M/s Jatanban Kewal Chand Dugad, HUF, Chhindwara, Chhindwara V. Pr.CIT-1, Jabalpur, Jabalpur

ITA 25/JAB/2022

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0152 (ITAT-JABALPUR)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 24-02-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Search and seizure; Fair market value; Valuation report; Reassessment proceedings; Set aside; Capital Gains
• Section: 147; 263; 142(1); 55A; 72

Judgement Text

1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR CORRECTED COPY BEFORE SHRI SANJAY ARORA, HON‟BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. No. 25/JAB/2022 (Asst. Year: 2012-13) Appellant by : Shri Rahul Bardia, CA Respondent by : Shri U.B. Mishra, CIT-DR Date of hearing : 12/07/2022 Date of pronouncement : 02/09/2022 O R D E R Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Principal Commissioner of Income Tax-1, Jabalpur („Pr. CIT‟ for short) dated 19/01/2022, revising the assessee‟s assessment under section 147 read with sec. 143(3) of the Income Tax Act, 1961 („the Act‟ hereinafter) dated 26/12/2019 for Assessment Year (AY) 2012-13. The facts 2. The brief facts of the case are that the assessee-HUF converted it‟s land into stock-in-trade on 01/04/2011 (PB pg. 25). Capital gain was returned at Rs. 7.30 lacs upon deducting the indexed (deemed) cost of Rs. 172.70 lacs from the fair market value (fmv) of Rs. 180 lacs as on the date of conversion. The basis of indexed cost was its fmv as on 01/04/1981, i.e., in terms of s. 55(2)(b), at Rs. 21.97 lacs, for which the assessee furnished a valuation report dated 30/4/2012 from a Jatanbai Kewal Chand Dugad, HUF, Main Road, Gole Ganj, Chhindwara (MP) [PAN : AABHJ 5331 A] vs. Principal CIT-1, Jabalpur. (Appellant) (Respondent) ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 2 | P a g e Government approved (registered) valuer (PB pgs. 56-60). The absence of any basis for the adopted value is the substratum of the Revenue‟s case. This, in fact, was one of the reasons recorded u/s. 148(2), for which the assessee‟s assessment for the relevant year was reopened (PB pgs.73-74). The reassessment was completed on 26/12/2019, accepting the returned capital gains. In the view of the ld. Pr. CIT, the Assessing Officer (AO) had failed to make proper enquiries on the issue, so that his order is erroneous and prejudicial to the interests of the Revenue in terms of Explanation 2(a)/(b) to sec. 263 of the Act (refer paras 2 & 3 of his order). He, accordingly, after hearing the assessee in the matter, set aside the assessment for a de novo consideration. Aggrieved, the assessee is in appeal. Arguments 3.1 Before us, the assessee‟s case was that once the AO was, upon making due enquiry, satisfied therewith, and accepted the returned capital gain, it was not open for the ld. Pr. CIT to substitute his view in the matter. Adopting one of the two possible views precludes revision. Toward this, Shri Bardia, the ld. counsel for the assessee, would take us to the enquiry vide notice u/s. 142(1) dated 01/01/2019 (PB pgs.71-72) & 29/03/2019 (PB pgs.68-69), as well as the assessee‟s reply dated 15/4/2019 (PB pgs. 53-55), enclosing along with the valuation report dated 30/4/2012. Further, it is not necessary for the assessing authority to explicitly state his view, which is apparent from his acceptance of the assessee‟s claim upon enquiry, i.e., that the assessee had correctly and fairly returned the capital gain at Rs. 7.30 lacs. The valuation report by the registered valuer is an expert opinion, and the AO had only accorded due regard thereto inasmuch as he had no reason to doubt the same. Merely because the AO has not referred the valuation to the Valuation Officer (VO) u/s. 55A, can by itself be no ground for invoking s. 263 inasmuch as occasion to do so would arise only where there is in his opinion a variance in the disclosed value and the fmv of the relevant capital asset. ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 3 | P a g e 3.2 The Revenue‟s case, on the other hand, is that the matter being technical, the AO ought to have exercised due care and circumspection and referred the matter to the VO u/s. 55A, which only would have brought forth the correct picture in view of the absence of any objective basis for valuation per the valuation report. The respective cases 4. The assessee‟s case, in sum, is that the matter of valuation as on 01/4/1981 (VD) – the subject land having been acquired prior to that date, of the land sold during the year, being the basis for the initiation of the reassessment proceedings, stands examined during assessment proceedings, taking a reasonable view thereof inasmuch as the same is supported by a valuation report (VR). The Revenue stresses on the absence of any stated basis for valuation in the valuation report, and which forms the basis of the impugned order, which was read out during hearing. Adjudication 5. We have heard the parties, and perused the material on record. 5.1 Our first observation in the matter is that it is wrong on the part of the assessee to say that the sole reason for the invocation of sec. 263 by the ld. Pr. CIT in the instant case is the non-reference by the AO to the VO u/s. 55A of the Act. The ld. Pr. CIT also observes, at para 2 of his order, the basis on which the assessee‟s assessment for the relevant year was subject to reassessment proceedings, i.e., an absence of a basis for the value of Rs. 21.97 lacs (or, more aptly, Rs. 1.54 lacs per acre) in the VR dated 30/4/2012, also observing alongwith the non-reference by the AO to the VO u/s. 55A. The mention of the two in the same para should be understood in context. The ld. Pr. CIT found the two facts, i.e., the non-statement of any basis in the VR and the non-reference afore-said, inconsistent with each other. The absence of any basis of valuation by the valuing Engineer in his report forms the starting point or the basis for entertaining a reason to believe overstatement of value (which is deemed as cost of the capital asset transferred) and, thus, escapement of income from assessment qua capital gain. In ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 4 | P a g e the succeeding para (#3), the ld. Pr. CIT observes a failure on the part of the AO to conduct proper enquiry in the matter. In his view, the same constituted lack of application of mind by the AO, and accordingly, set aside the assessment for fresh adjudication in the matter. 5.2 The issue arising for determination is whether there has been due application of mind by the AO in accepting the returned value (cost) of Rs. 21.97 lacs (or Rs. 1.54 lac per acre), or not, and which is, as apparent, a pure question of fact, to be determined upon examining the facts and circumstances of the case in entirety. There is thereby no interference with the discretion of the AO to (or not to) refer the matter of valuation to the VO, but only as to whether the said discretion stands, in the given facts and circumstances of the case, including in the main the stated absence of any objective basis of valuation in the VR submitted, judicially exercised upon considering the material relied upon together with the explanations, if any, furnished by the assessee before him. The said non-reference, it may be noted, itself forms a part of the facts and circumstances of the case, in the conspectus of which the adjudication by the AO is to be reviewed by the revisionary authority from the standpoint of due, i.e., as warranted in the given facts & circumstances, application of mind, or the lack of it. 5.3 The reason for reopening, which reason is not disputed, was the absence of any basis for the stated (returned) value in the valuation report by the Valuer. The AO‟s enquiry in the assessment proceedings ought to have been therefore directed toward ascertaining this basis, if any, and issue a finding qua the same. It is only where he does so that he could be said to have made proper enquiry, i.e., as warranted under the circumstances and, consequently, of having applied his mind in the matter. Not only there is no whisper of the same in the assessment order, we find no such basis stated by the assessee either before him, or, for that matter, before the revisionary authority. None was brought to our notice, nor do we find any upon perusing the material on record. Sure, the AO has enquired in the matter, ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 5 | P a g e which Shri Bardia was at pains to emphasize during hearing. However, per each of the three documents referred to by him, i.e., the reasons recorded (communicated on 13/11/2018); the notice u/s. 142(1) dated 01/01/2019; and that dated 29/3/2019 (at PB pgs.78, 72 & 69 respectively), the AO makes the same enquiry, reproduced as under, even as that on the first date (13/11/2018) would not qualify as one, made again perhaps for the reason of non-response by the assessee: “5. You have shown capital gain of Rs. 7,30,000/- on conversion of land into stock-in-trade by deducting cost of acquisition of land for 1,72,70,000. It is, however, as observed that the property was received by you in family partition held on 01/04/1971 and the cost of agricultural land is assumed as Rs. 21,97,000/- as on 01/04/1981 for the purpose of applying cost of inflation index in A.Y. 2012- 13. The value of Rs. 21,97,000/- is simply mentioned in valuation report of Engineer dated 30/04/2012 but there is no basis of value of Rs. 21,97,000/- as on 01/04/1981 has been given in the valuation report. Please explain.” The assessee replied on 15/04/2019, as follows, enclosing along with the valuation report dated 30/04/2012: “5. That in respect of market value of land measuring 14.33 acres as on 01.04.1981, it is submitted that the value arrived at Rs.21,97,000/- by Govt. Reg. Valuer is after considering value of 4 Dug well with electric motor pump and pipe line, WBM Road, 35 Mango Trees and 5 Hutments for agriculture labors and domestic cattle etc. It is relevant to note that the land is fully irrigated land as detailed in valuation report copy of which is enclosed for ready reference. That from the copy of valuation report it can be observed that before arriving the value at Rs. 2197000/- valuer has considered all the aspect as fixed by statutory authorities for issuing valuation report. The relevant part of the valuation report (supra) reads as under:- „Based upon the actual observation and considering to the various important factors like situation, location, area, shape, size ratio of frontage to depth return frontage tenure condition potential for marketablility, population growth and other demographic trends that has been impart on the subject property. The valuation of the property is as follows:- Value of Property as on 01/04/1981 In my opinion the rate of well-developed agricultural land as on 01/04/1981 could be considered as Rs. 3,80,000/- per Hectare (about Rs. 1,54,000/- per acre). Hence the Fair Market Value of this property measuring 5.781 Hectare area of ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 6 | P a g e developed land as on 01/04/1981 was 5.781 @ Rs. 3,80,000 = Rs. 21,96,780 Say Rs. 21,97,000 (INR Twenty One Lac Ninety Seven Thousand Only).‟ The stated basis, it may be noted, is a generalized statement, to be found in all valuation reports, without specifying any detail, and neither does the opinion expressed furnishes any basis of valuation. Shri Bardia, on this being observed by the Bench during hearing, would draw our attention to section “SALES” of the valuation report which, apart from reference to Part-II (of the report), relevant part of which stands reproduced hereinabove, also mentions as „enquiry from the local people‟. He, however, could not answer as to how could one possibly remember the sale rate/s after over three decades and, even so, how could be the same be regarded as authentic and relied upon. It would be a different matter, we add, if any sale instances had been mentioned. As in that case, the same would, being based on a fact/s, constitute a valid basis as well as could be subject to verification. In fact, the very same Section states, in response to the enquiry in respect of sale instances, as „Not Available‟. What, then, one wonders, was the enquiry from the local people about? Rather, for all we know, there may have been, and in all probability, a significant shift of population over time; a change in population profile on account of population explosion and rapid urbanisation, witnessed across urban centres in India, extending their municipal limits in all directions by several kilometres, over the last few decades, and both Chhindwara and Jabalpur are no exceptions to this phenomenon. The agricultural land in April 1981, the date for which the value is to be reckoned as the deemed cost, located in a village, became, in April, 2012 (i.e., at the time the said land is being valued), a part of an upper middleclass urban residential locality (refer to question and answer at para 9 of „General Section‟ of the VR). The land, it needs to be borne in mind, though being valued on 30/4/2012, is as on 01/4/1981 (VD), over which period the entire eco-system around it, i.e., it‟s nature, neighbourhood, demography, the user or potential user, etc. which has a direct bearing on the demand and supply equilibrium, on which, in effect, the value of land, a natural asset, with no intrinsic ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 7 | P a g e cost, in turn, depends, stands drastically changed/altered. How, and on what basis, then, we wonder, the Valuer has valued the land? We are at a total loss to understand the same, and neither could Shri Bardia throw any light in the matter. The land being a part of the assessee‟s wealth, the wealth-tax return (as on 31/03/1992) was also seen (PB pg.22), which, however, again is of no help as, being exempt from wealth-tax, no value stands assigned thereto. The only informative value thereof is of the subject land continuing to be an agricultural land as on 31/03/1992. Further, there is no mention of 35 mango trees or domestic cattle in the wealth-tax return. 5.4 In our considered view, much less the AO, even the RV has not applied his mind in valuing the land and has issued the report in a mechanical manner at a predetermined value, de hors any actual data or valid basis. How and, if so, to what extent, one wonders, could factors like situation, location, area, shape, size ratio of frontage to depth, return frontage, tenure condition, etc., all unstated, have a bearing on the value of a land, agricultural in nature and held for that purpose? Why, he could not have possibly verified, so as to certify the description of the property as stated in his report, except of course it‟s status as an agricultural land as on 01/04/1981, even the basis of which is not stated in his report. Continuing further, land, it is to be appreciated, is a natural asset. It‟s „cost‟ would thus be its market value, i.e., at which it is purchased and sold. Of course, the cost of any development, where so, would increase it‟s cost to that extent for the owner, and may also impact it‟s sale value. The ownership of the subject land was, as stated, through a family partition dated 01/04/1971. There is no material on record toward it‟s value on that date, even as it admittedly formed a part of the assessee‟s balance-sheet. Why? Admittedly, there are no sale instances at the relevant time (i.e., April 1, 1981). The only manner therefore to value the same was to extend the zone of consideration, in terms of geography, so as to include neighbourhood (i.e., the village/s adjoining the one in which it was located), as well as increase the time period by, say, one month (either side) at a time, to (say) up to six months ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 8 | P a g e before and after 01/04/1981, so as to get a fair idea of the value obtaining at the relevant time. It is highly improbable that no sale transaction would have occurred in the 12-month period in the said villages. In any case, this time period could be increased further in the same manner, to arrive at the actual data as available with the office of the Sub-Registrar. No cost of improvement is reported, either by the assessee or in the valuation report, which contains a separate Section therefor. The other manner we can think of is the rent or, in its absence, income capitalisation method, as where the subject land stands/is given on rent, or yields income. The wealth-tax rules provide a capitalisation rate. Being admittedly an agricultural land in April, 1981, the same could be applied thereto. Four dug-wells, 5 hutments for agricultural labourer and cattle indicate vigorous agricultural activity. The wealth-tax return for AY 1992-93 reflects agricultural income at Rs. 22,000/-, which may though also be in respect of 1/4 th share in land at Imli Kheda, i.e., besides 14.5 acres of subject land at Nonia. Further, this value as on 01/4/1992 could be suitably discounted to arrive at that on VD. The value difference is stark. 5.5 The foregoing highlights a complete lack of application of mind by the AO in the matter, as well as the need to have referred the matter to the VO. Perhaps, as Shri Bardia would argue, as the whole scenario has changed considerably over the past three decades, a reference to him (sec. 55A) may not of much consequence. But, then, this is precisely why the AO, being not a technical person, ought to have met the assessee‟s reliance on an expert opinion with another, and who could not be expected to prepare a mechanical and, if we may say so, a contrived report and, in any case, provide an objective basis for valuation as well as point to the deficiencies in the registered valuer‟s report, with we ourselves suggesting two methods, both recognized, which could have been applied. In fact, the Directorate of Income Tax, New Delhi, has issued a detailed guideline on valuation of immovable properties in 2009, which has to be followed by the approved valuers. A non-reference u/s. 55A may be justified where the AO, for reasons stated in his ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 9 | P a g e order – which are non-existent, opines on valuation independent of VR, and which coincides or agrees with that by the RV, while, on facts, the latters‟ report itself is found as without basis. Rather, if only the AO had applied his mind, he would have been able to discern that the valuation report being relied upon by the assessee is, we are afraid to say, a hash report and, in any case, without any basis of valuation, much less a valid basis, even as observed by the Bench during hearing. To us, it is a clear case of valuation being made by applying reverse indexation, i.e., by arriving at the value of land as on 01/04/1981, upon first determining the amount of capital gain that is to be disclosed. This is apparent from his order being sans any finding qua such basis, which also forms the reason for reassessment and, rather, without any deliberation thereon. The basis of valuation of the subject land (as on 01/04/1981) thus remains unstated and un- opined, much less examined, and which prompted us to state earlier of our being at a loss to understand the same. 6. We, accordingly, find no reason to interfere with the impugned order, and uphold the same. The matter of valuation, as evident, being principally and essentially factual, reliance by Shri Bardia during hearing on the decision in Pr. CIT vs. Om Rudrapriya Holiday Resort Pvt. Ltd. [2019] 184 DTR 378 (Raj) would be, for that reason, of no assistance. Even as observed by the Bench during hearing, in the facts of that case, the Hon'ble Court dismissed the Revenue‟s appeal in view of the finding by the Tribunal that the AO had taken a plausible view in respect of valuation, a matter of fact. In the instant case, on the contrary, we find a complete non-application of mind by the AO in the matter. We decide accordingly. 7. In the result, the assessee‟s appeal is dismissed. Order pronounced in open Court on September 02, 2022 Sd/- S d/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: 02/09/2022 ITA No. 25/JAB/2022 (AY: 2012-13) Jatanbai Kewalchand Dugad (HUF) v. Pr. CIT 10 | P a g e vr/- Copy to: 1. The Appellant: Jatanbai Kewal Chand Dugad, HUF, Main Road, Gole Ganj, Chhindwara (MP). 2. The Respondent: The Principal CI T-1, Jabalpur. 3. The CI T-D.R., I TAT, Jabalpur. 4. Guard File. // True Copy //