The Delhi bench of the Income Tax Appellate Tribunal (ITAT) set aside the order discrediting the valuation report of the assessee without substantial reason where there is a failure to call for the mandate of DVO report under the Income Tax Act, 1961.
The Assessee, Swadeshi Polytex Ltd. is into the real estate development by converting the leasehold land as Stock in trade and selling the plots of smaller sizes after proper development and approval from Uttar Pradesh Industrial Development Authority (UPSIDC). The return of income was filed declaring nil income and the case was taken up for scrutiny under computer-assisted scrutiny selection (CASS).
It was noticed by the assessing officer that the assessee had sold a total of 16976.5 sq. Mtr. of land. As per the Memorandum of Understanding (MOU), the assessee is entitled to receive Rs. 8,200/- per sq. Mtr. for land sold. The assessing officer considered that the Market rate of the property is Rs. 10,000/- Sq. Mtr. as per the valuation report submitted by the assessee company.
The assessing officer was not satisfied with the fair market value of Rs10,00/- taken by the assessee. The fair market value presumed by the assessee was Rs.100 per sq. Mtrs. which the assessing officer considered was arbitrary.
The assessee has taken the land on lease for a total land consideration of Rs. 20,02,904/- as per the lease deed. The total area of the land on lease is 3,32,909.69 Sq. mts. The cost of plot of land 1970-71 arrived at Rs. 6.01/- per sq. mts.
Additional evidence was filed by the assessee before the Commissioner of Income Tax (Appeal) for which a remand report was called but no remand report was submitted by the assessing officer. It was observed that to support the valuation of Rs. 100 per sq. mts. the assessee submitted a valuer’s report nil and the same was admitted in additional evidence though no report was received in spite of the opportunity.
The assessee claimed that the assessing officer was not entitled to discredit the fair market value taken by the assessee without referring the matter to the Departmental Valuation Officer as per section 55(2) of the Income Tax Act.
It was further contended that the assessing officer had failed to take into consideration the fact that while making necessary compliances for approval to convert the leased land into the saleable plots a large area of the total land was left out and only a saleable area of 222665 sq. mts. was available from total land 332909.69 sq. mts.
The Authorized Representative maintained that the land was converted into 384 plots and 33.15 % of the total land of the company had to be surrendered to UPSIDC for roads etc and was not saleable. The assessee was under obligation to pay 12.5% of the UPSIDC estimates of cost towards administration and supervision charges.
Thus, it was submitted by the authorized representative that the cost of development was Rs. 500 per sq. mts. Thereupon 12.5% and 5% charges were paid to UPSIDC and even if these costs are discounted it cannot be less than 100 sq. mts.
The Income Tax Act specifically provided that if the Assessing Officer is not satisfied with the fair market value of the capital asset then reference can be made to DVO for the valuation.
The two-bench member consisting of Anil Chaturvedi (Accountant member) and Anubhav Sharma (Judicial member) is of the opinion that when the onus is on a party to prove a fact by a valuation report then the valuation report cannot be considered to be a self-serving document of that party without being disputed on facts.
Thus, having failed to take the opportunity and mandate under law to call for a DVO report and on the other hand having discredited the valuation report of the assessee without substantial reasons makes the order of Tax Authorities Below erroneous and not sustainable under law. Therefore, the appeal of the assessee was allowed.
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