2010 (9) TMI 1107 - AT - Income Tax

Summary

Issues Involved:
1. Determination of Fair Market Value (FMV) as on 1-4-1981 for the computation of capital gains.
2. Set-off of brought forward losses.
3. Allowability of set-off of unabsorbed depreciation.
4. Year of levy of capital gain for the development agreement.

Detailed Analysis:

1. Determination of Fair Market Value (FMV) as on 1-4-1981 for the computation of capital gains:
The assessee sold two properties and reported long-term capital losses, adopting a FMV of Rs. 1230 per sq. mtr as on 1-4-1981 based on a registered valuer's report. The A.O. challenged this valuation, citing comparable sale instances from 1981 showing much lower rates (Rs. 15.23, Rs. 6.25, and Rs. 8.54 per sq. mtr). The A.O. also referenced a 1989 circular indicating that 1981 values should be 40% of 1989 values, leading to a rate of Rs. 400 per sq. mtr. The A.O. found the valuer's method unrealistic, noting discrepancies like the use of rates for new buildings and incorrect deductions for old structures. The A.O. ultimately adopted Rs. 15.23 per sq. mtr as the FMV, resulting in a significant capital gain. The CIT(A) upheld this view, rejecting the assessee's valuation method. The tribunal, considering the PMC limits and infrastructure advantages, determined a more reasonable FMV of Rs. 665 per sq. mtr as on 1-4-1981.

2. Set-off of brought forward losses:
The assessee did not press this issue during the hearing, and thus, it was dismissed as not pressed.

3. Allowability of set-off of unabsorbed depreciation:
The A.O. denied the set-off of unabsorbed depreciation of Rs. 16,69,233 due to the absence of a return for the current year. The assessee argued that unabsorbed depreciation should be set off against any income head, referencing Supreme Court and other High Court rulings. The tribunal restored this issue to the A.O. for reconsideration, directing a decision based on facts and law after providing the assessee an opportunity for a hearing.

4. Year of levy of capital gain for the development agreement:
The assessee entered a development agreement on 19-3-2007. The A.O. and CIT(A) determined that the transfer of development rights occurred on this date, making the capital gain taxable for A.Y. 2007-08. This decision was supported by the jurisdictional High Court ruling in Chaturbhuj Dwarkadas Kapadia Vs. CIT, which stated that the date of agreement is relevant for determining the date of transfer under section 2(47)(v) of the Act. The tribunal upheld this finding, confirming the capital gain's taxability in A.Y. 2007-08.

Conclusion:
The tribunal partly allowed the appeals, adjusting the FMV to Rs. 665 per sq. mtr for capital gains computation, dismissing the set-off of brought forward losses, restoring the issue of unabsorbed depreciation to the A.O., and upholding the year of levy of capital gain as A.Y. 2007-08.