ITAT Patna Sets Aside Arbitrary Valuation: MVR-Based Property Costing Must be Verified Before Rejection

Case Background

In a significant ruling concerning the determination of indexed cost of acquisition for capital gains computation, the Patna Division Bench of the Income Tax Appellate Tribunal (operating through virtual court proceedings) delivered a judgment in favor of the assessee for Assessment Year 2023-24. The case of Gyasuddin Mohammad Ansari Vs ITO addressed critical issues surrounding the valuation methodology adopted by appellate authorities and the evidentiary value of government-published data.

The assessee had initially submitted a return declaring total income of Rs. 5,49,840, which subsequently came under scrutiny assessment due to claims made under Chapter VI-A deductions. The return included a deduction claim of Rs. 51,00,000 toward interest on educational loans under Section 80E of the Income Tax Act, 1961. However, the assessee later identified this as an erroneous claim, clarifying that the actual transaction involved disposal of commercial land resulting in a capital loss of Rs. 2,40,000.

Assessment Proceedings and Original Dispute

During assessment proceedings, the Assessing Officer rejected the assessee's request to treat the transaction under capital gains provisions. The refusal stemmed from procedural grounds, with the AO maintaining that no statutory provision permits modification of return of income through subsequent applications outside search assessment procedures without proper written authorization. Consequently, the total income was determined at Rs. 56,89,840.

The core transaction involved sale of commercial land for consideration amounting to Rs. 48,68,000. The assessee contended that this should be assessed under capital gains provisions rather than income from other sources, and calculated a long-term capital loss based on indexed cost of acquisition derived from Minimum Valuation Register (MVR) rates applicable to the property location.

The property in question had been acquired by the assessee through a partition deed (Panchnama Batwara) dated 30.11.2016. To substantiate the cost of acquisition, the assessee relied upon MVR rates of Rs. 2,40,000 per decimal for Financial Year 2016-17, obtained from the Bhoomi Jankari – Bihar portal maintained by the State Government.

First Appellate Authority's Findings

Upon appeal, the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, Delhi, granted partial relief while modifying the assessment order. The CIT(A) accepted the assessee's fundamental contention that proceeds from land sale should be evaluated under capital gains provisions rather than being treated as income from other sources. The appellate authority acknowledged that the assessee should not face adverse consequences merely for inadvertently selecting an incorrect head of income when filing the return.

However, the CIT(A) expressed reservations regarding the substantiation of acquisition cost. While recognizing that ownership transfer occurred through the partition deed executed on 30.11.2016, the appellate authority questioned the evidentiary basis for adopting Rs. 2,40,000 per decimal as the cost of acquisition. The CIT(A) noted that although a document purportedly showing rates for Purnia Municipal Corporation for FY 2016-17 had been submitted, neither the source nor credibility of this document had been adequately established.

Based on these observations, the CIT(A) proceeded to estimate the indexed cost of acquisition at Rs. 20,00,000 on an ad-hoc basis. The reasoning provided was that given the urban location of the property and its relatively short holding period of approximately six years before disposal in FY 2022-23, the valuation claimed by the assessee appeared inflated. The AO was directed to recompute long-term capital gains using this estimated cost base.

Grounds Raised Before the Tribunal

Dissatisfied with this treatment, the assessee approached the Income Tax Appellate Tribunal raising two substantive grounds:

First Ground: The CIT(A) erred in rejecting the acquisition cost of property received through Panchnama Batwara based on MVR rates for the relevant year as downloaded from the Bhoomi Jankari-Bihar portal, which is an official government repository containing MVR data for properties situated across Bihar State.