FMV as on 01.04.1981 vs. Stamp Valuation: ITAT Pune Sends Capital Gain Dispute Back to AO

Background of the Appeal

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) dealt with an important controversy in the case of Chandrashekhar Vishnu Paranjape (HUF) Vs ITO for Assessment Year 2015-16 concerning the determination of fair market value (FMV) of land as on 01.04.1981 for computing long-term capital gains.

The assessee, a Hindu Undivided Family (HUF), had filed its return of income on 31.08.2015, declaring a total income of Rs. 26,05,110. The return was initially processed under Section 143(1) of the Income Tax Act 1961, and subsequently selected for limited scrutiny under CASS. Notices under Section 143(2) and Section 142(1) were issued, and the assessee’s Authorised Representative filed the necessary details from time to time.

The core dispute arose from the Assessing Officer’s (AO’s) rejection of the FMV adopted by the assessee as on 01.04.1981 based on a registered valuer’s report, and his substitution of that value with a rate derived from stamp valuation data and co-owners’ records, without seeking an opinion from the Departmental Valuation Officer (DVO).

Facts Relating to the Property and Capital Gain

Sale Transaction and Declared Computation

  • The assessee, along with other co-owners, sold a piece of immovable property for a total sale consideration of Rs. 9,10,73,028.
  • The assessee’s share in the sale proceeds was Rs. 3,10,00,000.
  • For computing long-term capital gain, the assessee adopted the FMV of the land as on 01.04.1981 at Rs. 415 per sq. meter, relying on a registered valuer’s report.
  • For its 30% share, the assessee considered the cost of acquisition at Rs. 14,83,000 as on 01.04.1981 and claimed indexation accordingly, arriving at an indexed cost of Rs. 1,51,85,920.
  • Based on this computation, the assessee declared long-term capital gain (LTCG) of Rs. 40,40,671.

AO’s Objections to the Valuer’s Report

During assessment, the AO examined the valuation report and found multiple issues, including:

  1. Purpose of valuation not clearly mentioned in the report.
  2. Alleged non-adherence to the IGR guidelines.
  3. The valuer had determined the land value at Rs. 790 per sq. meter in 2003 and Rs. 415 per sq. meter in 1981, which, in AO’s view, implied that the value had not even doubled over a span of 23 years, suggesting an unrealistic appreciation pattern.
  4. The report itself recorded that:
    • The land was agricultural in nature,
    • It was under litigation, and
    • It did not have a clear marketable title.
      Yet, according to the AO, the valuer had ignored these adverse factors and arbitrarily “discounted” the 2015 market value by roughly 92% to reach the 1981 FMV.

To further verify the matter, the AO:

  • Issued summons under Section 131 to the registered valuer, Shri Avinash R. Pundlik, recorded his statement, and
  • Issued notices under Section 133(6) to co-owners Shri Ramchandra Paranjpe, Mrs. Swati Paranjpe, and Mrs. Sumita Datar to ascertain their adopted cost of acquisition.

From the co-owners’ responses, the AO observed that they had effectively followed the rate as per the instructions of the Sub-Registrar, Haveli-2, which reflected Rs. 80 per sq. meter as the value as on 01.04.1981.

AO’s Substitution of FMV and Addition

Rejecting the explanation and the registered valuer’s report, the AO:

  • Substituted the assessee’s adopted FMV of Rs. 415 per sq. meter with Rs. 80 per sq. meter as on 01.04.1981,
  • Determined the cost of acquisition as on 01.04.1981 at Rs. 2,85,600,
  • Computed the indexed cost of acquisition at about Rs. 29,24,500, and
  • Re-worked the LTCG in the hands of the assessee at Rs. 76,53,322.

Since the assessee had already offered Rs. 40,40,671 as LTCG, the AO treated the difference of Rs. 36,12,651 as additional taxable LTCG and added it to the total income.

Proceedings Before CIT(A) / NFAC

The assessee challenged the addition before the CIT(A) / NFAC, primarily on the following grounds: