2024 (1) TMI 1037 - AT - Income Tax

Capital gain computation - Fair Market Value as on 01.04.1981 u/s 55(2)(b)(i) - HELD THAT - Since, the assessee has provided a certificate of valuation from government approved valuer wherein the value of said land has been valued at Rs. 1,20,000/-, we, therefore, can accept the assessee contention based a supporting evidence in the form of report of the Government approved valuer to the extent of value of land, however, site development cost including borewell, residential unit and boundary wall for which no consideration was received by the assessee and in absence of non-existence of such items in the impugned immovable property, valuation assessed by the registering authority was also confined to the items transferred under the registered sale deed, thereby the transaction is revenue neutral as not consideration was added in the assessed value in absence of existence of such items/ assets and no cost benefit would thus be allowed in computation of the Capital Gain, accordingly the claim of the assessee to allow benefit of cost incurred on construction and improvement of impugned items/assets which are not forming part of the impugned immovable property at the point of time when the same was sold, which is a fact discernible from the registered sale/transfer deed dated 06.12.2015 is extraneous, against the mandate of law, thus not sustainable. Further, from the registered sale deed, it is evident that when the property was sold, it consists only one watchman (chowkidar) room of 8 ft. x 7 ft. i.e., 56 Sq. ft. in existence on the said land, for which the consideration was adopted by the assessee at Rs. 45,000/- in the registered sale/transfer deed, which is not disputed by either party. Copy of the sale/transfer deed is furnished before us in Assessee's PB page no. 25-46. Thus we are of the considered view that the fair market value of the impugned immovable property should be adopted at Rs. 1,20,000/- as on 01.04.1981, which is backed by a corroborative document, as valued by the government approved valuer in absence of any valuation by DVO which should have been proposed by the AO, and also the value of watchman room shall be added at Rs. 45,000/- as declared by the assessee in registered sale deed. We, therefore, direct to modify the order of Ld. CIT(A) to the extent to adopt the fair market value of the subject property at Rs. 1,20,000/- as on 01.04.1981(indexation benefit applicable) towards land and Rs. 45,000/- (without indexation benefit) instead of Rs. 50,000/- in aggregate as estimated by the Ld. CIT(A) without support of any corroborative evidence. In result, Ground No. 1 of the assessee is partly allowed for statistical purposes. Index value of renovation expenses claimed - HELD THAT - As evident from the sale/transfer deed that so far as building is concerned there was only one room for watchman (chowkidar) consisting of 8x7 Sq. Ft. i.e., 56 Sq. Ft. for which the consideration was declared at Rs. 45,000/-. Accordingly, we are of the view that on account of construction to be included in the cost of the immovable property sold should be only Rs. 45,000/-, It is the cost of chowkidar room declared by assessee himself in the registered sale/transfer deed. Under such facts and circumstances the amount towards cost of building is to be allowed to the extent of Rs. 45,000/- only, which we have already considered and included while deciding cost of acquisition and development as per our observations while deliberating upon ground no. 1 of the present appeal, therefore, the order of Ld. CIT(A) disallowing the entire expenses incurred on renovation of such non-existent building is sustained. Accordingly, the ground no. 2 of the assessee stands disallowed. Restricting amount of investment in residential house property - Allowance of improvement expenditure/investment in the new residential house - HELD THAT - As specific inquiry was conducted by the AO and categorical observations of the inspector were recorded in the assessment order, that 2 flats are let out to two parties with specific name and contact details of the tenants which establishes that the flats are used by external parties and not by the assessee for his family, also on perusal of the floor lay out map of the flats furnished before us, nothing is emanating that the four flats are converted into one residential unit. It is, thus, incomprehensible to concur with the contentions raised by Ld. AR without any cogent supporting evidence that all the 4 flats are converted into one residential unit and are in use or to be used by the family of the assessee. We observe that the expenditure incurred w.r.t. flat no. 502 and 503 which are admittedly recognized as converted to single unit for the residence by the assessee should be allowed as expenditure eligible for the calculation of deduction u/s 54 but the expenditure incurred on flat no. 501 and 504 for which no convincing facts or evidence could be brought on record by the assessee that the same are also converted and connected as single unit for the use of assessee and his family as residence, accordingly such expenditure on flat no. 501 504 are liable to be disallowed. Consequently, the total expenditure incurred for Rs. 65,00,000/-, quantum of which was not disputed by the revenue, but in absence of specific details of separate expenses incurred on the said flats individually, we find it appropriate to allow 50% of total expenditure of Rs. 65/- Lac. We, therefore, direct to modify the order of Ld. CIT(A) by allowing the improvement expenditure/investment in the new residential house to the extent of Rs. 32.5/- Lacs on account of portion used by the assessee and his family for their residence and sustained the addition of remaining Rs. 32.5/- Lacs for which use as residence by the assessee or family could not be substantiated. Resultantly, ground no. 3 of the assessee is partly allowed for statistical purposed. Deduction u/s 54 shall be computed in terms of our observations in the aforesaid grounds.

Summary

Issues Involved:
1. Fair Market Value as on 01.04.1981.
2. Indexed value of renovation expenses.
3. Restriction on subsequent investment in residential house property.
4. Restriction on claim of exemption u/s 54.
5. General grounds.

Summary:

Issue 1: Fair Market Value as on 01.04.1981
The assessee contested the fair market value of Rs. 50,000/- as determined by the Commissioner of Income-tax (NFAC) instead of Rs. 5,00,000/- claimed by the assessee. The Tribunal found that the valuation provided by the government-approved valuer was more credible and directed the fair market value to be adopted at Rs. 1,20,000/- for the land and Rs. 45,000/- for the watchman room, instead of the Rs. 50,000/- estimated by the CIT(A).

Issue 2: Indexed Value of Renovation Expenses
The assessee claimed renovation expenses of Rs. 19,56,688/-. The Tribunal upheld the disallowance by the CIT(A) since the renovation expenses were not for the building that existed at the time of sale. Only the cost of the watchman room, which was Rs. 45,000/-, was considered valid.

Issue 3: Restriction on Subsequent Investment in Residential House Property
The assessee argued that Rs. 65,00,000/- was spent to convert four flats into one residential unit. The Tribunal allowed 50% of the claimed expenditure, i.e., Rs. 32,50,000/-, as the evidence showed only two flats were interconnected and used by the assessee's family, while the other two flats were rented out.

Issue 4: Restriction on Claim of Exemption u/s 54
This issue was consequential to the decisions on the previous grounds. The Tribunal directed the quantum of deduction u/s 54 to be computed based on the revised fair market value and allowable renovation expenses.

Issue 5: General Grounds
The general grounds raised by the assessee were deemed academic and not separately adjudicated.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for recalculating the fair market value, allowable renovation expenses, and deduction u/s 54 based on the Tribunal's findings.