Ajay Kumar Gupta vs ITO, Ward 46(1)

“6.

I have considered the material available on record including the Assessment Order, facts of the case, ground of appeal and submissions filed by the appellant. The issues raised in the ground nos. 1 to 10 are interrelated to a common issue of the computation of the long-term capital gains (LTCG) arising from sale of property situated at Green Park Extension, New Delhi. The primary issue in dispute lies in the determination of the Fair Market Value (FMV) of the sold property as on 01.04.2001 for the purpose of computing the indexed cost of acquisition u/s 48 of the Act. The appellant has challenged the action of the AO in rejecting the FMV declared on the basis of the Registered Valuer’s report and substituting the same with the value derived from the Gift Deed dated 08.01.2004, further the action of the AO in reverse computation using the Cost Inflation Index (CII). The appellant has also objected to the reference made to the District Valuation Officer (DVO), the alleged non-grant of adequate opportunity, and the disregard of objections filed during the course of assessment proceedings. Hence, all these grounds are consolidated together for better appreciation of the facts.

6.1

The facts emerging from the assessment order and the submissions of the appellant are that the appellant, during the AY 2018–19, sold a residential property situated at T-18, Green Park Extension, New Delhi–110016 for a total consideration of Rs. 6,20,00,000/- vide two sale deeds dated 06.03.2018, relating to the ground and first floors of the said premises. It is noted that while both portions were sold for Rs. 3,10,00,000/- each, the ground floor was earlier held in the name of the appellant’s brother, Shri Vijay Kumar, who had gifted the same to the appellant through a Gift Deed executed on 08.01.2004. The appellant thereafter purchased another residential property for Rs. 4,25,00,000/- at DLF City, Phase-II, Gurgaon, Haryana vide Sale Deed dated 08.01.2018 and claimed exemption u/s 54 of the Act in respect of the capital gain so arose. In support of the computation of capital gains, the appellant furnished a valuation report from Shri Govind Rawat, a Government-approved valuer, wherein the Fair Market Value (FMV) of the ground floor as on 01.04.2001 was determined at Rs. 35,50,000/-, and that of the first floor at Rs. 34,00,000/-. On the basis of these valuations, the appellant worked out the indexed cost of acquisition at Rs. 96,56,000/-and Rs. 92,48,000/-, respectively, and consequently declared nil taxable capital gain after claiming deduction u/s 54 amounting to Rs. 4,30,96,000/- (inclusive of stamp duty and other related expenses).

6.1.1

On examination of the Gift Deed dated 08.01.2004, the AO observed that the value of the property (ground floor) was declared at Rs. 9,50,000/- as on the date of execution of the gift deed. As the valuation was shown excessively at Rs. 35,50,000/- as the FMV as on 01.04.2001, as per the valuer’s report, the case was referred for the valuation of the property to the District Valuation Officer (DVO) for independent determination of the fair market value. As the report of the DVO had not been received at the time of completion of assessment, the AO proceeded to finalize the assessment on the basis of the material available on record subject to the modification/rectification of the assessment order. As the assessment was barred by limitations, the AO proceeded to compute the LTCG by adopting reverse calculation of indexed cost as on 01.04.2001 at Rs. 8,71,560/- and Rs. 7,17,106/- instead of Rs. 9,50,000/- and Rs. 7,90,000/- and after indexation the costs were computed at Rs. 23,70,643/- and Rs. 19,50,528/-. Thus, against the sale considerations of each of Rs. 3,10,00,000/-, the capital gains were computed at Rs. 2,86,29,357/- and Rs. 2,90,49,472/-, totalling of Rs. 5,76,78,829/-. The AO further allowed deduction of Rs. 4,56,95,000/- u/s 54 of the Act and computed the revised LTCG @ Rs. 1,19,83,829/- and added to the total income.

6.2

The appellant has contested the action of AO stating that the FMV of the property situated at T-18, Green Park Extension, New Delhi, as on 01.04.2001, should be adopted at Rs. 69,50,000/- as determined by a Registered Valuer. The AO, however, rejected the said valuation and substituted the value with his own estimate of Rs. 8,71,560/-, based on the consideration value of Rs. 9,50,000/- mentioned in the Gift Deed executed on 08.01.2004. On perusal of the valuation report furnished by the appellant, it is observed that the valuer has merely adopted a generalized rate per square foot without producing any verifiable documentary evidence such as comparable sale instances, circle rate notifications, or corroborating municipal or revenue records. The report is, therefore, based on assumptions rather than demonstrable market data. Hence, the AO is found to have acted as per the provisions of the Act by referring the valuation to the DVO.

6.2.1

Further, the Gift Deed executed on 08.01.2004 reflects the same property’s value at Rs. 9,50,000/-. Although the appellant argues that the said deed was executed without monetary consideration, the fact remains that the declared value in a registered legal instrument, executed within a short span of three years from 01.04.2001, cannot be ignored. The AO, therefore, rightly considered it as the most proximate and reliable indicator of market value around that period. The Action of the AO in applying the Cost Inflation Index (CII) backward to arrive at the estimated FMV as on 01.04.2001. While the appellant disputes the use of reverse indexation, it is noteworthy that in the absence of comparable sale data or official valuation, indexation serves as a rational and consistent method to estimate approximate values over time. The appellant, having failed to substantiate the higher valuation with credible documentary evidence, cannot now challenge the reasonable estimation made by the AO. Accordingly, I find that the AO’s determination of FMV at Rs. 8,71,560/- as on 01.04.2001 is reasonable and justified under the circumstances.

6.3

The appellant has further objected to the AO’s action in substituting the valuer’s report without awaiting the DVO’s report. However, the action of the AO indicates that although reference was initiated, the DVO’s report could not be received within the time available for completing the assessment. Due to the time limitations, the AO was justified in completing the assessment based on material available on record. Also, section 55A of the Act empowers an AO to refer valuation matters to the DVO if he is of the opinion that the value claimed by the appellant is at variance with the fair market value. However, there is no statutory bar preventing the AO from forming his own opinion or proceeding on the basis of available evidence if the DVO report is not forthcoming. The substitution of value, therefore, cannot be said to be illegal or contrary to law. Thus, the challenge of the appellant in the reference made to the DVO is dismissed.

6.4

The appellant further argues that the adequate opportunity was not provided for response. I do not find any merit in this claim as on perusal of the assessment order, it is evident that notices were duly issued electronically u/s 143(2)/142(1) and show-cause notices were communicated on multiple occasions through the ITBA portal and in pursuance thereto, the appellant had made his replies and supporting documents. Thus, the claim of the appellant in regards to the adequate opportunity was not provided is lack of merit and therefore, the same is dismissed. 6.5 The appellant, during the course of the appellate proceedings, has submitted DVO’s report dated 01/09/2021, wherein, the DVO has adopted the value of the property as on 01.04.2001 was Rs. 15,58,000/-. A screenshot is reproduced as under:-