2014 (9) TMI 1199 - AT - Income Tax

Capital gain computation - adoption of sale consideration - HELD THAT - Though the value determined by Stamp Valuation Authority would be helpful indicator to determine the fair market value as on the date of development but the same also cannot be taken as what was to be received by the assessee was specific quantity of area of developed property, the value of which will be different from the value of vacant land. As per clause 18(a) the period of completion of project is mentioned as 48 months from the date of receipt of commencement certificate. The constructed area to be received by the assessee is in an undeveloped project which is yet to commence. Therefore, the value which can be assessed as sale consideration in the hands of the assessee should be akin to the value of similar property in an underdeveloped project which was yet to commence and to be completed in 4 years from the date of commencement of the project as mentioned in the development agreement signed by the assessee. This factor was brought to the notice of both the parties during the course of hearing of the appeal and both of them have agreed that to determine the fair market value for the purpose of determining the sale consideration assessable as capital gain in the above manner, the matter may be restored back to the file of AO. Therefore, we restore the issue to the file of AO with a direction to determine the consideration on which the assessee is liable to pay capital gain as described in the manner aforesaid after giving the assessee a reasonable opportunity of hearing Adoption of value determined by DVO as cost of acquisition - reference to DVO for the purpose of valuation - taking the cost of the property as on 1/4/1981 - HELD THAT - Tribunal held that in view of section 55A(a) it was not permissible for the AO to make a reference to DVO for the purpose of valuation as the value of property declared by the assessee was more than its fair market value. Thus, the Tribunal accepted the contention of the assessee that indexed cost should be taken as per value determined by a Registered Valuer of the assessee. Such order of Tribunal was confirmed by their Lordships. Their Lordships also rejected the contention of the Department that in view of amendment to section 55A(a) the AO was authorized to refer the matter to the valuation officer. Respectfully following the aforementioned decision of Hon ble Bombay High Court in the case of CIT vs. Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT we decide this issue in favour of assessee and we hold that the indexed cost should be computed on the basis of valuation done by the Registered Valuer of the assessee i.e. by taking the cost of the property as on 1/4/1981 at a sum of ₹ 50,08,320/-. Ground No.5 of the assessee is allowed.

Summary

Issues Involved:
1. Reopening of assessment under section 147.
2. Assessment of capital gains from the alleged transfer of land.
3. Adoption of sale consideration at Rs. 9,33,36,352/-.
4. Denial of deduction under section 80IB(10).
5. Adoption of value determined by District Valuation Officer (DVO) as the cost of acquisition.

Detailed Analysis:

Reopening of Assessment under Section 147:
The learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reopening the assessment under section 147, and the same is without jurisdiction and bad in law. However, the assessee did not press this ground, leading to its dismissal.

Assessment of Capital Gains from Alleged Transfer of Land:
The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the learned Assessing Officer in assessing capital gains from the alleged transfer of land in the impugned assessment year and in holding that the transfer of land had occurred in the impugned year. This ground was also not pressed by the assessee and was dismissed.

Adoption of Sale Consideration at Rs. 9,33,36,352/-:
The assessee was the owner of a piece of land and entered into a development agreement with a developer. The Assessing Officer (AO) valued the area to be received by the assessee at Rs. 9,33,36,352/- based on clause 3(g) of the development agreement, which estimated the sale price at Rs. 2,427/- per sq. ft. The assessee contended that the sale consideration should have been based on the value determined by the Stamp Valuation Authority, which was Rs. 3,45,87,500/-. The Tribunal found that the value of sale consideration determined by the AO based on clause 3(g) was incorrect and unjustified. The Tribunal restored the issue to the AO to redetermine the consideration upon which capital gain could be computed, considering the value of similar property in an underdeveloped project yet to commence.

Denial of Deduction under Section 80IB(10):
The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in denying the benefit of deduction under section 80IB(10). This ground was not pressed by the assessee and was dismissed.

Adoption of Value Determined by DVO as Cost of Acquisition:
The assessee produced additional evidence, including a valuation report by a Registered Valuer showing the value of the property as on 1/4/1981 at Rs. 50,08,320/-. The CIT(A) referred the matter to the DVO, who valued the property at Rs. 21,89,000 as on 1/04/1981. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Puja Prints, which held that a reference under section 55A could be made to the DVO only when the value adopted by the assessee was less than the fair market value. The Tribunal concluded that the reference to the DVO was bad in law and decided that the indexed cost should be computed based on the valuation done by the Registered Valuer of the assessee, i.e., Rs. 50,08,320/-.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal restored the issue of determining the sale consideration to the AO and directed that the indexed cost should be computed based on the valuation by the Registered Valuer. The grounds related to the reopening of assessment, assessment of capital gains, and denial of deduction under section 80IB(10) were dismissed as not pressed.