2015 (9) TMI 432 - AT - Income Tax

Allocation of cost of land - whether CIT(A) has erred in holding that there is no basis and justification to allocate ₹ 5,28,12,000/- towards the building? - adoption of cost of building - work out long term capital gain on transfer of leasehold rights on land - Held that - AO has arbitrarily allocated the cost of land by taking into consideration the cost of the building overlooking the claim of the assessee that even if new construction has to be made in the same plinth area it cannot be more than ₹ 87,00,000/-. The learned CIT(A) has correctly taken into consideration the fact that the MIDC has not taken into consideration the market value while calculating the differential premium. Since the leasehold rights were transferred to the purchaser at ₹ 7.20 crores, the learned CIT(A) had correctly taken into consideration the fact that the purchaser would have paid the amount essentially based on the land cost and the chance of constructing a new building for new I.T. based industries with adjoining infrastructural facilities and hence it is improper to segregate a large chunk of consideration towards cost of building since the dominant object was to acquire the leasehold rights on the land. Under these circumstances we are of the view that the order passed by the learned CIT(A) on this aspect does not call for any interference - Decided against revenue. Depreciation on the property held for more than 40 years - whether no depreciation was ever claimed and even if it was claimed, in respect of properties which are more than 40 years old, there were still to be some value to the said property and as per the Stamp Duty Ready Reckoner 2007 the value of the said property can be arrived at by reducing it to 30% of the present cost - Held that - Assessee had given the calculation, based on several parameters, to show that the cost of building, if constructed in financial year 2007-08, works out to ₹ 6,87,12,170/-. The AO merely brushed out the said calculation of the assessee arbitrarily assuming that the purchase cost would be more than ₹ 5 crores. In our considered opinion the matter deserves to be set aside to the file of the AO who is directed to verify the computation given by the assessee and if the cost of building as computed by the assessee is reasonable then the reasonable value can be estimated as on 01.04.1981 accordingly. Decided in favour of assessee allowed for statistical purposes.

Summary

Issues:
1. Allocation of cost towards building
2. Calculation of long term capital gains on leasehold rights
3. Depreciation on property held for more than 40 years

Allocation of Cost towards Building:
The Revenue challenged the CIT(A)'s decision regarding the allocation of Rs. 5,28,12,000 towards the building, contending that the cost should be considered at Rs. 87,12,170 instead. The AO had initially computed long term capital gains at Rs. 1,84,41,306 and short term capital gains at Rs. 5,37,54,656. The CIT(A) directed the AO to consider the value of the building at Rs. 87,12,170, emphasizing that the buyer paid based on the land cost due to the leasehold rights' transfer. The Revenue's appeal was dismissed as the CIT(A)'s decision was deemed appropriate.

Calculation of Long Term Capital Gains on Leasehold Rights:
The AO observed that the leasehold rights were assigned to a purchaser for Rs. 7.20 crores, with an additional payment of Rs. 19,14,400 towards differential premium to MIDC. The CIT(A) noted discrepancies in the AO's valuation, directing the value of the building to be revised to Rs. 87,12,170 instead of Rs. 5,28,12,000. The CIT(A) upheld that the buyer paid primarily for the land due to potential new construction for IT industries, leading to dismissal of the Revenue's appeal.

Depreciation on Property Held for More Than 40 Years:
The assessee contended that depreciation should be allowed on the property held for over 40 years and that long term capital gains on the 99-year lease should consider indexation value as of 01.04.1981. The CIT(A) set aside the matter to the AO for verification of the computation provided by the assessee, suggesting a reasonable estimate of the building's cost as of 01.04.1981. The cross objections filed by the assessee were treated as allowed for statistical purposes.

Overall, the Revenue's appeal was dismissed, and the cross objections by the assessee were allowed for statistical purposes, emphasizing the correct allocation of costs and valuation considerations in determining capital gains and depreciation on the property.