According to the valuation report long-term capital loss comes to Rs. 8,66,440.
5. The report of the approved valuer was not taken into consideration by the ITO and matter was referred to the valuation cell at Ajmer.
6. The valuation cell Ajmer has prepared two valuation report for the aforesaid assessment.
1. Valuation as on 31st March, 2001 Rs. 74,46,000 dt. 19th July, 2009.
2. Valuation as on 1st April, 1981 Rs. 6,88,000 dt. 11th Dec, 2009.
There is difference in both the valuation reports. Land rate was taken in the first report at Rs. 3700 per sq. ft., whereas the second report land rate was taken at Rs. 195 per sq. ft. Major difference in land rate was 3700 - 195 = 3505 per sq. ft.
7. That valuation officer Ajmer has asked for objection if any vide his letter No. EE/TTD/AJM/09-10/456 thereafter an objection was submitted, that the valuation of land rate was taken without any basis. A copy of the letter of object is also enclosed along with the other notification of land rate issued by the District Collector, time to time. But the same has not been taken into consideration.
8. That according to the 1st valuation report dt. 15th Feb., 2009 there is a capital loss of Rs. 35,46,000 and second valuation report capital gain comes to Rs. 11,06,720 but the valuation officer as well as the ITO has not considered the approved valuer's report, and has not taken the correct rate of land in the valuation report.
9. That both the valuation reports are not having any basis of land rate. ITO has also not considered the land rate taken by the approved valuer.
10. The AO has also not considered the land rate prescribed by the District Collector, Udaipur time to time copy of the circular is also enclosed.
11. The land rate was also not taken for the commercial plot, whereas the valuation officer himself mentioned in his report as land is commercial and there are seven shops on his land constructed in the year 1935.
12. That no extra weightage for corner plot, good frontage, potentialities of the plot was not taken and character of the plot is of commercial has not been considered.
13. The yield method is the only method held in the case of CWT v. Sharvan Kumar Swarup & Sons [1994] 122 CTR (SC) 380 : [1994] 210 ITR 886 (SC). The rib or (sic) Sch. 3rd of the WT Act must be applied.
In view of the above facts, it has been pleaded that the addition made by the AO on account of long-term capital gain may be deleted and necessary relief may be allowed to the assessee."
5. The learned CIT(A) after considering the submissions of the assessee observed that on the direction of the Tribunal, the AO referred the valuation of the property in question as on 1st April, 1981 to the DVO, Ajmer who in turn valued the property after giving proper opportunity to the assessee to defend his case. The learned CIT(A) pointed out that the valuation report of the DVO revealed that he had valued the property after interpolating the rate of land fixed by the concerned authorities from time to time and also taking into account the rate of land that prevailed as on 1st April, 1981. As regards to the objection of the assessee that the DVO had not treated the land as commercial, the learned CIT(A) mentioned that the DVO had treated the land as commercial which was very much clear from his findings given in the report which read as under :
"The building is very old and the value of the land is significant in comparison to the cost of construction as the building is outlined its age. Besides this, the building is situated in the main market which is fully commercial. Hence commercial rate is considered for the land."
6. The learned CIT(A) pointed out that the DVO valued the property on the basis of DLC rate fixed by the authorities for the nearby area where the property in question was situated and the assessee could not point out any specific mistake in the valuation report of the DVO. He, therefore, confirmed the addition made by the AO on account of long term capital gain.
Now the assessee is in appeal.
7. The learned counsel for the assessee reiterated the submission made -before the authorities below and further submitted that the learned CIT(A) was not justified in confirming the addition made by the AO on the basis of the report of the valuation officer relating to the valuation of the property as on 1st April, 1981. It was also submitted that the assessee received ownership of the said property on the partition of the HUF and sold the same for the consideration of Rs. 39,00,000 in the financial year 2000-01. Since the said property was constructed in 1935 the fair market value as on 1st April, 1981 was to be determined for the purpose of calculation of the capital gain. It was contended that the assessee brought the valuation done by approved valuer, who vide his report dt. 29th Jan., 2001 valued the building structure at Rs. 2,37,139 and land at Rs. 9,37,250 totalling to Rs. 11,74,389, reference was made to page Nos. 16 to 19 of the assessee's paper book which is the copy of said valuation report. It was contended that the AO made the addition of Rs. 17,00,608 being long-term capital gain considering rate of Rs. 180 per sq. ft. for valuing the land as on 1st April, 1981 but no basis was provided by the AO as to why such rate was taken for valuation and when the matter travelled upto the Tribunal, it was restored to the file of the AO for de novo consideration and subsequently the valuation was referred to the DVO who vide valuation report dt. 11th Feb., 2009 valued the property as on 1st April, 1981 at Rs. 6,88,000 (depreciated value of building Rs. 3,70,302 and value of land @ Rs. 195 for 1630 sq. ft. Rs. 3,17,850), copy of the same is placed at page Nos. 38 to 45 of the assessee's paper book. It was contended that the assessee made the detailed objections but the same were not considered by the AO who completed the assessment on 29th Dec., 2009 calculating the capital gain at Rs. 11,06,720 on the basis of the value determined by the DVO and that the learned CIT(A) had confirmed the said addition without considering the facts as submitted by the assessee by simply relying on the valuation as done by the DVO and rejected the valuation of the registered valuer in toto. It was emphasized that rate of the land as on 1st April, 1981 was taken by the DVO at Rs. 195 per sq. ft. while the registered valuer has taken the same at Rs. 575 per sq. ft. It was contended that land rate of Rs. 195 per sq. ft. was obtained by the DVO from the Sub-Registrar's Office for the so called nearby area where the property was situated and in this regard copy of sale deed of the property situated at the Zini Ret was provided which revealed that the total sale consideration was Rs. 39,000 for 200 sq. ft. area so the rate was calculated at Rs. 195 per sq. ft. It was further stated that in the copy of the letter dt. 18th May, 2009 from the office of Sub-Registrar to the DVO regarding DLC rates it was mentioned that he had provided copies of five certified documents vide letter No. 2472 of 5th Oct., 1981, 2382 of 17th April, 1981, 2525 of 17th Oct., 1981, 2604 of 26th Oct., 1981 and 2607 of 26th Oct., 1981. However, the DVO referred only one document out of five i.e. 2472 of 5th Oct., 1981 and the copy of document alone was provided to the assessee but no reference was made to the other documents as provided by the Sub-Registrar which follows that the DVO had taken the document which most suited to him and deliberately he did not refer to the other documents and apart from this he had totally ignored the location of the properties. It was pointed out that the property sold was situated at 15/103 Marshal Chouraya, Zini Ret, Udaipur whereas the property as considered for determining the land rate was situated at Zini Ret, Udaipur. It was further stated that there was lot of variation in the location of the two properties, therefore, the rate relied by the DVO was totally incorrect. The difference in properties was pointed out by the learned counsel for the assessee as under :
| S. No. | Particular | Property sold | Property relied upon by the DVO for the purposes of the valuation |
| 1. | Location | 15/103, Marshal Chouraha, Zini Ret, Corner of Suraj Pole and Dhanmandi Road between Dhanmandi Road -Surrafa Road, Udaipur. | Zini Ret, in between one residential house another and shop |
| 2. | Whether corner plot | Yes | No |
| 3. | Front side road size | Main market | Commercial cum residential area |
| 4. | Area of the property | 1630 sq. ft. | 200 sq. ft. |
On the basis of the above location difference it was submitted that the rate adopted by the DVO was not at all correct but the rate taken by the approved valuer was quite logical and justified. It was stated that several factors affect the sales consideration like size of property, location, neighbourhood, nearest to the market, size of the road etc. and since the property of the assessee was centrally located in the main market and it was the corner plot, so it was bound to have higher price but these factors were not considered by the DVO while determining the property (sic-value) as on 1st April, 1981. It was contended that the approved valuer had considered the location of the property and also the Department's guidelines, therefore, his report was more logical and deserves to be accepted. It was further stated that the AO had not examined the report of the approved valuer and also did not establish why his report was not acceptable. It was submitted that the learned CIT(A) had relied on the letter dt. 12th March, 2004 of the Asstt. Director Land & Building Tax Department wherein by mistake the unit of the rate was stated to be square metre in place of square feet. It was further submitted that in all the Government letters and notification, the rate was always quoted in square feet, reference was made to few Government notifications which are placed at page Nos. 47 to 49 of the assessee's paper book. Accordingly it was submitted that the rate taken by the approved valuer at Rs. 575 per sq. ft. was more logical and justified. In his rival submissions the learned Departmental Representative strongly supported the order of the authorities below and further submitted that the AO referred the matter to the Departmental valuation cell on the direction of the Tribunal and adopted the value which was worked out by the DVO, therefore, the capital gain worked out by the AO on the basis of report of the DVO was justified and the learned CIT(A) rightly confirmed the action of the AO.
8. We have considered the submission of both the parties and carefully one through the material available on the record. In the present case, there is no dispute as regards to the sale value of the property in question which was at Rs. 39,00,000. This property was obtained by assessee on the partition of the HUF and it was claimed that the said property was constructed in 1935, therefore, the fair market value as on 1st April, 1981 was to be considered for the purposes of working out the capital gain. The assessee adopted the value of the land at rate @ Rs. 575 per sq. ft. as on 1st April, 1981 on the basis of the valuation report of approved valuer Mr. M.L. Bafna. Copy of the said report dt. 29th Jan., 2001 is placed at page nos. 16 to 19 of assessee's compilation. However, the DVO worked out the value of the land at Rs. 3,17,850 by applying the rate of Rs. 195 per sq. ft. on the basis of the land rate obtained from the Sub-Registrar's Office who provided a copy of the sale deed in respect of a plot measuring 200 sq. ft. valued at Rs. 39,000. The learned counsel for the assessee pointed out that Sub-Registrar provided five certified documents, however, DVO considered only one document for valuing the property as on 1st April, 1981. During the course of earlier hearing on 15th April, 2013 the Bench specifically asked the Departmental Representative to provide the other copies of the documents provided to the DVO by the Sub-Registrar. However, the Department was unable to produce the copies of the said documents at the time of hearing on 25th April, 2013. We, therefore, find substance in this submission of the learned counsel for the assessee that the DVO knowingly ignored the other documents regarding DLC rates provided by the Sub-Registrar and considered the document which more suited him. In the present case it is an admitted fact that the property of the assessee was having the location difference with the property considered by the DVO for adopting the rate of Rs. 195 per sq. ft. The said property was having the area of 200 sq. ft. but the property of the assessee was having the larger area of 1630 sq. ft. and was situated on the front side of the road in the main market while the property considered by the DVO was in commercial cum residential area and the property of the assessee was a corner plot centrally located. Therefore, the property of the assessee was having better commercial prospects and being approximately 8 times bigger than the property considered by the DVO, therefore, commanded higher price. In the present case, the AO had not established why he did not accept the valuation determined by the approved valuer. Furthermore, the assessee pointed out certain defects/flaws in the report of the DVO and also contended that the five certified documents were provided by the Sub-Registrar regarding DLC rates and the DVO considered only one but had not given the reason why he had not considered the other four, the letter dt. 18th May, 2009 issued by the Sub-Registrar is placed at page No. 27 of the assessee's paper book wherein it is clearly mentioned that for determining the DLC rate for the year 1981, five certified copies were sent. In the present case the AO had not given any reason while rejecting the value adopted by the assessee which was based on the report of the approved valuer who considered the circular issued by the Collectorate on 1st April, 1978 and 1st April, 1997 which revealed that the rates were at Rs. 200 and Rs. 1200 per sq. ft. respectively and by interpolation the rate was derived as on 1st April, 1981 at Rs. 575 per sq. ft. Therefore, the said rate was to be adopted instead of Rs. 195 per sq. ft. adopted by the AO on the basis of DVO report in which the assessee pointed out various flaws (the objection of the assessee are placed at page Nos. 32 and 33 of the assessee's paper book). Considering the totality of the facts as discussed hereinabove, we are of the view that the rate adopted by the approved valuer by considering the collectorate rate was more appropriate than the value adopted by the DVO by considering only one instance out of the five instances and without giving any reason why the four instances sent by the Sub-Registrar were ignored. We, therefore, set aside the impugned order passed by the learned CIT(A) and direct the AO to adopt the value of the land in question as on 1st April, 1981 @ Rs. 575 per sq. ft.
9. In the result, appeal of the assessee is allowed.
Regards
Prarthana Jalan
__._,_.___
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