Registered Valuer’s Valuation Upheld: ITAT Surat Quashes Invalid DVO Reference Under Section 55A

Background of the Dispute

Two connected appeals came before the ITAT Surat in the case of Jayantibhai Chimanbhai Patel Vs ITO and the co‑owner’s appeal, both relating to Assessment Year 2012‑13. The controversy centered on:

  • The correct fair market value (FMV) as on 01.04.1981 for a parcel of land sold in Financial Year 2011‑12, and
  • The validity of the Assessing Officer’s (AO’s) reference to the Departmental Valuation Officer (DVO) under Section 55A of the Income Tax Act 1961 for this pre‑amendment period.

The assessee had relied on a registered valuer’s report fixing FMV as on 01.04.1981 at ₹300 per sq. metre, while the AO rejected this and instead adopted the lower values of ₹185 and ₹200 per sq. metre based on the DVO’s report.

The assessee also claimed relief under Section 54B and Section 54F in respect of investment in agricultural land and a residential house. While Section 54F relief was partly allowed by the Commissioner of Income Tax (Appeals) [CIT(A)], the claim under Section 54B was rejected on the ground that it was “not pressed” during appellate proceedings.

Most crucially, an additional legal ground was raised before the Tribunal: that the reference to the DVO under Section 55A was invalid in law for a transaction that occurred before 01.07.2012, when the provision was amended.

Condonation of Delay in Filing the Appeals

Short Delay and Reasonable Cause

The appeals reached the Tribunal with a delay of 29 days. The assessee filed an application supported by an affidavit explaining that:

  • The order of the CIT(A) dated 03.07.2017 was collected from the office on 05.07.2017 by the assessee’s accountant.
  • The accountant, who was engaged with other statutory compliances (including GST and Income Tax work), failed to timely forward the order to the assessee or the authorised representative.
  • As soon as the order came into the knowledge of the assessee and counsel, the appeal was promptly filed on 26.09.2017.

The Revenue opposed condonation, contending that the explanation was inadequate and not backed by the accountant’s affidavit.

Tribunal’s View on Delay

The Tribunal held that:

  • The delay was neither deliberate nor mala fide.
  • The assessee did not stand to gain by filing a belated appeal.
  • Substantial justice must prevail over technicalities, especially where the delay is short.

The Tribunal therefore condoned the delay of 29 days, allowing the appeals to be heard on merits.

Facts Relating to Sale of Land and Computation of Capital Gains

Sale Transaction and Returned Income

  • The assessee filed a return of income for AY 2012‑13 declaring taxable income of ₹48,290 and agricultural income of ₹1,97,350.
  • During scrutiny, the AO noticed that the assessee, along with six co‑owners, had sold land comprised in R.S./Block Nos. 272/2, 272/3 & 283 at Moje Gavier, Surat for an aggregate consideration of ₹6,17,36,500.

FMV as on 01.04.1981 – Registered Valuer vs DVO

For computing long‑term capital gains, the assessee:

  • Substituted FMV as on 01.04.1981 under Section 55(2),
  • Adopted ₹300 per sq. metre as FMV on 01.04.1981 for all three parcels,
  • Relied on a Government‑approved / registered valuer’s report issued by Shri P.K. Desai, Registered Valuer, Ahmedabad.

The AO, however:

  • Obtained sale instances for 1981 from the Sub‑Registrar’s office, which reflected rates of about ₹94.45 per sq. metre,
  • Issued a show‑cause notice proposing to adopt such lower rates,
  • Took note that in a co‑owner’s case the matter had already been referred to the DVO by another AO,
  • Adopted the DVO’s suggested rates of:
    • ₹200 per sq. metre for land in R.S./Block Nos. 272/2 & 272/3, and
    • ₹185 per sq. metre for land in Block No. 283,
  • Computed the indexed cost of acquisition for the entire property at ₹3,36,66,688, and attributed 1/7th share of ₹42,88,750 to the assessee.

On this basis, the AO worked out additional long‑term capital gains of ₹22,34,944 and made a corresponding addition.

Deduction Claims under Section 54B and Section 54F

Before the AO, the assessee also claimed:

  • Exemption under Section 54B on the ground that the consideration from sale of agricultural land was invested in purchase of new agricultural land, and
  • Exemption under Section 54F for investment in a new residential house.

The AO rejected both claims because: