2015 (9) TMI 283 - AT - Income Tax

Determination of capital gain in respect of sale of factory premises including land - allocation of sale consideration between the land and building - Held that - It is irrelevant at whose behest certificate was issued. GIDC is a Gujarat Government undertaking and a certificate issued by it cannot be rejected merely on the basis of suspicion or presumption. Therefore, we are of the opinion that the certificate of the GIDC with regard to the rate of plot in the GIDC area at the relevant time is one of the proper basis for determination of the market value of the plot in that area. The Assessing Officer as well as the CIT (A) has not given any basis for allocation of the sale consideration between the land and building. The WDV of the building cannot be determinative of market value of the building after 20 years. In the allocation of sale consideration between the land and building by the assessee at least the value of the land is determined on the basis of GIDC certificate and residual value is allocated to the building. But the allocation of sale consideration by Assessing Officer and CIT (A), between the land and building is absolutely without any basis. The historical cost of building or WDV of building cannot be determinative of market value of building on the date of sale. Similarly end use of building by the buyer is also not relevant for determining market value of building on the date of sale. Considering the facts of the case in our opinion the allocation of sale consideration between the land and building by the assessee deserves to be accepted and we order accordingly.- Decided in favour of assessee. Enhancement by CIT(A) by denying the option of fair market value as on 1-4-1981 which was accepted by the Assessing Officer - Held that - From the reading of the order of the ITAT which is reproduced above in para-6, it is evident that it was a limited set aside for the purpose of giving opportunity to the Assessing Officer with reference to the additional evidence i.e. letter of GIDC. In the above circumstances, in our opinion, enhancement was made by the CIT(A), in respect of altogether new point which was not taken by the Assessing Officer in the assessment order, was not an issue before the CIT (A) or ITAT in first round. The matter was set aside by the ITAT to the CIT (A) for the limited purpose of allowing opportunity to the A. O. with reference to the additional evidence. Therefore, the CIT (A) was not justified in taking up altogether a new issue while readjudicating the issue as per direction of ITAT. We are therefore of the opinion that the CIT (A) was not justified in denying the benefit of option of Fair Market Value of land as on 1-4-1981 to the assessee which was allowed by the Assessing Officer. The allotment of the land by GIDC to the assessee was on the payment of lump sum consideration. It was not a tenancy right on the basis of monthly payment of rent. Therefore provision of Section 55(2)(a) is not applicable. However, as we have set aside the enhancement made by the CIT (A) on the limited ground that it was beyond the scope of order of set-aside by the ITAT, we do not express any opinion whether the allotment of land by GIDC to the assessee would fall within the ambit of tenancy right or not. In view of above, we direct the Assessing Officer to accept the workings of the capital gain of the assessee and the addition made by him as well as enhancement made by the CIT (A) are deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Allocation of sale consideration between land and building.
2. Justification of enhancement by denying the option of adopting the fair market value of the land as on 1-4-1981.

Issue-wise Detailed Analysis:

1. Allocation of Sale Consideration Between Land and Building:

The Assessee disclosed a capital gain of Rs. 12,63,766/- from the sale of its factory building and land for a total consideration of Rs. 68,83,000/-. The allocation was Rs. 32,75,000/- for land and Rs. 36,08,000/- for the building. The Assessing Officer disagreed, allocating only Rs. 1,24,001/- for the building and the remaining Rs. 67,58,999/- for the land, resulting in a long-term capital gain of Rs. 47,47,765/-. The CIT (A) initially accepted the Assessee's allocation based on a GIDC certificate indicating land rates, but this decision was set aside by the ITAT for lack of opportunity for the Assessing Officer to rebut the evidence. Upon remand, the CIT (A) slightly modified the allocation to Rs. 4,17,847/- for the building and Rs. 64,65,153/- for the land. However, the Tribunal found that neither the Assessee nor the revenue authorities properly determined the market value of the land and building on the sale date. The Tribunal emphasized that the GIDC certificate provided a reasonable basis for the land's market value, and the historical cost or WDV of the building was not a proper determinant. Consequently, the Tribunal accepted the Assessee's allocation of the sale consideration.

2. Justification of Enhancement by Denying the Option of Adopting the Fair Market Value of the Land as on 1-4-1981:

The CIT (A) enhanced the capital gain by Rs. 17,39,189/- by denying the Assessee the option to adopt the fair market value of the land as on 1-4-1981, considering only the tenancy right as per section 55(2)(a). The Tribunal noted that the ITAT's remand was limited to providing the Assessing Officer an opportunity to rebut the GIDC certificate and did not include enhancement issues. The Tribunal held that the CIT (A)'s enhancement was beyond the scope of the ITAT's remand order. The Tribunal also noted that the Assessee's argument regarding the nature of the land allotment by GIDC was not addressed due to the limited scope of the remand. Consequently, the Tribunal directed the Assessing Officer to accept the Assessee's capital gain calculations, deleting both the addition made by the Assessing Officer and the enhancement by the CIT (A).

Conclusion:

The Tribunal ruled in favor of the Assessee, allowing the appeal and directing the acceptance of the Assessee's capital gain computations. The allocation of sale consideration between land and building provided by the Assessee was accepted, and the enhancement made by the CIT (A) was deemed unjustified and beyond the scope of the remand order.