ACIT, CIRCLE-28(1), NEW DELHI V. MANINDER SINGH, NEW DELHI

ITA 980/DEL/2021

AI Insights

The case revolves around the valuation of a residential property sold by the assessee, Maninder Singh, which was subject to capital gains tax. The Assessing Officer (AO) initially accepted a valuation report from a government-approved valuer, which valued the property at Rs. 2,49,89,000. However, upon reference to the DVO, a significantly lower valuation of Rs. 1,24,11,112 was proposed, leading to a higher assessed capital gain. The CIT(A) rejected the DVO's valuation, citing its reliance on incomparable and unverified data, and accepted the GAV's valuation. The Revenue appealed against this decision, which was upheld by the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474623 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHIRAJ KUMAR JAIN
• Assessee Lawyers: VED JAIN
• Keywords: Sale consideration of property below Jantri Value; Fair market value; Cost of acquisition; Valuation report
• Section: 54; 50C; 55A; 54EC

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.980/DEL/2021 (Assessment Year: 2015-16) ACIT, Circle 28 (1), vs. Maninder Singh, New Delhi. 233, West End Marg, Saidulajab, New Delhi – 110 030. (PAN : AAOPS3438E) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ved Jain, Advocate, Ms. Uma Upadhyay, Advocate Ms. Kirti, AR REVENUE BY : Shri Dhiraj Kumar Jain, Sr. DR Date of Hearing : 22.01.2025 Date of Order : 22.01.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-11, New Delhi (for short ‘ld. CIT (A)’) dated 31.08.2020 for Assessment Year 2015-16 raising following grounds of appeal :- “1. That, in facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 6,03,50,181/- made on the basis of report of DVO. 2 ITA No.980/DEL/2021 2. That, in facts and circumstances of the case, Ld. CIT(A) has ignored the provisions of section 50C of the Income Tax Act, 1961 in allowing the appeal of the assessee. 3. That, in facts and circumstances of the case, Ld. CIT(A) has erred in placing complete reliance on the report of Government approved valuer (GAV) and rejection of the report of the DVO is contrary to the facts on the records as on reasoning or calculation was made available by GAV on how he calculated the value of land situated on main road vis-a -vis the one which is situated inside.” 2. The above grounds of appeal raised by the Revenue are on the issue of valuation of the property as on 01.04.1981. The relevant facts are, during assessment proceedings, the AO observed that assessee had sold a residential property at Plot No.8, Road No.34, WEA Pusa Road, Karol Bagh, New Delhi vide Sale Deed dated 17.10.2014 for a sale consideration of Rs.46,00,00,000/- in which assessee’s share was Rs.23,00,00,000/- i.e. 50% of the total sale consideration. The above property was originally purchased by Bhagwant Singh, father of the assessee vide Agreement to Sale dated 29.12.1969 and Will dated 21.12.1975, the property was bequeathed to the assessee along with Sukhdeep Singh in equal shares. The total area of the plot is 1002.3 sq.mtrs. and as per the valuation report of the registered valuer, the property was valued at Rs.2,49,89,000/-. The details of the property are as under :- 3 ITA No.980/DEL/2021 Valuation of land @ Rs.14,000/- per square meters (14000 * 1226.3 sq.mtrs.) Rs.1,71,68,200 Construction cost @ 150/- sq.ft. for B.F., G.F. and F. Floor (150 * 13,200 sq.ft. Rs. 19,80,000/- Extra cost of superior work like wood work, flooring (150% of Rs.19,80,000/-) Rs. 29,70,000/- Services like electrical, water supply, sanitary installation, power plug, B. Wall etc. (i.e. 145% of Rs.19,80,000/-) Rs. 28,71,000/- Total cost of property as on 01.04.1981 Rs.2,49,89,000/- 3. In the computation for the purposes of long term capital gain, the cost of the residential property as on 01.04.1981 was valued at Rs.1,24,94,500/- being 50% share of the assessee and after indexation, the value was arrived at Rs.12,79,43,680/-. The above said valuation was taken by the assessee from Er. B.P. Singh dated 21.02.2014. After verification of the above valuation report, the AO observed that the value had no instance of land sale in the year 1981, available with the assessee. He also observed that the value of land had not been adopted by the valuer on scientific basis and he had not cited any comparable instance before driving the fair market value as on 10.04.1981. With the above observation, the matter was referred to Department Valuer Officer (DVO) u/s 55A of the Income-tax Act, 1961 (for short ‘the Act’). The DVO derived the fair market value of the property as on 01.04.1981 at Rs.1,24,11,112/- in which share of the assessee is Rs.62,05,556/-. Accordingly, the AO recomputed the long term capital gain as under :- 4 ITA No.980/DEL/2021 Sale proceeds of land at Karol Bagh, N.D on 14.10.2014 Rs.23,00,00,000/- Less : Transfer Expenses Rs. 10,04,926/- Less : Indexed cost of acquisition (62,05,556 * 1024/100) Rs. 6,36,44,893/- Long Term Capital Gain Rs.16,53,50,181/- Less : Exemption u/s 54EC Rs. 50,00,000/- Less : Exemption u/s 54 Rs.10,00,00,000/- Taxable Long term capital gain Rs. 6,03,50,181/- 4. After issuance of show-cause notice dated 08.12.2017, AO asked as to why the above said valuation and long term capital gain should not be adopted in the case of the assessee. After considering the objections of the assessee, the AO adopted long term capital gain determined by the AO in the hands of the assessee. 5. Aggrieved assessee preferred an appeal before the ld. CIT (A)-11, New Delhi and before ld. CIT (A), assessee has raised several grounds of appeal objecting to the reference to the DVO u/s 55A of the Act and also the basis of valuation adopted by the DVO. After considering the detailed submissions of the assessee, ld. CIT (A) rejected the issues raised by the assessee relating to reference to the DVO, however he gave the relief to the assessee on the grounds of merits. The brief findings of the ld. CIT (A) are reproduced as under :- “7.10.1 I have perused the assessment order, GAV's report, DVO's Report and considered the submissions made by the appellant. In various cases the courts have directed the valuation by the DVO to be reconsidered in the light of the objections raised by the assessee. It implies that the assessee has a right to challenge the mode of determination of fair market value by the DVO. The appellant has contested that the three comparable cases taken by 5 ITA No.980/DEL/2021 the DVO are located in entirely different areas of Delhi, have much smaller area and arc lease hold lands, therefore by no means then can be taken as comparable cases for determination of fair market value of the property in question. From the perusal of the DVO's report it is clear that he has first calculated average rate of 3 properties adopted by him i.e. [Rs.20676/- + Rs.22993/- + Rs.20660/-)/3- Rs.214432/- as on 31.01.1990 which has been dragged back from 31.03.1990 to 01.04.1981 to calculate the value at 01.04.1981 by applying rate difference for 8.833years @ 12% per year which comes to Rs.11033/- per sq.mtr. and the value of property has been taken at Rs.10410/-persq.mtr. (Rs.21443 – Rs.11033). The DO then allowed deduction due to comparatively bigger size property with less good location by reducing 12.5% and arriving at final land rate of subject property at Rs.9109 per sqr.mtrs on date 01.04.1981. The DVO has not given the source of data for adopting the rate of 12% per annum to account for time gap of 8.833 years and 12.5% to account for location/ size of the property and hence its authenticity is questionable. These values adopted by DVO are not based on any published data and hence not authentic & unreliable. Even the comparison of the land rates per sq.mts of the 3 properties with respect to circle rates [Govt. approved rates] is not given. 7.10.2 It is pertinent to note here that no adjustment has been made by the DVO in his report for lease hold and freehold land. The land in question is a freehold land, as mentioned by the DVO in his report at para 6.1. This fact is also mentioned in the report of the GAV in Form 0-1, para 14, whereas the comparable 3cases adopted by the DVO are all leasehold properties. As per CPWD rates there is an increase of 30 to 50% over the rates for leasehold properties, on account of freehold based on rates published by CPWD. It is obvious that value of freehold property is more than the value of lease hold property. Even valuation rules as prescribed u/s 7 the Wealth Tax Act read with rules framed there under differentiate between valuation of lease hold property and freehold property. Valuation of free hold property is generally found to be more by 30 to 50% over lease hold property. 7.10.3 It is worthwhile to note that one of the most important factor governing the value of the property is its location advantage. The property held by the assessee is situated at Pusa Road, just adjacent to Karol Bagh, commercial hub of Delhi and near to 6 ITA No.980/DEL/2021 Paharganj, and Punchkulan Road. The property is situated on 120 road which has huge commercial value as there already exists renowned organisations/ institutions like Sir Ganga Ram Hospital, S. N. Dass Gupta College, Ramjas College etc. In addition to this the property has good frontage, large space for Signage, side road and back lane of 40 ft. and has big commercial value and has no comparison with the properties which has been cited by the DVO and adopted the rates. The DVO in his report in para 6.3 has mentioned that the property is situated on 120 wide main Pusa Road surrounded by 5-6 schools, Hotels & Commercials/Coaching centres. The School Lane, Babar Road and Hanuman Road are purely residential localities on 30 to 45 ft road. Furthermore, as per CPWD rates there is an increase of 15% on location advantage over the properties cited as comparable by the DVO based on rates published by CPWD. 7.10.4 The DVO in his report dated 01.12.2017 has made the following observations regarding source of 3 comparable cases adopted by him in para 7.3(3) as under : To work out the fair market value of Immovable Property under section 55-A of I.T Act, 1961 as on l/04/1981. Comparative Sale instance of Similar Land' method has been adopted to work out the fair market value of the land of subject property a similar sale instances of nearby land were sought from the Sub Registrar- III, Govt of NCT, 4/7 Asaf All Road, New Delhi vide this office letter nos.VO- II/ND/IT-06/55-A/2016-17/21 Dated 17/08/2017. Sub registrar has forwarded the above said letter to The P.L., O/1 lead of office (Archives), Govt of NCT, 18A, SatsangVihar Marg, New Delhi. But vide letter no F.DA A032/6/2017- Administration/32968 dated 16/10/2017 intimated to this office that indexes for the period 1980-81 and 1981-82 of SR-III are in brittle condition and cannot be handled for search purpose. Therefore, the auction details available for the nearest location and period have been considered and all due factors of adjustment have been applied to reach the Fair Market Value as detailed in Annexure ‘A’ Cost of ( instruction has been assessed by applying CBDT approved PAR 1976 after applying weighted cost Index as on 1/4/ 1981. 7 ITA No.980/DEL/2021 Therefore it is evident that the source of comparable cases has been mentioned as auction details available for the nearest location, which is neither authentic nor reliable. 7.10.5 It is amply clear that DVO has relied upon incomparable cases with plots at far off locations, small sizes, lease hold property and registry date after nine years. It is also not brought on record by DVO from which source he has gathered the data and hence its authenticity is questionable. The Valuation based on such incomparable examples is of no consequence and is not permissible under the law as held by courts. In my opinion the most patent defect in DVO's report is that no adjustments has been made by the DVO in his report for lease hold and freehold land. The property consists of bundle of rights and that in a freehold property owner enjoys a complete title as against lease hold property which owner enjoys limited rights. As per CPWD rates there is an increase of 30 to 50% over the rates for leasehold properties on account of freehold based on rates published by CPWD. It is obvious that value of free hold property is more than the value of lease hold property. Even valuation method for immovable property as prescribed u/s 7 of the Wealth Tax Act, 1957 read with rules framed there under differentiate between valuation of lease hold property and free hold property. Valuation of free hold property is generally found to be more by 30 to 50% over lease hold property. …………….. 7.10.9 In view of above discussion, the findings are being summarized in a tabular form as under :- Sl.No. Criteria for comparison GAV’s report DVO’s report Remarks 1. Basis of valuation/ rate of land to be adopted The valuation is based on the circular rates (govt approved rates) provided by Land and Development Office, Ministry of Housing and Urban Affairs, Govt. of India. The valuation is based on three cases adopted by the DVO. The source mentioned as auction details available for the nearby location and period. The cases adopted by the DVO are in different locations compared to the property to be value and source of has been mentioned a auction details available for the nearest location which is neither authentic nor reliable. 8 ITA No.980/DEL/2021 2. Date for the rate of land The Circle rate taken are for exact date i.e. 01.04.1981, source of data is Land Development Office, Ministry of Housing and Urban Affairs, Govt. of India. The rates taken are for the period from January 1990 to March 1990 which is 9 years later than the date. DVO has dragged back the rates from 31.03.1990 to 01.04.1981 by applying rate difference for 8.833 years @ 12% per year but source of data not mentioned and hence its authenticity is questionable. 3. Size of the property Circle rates have been taken published by Land and Development Office, Ministry of Housing and Urban Affairs, Govt. of India The cases adopted by DVO are of much smaller area than the property to be valued. The DVO has allowed deduction due to comparatively bigger size property with less good location by reducing 12.5% but source of data not mentioned and hence its authenticity is questionable 4. Leasehold / Free Circle rates have been taken published by Land and Development Office, Ministry of Housing and Urban Affairs, Govt. of India. The property to be valued is freehold whereas the 3 cases taken by DVO are all leasehold. No adjustment has been made by the DVO in his report for lease hold and freehold land. 5. Location and frontage Rates for exact location i.e. Karol Bagh has been taken. Location of the 3 comparable cases are at different places (School Lane, Babur Road, Hanuman Road). The property to be valued is on Main Road 120 wide, the comparable cases are located on side roads/lanes only 30 to 40 feet wide. 6. Date of inspection of property 20.02.2014 Property was in possession of the assessee and building was standing. 13.11.2017 Property was not in possession of the assessee and building has been demolished. DVO has made valuation of house property without physically inspecting it. 7.10.10 In view of the above discussion, I am of the opinion that the valuation report of the DVÓ dated 07.12.2017 suffered from manifold defects and cannot be acceptable under the law. The defects are so patent that the fair market value cannot be correctly determined. The DVO has relied upon incomparable cases with plots at far off locations, small sizes, lease hold property and of registry dates off by nine years. It is also not brought on record by DVO from which source he has gathered the data and hence its authenticity is questionable. The Valuation based on such 9 ITA No.980/DEL/2021 incomparable examples is of no consequence and is not permissible under the law as held by courts. In my opinion the most patent defect in DVO's report is that no adjustments has been made by the DVO in his report for lease hold and freehold land. On the other hand, GAV has taken circle rates which are Govt approved published by Land and Development Office, Ministry of Housing and Urban Affairs, Govt. of India, for the correct period i.e. 01.04.1981 and for the correct location i.e. Karol Bagh where the property in question is situated. GAV report was made after physical inspection of the building that makes it more acceptable than the report of the DVO which is based on pure guess work. Therefore, in my opinion, the fair market value of the property determined by Govt. Approved Valuer is close to the correct fair market value and can be adopted for computation of capital gain. Therefore, the addition of Rs.6,03,50,181/- made by the AO on account of long term capital gain by adopting the fair market value of the property suggested by DBO in his report dated 01.12.2017 cannot be sustained and is deleted. Accordingly, grounds of appeal no.2, 5, 6, 8 & 9 are allowed.” 6. Aggrieved the above order, the Revenue is in appeal before us objecting to the relief granted to the assessee. 7. At the time of hearing, ld. DR of the Revenue brought to our notice findings of the AO, valuation report submitted by the DVO and objections raised by the assessee on the valuation adopted by the DVO and he vehemently argued in support of the findings of the AO. 8. On the other hand, ld. AR of the assessee also brought to our notice issues raised by the assessee before the AO as well as before the ld. CIT (A) that the DVO has made the comparison of the property with the property sold by the assessee to determine the value as on 01.04.1981 which is incomparable considering the fact that the assessee sold the property 10 ITA No.980/DEL/2021 which is freehold property and assessee has incurred cost of improvement using high value and quality consideration material whereas DVO has adopted to value the property which is leasehold land and also not considered the cost of construction involved. He strongly relied on the findings of the ld. CIT (A). 9. Considered the rival submissions and material available on record. We observed that the assessee has adopted the value as on 01.04.1981 considering the valuation done by the Government approved valuer at Rs.2,49,89,000/- whereas on reference to DVO u/s 55A of the Act, DVO submitted the report at the value at Rs.1,24,11,112/- by considering valuation of leasehold properties and it is fact on record that there was no comparable of sale of similar land existed as on 01.04.1981. The Government approved valuer has considered nearest data comparable considered by him was 10.04.1981 whereas the DVO has considered from the period January 1990 to March 1990 and he dragged back rates from 31.03.1990 to 01.04.1981. We observed that there is basic difference of valuation adopted by the DVO which is clearly visible that he has considered leasehold property against the freehold property and we observed that ld. CIT (A) has tabulated the various variation for the purpose of valuation adopted by the DVO which are – (a) adopted properties involving leasehold property; (b) considered the comparables 11 ITA No.980/DEL/2021 for the leasehold properties dated 31.03.1990 and dragged back the valuation to 01.04.1981 i.e. 9 years later than the date of valuation; (c) ignored size of the property; (d) ignored the location advantage and frontage of the existence of the property and date of inspection of the property is 13.11.2017 on which the property was not in possession of the assessee and building was demolished at the time of valuation. Considering the major issues involved in valuation report submitted by the DVO, ld. CIT (A) gave relief to the assessee by observing that the fair market value of the property determined by the Government approved valuer is closer and correct fair market value and can be adopted for computation of capital gain. Therefore, he directed the AO to delete long term capital gain and rejected the fair market value of the property by the DVO in its report on 01.12.2017. After careful consideration of the detailed findings of the ld. CIT (A), we do not see any reason to disturb the above findings and accordingly, dismiss the grounds taken by the Revenue. 10. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 22nd day of January, 2025 after the conclusion of the hearing. Sd/- sd/- (SATBEER SINGH GODARA) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22.01.2025/TS 12 ITA No.980/DEL/2021 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "