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4. Subsequently the case was selected for scrutiny. Notice under Section 143(2) was issued. Assessee's source of income being capital gain, interest from bank, dividend on shares, etc. A show cause notice was issued dated 1 1/12/1999, which is reproduced below:

i) During the course of assessment proceedings of income tax A.Y. 1997-98, it is noticed from the records and valuation report dated 15/06/1996 obtained from the Government Approved Valuer, the land at Shringanda and Limper Gaon, at AUNDH, has been valued Rs. 99,00,000/- as on 01.04.1981.
v) It can be observed from the above valuation that the Government Approved Valuer has valued the said property about 124 time more than the value shown by the assessee and about 60 times more than assessed value in the Assessment Order.
vi) In the circumstances, the valuation report of the Government Approved Valuer is not logical and cannot be accepted.
vii) You are, therefore, requested to show cause as to why the valuation made by the Government Approved Valuer should not be rejected that as assessed by A.O. in Wealth tax Assessment Order be accepted while computing Capital Gain for A.Y. 1997-98.
viii) Your explanation should reach this office within 15 days of receipt of this letter with supporting evidences, if any, to substantiate your claim, failing which the value of the Aundh property will be taken at Rs. 1,50,404/ - as on 01.04.1981 for the purpose of computing capital gain for the A.Y. 1997-98.

5. In response to the above notice assessee filed a letter dated 28/02/2000, which reads as under:

Under instruction from Maharaja Madhavarao Scindia - Karta of the Hindu Undivided Family of His Late Highness Sir J.M. Scindia we refer to your captioned communication calling upon our client to show cause as to why the valuation made by' the Government approved valuer giving the valuation of the property transferred during the year as on March 31, 1981 should not be rejected and the value as assessed by the Assessing Officer in the wealth-tax Assessment Order for assessment year 1981-82 be while computing the capital gains for assessment year 1997-98.

6. The claim of the assessee was rejected by the learned Assessing Officer mainly on the following reasons:

He held that the report of the approved Valuer cannot be relied upon. The plot visited by the Valuer on 21/05/1996 had undergone a lot of change. The report was based on the site visit made way back on 21/05/1996. The sale instances cited by the approved Valuer related to a much smaller plots which cannot be compared with the plot of land in the instant case of the assessee. The deduction of 25% for open space, etc. is illogical. He held that any buyer has to split the plot into several parts for constructing residential buildings and to provide open space for each building. The deduction towards such space in the comparative case would be 50% and not 25% as taken by the Valuer. The plot of the assessee is away from bus route, almost by 1 1/2 km. and value cannot be more than Rs. 300/- per sq. mt. particularly because the plot was only slowly developing as per the Valuer himself. He further noted that, for the plots reserved for museum, public buildings, etc. the value was taken at Rs. 320/- per sq. mt. in 1981. He held that it is highly illogical and Rs. 350/- per sq. mt. is illogical for shops, etc. He further noted that for wealth tax assessment for the assessment year 1981-82 the value of the plot was taken at Rs. 1,50,404/-, which was not objected by the assessee. Hence he had taken the same value against the valuation of the property submitted by the assessee at Rs. 90,00,000/-. Aggrieved by the above order assessee approached the first appellate authority.