The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) deleted a ₹4.96 crore addition to the assessee’s income, citing the need for a fresh valuation rather than relying on the District Valuation Officer’s ( DVO ) valuation from the seller’s case.
Indu Pankaj Dhandharia, the appellant-assessee and legal heir of the original assessee, purchased a property for Rs. 13.05 crores. The stamp duty value, however, was determined at Rs. 18.31 crores. The Assessing Officer ( AO ), following the provisions of Section 56(2)(vii) of the Act, considered the difference between the stamp duty value and the actual purchase price as deemed income, resulting in an addition to the appellant’s total income.
Know Practical Aspects of Tax Planning, Click Here
The AO relied on a valuation report provided by the DVO in the case of the seller, Aegis Realtors and Developers Pvt. Ltd., who had sold the property. In the seller’s case, the DVO had valued the property at Rs. 19.50 crores.
The AO, observing the disparity between the sale consideration and the stamp duty valuation, referred the case to the DVO for valuation. However, instead of preparing a fresh report, the DVO reiterated the valuation made in the seller’s case.
Based on this, the AO determined that the difference between the stamp duty value and the purchase price should be treated as taxable income in the hands of the assessee.
Know Practical Aspects of Tax Planning, Click Here
Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee argued that the valuation made in the seller’s case should not apply to the buyer, especially when the buyer had made improvements to the property post-purchase. The assessee submitted evidence that significant costs had been incurred for structural work, flooring, and furnishings after acquiring the property in a semi-finished state.
However, the CIT(A) upheld the AO’s decision, refusing to discount the improvements made by the assessee and agreeing that the DVO’s valuation in the seller’s case could be applied.
The assessee’s Authorized Representative ( AR ) argued that the DVO’s report from the seller’s case should not be binding on the buyer. It was emphasized that the buyer had spent Rs. 4.39 crores on improving the property, including significant structural and aesthetic modifications, and that the DVO did not account for these post-purchase improvements in its valuation. The AR contended that the AO should have conducted a fresh valuation for the buyer to reflect the true value of the property at the time of purchase.
Know Practical Aspects of Tax Planning, Click Here
The Departmental Representative ( DR ) supported the AO’s decision, asserting that since the property was the same, there was no need for a separate valuation. The DR argued that the DVO’s valuation in the seller’s case was sufficient for determining the value for the buyer’s tax assessment.
The tribunal found merit in the assessee’s arguments. It observed that the DVO’s valuation in the seller’s case could not be automatically applied to the buyer, as the buyer’s perspective and post-purchase improvements needed to be considered and also noted that the DVO had failed to account for the fact that the property had undergone significant enhancements after the sale.
Furthermore, the bench criticized the reliance on the same valuation for both parties to the transaction, as this overlooked the individual circumstances and improvements made by the buyer.
Know Practical Aspects of Tax Planning, Click Here
The two member bench comprising Sunil Kumar Singh ( Judicial Member ) and Prashant Maharishi ( Accountant Member ) concluded that the addition made by the AO based on the seller’s DVO valuation was unjustified. It directed the deletion of the Rs. 4.96 crore addition, emphasizing that the failure to obtain a fresh DVO report for the buyer was a critical error in the assessment process. The tribunal ruled in favor of the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
