No Reference Can Be Made To DVO Once Value Of Capital Asset Declared By Taxpayer Is More Than FMV: Chennai ITAT
Pankaj Bajpai
28 March 2024 11:45 AM GMT
Finding that value determined by the DVO is less than the valuation adopted by assessee for computing fair market value (FMV), the Chennai ITAT ruled that the value adopted by the DVO cannot be taken for computing FMV. The Bench of Mahavir Singh (Vice President) and Manoj Kumar Aggarwal (Accountant Member) observed that “where value of capital assets shown by the assessee being...
Finding that value determined by the DVO is less than the valuation adopted by assessee for computing fair market value (FMV), the Chennai ITAT ruled that the value adopted by the DVO cannot be taken for computing FMV.
The Bench of Mahavir Singh (Vice President) and Manoj Kumar Aggarwal (Accountant Member) observed that “where value of capital assets shown by the assessee being less than its fair market value, reference can only be made to DVO in that condition, but in case the value of capital asset shown is more than fair market value, reference cannot be made”. (Para 8.1)
As per the brief facts of the case, the assessee was the owner of 1/3rd of a vacant land at Chennai, and had declared capital loss in the return on sale of said property for a total sale consideration of Rs.41,94,664/-. The AO noted that the assessee has adopted cost of acquisition as on Apr 01, 1981 at Rs.21,58,689/ and hence, issued notice u/s.148 on account of inflation of cost of acquisition which resulted in capital loss and accordingly, escapement of income. According to AO, the fair market value of this land as on Apr 01, 1981 is @ Rs.14.6 per sq.ft., and the cost of acquisition as on the said date was estimated being fair market value at Rs.70,664/-. Whereas, the assessee's share of 1/3rd was to be adopted at Rs.23,554/-. The AO referred the cost of acquisition of property to the DVO u/s.142A, who sent a valuation report estimating the cost of acquisition of property as on Apr 01, 1981 at Rs.27,000/-. The AO noted that the cost of acquisition is adopted as Rs.27,000/- but assessee's liability to be paid as per the partition deed during assessment year 2008 is Rs.17.50 lakhs, which is already received by her and hence, he has not allowed any deduction. The AO therefore computed the sale consideration and capital gains at Rs.40,32,664/-
The Bench found that the assessee's sale consideration for her 1/3rd share is Rs.41,91,664/-, and as per assessee's computation of capital gains / loss, the value taken for property as on Apr 01, 1981 is Rs.21,58,689/-.
The Bench also admitted that the assessee has declared the fair market value as on Apr 01, 1981 at Rs.21,58,689/- which is higher than the estimate made by the DVO as well as estimated by the AO while framing assessment and estimating at Rs.70,664/-.
Referring to the decision of Bombay High Court in the case of CIT vs. Puja Prints [2014] 360 ITR 697, the Bench reiterated that Section 55A(a) of the Income tax Act very clearly at the relevant time provided that a reference could be made to the Departmental Valuation Officer only when the value adopted by the assessee was less than the fair market value.
Further, the Bench noted that by way of the amendment brought out by the Finance Act, 2012 w.e.f. 01.07.2012 in section 55A(a) of the Act, in place of “is less than its fair market value” the substituted words are “is at variance with its fair market value”.
Hence, the ITAT allowed the assessee's appeal.
Counsel for Appellant/ Assessee: N. Arjun Raj
Counsel for Respondent/ Revenue: R. Clement Ramesh Kumar
Case Title: Late Smt. Nirmala Venkatapathy verses ITO
Case Number: ITA No.: 2492/CHNY/2019
