2016 (5) TMI 623 - AT - Income Tax

Valuation of property for the purpose of computation of capital gain - estimation of fair market value as on 1.4.1981 - adoption of report from an expert, i.e. Government Approved Valuer - Held that - After considering the totality of the facts of the case and material available on record, we are of the view that both the authorities below are not justified in adopting the rate as the assessee had furnished a report from an expert, i.e. Government Approved Valuer. The sale instances as considered by the AO are pertaining to residential properties and such valuation cannot be adopted in respect of the Industrial Land. The estimation of fair market value depends on various factors; namely, location of property, nature of property, usage of property and also future prospects of such property. As per the Government Valuer, the property has potential of appreciation and of commercial usages. The Revenue has not placed any material on record for rebutting this contention of the valuation. Therefore, after considering the totality of the facts and material available on record, it would be proper that an estimation of fair market value as on 01/04/1981 is to be made on the basis of material on record. The Valuer in earlier year, had adopted a higher rate of fair market value and in the subsequent year, he adopted a lower rate. Therefore, the valuation adopted by the Government Approved Valuer, cannot be adopted as the valuation is made solely on the basis of potential of the land but not on the basis of the actual prevalent rate in the close vicinity. The Revenue has also not placed any material on record, demonstrating the prevalent market rate as on 01/04/1981 in the close vicinity of the land in question. The AO has adopted the cost of acquisition as on 01/04/1981 at ₹ 250/- per sq.mtr. and the ld.CIT(A) adopted the cost of acquisition as on 01/04/1981 at ₹ 551/- per sq.mtr., whereas the assessee has claimed the cost of acquisition as on 01/04/1981 at ₹ 1940/- per sq.mtr. Therefore, it can be fairly inferred that the cost of acquisition would be at ₹ 980/- per sq.mtr to ₹ 1050/- per sq.mtr. taking the average. Hence, we direct the AO to adopt a cost of acquisition at ₹ 980/- per sq.mtr. calling for report from expert at his stage would further delay the disposal of the matter. Therefore, in the interest of justice and considering the material available on record, we direct the AO to take the cost of acquisition as on 01/04/1981 at ₹ 980/- per sq.mtr and recompute the gain

Issues involved:
1. Estimation of Fair Market Value (FMV) as on 01.04.1981 for the purpose of computation of long-term capital gains.
2. Disallowance of interest on bonds issued to shareholders.
3. Adhoc disallowance of other expenses and directors’ telephone and vehicle expenses.
4. Disallowance of salary and wages pertaining to Packart Press Unit.
5. Disallowance under Section 14A of the Income Tax Act, 1961.

Detailed Analysis:

1. Estimation of Fair Market Value (FMV) as on 01.04.1981:
The primary issue in multiple appeals was the estimation of the FMV of the land as on 01.04.1981 for computing long-term capital gains. The Revenue adopted a value of ?250 per sq.mtr based on sale instances of residential properties, while the Assessee claimed ?1940 per sq.mtr based on a Government Approved Valuer’s report. The CIT(A) estimated the FMV at ?550 per sq.mtr. The Tribunal noted that the AO and CIT(A) did not call for a report from the Departmental Valuation Officer (DVO) and made their own estimations. The Tribunal emphasized that industrial land cannot be compared with residential properties and highlighted the necessity of considering various factors like location, nature, and potential of the property. Ultimately, the Tribunal directed the AO to adopt a cost of acquisition at ?980 per sq.mtr, considering the average rates and material on record, to avoid further delays.

2. Disallowance of interest on bonds issued to shareholders:
The Assessee’s appeal included a ground regarding the disallowance of ?1,31,940/- being interest on bonds issued to shareholders of Standard Pharmaceuticals Ltd. on amalgamation. However, the Assessee did not press this ground due to the smallness of the amount, and thus, it was dismissed as not pressed.

3. Adhoc disallowance of other expenses and directors’ telephone and vehicle expenses:
The Assessee’s appeal also included a ground against the adhoc disallowance of ?2,74,391/- being 5% of other expenses and directors’ telephone and vehicle expenses. The Tribunal noted that the Assessee did not press this ground due to the smallness of the amount, and it was dismissed as not pressed.

4. Disallowance of salary and wages pertaining to Packart Press Unit:
The Assessee contested the disallowance of ?26,97,170/- towards salary and wages of the Packart Press Unit. The Tribunal, considering the submissions and the identical issue being remitted in earlier cases, remitted this issue back to the AO for a fresh decision, allowing the ground for statistical purposes.

5. Disallowance under Section 14A of the Income Tax Act, 1961:
The Assessee argued against the disallowance of ?1,89,11,310/- under Section 14A, claiming no exempt income was earned. The Tribunal referred to the Gujarat High Court judgment in CIT vs. Corrtech Energy Ltd., which held that Section 14A disallowance is not applicable if no exempt income is claimed. Thus, the Tribunal directed the AO to delete the disallowance, allowing this ground of the Assessee’s appeal.

Summary of Results:
1. Assessee’s appeal in ITA No.2624/Ahd/2012 for AY 2008-09 is partly allowed for statistical purposes.
2. Revenue’s appeal in ITA No.2602/Ahd/2012 for AY 2008-09 is dismissed.
3. Assessee’s appeal in ITA No.2786/Ahd/2012 for AY 2008-09 is partly allowed for statistical purposes.
4. Revenue’s appeal in ITA No.35/Ahd/2013 for AY 2008-09 is dismissed.
5. Assessee’s appeal in ITA No.2694/Ahd/2012 for AY 2009-10 is partly allowed for statistical purposes.
6. Revenue’s appeal in ITA No.36/Ahd/2013 for AY 2009-10 is dismissed.

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