Valuation of a capital asset must follow the statutory referral process to a competent Valuation Officer under Section 55A when disputed, and substantive tax exemptions must be allowed if the taxpayer meets all legal conditions, regardless of initial misclassification of the specific exemption provision.

O R D E R

PER RAJ KUMAR CHAUHAN (J.M.):

1. This appeal is filed by the assessee /appellant against the order of Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), New Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 27.12.2024 for the A.Y. 2015-16, wherein additions made by the Assessing officer were deleted and appeal of the assessee was partly allowed.

2. The facts in brief as culled out from the order of the authorities below are that the respondent/assessee is an individual and filed its ITR for A.Y. 2015-16 on 30.03.2017 declaring an income of Rs. 31,16,120/-. The case was selected for limited scrutiny under CASS by issuing notice 143(2) of the Act on 29.09.2017. Subsequently, notice u/s 142(1) of the Act was issued along with questionnaire issued on 04.12.2017. It is noticed that the assessee has declared income from house property, Capital gain and Other Sources, details of which were filed during the assessment proceedings. When the case was selected for scrutiny under CASS on the following issues:

a. Whether value of consideration for capital gain has been correctly shown in the return of income?

b. Whether deduction from capital gain has been shown correctly?

3. It was observed that the assessee has sold its half share in land admeasuring 54.9375 bighas at Nanta Village, ladpur tehsil in Kota district of Rajasthan with sales consideration of Rs. 5,08,00,000/- in FY 2014-15. The land use of the said land was mentioned as agricultural for the purpose of revenue records as the land situated in Nanta Village lies well within the municipal limits of kota municipality and the said fact was confirmed by the tehsildar of the ladpur tehsil, Kota. The first reason for selection of the case for scrutiny proceedings stood verified and was found correctly recorded.

4. With respect to the second reason of scrutiny that “whether deduction from capital gain has been shown correctly, the assessee was asked vide notice u/s 142(1) dated 04.12.2017 to furnish details of the claim of deduction alongwith supporting documents. The AR of the assessee appeared from time to time and presented the following details in compliance of the above notice as under:

“Assessee has shown the computation of capital gain in the return of income in the following manner:

5. For the cost of acquisition assessee produced purchase deed of the said land dated 14.08.1971, wherein the father of the assessee purchased the said land for consideration of Rs. 40,626. After death of assessee’s father the half share of said land acquired and owned absolutely by the assessee vide mutation no. 760 dated 18.05.2012 under succession. Since, the land sold under consideration is purchased before the year 1981 and the assessee came to be in ownership of the same via succession, therefore the valuation of land for the year 1981 shall be taken as cost of acquisition and indexation shall be provided on the same as per combined reading of section 48 and 49 of the Act. It was further observed by the AO that the question has arisen as to what should be taken as the value of the said land for the year 1981 for the purpose of indexation. In that regard, the AO sought info