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2019 (6) TMI 284 - AT - Income TaxLTCG on sale of immovable property - reference to DVO for the Valuation of immovable property as on 01.04.1981 - manner and method of valuation as adopted by the DVO - assessee was the co owner of the property having 1/6th share in the property - determining the FMV by rent capitalization method OR fair market rent as done by the DVO - HELD THAT - We are of the view that Ld DVO was not justified in valuing the building, as because the assessee was owner of the land only and the building was not constructed or owned by assessee. The building was constructed by the Lessee, M/s Park Chambers Private Limited. Further, we note that DVO has failed to appreciate that the property being sold by the assessee was on lease till 2040 and the assessee and the other co owners were only entitled to receive a sum of ₹ 10,000 per month as rent. Thus, the valuation of the property had to be made as per Rent Capitalization method. For this we rely on the judgment of CIT vs. Inderjit Singh 1984 (3) TMI 16 - PUNJAB AND HARYANA HIGH COURT . Also see SMT. ASHA DEVI AGARWAL 1987 (6) TMI 18 - CALCUTTA HIGH COURT We note that the assessing officer ought to have determined the value of property based on Rent Capitalization method. Therefore, we direct the Ld. Assessing Officer to recompute the capital gains and decide accordingly. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
Issues Involved:
1. Addition of ?4,85,77,093/- on account of Long Term Capital Gain (LTCG) on sale of immovable property. 2. Legality of reference to Departmental Valuation Officer (DVO) for valuation of immovable property as on 01.04.1981. Issue-wise Detailed Analysis: 1. Addition of ?4,85,77,093/- on Account of LTCG: The primary grievance of the assessee was the upholding of the addition of ?4,85,77,093/- by the Commissioner of Income Tax (Appeals) [CIT(A)] on account of LTCG on the sale of immovable property. The assessee, along with co-owners, sold a property at 119 Park Street, Kolkata, which was leased to Park Chambers Private Limited. The assessee's 1/6th share in the property was sold for ?1,50,00,000 as per the sale agreement dated 12/05/2010. However, the fair market value determined by the stamp authority at the time of conveyance on 02/11/2012 was ?11,16,53,494. The assessee declared nil capital gains in the return of income, claiming a capital loss based on the deemed sale value and indexed cost. The Assessing Officer (AO) referred the valuation to the DVO, who computed the value as ?38,57,03,737 (for 50% share), leading to an addition of ?4,85,77,093/-. The assessee argued that the valuation should be done using the Rent Capitalization method as per Schedule III of the Wealth Tax Rules. The Counsel for the assessee submitted that the valuation should consider the rent actually received, which was ?10,000 per month, and not the fair market rent as done by the DVO. The Tribunal agreed with the assessee, citing precedents from various High Courts, including the Punjab and Haryana High Court in CIT vs. Inderjit Singh, and the Calcutta High Court in CIT vs. Asha Devi Agarwal, which supported the use of the Rent Capitalization method for properties on rent at the time of sale. 2. Legality of Reference to DVO for Valuation as on 01.04.1981: The assessee challenged the legality of the AO's reference to the DVO for valuing the property as on 01.04.1981. The Tribunal observed that the DVO's valuation was not justified as the assessee was only the owner of the land, and the building was constructed by the lessee, M/s Park Chambers Private Limited. The Tribunal emphasized that the valuation should reflect the rent capitalization method, given the property was leased till 2040, and the assessee was entitled to receive only ?10,000 per month as rent. The Tribunal relied on several judicial precedents that supported the use of the Rent Capitalization method for determining the fair market value of properties on rent. It was noted that the AO should recompute the capital gains based on the actual rent received by the assessee. Conclusion: The Tribunal directed the AO to recompute the capital gains by adopting the sale value of ?1,50,00,000 and applying the Rent Capitalization method for valuation. The appeals filed by the assessee were allowed for statistical purposes, and the AO was instructed to determine the value of the property based on the Rent Capitalization method and decide accordingly. Order: Both appeals filed by the assessee were allowed for statistical purposes. The order was pronounced in the Court on 29.05.2019.
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