URMILA BAWA v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2006-LL-1130-10]

Citation 2006-LL-1130-10
Appellant Name URMILA BAWA
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 30/11/2006
Assessment Year 1995-96
Judgment View Judgment
Keyword Tags income capitalisation method • district valuation officer • reassessment proceedings • income chargeable to tax • land acquisition officer • collaboration agreement • income tax authorities • construction activity • official liquidator • cost of acquisition • fair market value • family settlement • registered valuer • long-term capital • valuation report • issue of notice • capital asset • sale instance • special bench • town planning • capital loss • land revenue • actual sale • real estate • sale price
Bot Summary: The AO has stated that the land in question is agricultural land and therefore it was necessary for him to refer it to the DVO. The registered valuer is not a qualified agricultural land valuer and hence his report commands no special acceptance. Clause authorises the AO to refer the valuation of a capital asset to the DVO in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the AO is of opinion that the value so claimed is less than its fair market value. Will not apply to a case where the value of the asset as claimed by the assessee is on the basis of an estimate made by registered valuer and the AO is of the opinion that the value so claimed is less than its fair market value. The AO in the present case could not have validly referred the matter of valuation to the DVO since the fair market value declared by the assessee is supported by an estimate of the registered valuer and the value so claimed by the assessee is estimate of the registered valuer and the value so claimed by the assessee is more than its fair market value according to the AO. The situation is thus neither covered by cl. The expression refers to a case where the value declared by the assessee is not in accordance with the estimate made by the registered valuer or where the AO is not of the opinion that the value so claimed is less than its fair market value. On merits, we find that in the valuation report of the registered valuer, the registered valuer has brought out the facts that the land is situated about 32 kms. The registered valuer has valued the land after a personal inspection of the property on 18th March, 1997.


R.V. EASWAR, VICE PRESIDENT ORDER This appeal by assessee relates to asst. yr. 1995-96. assessee i s "individual" in status. appeal arises out of assessment order passed on 27th March, 2001 under s. 148 r/w s. 143(3) of IT Act. 2 . Several grounds of appeal have been taken before Tribunal out of which ground Nos. 10 and 21 questioning jurisdiction of AO to initiate reassessment proceedings by issue of notice under s. 148 have not been pressed. other grounds, except ground Nos. 18 and 19, relate to assessment of long-term capital gains. brief facts in relation to these grounds may be noticed. assessee inherited 50 per cent share in certain land situate in Mulund (West), Bombay, near Mulund Railway Station on Devi Dayal Road. land was sold during relevant previous year and assessee declared capital loss (long-term) of Rs. 44,57,635. capital loss was arrived at by deducting from sale price of Rs. 1,40,00,000 (assessee s share) market value of property as on 1st April, 1981 which assessee claimed at Rs. 71,26,500 basis of report of registered valuer. Thereafter assessee applied indexation of cost and declared capital loss. A O accepted sale price declared but disputed fair market value of property as on 1st. April, 1981 as claimed by assessee. He therefore referred matter of valuation to District Valuation Officer (DVO) under s. 55A in course of original assessment proceedings. They were completed accepting value claimed by assessee since DVO s report was not received before completion of assessment. On receipt of report assessment was reopened under s. 148 and value estimated by DVO at Rs. 19,96,000 as on 1st April, 1981 was adopted in reassessment and capital gains were computed, after cost indexation, at Rs. 88,30,360. value having been confirmed by CIT(A) assessee is in further appeal before Tribunal. 3 . In support of grounds, learned counsel for assessee submitted as follows : (a) That AO lacked jurisdiction to refer valuation to DVO under s. 55A. (b) He made reference to DVO "surreptitiously" without informing assessee or making endorsement in order sheet. (c) Sec. 55A does not apply to case of assessee. It applies only if fair market value of asset is more than what is declared by assessee. In this case fair market value as on 1st April, 1981 as declared by assessee is more than what is estimated ultimately by DVO and to such situation section in terms does not apply. (d) Even s. 55A(b) is not applicable because this is case where assessee s valuation is supported by report of registered valuer. (e) valuation report of DVO is infructuous and meaningless as it is received after original assessment was completed and hence cannot be relied upon. (f) There is no satisfaction as to conditions of s. 55A having been fulfilled. (g) Even on merits, registered valuer s report is to be preferred over DVO s report as it is based on actual sale instance as on 24th March, 1981. second report of another registered valuer was also filed before CIT(A) which was ignored by him. In support of his contention that whole reference under s. 55A was invalid, learned counsel for assessee relied on following authorities : (1) Reliance Jute Industries Ltd. vs. ITO (1984) 43 CTR (Cal) 168 : (1984) 150 ITR 643 (Cal); 2) M. V. Shah, Official Liquidator, Anant Mills Ltd. vs. U.J. Matain (1994) 11 7 CTR (Guj) 170 : (1994) 209 ITR 568 (Guj); 3) Special Land Acquisition Officer vs. P. Veerbhadarappa (1984) 42 CTR (SC) 357 : (1985) 154 ITR 190 (SC); 4) Mahesh Chandra Agarwal vs. Union of India (1998) 231 ITR 319(Del) (sic); 5) Britannia Industries Ltd. vs. CIT (2005) 198 CTR (SC) 313 : (2005) 278 ITR 546 (SC); 6) CIT vs. Bansal Credits Ltd. (2003) 179 CTR (Del) 23 : (2003) 259 ITR 69(Del). 4. learned senior Departmental Representative Mr. Sahota, on other hand submitted as follows : (a) That assessee need not be informed by AO that matter of valuation is being referred to DVO under s. 55A. section does not require so. That cannot invalidate reference. (b) That AO has given reasons for reference in para 4 of assessment order. He has relied on s. 55A(b)(ii) which permits AO to resort to reference procedure if "having regard to nature of asset and other relevant circumstances, it is necessary so to do". AO has stated that land in question is agricultural land and therefore it was necessary for him to refer it to DVO. (c) registered valuer is not qualified agricultural land valuer and hence his report commands no special acceptance. (d) land remained agricultural till it was sold and was not converted into residential land fit for development for real estate. Therefore it could not have commanded value claimed by assessee as on 1st April, 1981. This aspect has been brought out in report of DVO. Therefore, his report is to be preferred to that of registered valuer where this aspect has not been touched upon. (e) authorities cited by learned counsel for assessee are not relevant to issue on hand and hence not applicable. 5. We have carefully considered rival contentions and facts brought on record. As far as jurisdiction of AO to refer matter of valuation to DVO under s. 55A is concerned, few aspects have to be noticed. It was during original assessment proceedings that AO made reference, but since report of DVO was not received by him before completion of assessment, he completed assessment as per value declared by assessee and reopened assessment on receipt of DVO s report. assessee challenged notice of reassessment by filing writ petition before Hon ble Delhi High Court but same was dismissed by Hon ble Court and decision in Bawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del). Rightly therefore assessee does not wish to press grounds challenging jurisdiction of AO to reopen assessment. So far as validity of reference under s. 55A is concerned, fact that assessee s writ petition was dismissed by Hon ble Delhi High Court does not stand in way of assessee and it is open to him to contend that conditions of s. 55A have not been fulfilled. What High Court has held while dismissing assessee s writ petition is that valuation report of DVO can clothe AO with jurisdiction in sense that it affords "reason to believe" that income chargeable to tax has escaped assessment. Hon ble High Court was not called upon to adjudicate on issue whether reference to DVO under s. 55A is valid or not. In this view of matter, we proceed to consider question whether reference under s. 55A is valid. 6 . Sec. 55A has two clauses. Clause (a) authorises AO to refer valuation of capital asset to DVO in case where value of asset as claimed by assessee is in accordance with estimate made by registered valuer, if AO is of opinion that value so claimed is less than its fair market value. In present case, we are concerned with fair market value of agricultural land as on 1st April, 1981. under s. 55(2)(b), where capital asset become property of assessee before 1st April, 1981 assessee has option to either take cost of acquisition of asset or its fair market value as on that date for purpose of computing capital gains. In very nature of things, while estimating fair market value as on 1st April, 1981 any assessee would like to put it at high figure since that will reduce amount of capital gains. In such case, it would be attempt of AO to place lower value than what has been declared by assessee. In this situation, cl. (a) of s. 55A cannot apply because primary condition for application of clause is that AO should be of opinion that value declared by assessee is less than fair market value. In present case, AO could not have invoked this clause because he was of opinion that value declared by assessee as on 1st April, 1981 was more than fair market value of asset. 7. It now becomes necessary for us to see if cl. (b) of s. 55A is applicable. Sec. 55A, so far as it is relevant for our purpose, is as under : "55A. With view to ascertaining fair market value of capital asset for purposes of this Chapter, AO may refer valuation of capital asset to Valuation Officer : (a) in case where value of asset as claimed by assessee is in accordance with estimate made by registered valuer, if AO is of opinion that value so claimed is less than its fair market value; (b) in any other case, if AO is of opinion : (i) that fair market value of asset exceeds value of asset as claimed by assessee by more than such percentage of value of asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to nature of asset and other relevant circumstances, it is necessary so to do," From above it is clear that cl. (b) will not apply to case where value of asset as claimed by assessee is on basis of estimate made by registered valuer and AO is of opinion that value so claimed is less than its fair market value. This is import of words "in any other case" appearing in opening part of clause. Therefore, AO in present case could not have validly referred matter of valuation to DVO since (a) fair market value declared by assessee is supported by estimate of registered valuer and (b) value so claimed by assessee is estimate of registered valuer and (b) value so claimed by assessee is more than its fair market value according to AO. situation is thus neither covered by cl. (a) nor by cl. (b). It would, therefore, appear that reference to DVO was invalid. 8. aforesaid position is supported by order of Mumbai Bench of Tribunal in case of Sajjankumar M. Harlalka vs. Jt. CIT (2006) 102 TTJ (Mumbai) 974 : (2006) 284 ITR 156 (Mumbai)(AT) and by order of Pune Bench of Tribunal in case of Smt. Krishna Bai Tingre vs. ITO (2006) 103 TTJ (Pune) 216. 9. learned senior Departmental Representative has however sought to support reference under sub-cl. (ii) of cl. (b) and in this connection has placed reliance on observation of AO at p. 4 of assessment order. Under this sub-clause, no doubt AO can make reference to DVO if it is necessary to do so having regard to nature of asset and other relevant circumstances, but both sub-clauses of cl. (b) are governed by overriding expression "in any other case" appearing in beginning of clause. expression refers to case where value declared by assessee is not in accordance with estimate made by registered valuer or where AO is not of opinion that value so claimed is less than its fair market value. Both these conditions, as already noted, are not present in case on hand. Therefore, even sub-cl. (ii) of cl. (b) cannot validate reference under s. 55A. 10. On merits, we find that in valuation report of registered valuer (pp. 38 to 45 of assessee s paper book), registered valuer has brought out facts that land is situated about 32 kms. from Bombay in middle class locality, that it was agricultural land on which some old structures existed and later to be developed as per development plan, that civic communities like schools, offices, hospitals etc. were available within reasonable distance, that land had potential for development, that it is assessed to land revenue etc. registered valuer has valued land after personal inspection of property on 18th March, 1997. land was purchased as agricultural land in 1942 by late Shriman Bawa Maharaj Singh Ji and his elder brother late Shriman Bawa Gurmukh Singh Ji. At that time it measured about 55 acres and 2 guntas. lands were adjoining each other and were purchased under separate deeds of conveyance. Both were members of larger joint family and there were disputes amongst members of family which were ultimately settled under arbitration award passed by Hon ble Justice Meherchand Mahajan, retired Chief Justice of India in 1956. As per award, about 1,75,000 sq. yds. of agricultural land fell to share of late Shriman Bawa Maharaj Singh Ji. Disputes arose amongst legal heirs of Bawa Maharaj Singh Ji also and were compromised in 1991. assessee is grand daughter in law of Bawa Maharaj Singh and received land under family settlement arrived at in 1992. land is located in Mulund, which is part of Municipal Corporation of Greater Bombay. Though rapid urbanization and construction activity all around land took place, land in question continued to be agricultural land assessed to land revenue. valuer has stated that permission for non- agricultural use has not been obtained. According to registered valuer, land is bound to attract builders in due course of time although at that time construction was not permitted. He has opined that it may be possible to get approval from concerned authorities for putting land to non-agricultural use, such as, construction of residential units. registered valuer has noted that survey Nos. 11 24 to 11 27 (adjacent lands) were sold by late Bawa Maharaj Singhji on 24th March, 1981. This land admeasured 7,995 sq. yds. and was sold for Rs. 828 per sq. yd. He further noted that in case of another plot measuring 7,950 sq. ft., which was nearby, value was assessed at rate of Rs. 1,240 per sq. yd. or Rs. 1,038 per sq. ft. He has also noticed that land rate of agricultural land aggregating to 19,133 sq. yds. which was reserved for development activities and located near Bombay Agra road was assessed at Rs. 680 per sq. yd. as on 1st April, 1981. land earmarked for roads was assessed for land revenue at Rs. 540 per sq. yd. On this basis, registered valuer estimated fair market value of land sold by assessee, as on 1st April, 1981 at Rs. 1,42,53,000, details of which are as follows : (a) Plot Nos. 11 99, 1200, 1201, 1202, 1237, 1238, 1239 and 1240, and road area admeasuring 19,133 sq. yds. Rs. at Rs. 680 per sq. yd. 1,30,10,440 (b) Plot No. 11 69 (Part) measuring 800 sq. yds. at Rs. Rs. 750 per sq. yd. 6,00,000 Rs. (c) Road areas aggregating 1,190 sq. yds. 6,42,600 Rs. Total : 1,42,53,040 Rs. Approximately : 1,42,53,000 1 1 . As against this, DVO has estimated fair market value of property as on 1st April, 1981 at Rs. 39.92 lakhs at rate of Rs. 21 per sq. ft. His report is dt. 19 Feb., 1999 and copy of report is placed at pp. 60 to 70 of assessee s paper book. assessee had submitted registered valuer s report before him and other details, such as, copy of 7/12 extract, plan of land, copy of certificate under s. 269UL (3) of IT Act, etc. to DVO. DVO inspected property on 13th July, 1998 in presence of assessee s son. He noted that by collaboration agreement dt. 7th Oct., 1994, subject property was transferred to Shri Randhir Singh Bhatta and others for development for consideration of Rs. 2,80,00,000 plus 20 per cent of balance net proceeds in excess of figure. DVO has also accepted that land is agricultural land surrounded by residential area and is situated in middle class locality with all civic amenities available nearby. He has based his report on two sale instances of properties on 18th Dec., 1982 and 29th Oct., 1984. These are given in Annexure X to his report. It is seen therefrom that sale instance of 18th Dec., 1982 is of flat in Niranjan Building, Mulund West. area of flat is 450 sq. ft. and land rate has been shown at Rs. 175 per sq. ft. second sale instance is of land bearing Survey No. 147 at Nahur Village, Mulund West. It was transferred at rate of Rs. 34 per sq. ft. DVO has stated that these sale instances best reflect value of subject property on date of valuation. He has commented that sale instances quoted by registered valuer were not substantiated by any evidence and at any rate, value was very high particularly in view of fact that subject property is agricultural land and has not been converted to residential or commercial land. subject property was still agricultural land on date of inspection. On this reasoning, DVO had adopted value of Rs. 21 per sq. ft. 12. Before CIT(A), assessee sought to submit report from Government registered valuer of agricultural land/farms. This report is dt. 2nd Feb., 2003. In this report, registered valuer has recognized that land is surrounded by town planning schemes and development plans of urban bodies and that it has great potential for conversion into non-agricultural or residential or commercial use thereby enhancing its value. He has relied on certain sale instances of generally similar property referred to Annexure 3 of his report in same locality and even adjacent property. He has in this manner estimated value of land at Rs. 1,24,00,000. In Annex. 1 to his report, he has noted that land has been classified in land revenue records as garden/ irrigated land and that crops grown were floriculture and vegetables. In Annex. 2 , valuer has analyzed type of soil on land, climatic conditions to which land is subject, suitability of soil to different forms of agricultural crops and activities, crop pattern, farming situations, etc. In Annexure 4 , registered valuer has given basis of valuation. He has stated that land is ideally suited for cultivation of floriculture crops and vegetables which are highly lucrative and have ready market. He has adopted method of following average of sale instance method and capitalisation method. According to him, value on basis of capitalisation method would come to Rs. 1,09,10,250 whereas according to sale instance method (instances given in Annex. 3 ), value would be Rs. 1,39,65,003. average came to Rs. 1,24,37,626 which has been rounded off to Rs. 1,24,00,000. In Annex. 3 , he has given sale instances which have been given by registered valuer whose report was filed with DVO. There is however minor difference in estimate between two, hardly Rs. 3 lakhs. 1 3 . CIT(A) preferred to follow report of DVO and thus confirmed estimate of fair market value as adopted by AO. 14. We have carefully considered facts and rival submissions. It is clear on basis of valuation reports perused by us that all three valuers are agreed that land at material time was agricultural land and they are also agreed that it has huge potential for development since it is surrounded by lands which have already been subjected to development. It is, therefore, reasonable inference that it was only matter of time that subject land would also be developed as residential use after obtaining necessary approvals from concerned authorities. It is significant that land was sold to uncle of assessee who was in business of property development. indications are clear that land was no longer to be treated as agricultural land in real sense but was looked upon by everyone concerned as land fit for development. In this situation, estimate of fair market value as on 1st April, 1981 cannot ignore ground realities and due weightage should be given to them. On this basis, if we approach three valuation reports, we find that report of DVO does not take due notice of ground realities though he has also taken note of fact that land is surrounded by residential area. However, beyond mere remark to that effect in para 3.5 of report, it does not appear to us that he has given due weight and importance to fact that land was ripe for development and would have in short time be subjected to real estate development. sale instance given by him as on 18th Dec., 1982 is that of flat which may not be very relevant. sale instance of 29th Oct., 1984 gives value of Rs. 34 per sq. ft. However, he has not given any valid reasons as to why sale instance of part of adjacent property as on 24th March, 1984 (Plot Nos. 11 24 to 11 27) cannot be considered to be comparable. This land is of 7,995 sq. yds. which is of reasonable size. This was sold by late Shriman Bawa Maharaj Singhji to partnership firm by name M/s Shri Ashish. agreement of sale dt. 24th March, 1981 has been filed at pp. 71 to 93 of paper book. We are concerned with estimate of fair market value as on 1st April, 1981 and this is very close to date of sale instance. Nothing has been said by DVO in respect of this sale instance except merely saying that it is not substantiated by any evidence nor submitted for examination before him. He has also stated that sale instance has been highly valued and cannot be compared with assessee s land. We are unable to agree with DVO. entire land of about 1,75,000 sq. yds. fell to share of late Shriman Bawa Maharaj Singhji and on his death on 24th Aug., 1982, his children succeeded to land. There was also family settlement on 15th Jan., 1992 under which land admeasuring 19,133 sq. yds. in Plot Nos. 11 99, 11 20, 1201 etc., Plot No. 11 69 measuring 1,384 sq. yds. in all and 44 per cent share in 1,365 sq. yds. of land fell to share of assessee and Bawa Abhai Singh, each having 50 per cent share. If part of entire holdings of late Shriman Bawa Maharaj Singhji, when sold on 24th March, 1981 could fetch price of Rs. 828 per sq. yd., we do not see why this sale instance cannot form basis of estimate of fair market value of assessee s land as on 1st April, 1981. We are afraid that DVO has not attached due importance and weight to this sale instance and has brushed it aside unreasonably. 15. Even if it is assumed that land should be valued as agricultural land, assessee has sought to submit report from one A. P. Jayaram, who is Government registered valuer of agricultural lands and farms, before CIT(A) vide letter (dated nit), copy of which is placed at pp. 55-57 of paper book. CIT(A) does not appear to have dealt with this report, and there is no reference to same in his order. This is detailed report as noticed by us earlier and therein estimate of fair market value of land as agricultural land has been taken at Rs. 1,24,00,000 as on 1st April, 1981. This valuer has adopted average of income capitalisation method and sale instance method and sale instances relied upon by him are same as those relied upon by registered valuer whose report was considered by DVO. In our view, therefore, there is no justification for adopting fair market value of land as on 1st April, 1981 at Rs. 19,96,000 being 50 per cent of estimated value of Rs. 39.92 lakhs as per DVO. Taking into consideration all circumstances and factors stated elaborately in two valuation reports filed by assessee and having regard to huge potential of land for being converted into residential use and being fully aware of fact that as on 1st April, 1981, land has not been officially converted into non-agricultural use, we are of view that reasonable estimate of fair market value would be that estimated by registered valuer at Rs. 1,42,53,000 on basis of sale instance dt. 24th March, 1981 of part of lands originally owned by late Shriman Bawa Maharaj Singhji. No strong grounds have been made out by income tax authorities or DVO as to why this figure cannot be adopted as fair estimate of value. assessee s valuation being supported by aforesaid report, we hold that same requires; to be accepted and computation of capital gains may be made on that basis. 16. Ground Nos. 18 and 19 are directed against charging of interest under ss. 234A and 234B. It is agreed between parties that AO has to re- decide issue on lines indicated in order of Special Bench of Tribunal in case of Motorola Inc. vs. Dy. CIT (2005) 96 TTJ (Del)(SB) 1 : (2005) 95 ITD 269 (Del)(SB). Accordingly we set aside orders of Departmental authorities on this issue and restore same to AO to decide chargeability of interest in accordance with above decision. 17. In result, assessee s appeal is partly allowed with no order as to costs. *** URMILA BAWA v. ASSISTANT COMMISSIONER OF INCOME TAX
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