Cost of Acquisition of Capital Asset u/S 48(ii) of Income Tax Act should be Actual Cost of Acquisition of Agricultural Land: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) observed that Cost of acquisition of capital assets under section 48(ii) of Income Tax Act 1961, should be the actual cost of acquisition of agricultural land. An inherited property, initially agricultural, transitioned to non-agricultural status shortly before its sale. The assesse claimed an acquisition cost of Rs. 38, 47,000 as of April 1, 1981. Disagreement ensued when the Assessing Officer, referring the matter to the District Valuation Officer (DVO), valued the property at a mere Rs. 1, 17,865 based on sub-registrar data.

The assesse, citing Section 55A, objected, arguing the DVO referral was only warranted if the claimed value fell below the fair market value. Despite objections, the Assessing Officer rejected the valuation, resulting in a significant Rs. 1, 07, 23, 060 addition to the assessee’s capital gains tax. Moreover, a Rs. 9, 00,000 claim for improvement was dismissed in the long-term capital gains computation. In the appeal before the Commissioner of Income Tax (Appeals), observed that the disputed land had been classified as agricultural on April 1, 1981, and had been converted into non-agricultural land in the current year.

The appellant had presented a registration certificate of value during the appellate proceedings. However, the certificate only permitted the valuation of immovable properties ‘other than agricultural land. The appointed value had estimated the land value as of April 1, 1981, without a basis, using a reverse formula. The Commissioner of Income Tax (Appeals) deemed this method unacceptable, affirming the Assessing Officer’s reliance on the District Valuation Officer’s report for determining the land’s acquisition cost. Additionally, the appellant’s claim of a Rs. 9, 00,000 cost of improvement lacked supporting evidence was rejected. The counsels for the assesse S.N. Divetia and Samir Vora contend that Section 55A of the Income Tax Act prohibits reference to the Departmental Valuation Officer (DVO). The Commissioner of Income Tax (Appeals) previously addressed this during the appeal, dismissing objections. The assessee argued that the sale, objected to by the Assessing Officer (AO), occurred before 01/07/2012. The AO can only refer to the DVO if the asset value aligns with a registered value’s estimate, and the AO deems it less than fair market value.

The two member bench tribunal comprising Annapurna Gupta (Account Member) and Siddhartha Noutiyal (Judicial Member) observed that the CIT (A) aptly noted the unreliability of the registered value’s report, as explained in their order. Considering the case’s particulars, the CIT (A) appropriately affirmed the Assessing Officer’s decision to refer the matter to the valuation officer for determining the asset’s value. Consequently, discerned no substance in the supplementary argument presented by the assessee. The Assessee’s additional ground was dismissed. The bench ruled that for the sale of agricultural land, originally not a capital asset at acquisition but later converted into a capital asset through division into plots before sale, the cost of acquisition for calculating capital gains should be considered as its original cost to the assessee, not its market value at the time of conversion into non-agricultural land. In the result, the appeal of the assessee was dismissed.

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