Mere Estimation by DVO is no Justification for Adopting Fair Market Value: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that there is no justification for adopting a lower Fair Market Value (FMV) in the case of the assessee merely on the basis of estimation made by DVO. Also ruled that the Assessing Officer (AO) cannot invoke the provisions of Section 142A of the Income Tax Act, 1961 without assigning tangible basis giving rise to doubt on Fair Market Value adopted by the assessee on the basis of the report of the registered valuer.

The assessee a non resident individual filed her return for A.Y. 2019-20 electronically declaring an income of Rs. 20,63,210/-. The case was selected for scrutiny under CASS. During assessment proceedings, the AO found that the assessee had sold a residential property and had shown a sale consideration of Rs. 18 crore.

Further noticed that property was inherited and its valuation was carried out on 09.11.2018 to determine its Fair Market Value as on 01.04.2001. As per valuation report submitted the FMV of the property as on 01.04.2001 was determined at Rs. 3,50,16,612/-. The AO found that the assessee’s share in the property was 1/3rd.

The AO was of the view that the above FMV of the property as on 01.04.2001 was taken at a higher rate. He, therefore, made a reference to the District Valuation Officer (DVO) for determining the FMV of the property as on 01.04.2001. The DVO determined the FMV at Rs. 1,10,82,377/- as against Rs. 3,50,16,612/- as per the assessee.

On receipt of the said draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide order dated 09.11.2022 directed the AO to dispose of the specific objections on the valuation report of the DVO by passing a speaking order.

The AO maintained the addition proposed in draft assessment order and completed the assessment on 20.12.2022 under Section 143(3) r.w.s. 144C (13) of the Income Tax Act on total income of Rs. 2,43,86,326/- including therein addition of Rs. 2,23,23,116/- under the head “Long Term Capital Gain”. Aggrieved, the assessee appealed before the tribunal.

After hearing both the parties, the tribunal came to the conclusion that AO cannot invoke the provisions of section 142A of the Income Tax Act without assigning tangible basis giving rise to doubt on FMV adopted by the assessee on the basis of the report of the registered valuer.

It was observed that the assessee offered the detailed comments on the DVO’s valuation report vide letter dated 15.02.2022 to the AO incorporating therein extracts of letter dated 13.10.2021 filed before DVO and asserting that no deficiency in the report of the registered valuer has been pointed out by the DVO. Moreover, the DVO failed to consider the specific features of the property commanding higher value.

While allowing the appeal, the two-member bench consisting of G.S Pannu (President) and Astha Chandra (Judicial member) held that there is no justification for adopting a lower Fair Market Value in the case of the assessee merely on the basis of estimation made by DVO.

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