2016 (8) TMI 1039 - AT - Income Tax

Deduction of cost indexation value of building allowability - CIT(Appeals) directing AO for allowing deduction - Held that - The rental income from Building was offered for income tax and produced copy of income tax return for assessment year 2004-05 and copy of Residential Electricity bill and Drew our attention to the copy of Income Tax Return of assessment year 2004-05 were the assessee has offered rental income under the house property and disclosed property tax receipts. The ld. Commissioner of Income Tax (Appeals) has elaborately discussed on the existence of Building in his order and having satisfied with Building existence applied PWD rates and calculated index cost of acquisition. We found from the order of assessment and Commissioner of Income Tax (Appeals) that At the request of the buyer/Builder, the property was demolished and sale deed was executed. The ld. Authorised Representative drew our attention to the copies of the Electricity bill of residential to support that the building was in Habitation and rental income was derived. So, considering the apparent facts and material on record and evidence, we found the Commissioner of Income Tax (Appeals) based on examination of the facts of existence of building and Income Tax Returns was of the opinion that the building was in existence and the assessee was offering income from house property in the income tax return. Hence, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) and dismiss the Revenue appeal. Determination of sale consideration - Commissioner of Income Tax (Appeals) has adopted the value determined by the DVO - Held that - We found that the ld. Assessing Officer has adopted the Sub-Registrar value as per provisions of Sec. 50C of the Act.Rs. 1,81,87,296/-. The ld. Commissioner of Income Tax (Appeals) on the basis of the submissions of the assessee referred to the valuation cell and District Valuation Officer has estimated the value of the property of ₹ 1,63,69,000/-. This valuation report was communicated to the assessee and the assessee filed submissions on 04.03.2013 in respect of cost adjustment for the deficiencies attached to the property allowed at 5% and the ld. Commissioner of Income Tax (Appeals) has calculated capital gains which is not disputed, so considering the apparent facts, we confirm the order of Commissioner of Income Tax (Appeals) on this issue. Cost adjustment made by the DVO at 5% and the claim of the assessee being 25% - Held that - We found that the DVO has calculated the value of property based on the information and details submitted. The contention of the assessee for claim of 25% adopted was argued. The ld. Commissioner of Income Tax (Appeals) could not understand the reasons envisaged by the assessee how such deficiencies attached to the property will adversely affect the value of the property. The ld. Commissioner of Income Tax (Appeals) has rejected the cost adjustment of 25% and we found the ld. Commissioner of Income Tax (Appeals) considered these fact and DVO report and directed the ld. Assessing Officer to adopt value as per DVO for calculation. Therefore, we do not find any infirmity and dismiss the ground in Cross Objection filed by the assessee. Non accepting the plea of the cost of building and estimated cost of allowance at 5% towards cost adjustment by CIT(A) - Held that - We on perusal of the Commissioner of Income Tax (Appeals) found the probable value of cost of construction of building in financial year 1981-82, 1995-96 and 1996-1997 based on the PWD rates was applicable to the state of Tamil Nadu was calculated at 50% of probable cost of construction adopted for building existing as on 01.04.1981 falling in financial year 1981-1982 as the building being old. We found the reasons recorded by the ld. Commissioner of Income Tax (Appeals) that the assessee could not submit any details of cost of construction incurred for the financial year 1995-96 and 1996-1997 nor assessee was able to file any details of method on methodology in arriving at fair market value of land and building ₹ 14,00,000/-. We are of the opinion that the ld. Commissioner of Income Tax (Appeals) has rightly considered the facts with basic reasons in respect of cost of construction of old building and we dismiss the ground of the assessee. Proceedings of u/s.263 - Held that - We on perusal of the calculation of Long Term Capital Gains on sale of property at page 9, the ld. Commissioner of Income Tax (Appeals) has made a note in respect of revisionary proceedings and proportionately allowed the claim. Subsequently, the ld. Authorised Representative explained that the order of Sec. 263 on appeal was dismissed and the appeal has been admitted in the High Court and the ld. Assessing Officer has passed the consequential revisionary order on 31.03.2013 giving effect to the direction excluding deduction u/s.54F of the Act and the disputed Revisionary proceedings are pending before High Court. Therefore, we are of the opinion that the ld. Commissioner of Income Tax (Appeals) was correct in his order to make observations and we dismiss the ground of the assessee. Penalty 271(1)(c) - whether the assessee is guilty or submitted inaccurate particulars in the assessment proceedings - Held that - It was explained that the assessee is the owner of the land and building before 01.04.1981 and subsequently undertook construction works as extension of Building and as per terms of sale with purchaser, the building was demolished and sale deed was executed by the assessee. The fact that the penalty order arised out of the assessment order passed u/s.143(3) r.w.s. 147 of the Act dated 31.12.2009 and the ld. Commissioner of Income Tax (Appeals) in the quantum proceedings having satisfied that there is existence of Building and allowed index cost acquisition as deduction from sale consideration. The proceedings under Sec. 263 of the Act are being contested at higher forums and has not attained finality. The Revenue before us argued on the basis of Revision order passed u/s.263 of the Act which is not appropriate. The facts of the assessment proceedings have been considered by the ld. Commissioner of Income Tax (Appeals) and satisfied with evidence and also there is no concealment or furnishing of inaccurate particulars as the assessee has claimed exemption u/s.54Fof the Act and also disclosed Rental income from the building in earlier assessment years

Summary

Issues Involved:
1. Deduction on account of indexed value of buildings.
2. Adoption of PWD rates for building extension.
3. Exemption under Section 54 vs. Section 54F of the Income Tax Act.
4. Valuation of property and applicability of Section 50C.
5. Penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deduction on Account of Indexed Value of Buildings:
The Revenue challenged the CIT(A)'s direction to allow the indexed value of buildings at ?65,02,943/-, arguing no building existed at the time of sale. The assessee contended that the property sold included a residential building which was demolished prior to the sale as per the buyer's request. The CIT(A) found evidence of the building's existence through rental income reported in earlier tax returns and allowed the indexed cost of the building in the capital gains computation. The Tribunal upheld CIT(A)'s decision, confirming the building's existence and the assessee's entitlement to the indexed cost.

2. Adoption of PWD Rates for Building Extension:
The Revenue disputed the adoption of PWD rates for calculating the cost of building extensions in FY 1995-96 and 1996-97, citing a lack of evidence. The CIT(A) used PWD rates to estimate the construction cost due to the absence of detailed records. The Tribunal found no error in CIT(A)'s reliance on PWD rates, considering it a reasonable method in the absence of specific evidence.

3. Exemption under Section 54 vs. Section 54F of the Income Tax Act:
The Assessing Officer (AO) denied exemption under Section 54, treating the property sold as vacant land and not a residential house, and alternatively allowed exemption under Section 54F. The CIT(A) directed the AO to assess the exemption under Section 54F proportionately. The Tribunal noted that the AO's assessment of the property as vacant land was based on the sale deed, but the CIT(A) considered the property's use and subsequent conversion to residential use. The Tribunal upheld the CIT(A)'s direction for proportionate exemption under Section 54F.

4. Valuation of Property and Applicability of Section 50C:
The AO applied Section 50C, using the Sub-Registrar's value of ?1,81,87,296/- against the actual sale consideration of ?1,44,00,000/-. The CIT(A) referred the matter to the District Valuation Officer (DVO), who valued the property at ?1,63,69,000/-. The CIT(A) adopted this value for capital gains calculation. The Tribunal found the CIT(A)'s reliance on the DVO's valuation justified and dismissed the assessee's objection to the valuation.

5. Penalty Proceedings under Section 271(1)(c):
The AO levied a penalty of ?12,11,900/- for furnishing inaccurate particulars. The CIT(A) deleted the penalty, noting that the disallowance of the claim under Section 54 was based on deeming provisions and not on concealment or inaccurate particulars. The Tribunal upheld the CIT(A)'s decision, citing the absence of concealment and the assessee's bona fide belief in claiming the exemption. The Tribunal referenced the Supreme Court's decision in CIT vs. Reliance Petro Products Pvt. Ltd., emphasizing that penalty cannot be automatic and must be based on clear evidence of concealment or inaccurate particulars.

Conclusion:
The Tribunal dismissed the Revenue's appeals and the assessee's cross-objections, upholding the CIT(A)'s decisions on all issues, including the indexed value of buildings, adoption of PWD rates, exemption under Section 54F, valuation under Section 50C, and deletion of penalty under Section 271(1)(c). The Tribunal emphasized the importance of evidence and reasonable estimation methods in the absence of specific records.