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2009 (2) TMI 501 - AT - Income TaxAscertaining Fair Market Value of capital asset - reference made to the DVO by the AO u/s 55A(a) is invalid, bad in law and without jurisdiction - HELD THAT:- From perusal of the documents relating to the reference by AO, placed at the paper book, revealed that AO mentioned u/s 55A against the relevant columns of the said reference. Thus, it does not specify the particulars of the clause (a) or ( b) of the said section. Regarding the purpose the reference, AO mentioned that the reference is ‘to determine the FMV of the property as on 1-4-1981 for the purpose of computing capital gains on the long-term capital assets’. Being the issue relating to the determination of the cost of acquisition, it is obvious that AO is certainly inclined to adopt lesser FMV and per contra, the assessee attempt to inflate the FMV as on 1-4-1981 with view to reduce the capital gains. In these circumstances, the provision of clause (a) cannot be resorted to by AO while making a reference to the DVO, as the said clause (a) deals with the cases of assets of value lesser than the fair market value. Therefore, we are of the considered opinion that this is the case, where the subject-matter of the reference u/s 55A revolves around the determination of the cost of acquisition based on the FMV as on 1-4-1981 for the purpose of computation of the capital gains and in such circumstances, the provisions of section 55A(a) and (b)(i ) will not apply and under such circumstances, it will, however, be open to the ITO to make a reference to the Valuation Officer u/s 55A(b)( ii) as explained in the aforesaid Explanatory notes. Hence, the reference made by the DVO is valid and we confirm the order of CIT(A). Accordingly, the additional ground filed by the assessee is dismissed. On having upheld the validity of the reference, we proceed to adjudicate the grounds of the revenue as well as the assessee on merits in the following paragraphs. Estimation of fair market value of the property - Method of valuation - rent capitalization method or comparable instances - difference between the FMV ascertain by assessee and DVO - assessee owns a flat and and sold the same and for the purpose of computing the capital gains - appellant submits that the three instances given by the DVO in his report do not reflect real status and are not comparable instances - he also submits that in order to determine the price of the property the instances of the sale should be of similar property in similar locality. HELD THAT:- It is noticed that the value of the asset as on 1-4-1981 based on the ‘rent capitalisation method’ as per the Registered Valuers; whereas, the value as per the DVO based on his comparable sale instances. In our opinion, the gap is unbridgeable and none of the two methods enjoys perfection. Considering the self occupied nature of the flat as well as the assessee’s inclination to inflate the FMV for cost of acquisition, the ‘rent capitalisation method’ relied on by the assessee is not acceptable. Further, considering the comparable sale instances relied on by the DVO as well as AO’s tendency to reduce the cost of acquisition of an asset, in our opinion, the DVO’s figures also suffer from inadequacy. Therefore, we are of the opinion that CIT(A) has rightly rejected both the figures. On having held so, we have examined the basis for CIT(A) to arrive the value of the flat at Rs. 1,750 per sq. ft., which is not even the average sq. ft. figures of Rs. 2,200 plus Rs. 1,154, which in fact, works out Rs. 1,677, In the absence any other reliable data in this regard, we are of the opinion that average of both the valuations based on rent capitalisation method of the Registered Valuer as well the averaging of three sale instances gathered by the DVO, though incomparable, would be appropriate. In other words, determining the FMV of the flat for the cost of acquisition at Rs. 1,677 per sq. ft., in our opinion, would meet both ends of justice. Accordingly, the order of CIT(A) is set aside to that extent and AO is directed to recompute the capital gains on the sale of the said flat adopting the value of the flat at the rate of Rs. 1,677 per sq. ft. In the result, appeal of the assessee is dismissed and that of the revenue is partly allowed.
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