TMI Blog2015 (7) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the structure in comparison to the overall value of the property was much less and negligible and even if there is some variation, it would not substantially reduce the value of the entire property as a whole. Finally the DVO finds fault that the Registered Valuer had not given any sale instances for the land and has only stated that the rates available from the registrar were 4-5 times lower as compared to the actual sale rate and so his finding could not be accepted as FMV since it had to be supported by the evidence. Ld CIT(A) agrees to the said observation of the DVO but rightly observes that even the sale instances adopted by him (DVO) also did not serve any purpose for the same reason ; and therefore the valuation of the property was just a matter of estimate of one expert versus another expert. We find considerable force in the observation of the Ld. CIT(A) that from the discussion in the foregoing para it would be clear that the basic purpose for which the case was remanded by the ITAT to the file of the Assessing Officer remained unfulfilled. The DVO ought to have controverted the report of the Registered Valuer's report, so it cannot be acted upon and the failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the DVO Report relied by the AO thus paving way for relief prayed by the assessee. Against the same, Revenue is assailing this by these grounds. 5. The brief facts of the case are that the return of income, declaring an income of ₹ 2,80,384/- was filed by the assessee on 6.5.1994. However, the AO assessed the assessee on an income of ₹ 1,54,33,250/- vide orders dated 25.3.1996 made in terms of section 143(3) read with section 144A of the Income Tax Act, 1961 (hereinafter the Act ). The return of income as originally submitted by the assessee declared the capital gains on the sale of 1/3rd share in property no. 8/6, Alipore Park Road, Calcutta. But the AO had adopted the long term capital gains at ₹ 51,52,969/- as 1/3rd share of capital gains on the said sale of property. This order of AO, was challenged by the assessee and in the first round of litigation, since the valuation done on the property as on 1.4.1981 was remanded back by the ITAT, New Delhi, the AO, issued statutory notice and the valuation of the property was also referred to the Valuation Officer of the Department at Calcutta. Thereafter, in response thereto notice u/s. 143(2), assessee s cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO as correct and the said value of property had been adopted for the purpose of computation of capital gains. The assessee also claimed legal expenses of ₹ 1,76,026/- which were on account of lawyer's fee and stamp duty etc. According to AO, in terms of section 48(1) the legal expenses were not allowable and therefore would not fall within the permissible deduction under section 48 of the Act. He accordingly denied the assessee's claim and based on 1/3rd share of sale price of the property at ₹ 53,33,333/- as determined by the DVO, the long term capital gain was worked at ₹ 39,68,751/- and finally the total income was determined at ₹ 42,49,040/-. 11. It was contended by the assessee before the Ld. CIT(A) that after the ITAT remanded the matter to the AO for determination of capital gains, the AO referred for the Departmental Valuation Officer s report and the assessee received on 11.01.05 a notice dated 4.1.05 under section 55A of the Act, read with section 16(A)(2) of the Wealth Tax Act, 1957 from Distt. Valuation Officer (DVO), Valuation Cell, I. T. Department, 54 RAK Road, Kolkatta, asking for certain information and documents to be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see received on 24.3.2005, fixed up the hearing on 28.3.05 and everything was done in a hurry, since the assessment was becoming barred because of limitation. According to the Ld. Counsel, the Assessing Officer did not apply his mind and also failed to take into consideration objections of the assessee filed vide letter dated 28.3.2005 and also failed to consider the valuation report of the government approved valuer submitted by the assessee before passing the assessment order on 30.3.2005. The Ld. Counsel pointed out that the DVO on page 1 and on page 4 of his report stated Having considered the statement of objections made by the assessee in writing and in person and having considered the evidence produced by the assessee and having taken into account all the relevant material gathered by the ld. CIT(A), he estimated the fair market value of the said property as under and as detailed in annexures . However, it was contended by the Ld. Counsel of the assessee that the DVO's observations on both the occasions were factually wrong and misleading. According to him, neither the assessee was called upon by the DVO to make her submissions nor given an opportunity to raise any obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel, prices of 1978-79 could not hold good to be the basis of valuation in 1981 in any manner. It was contended that the Government Approved Valuer (GAV) had estimated the value of land measuring 32 kattas at ₹ 64,00,000/- for the reason that the land of Alipor park road has two frontages one being the east and the other on south. The Ld. Counsel explained that the style of use of the property as they stand on either side of the said road are mainly for sophisticated offices, guest houses and for other like purposes and these aspects have not been rightly appreciated by the DVO or the AO because Assessing Officer gave no proper opportunity to the assessee to give her comments and objections to the proposed valuation by the DVO and so the valuation of the DVO was hit for violation of natural justice. 13. We find that this is the second round of litigation before us. During the first round, the Coordinate Bench of this Tribunal set aside the matter back to the file of the AO to counter the report prepared by the Registered Valuer (Govt. Approved Valuer) which assessee harps on to bolster her claim and to bring on record the Report of the DVO, so as to enable the AO to calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... die. Accordingly her appeal was decided by ld CIT(A) on merits on the basis of material available on record. 16. We concur with the observation of the Ld. CIT(A) that when the matter was referred by the AO, pursuant to the Tribunal order, to the DVO, at Calcutta for ascertaining the FMV of the property at issue as on 1.4.81, it was incumbent-upon the DVO to point out shortcomings if any in respect to the Registered Valuer's report and also spell out the reason for arriving at his valuation of the property. We find that the AO has not given any reason to accept the DVO's report while simultaneously discarding the registered valuer s report and computed the capital gains. Ld. CIT(A) has acknowledged the fact that AO did not allow the assessee sufficient and reasonable opportunity to offer her comments, to controvert the DVO's report. This is evident from the fact that the DVO's report was received by the assessee on 24.3.05 i.e., just six days before the assessment order was passed and her objections dt 28.3.02 was completely ignored by the Assessing Officer while passing the assessment order. We agree with Ld. CIT(A) that neither the assessee was heard properly b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y commands and inspires more confidence and is more authentic and acceptable. The Ld CIT(A) has taken note that the assessee s Registered valuer has not only brought out in his report dt. 26 November 1992 the room wise details of the, entire building but also of out-house, their electrification and water arrangement, along with details of boundary wall and the front gate etc. and then has estimated the salvage value. Apart from the bricks, the timber steel, electrical wiring and all other electrical fitting, sanitary fittings and other furnishings were capable of fetching substantial salvage value. For the aforesaid reason Registered Valuer's report inspires confidence because it was made after physical inspection of the building and so is acceptable than the report of the DVO which is based on Pure guess work and surmises only. Regarding valuation of land it has been reported by the DVO vide para 8.1 of the report that it is based on land sale instances, given in Annexure-I of the report. The Ld CIT(A) after perusal of this Annexure-I has found that the sale instances adopted by the DVO are for the years 1978, 1979 and concerning another property situated altogether in a diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration was taken as ₹ 50,000/- per kattah as on 1.4.1981. Now if two years back the rate of a small size of plot, situated in an inner lane was as high as ₹ 37,728/- per kattah, how can be a plot having all the advantages as observed by the DVO himself, can be as low as ₹ 50,000/- per kattah after a gap of two years. 18. Since the cost of construction was worked out at ₹ 9,37,209/-by the DVO the salvage value was estimated at ₹ 93,700/-. According to him, as already discussed earlier since the building structure was no longer in existence which has been considered by the DVO also in his letter dated 26.12.06, the cost of construction worked out by him was only an estimate without taking into account the reality. Further what is the basis for adopting only 10% of the value of the structure so as to estimate the salvage value has not been clarified by the DVO. Thus Ld. CIT(A) observed that the estimate of salvage value is also based on surmises only. As against this the report of the Registered Valuer of the assessee is based on physical verification of the property and therefore the same was more acceptable than the DVO's report. As regards to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges prevailing at that time could cost around ₹ 200 per sq.ft. of the covered area for a single storied building and it is so ₹ 350 p.sq.ft. in gross for the two storied building. Thus the Ld CIT(A) rightly repells the said reasoning of the DVO and opined that the valuation by the Registered Valuer was not made considering the structure as new one and held that it was an incorrect observation of DVO. The DVO further states in his letter that the cost of construction as on today i.e. in the year 2006 varied between ₹ 550 to ₹ 650 for a load bearing G+1 structure and how the rate could be ₹ 350/- pr sq. ft. as on 1.4.81 for an old building which was built in and around 1940. The Ld CIT(A) takes notes that the DVO's finding that the cost of construction in the year 2006 was between 550 to 650 is not supported with any evidence. The Ld CIT(A) rightly observes that there is a basic difference between determining the cost of construction and valuing the fair market value of any property and the fair market value is always higher than the cost of construction. Ld CIT(A) takes into account that in any case the salvage value of the structure in compari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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