DVO Valuation report taking 2 Percent per month escalation for determining the value of property relying on nine month old sales instance was not based on any Income Tax Rules. This was held by the ITAT Hyderabad in a recent judgment. It also pointed out that if the DVO has not followed proper procedure, the Assessing Officer is duty bound to redetermine the value.
Case Law Details:
ITA No.46/Hyd/2015 : Assessment Years 2005-06
Parvati Ramani vs. Dy. Commissioner of Income-tax
Date of Judgment/Order:13/05/2016
Important Case Laws Cited:
Rahul Constructions V/s. DCIT 38 DTR 19
ACIT V/s. Suvarna Rekha – ITA No.743/Hyd/2009
Rupa Kala Srinivas V/s. ITO), ITAT Hyderabad
Brief Facts of the Case:
The appellant assessee was engaged in medical profession. During the relevant assessment year she sold a property at Chennai for a consideration of Rs.45 lakhs, which was originally accepted by the Assessing Officer in the scrutiny proceedings u/s 143(3). However, later the case was reopened by issuing notice u/s 148 and the value of the property was adopted at Rs.61,28,849. The re-assessment proceedings u/s 147 were challenged before the CIT(A) and traveled to ITAT. The ITAT directed the AO to refer the matter to the Departmental Valuation Officer (DVO) to determine the appropriate value of the property. The DVO determined the value of the property at Rs. 55,22,000.
The sale by the assessee took place in Novembet 2004 whereas the DVO relied upon a sale instance of February 2014 i.e. approximately nine months prior to the date of sale. The assessee objected to the DVO on the ground that he should have taken the sale instances proximate to the actual date of sale. instaed of taken the escalation of 16% (2% x 8 months). The DVO rejected the contentions of the assessee on the ground that increase at 2% per month from the comparable sale instance was permissible under the rules. Before AO the assessee again reiterated the same arguments.
Considering that DVO had already heard the assessee’s explanation, and he is competent in the matter of valuation, the AO concluded that he was duty bound to adopt the value determined by the DVO. On appeal, The CIT(A) confirmed the order of the AO observing that valuation was done on the direction of the ITAT and hence there was no need to interfere with the order of the AO.
Thus, the issue before the ITAT was as to whether the value of the property determined by the DVO and adopted by the Assessing Officer was based on the established principles/rules of valuation or not.
Important Excerpts from ITAT Judgment:
The DVO had taken into consideration a sale instance which was almost nine months prior to the actual date of sale in the present case, whereas the ITAT Hyderabad Benches consistently held that a comparable sale instance should be proximate to the date of actual sale, as otherwise, it would not reflect the true market value, particularly, when the period of difference is more than six months. Added to that, the DVO sought to determine the rate by escalating the sale instance rate at 2% per month, but failed to furnish any basis except merely stating that it is as per rules. Since the assessee has a right to raise an objection even before the Assessing Officer, the same issue was raised before the Assessing Officer, but even the Assessing Officer in fact could not point out as to which rule compels them to adopt 2% escalation which works out to 24% per annum. Even the Income-tax Department, while applying cost inflation index method, does not adopt 24% per annum towards escalation in price, and hence, to our mind, the method adopted by the DVO and the Assessing Officer has no basis particularly when the method adopted was not substantiated by furnishing any rule. The very fact that the Assessing Officer has called upon the assessee to raise his objections presuppose that the Assessing Officer is not bound by the DVO’s report and he has got a duty to redetermine the value, but the Assessing Officer chose to proceed as if he is bound by the DVO’s report, which speaks of itself. On the top of it, the learned Commissioner- (Appeals) was of the opinion that the ITAT. Chennai Bench has directed the Assessing Officer to adopt DVO’s report (even if it is wrong), overlooking the legal position that the DVO’s report cannot be treated as sacrosanct and it is amenable to adjustment, if the assessee is able to raise proper objections . In the instant case, the assessee has relied upon various orders of the ITAT to indicate that the value determined should be based upon a sale instance which should be proximate to the date of actual sale. The assessee has also raised an objection with regard to the increase in sale instance rate by 2% per month, but even till date, Revenue could not point out as to what is the sanctity of that method being followed by the DVO. Having regard to the circumstances of the case, we are of the view that the DVO completely failed in his duty to appropriately make the valuation. Even if sale instance rate is taken into consideration, the difference between the sale instance rate and the rate declared by the assessee is within the permissible limits, and therefore, in the light of the orders of the ITAT placed before us, the Assessing Officer has not made out a case for adopting the value determined by the DVO. In the circumstances, we delete the addition made by the Assessing Officer, accepting the sale value declared by the assessee.
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