2014 (7) TMI 558 - HC - Income Tax

Reference u/s 55A of the Act not directed - Valuation for computing capital gain - Cost of construction of flats Flats given to tenant without sale consideration Assessee granted additional FSI to compensate Held that - The Tribunal has held that the AO did not refer the matter to the valuation officer - the tenanted property fetches low price - The tenanted property was purchased by the assessee but the same remained tenanted - None of the tenants had left the property as on 1st April, 1981- The AO added 15% to the purchase cost and tried to determine the fair value thus, no substantial question of law arises for consideration Decided against Revenue. The entire expenditure was incurred by him on construction of such tenaments and for handing over to the tenants - he was to be compensated by F.S.I. so as to enable him to reimburse himself the cost of construction for rehabilitating to the tenant, does not mean that the expenditure needs to be deleted straightway - revenue has failed to bring any material which would indicate as to how much F.S.I. was made available and placed at the disposal of the assessee, how much was utilized in the form of making for construction of buildings for sale in open market and how much was actually sold and the income derived - in the absence of the vital material, the CIT and the Tribunal concurrently held that the deduction was totally unjustified Decided against Revenue.

Summary

Issues involved:
1. Whether the Tribunal was justified in upholding the deletion of the addition of construction cost of flats given to tenants without sale consideration as expenditure?
2. Whether the Tribunal was justified in not directing the Assessing Officer to refer the matter for estimating the property value for computing capital gain?
3. Whether the Tribunal was justified in setting aside the order of the CIT(A) and remitting the matter back to the Assessing Officer for reexamination?

Analysis:

Issue 1:
The first issue revolves around the deletion of the addition of construction cost of flats given to tenants without sale consideration. The revenue contended that the assessee was compensated by grant of additional Floor Space Index (F.S.I.), therefore, the expenses should not have been claimed. However, the Court disagreed, stating that the assessee had to construct a new building to house the tenants in the old building without recovering any sum from them. The revenue failed to provide evidence on the F.S.I. utilization and income derived, leading to the conclusion that the deduction was justified.

Issue 2:
Regarding the second issue, the Tribunal found that the Assessing Officer did not refer the matter to the valuation officer and estimated the property value without sufficient grounds. The Tribunal disagreed with the valuation approach, considering the circumstances and the age of the property. It determined the property value at Rs. 2,50,000, differing from the Commissioner of Income Tax's estimate. The Court upheld the Tribunal's decision, stating that the valuation method was reasonable and not legally flawed.

Issue 3:
The third issue pertains to setting aside the CIT(A)'s order and remitting the matter back to the Assessing Officer for reexamination. The Court noted that both parties agreed that this issue was related to the valuation matter. The Court found no substantial question of law in this regard, as the matter was agreed upon by both parties and required reexamination based on the decision rendered for the first ground. Therefore, the Court dismissed the appeal, emphasizing that no costs were to be awarded.

In conclusion, the Court upheld the Tribunal's decisions on all three issues, emphasizing the importance of evidence and reasonable valuation methods in tax matters.