2016 (10) TMI 1317 - AT - Income Tax

Capital gain computation - Fair Market Value (FMV) as on 01.04.1981 of the property as capital asset - FMV ₹ 4,500/- per acre as per CIT-A as against ₹ 6,000/- per acre claimed by the assessee - valuation report obtained from a Chartered Engineer relied by assessee - HELD THAT - CIT(A) had considered the average of registered valuer and Sub-Registrar valuation for determining the FMV of the property as on 01.04.1981. This decision of Ld.CIT(A) is based on the order of the Tribunal, Chennai Bench in the case of M/s.Kutty Flush Doors 2014 (10) TMI 1027 - ITAT CHENNAI . Being so, we do not find any infirmity in the order of Ld.CIT(A). The same is confirmed. Denial of loan liability from the cost of acquisition as deduction in the computation of long term capital gains - AO has denied the claim of deduction as impugned capital asset was settled by the grandmother of the assessee in his favour vide Settlement Deed wherein no narration of the pre-existing change/mortage in the capital asset and loan liability was related to a partnership firm M/s.S.Albert Co., taken for the business purposes of the aforesaid firm - HELD THAT - Property was given as a collateral security for the loan availed by other than the assessee, which is a M/s.S.Albert Co., as pointed out by the AO in his assessment order and neither the assessee nor the assessee s grandmother who settled the property in favour of the assessee, is borrower nor a party to the suit, the mortgage debt cannot be considered as a cost of acquisition of property so as to give deduction while computing the capital gains from the transfer of the property. If the consideration of sale of property apportioned towards the outstanding debt in bank, the assessee is having very well right to claim from the borrower of the bank whose debt was settled. No infirmity in the order of the Ld.CIT(A). The same is confirmed. - Decided against assessee.

Summary

Issues involved:
1. Fair Market Value (FMV) determination as on 01.04.1981 of the property.
2. Denial of loan liability deduction from the cost of acquisition in the computation of long term capital gains.

Issue 1 - Fair Market Value (FMV) determination:
The appeal concerned the determination of the Fair Market Value (FMV) as on 01.04.1981 of a property. The Assessee claimed the FMV to be &8377; 6,000/- per acre based on a valuation report, while the Sub-Registrar valued it at &8377; 3,000/- per cent. The Assessing Officer (AO) substituted the Assessee's claimed value with the Sub-Registrar's value. The Commissioner of Income-tax (Appeals) directed the AO to adopt the average of both valuations at &8377; 4,500/- per acre, citing a previous Tribunal decision. The ITAT Chennai upheld the CIT(A)'s decision, stating that it was based on a previous Tribunal order and confirmed the FMV at &8377; 4,500/- per acre.

Issue 2 - Denial of loan liability deduction:
The second issue revolved around the denial of a deduction of &8377; 1,06,76905/- as loan liability from the cost of acquisition in the computation of long term capital gains. The AO denied the deduction as the loan liability was related to a partnership firm and later a company, not directly to the Assessee. The CIT(A) upheld the AO's decision, stating that the loan was settled by the company, not the Assessee's grandmother who settled the property. The ITAT Chennai agreed with the CIT(A), emphasizing that the loan was not taken by the Assessee or his grandmother, and the property was given as collateral for a loan by the company, not the Assessee. Therefore, the loan liability deduction was not allowed, and the appeal was dismissed.

In conclusion, the ITAT Chennai upheld the CIT(A)'s decision on both issues, confirming the FMV at &8377; 4,500/- per acre and denying the loan liability deduction in the computation of long term capital gains. The appeal of the Assessee was dismissed.