Rejection of Land Valuation by AO: ITAT Directs Referral to DVO for Expert Assessment [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) directed referral of the valuation of ancestral agricultural land to the Departmental Valuation Officer (DVO) after the Assessing Officer (AO) rejected the land valuation provided by the appellant at ₹70 per square meter and independently recalculated it at ₹6.20 per square meter.

Prashant Chandulal Parikh, appellant-assessee, filed his income tax return for A.Y. 2017-18 on March 30, 2018, declaring ₹20,89,430 as income. The case was taken up for scrutiny to review capital gains from property sales and cash deposits during demonetization.

The assessee, along with his brothers, sold agricultural land and declared capital gains based on a valuation of ₹70 per square meter. The AO rejected this valuation and recalculated it at ₹6.20 per square meter. A deduction of ₹2.51 crore under Section 54F for a residential house was also partially disallowed. The AO allowed the deduction for only 60 square meters of land, as per municipal guidelines, disallowing ₹2.33 crore for the rest of the land area.

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Cash deposits of ₹24,48,000 in the assessee's bank account were explained as agricultural income but were treated as unexplained by the AO and added to the income.

The assessment was finalized on December 14, 2019, with a total income of ₹4,86,05,340.

The assessee aggrieved by the order of the AO appealed before the Commissioner of Income Tax(Appeals)[CIT(A)],who dismissed the appeal through the impugned order.The assessee appealed before the tribunal.

The assessee challenged the AO's rejection of the cost of acquisition for ancestral land sold, which was based on a valuer's report valuing the land between ₹76 and ₹366 per square meter. The assessee had conservatively adopted ₹70 per square meter. The assessee counsel argued that the AO dismissed the report without valid reasons and should have referred the matter to the DVO instead of determining the value independently.

The revenue counsel,supported the AO and CIT(A), stating that the large difference in the valuer’s report (₹76 to ₹366 per sq. meter) made it unreliable, and the assessee’s valuation was doubtful.

The tribunal considered both sides and noted that the agricultural land sold by the assessee was ancestral property, allowing the assessee to use the land’s value as of April 1, 1981. The assessee provided a report from an approved valuer, which used four methods to determine the land’s value, but there was a wide variation between the methods, making the report unreliable. The assessee conservatively chose ₹70 per square meter, lower than the lowest value from the valuer.

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The appellate tribunal stated that if the AO was not satisfied with the valuer's report, he should have referred the matter to the DVO. Since the AO was not an expert, his own valuation of ₹6.20 per square meter was not correct.

The two member bench comprising T.R Senthil Kumar (Judicial Member) and Narendra Prasad Sinha(Accountant Member) decided to send the case back to the AO with instructions to refer it to the DVO to determine the correct value. The DVO’s report should be shared with the assessee, and any objections should be considered before finalizing the value.

In short,the appeal filed by the assessee was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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