‘Reverse Indexation Method’ Can’t Be Allowed if DVO Prepared Report Based on Strong Undisputable Method | ITAT

Case Details: Late Shri Balkrishan Joshi (Through L/H Shri Bhoopendra Joshi) vs. Income-tax Officer - [2024] 164 taxmann.com 377 (Indore-Trib.)

Judiciary and Counsel Details

• Vijay Pal Rao, Judicial Member & B.M. Biyani, Accountant Member
• S.N. Agrawal & Bavesh Agrawal, ARs. for the Appellant.
• Ashish Porwal, Sr. DR for the Respondent.

Facts of the Case

The assessee had filed a return of income and declared long-term capital gain arising from the sale of a residential house. The assessee opted for deduction of the cost of acquisition based on Fair Market Value (FMV) as of 1-4-1981 and, accordingly, worked FMV.

However, the Assessing Officer (AO) referred the matter to the DVO to determine the correct amount of FMV as of 1-4-1981. The AO allowed the deduction of the cost of acquisition adopting the FMV as determined by the DVO.

Contending that the AO ought to have computed FMV based on the ‘reverse indexation method’, the assessee filed an appeal to CIT(A). CIT(A) upheld the order of the AO, and the matter reached before the Indore Tribunal.

ITAT Held

The Tribunal held that the assessee’s only contention was that the lower authorities ought to have computed FMV based on ‘reverse indexation method’. Undisputedly, there was no such method prescribed in the Income-tax Act 1961. However, the modus in this method was such that the present ‘sale-consideration’ of the sold asset was divided by the present inflation index and multiplied by the inflation index as of 1-4-1981. The Bench indicated to the assessee that this method was the last resort when no other basis was available for the determination of FMV.

In the instant case, the AO referred to the DVO, who gave a detailed explanation of his estimation in his report. The DVO also mentioned the method of valuation he adopted as ‘FMV by Collectors Guidelines for registration of immovable property’.

Since DVO’s work was based on a strong, undisputable method, the ‘reverse indexation method’ cannot be allowed. Consequently, the order of AO in accepting FMV reported by DVO was correct.