9911796707
TMI Blog2016 (1) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by the Revenue in the preceding assessment years. The A.O. is accordingly directed to consider this aspect also - Decided partly in favour of assessee Disallowance of expenditure on purchase of monitors and batteries - revenue v/s capital expenditure - Held that:- The assessee company has not been able to bring on record any further evidence/documents or explanation before us to substantiate its contentions that these expenditure w.r.t. purchase of monitors and batteriesare revenue in nature to controvert the findings of the CIT(A). In our opinion, these expenditure are capital expenditure incurred by the assessee company and has rightly been disallowed by the A.O and sustained by the CIT(A) - Decided against assessee Adhoc disallowance of 5% out of provision for expenses - Held that:- The AO shall consider the claim of the assessee company for both the years i.e. assessment year 2005-06 and 2006-07 with respect to the assessment records and books of accounts maintained by the assessee company to ensure that no prejudice is caused to the assessee company due to double addition of the same amount leading to double taxation and at the same time the AO shall also protect the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Petitioner : Shri Tarandeep Singh For the Respondent : Shri Samuel Darse (D.R) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER : These two appeals being cross appeals, filed by the assessee company and the Revenue are directed against the order dated 26-05-2009 passed by the Commissioner of Income Tax(Appeals) -VI, Mumbai (Hereinafter called "the CIT(A)"), for the assessment year 2005-06. Assessee Company's Appeal- ITA No.4441/Mum/2009 2. Ground No. 1 to 1.5 of the assessee company appeal relates to the sustenance of disallowance of expenses of ₹ 42,02,922/- made by the assessing officer (Hereinafter called "the AO") u/s 14A of the Income Tax Act, 1961(Hereinafter called "the Act") read with Rule 8D of Income Tax Rules, 1962 instead of disallowance of ₹ 4,65,332/- made suo-moto by the assessee company. 3. The assessee company case was selected for scrutiny by the Revenue for framing assessment u/s 143(3) read with Section 143(2) of the Act. The assessee company made investments in stocks and shares and mutual funds. As per the AO , Dividend income and long term capital gain from these investments is exempt from income tax . The assessee company earned Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend income while the CIT(A) reduced the disallowance to 2% of dividend income which was accepted by Revenue and no appeal has been filed before the Tribunal. The assessee company submitted that for the assessment year 2005-06, it has received dividend of ₹ 2,32,66,616/- from the investment made in Mutual Funds units and the said dividend income is claimed exempt . The assessee company has suo moto disallowed 2% of dividend income and disallowance comes to ₹ 4,65,332/- which was made in return of income filed with Revenue u/s 14A of the Act for administrative expenses. The assessee company submitted that the actual administrative expenses being even lower than this amount for which calculation were submitted which are reproduced by the CIT(A) in page 29-31 of the CIT(A) order and which as the assessee company comes to ₹ 77,955/- towards administrative expenses while for interest the assessee company submitted that it has incurred interest expenditure of ₹ 9.05 lacs on the cash credit facilities which facilities are utilized for meeting working capital requirements and hence no allocation of such interest expenses towards disallowance u/s 14A of the Act can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable amount as per directions of Hon'ble Bombay High Court in Godrej and Boyce Manufacturing Company Limited(supra). As pointed out by the assessee company, the assessee company has already made disallowance of its own of an amount of ₹ 4,65,332/- being disallowance @2% of dividend income of ₹ 2,32,66,616/- received by the assessee company which basis of disallowance has been accepted by the Revenue in the preceding assessment years. The A.O. is accordingly directed to consider this aspect also while computing the reasonable disallowance to be made u/s 14A of the Act. Ground No. 1 to 1.5 is accordingly treated as partly allowed. 8. Ground No. 2 relates to non adjudication of ground no 12 to 14 raised before the CIT(A) in the memo of appeal filed before the CIT(A), by the CIT(A) in the appellate order dated 26.05.2009 . It is stated before us by the Ld. Counsel of the assessee company that the above ground has become infructous as the CIT(A) has already passed orders dated 30.03.2010 u/s 154 of the Act by the CIT(A) amending the appellate order dated 26.05.2009. The assessee company submitted that its grievance is duly redressed by the afore-stated orders dated 30.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are capital expenditure being spent on batteries and replacement of monitors and not allowable as Revenue expenditure as claimed by the assessee company in the return of income filed with the Revenue. 11.Aggrieved by the decision of the CIT(A) with regard to holding of ₹ 78,700/- being spent on monitors and batteries as capital expenditure, the assessee company is in appeal before us. 12. The assessee company submitted that the CIT(A) was not correct in treating the amount of ₹ 78,700/-as capital expenditure. 13. The ld. D.R., on the other hand, supported the order of the CIT(A). 14. We have heard the rival parties and perused the material on record. The assessee company has not been able to bring on record any further evidence/documents or explanation before us to substantiate its contentions that these expenditure w.r.t. purchase of monitors and batteries aggregating to ₹ 78,700/-are revenue in nature to controvert the findings of the CIT(A). In our opinion, these expenditure of ₹ 78,700/- are capital expenditure incurred by the assessee company and has rightly been disallowed by the A.O and sustained by the CIT(A). There is no infirmity in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisions were made and the addition was confirmed by the CIT(A). 16. Aggrieved the assessee company is in appeal before us and the assessee company reiterated its submissions as advanced before the authorities below while the ld DR relied upon the orders of the authorities below. 17. We have considered the rival contention and perused the material on record. The assessee company has made provisions of expenses during the year of ₹ 4,64,58,410/- which are reversed by the assessee company on the first day of the next year. The assessee company has not submitted details and an adhoc disallowance of 5% of ₹ 4,64,58,410/- is made by the AO and confirmed by the CIT(A). No details about the basis of claiming such expenses are also submitted. In our opinion , the interest of justice will be best served if the matter is restored to the file of AO and the assessee company be directed to produce necessary evidences to substantiate its contentions. The assessee company counsel has stated before us that similar addition in the made in the subsequent year i.e. assessment year 2006-07 which has led to double addition. The AO shall consider the claim of the assessee company for b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide and that of the Assessing officer be restored." " 20. The assessee company sold its office building and land on which office building was constructed located at Prabhadevi, Mumbai for a gross composite aggregate consideration of ₹ 62 crores whereby no bifurcations are mentioned separately in the sale agreement of said property dated 15th March 2005 w.r.t. the land , building and accessories namely lifts, AC's installations etc. . The assessee company bifurcated the gross composite aggregate consideration of ₹ 62 crores for computing Long Term and Short Term Capital Gain as under: a) Land Rs.43.56 Crores b) Building Rs.18.18 Crores c) Accessories such as Lift, AC's etc installed in the Building ₹ 0.26 Crores ₹ 62.00 Crores The bifurcation of the gross composite aggregate consideration of ₹ 62 crores received by the assessee company between land and building separately has been done by the assessee company on the basis of the valuation report dated 11/11/2004 issued by a government approved registered valuer , Dr. Roshan H. Namavati valuing the said property on 08th November 2004 using land residual technique method. The said registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction at ₹ 16,953/- per square meters. g) The rate of depreciation for a 32 years old building should be taken at 40%. h) The adjustment for carpet area and build up area does not appear to have been done as mentioned in the ready reckoner by the registered valuer. The AO observed that the registered valuer has determined the value of land separately and valued the land at the rate of ₹ 2666 per sq. feet and to it was added builder profit@20% and determine the final value at rate of ₹ 3199 per square feet or ₹ 34,436/- per square meters. The assessee company has apportioned the composite aggregate consideration of ₹ 62 crores on the basis of value of land and building determined by the registered valuer in the valuation report. The AO observed that the reference rate of two buildings adopted by the registered valuer are not appropriate and reliable references. Further , the value of land on the date of transfer determined by the valuer does not match with the value of land as given in the stamp duty ready reckoner for the year 2004 for plot of the assessee which in developed land in sub-zone 17/121 of 2004 stamp duty ready reckoner is ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub zone 3A(zone of the assessee company ) as per stamp duty ready reckoner for the year 1981 is ₹ 880/- per sq. feet whereas the rate of residential premises in subzone 10 ( zone of ASAVARI ) is ₹ 480 per square feet and the two properties are not comparable. The valuer has adopted at rate of ₹ 550/- per square feet for ASAVARI property and multiplied by 1.5 and applied to the office property of the assessee as reference rate which is highly improper as per the AO. The AO also referred to the ready reckoner published by Architect Publishing Corporation of India(APCI) for market value of property as on 01/04/1981 whereby it has held that the rates adopted by the Collector of Stamps , Mumbai appeared to be fairly reasonable and which can be adopted with suitable modifications for valuing the property in Mumbai as on 01/04/1981 for capital gain tax purposes. The rate of ₹ 280 per square feet for the value of the land as on 01/04/1981 was adopted by the AO as per date available in the compilation of APCI and 1981 ready reckoner rate for zone 3A which contained the same description of location of property as per zone 17/121 of 2004 ready reckoner by which the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company filed first appeal with the CIT(A) . The assessee company submitted before the CIT(A) that the assessee company sold its Prabhadevi office on 15th March 2005 which consisted free hold land together with the office building at Prabhadevi for combined consolidated aggregate consideration of ₹ 62 crores. The property was valued by a government approved registered valuer Dr Roshan H. Namavati as on 08th November 2004 vide report dated 11th November 2004 with an objective to bifurcate the sale consideration between the land and building to compute capital gains as per the Act. The Registered Valuer has valued the property as on 08th November 2004 as under: Land Component Rs.30,94,85,276/- Building Rs.13,09,91,820/- Builder's Profit Rs.12,81,58,944/- Total Rs.56,86,38,040/- The assessee company submitted that the basis for valuation by the registered valuer is the sale of two office properties in the vicinity (one admeasuring 1916 sq feet sold in May 2000 @ ₹ 7481 per square feet (psf) and another admeasuring 462 sq. feet in December 2001 @ ₹ 4329 psf both located at Prabhadevi,Mumbai ) and the ready reckoner rate for office for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises which comes to ₹ 825 psf both located at Veer Savarkar Marg, Mahim and the ready reckoner rate for commercial premises for the year 1981 which was ₹ 720/- per square feet . The value so arrived at by averaging the three rates was ₹ 735/- psf after allowing quantity allowance of 10%. The apportionment of the fair market value was done by the registered valuer as under : Base Rate Rs.735/- psf Less Builder Profit@20% Rs.147/- Cost of Construction Rs.250/- Rs.397/- psf Value of Land Rs.338/- psft Based on the above, the registered valuer worked out the Fair Market value with depreciation as under: 1. Land Component 116086 sqft area X ₹ 338 Rs.3,93,37,068/- 2. Construction: a) Building=116086 X 250 Rs.2,90,21,500/- b) Accessories-depreciated cost ₹ 1,56,080/- Rs.2,91,77,580/- Less: Depreciation on main building = 116086X 25 ₹ 29,02,150/- Rs.2,62,75,430/- 3. Builders Profit @20% Rs.1,70,64,642/- Total Rs.8,26,77,140/- The assessee company allocated the builder profit proportionately to the value of the land which then work out the value of land as on 01/04/1981 at ₹ 4,95,67,929/-. The AO rejected both the valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding residual technique is a means of determining building values under the following conditions: 1. The value of the land can readily be estimated by sales or by use of the hypothetical - building land residual technique. 2. The building is an improper improvement. 3. The building is in late or middle life, with obvious deficiencies due to deterioration or obsolescence." The assessee company submitted that its case does not fall within above parameters as laid down by the author as above to be covered under building residual technique method as adopted by the AO . The assessee company also submitted before the CIT(A) that the reliance placed by the AO on the book titled "Indian Valuers Directory and Reference book incorporating market value of property in Mumbai as on 01st April 1981" by Mr Santosh Kumar & Mr. Sunit Gupta is misconceived as the AO has not appreciated the same : " Above rates are adopted for valuing the property for collecting the stamp duty amount by the state government. Hence in our opinion the same values could be reasonably relied upon with suitable modifications for valuing the property in Mumbai as on 01/04/1981 for capital gain tax purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding and these comparables are not doubted by the AO. (e) That the ld author has stated that the income tax department should have no objection if the valuation report is prepared based on rates given in the valuation book and that the valuation report is prepared on the basis of the rates given in the valuation book. The assessee company also submitted that the AO erred in adopting the rate of ₹ 280 psf of 'vacant land' for computing the FMV as on 01/04/1981 from ready reckoner rates published by Government for zone 3-A which is not applicable to the property transferred by the assessee company as the property transferred is land and building both and not vacant plot of land. The assessee company also submitted before the authorities below that NOC from the office of the Additional Collector & CA, ULC, Brihanmumbai wherein the ULC had declared that the entire land pertaining to the property is "non vacant" land . The assessee company also submitted that the AO erred while valuing the property in 2004 as the AO has adopted the building residual technique and for valuing the same property in 1981, the AO has adopted the value of land by taking ready reckoner rates of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required. The assessee company also rebutted the allegations as contained in the assessment order w.r.t. valuation of the property as on 01/04/1981 as under: 1. The reference to ASAVARI building is not comparable- The assessee company submitted that the 'ASAVARI' property is located at Veer Savarkar Marg where the assessee company property is situated. The revenue has accepted rate of flat as on 01/04/1981 at ₹ 550 per square feet and the rate of office premises in this area would be 50% more i.e. ₹ 825 per square feet. 2. The method of valuation mentioned in the valuation book has not been followed for determining the FMV as on 01/04/1981- The assessee company submitted that valuer has followed the method of valuation mentioned in the valuation book. 3. The valuation book provide the rate of land as on 01/04/1981 duly factored for FSI- The assessee company submitted that it is not correct as the valuation book provides rate of land considering FSI at 1.33 while the assessee company has utilized FSI of 2.35. This need to be done to arrive at correct FMV as on 01/04/1981. The AO itself applied FSI of 2.35 for computing FMV on the date of transfer. 4. The va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and residual technique is the correct method of valuation which should be adopted in the case of the assessee company. The CIT(A) also held that the rate of vacant developed land of ₹ 24,400 per square meters adopted by the AO also lack merit because FSI utilized by the assessee company of 2.35 is not factored in the rate of vacant land and if it is factored , the rate of land will be ₹ 57,340 per square meters. Based on this, the value of land and building should be segregated as under: Land (per square meter) ₹ 57340 Building (balancing figure) Rs.13,660 Total Rs.71,000 Based on the rates prescribed in the ready reckoner, the FMV value of the property comes to ₹ 32,54,51,930/- as under : Land (Rs.57,340 X 4583.83 sq meters) Rs.26,28,36,812/- Building(balancing figure) ₹ 6,26,15,118/- Value of the Property (Rs 71000 X 4583.83 sq mtrs) ₹ 32,54,51,930/- The assessee company having received ₹ 61,74,39,625/- as sales consideration (Rs.62,00,000/- less ₹ 25,60,375/- for accessories like AC installation , lifts etc) towards land and building. Since the sale consideration was higher then the FMV of the property of ₹ 32,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,74,061/- Total Rs.62,00,00,000/- The CIT(A) also held that the AO erred in rejecting the comparables considered by the valuer in the valuation report of the registered valuer without bringing on record any fresh comparables to substantiate its case. The CIT(A) held that the sufficient details about comparables are given in the valuation report and suitable adjustments were made for making them comparable with the assessee property. The CIT(A) also observed that the selling price of the property is based on the negotiation between the buyer and seller and the need of the parties. The CIT(A) also held that reliance of the AO on Section 50C of the Act is also without merit as the sale consideration of ₹ 62 crore stand accepted by the AO and Section 50C does not stipulate how to bifurcate the sale consideration between land and building component in case of transfer of both land and building. Thus, the CIT(A) rejected the basis of valuation of the property adopted by the AO for bifurcation of the sales consideration of ₹ 62 crores and directed the AO to accept the valuation of land and building shown by the assessee company in the valuation report of the registered va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and short term capital gain u/s 50 of the Act w.r.t. Building. The Ld. DR submitted that the AO has rightly computed the bifurcations of the value of land and building for the purposes of determining the capital gains chargeable to tax. The Ld. DR also submitted that the AO has rightly rejected the value as bifurcated between land and building as per registered valuer report submitted by the assessee company and the AO has rightly differentiated the same to compute value of land and building for the purposes of computing capital gains both short term and long term as per assessment order dated 22.08.2008 instead of referring to the valuation officer(DVO). 24. The Ld. Counsel of the assessee company reiterated its submissions before us as made before the authorities below. The Ld Counsel of the assessee company made statement before us that the assessee company sold the office property consisting of land admeasuring 5484.22 square yards together with office Building thereon with aggregate built up area of 12898.50 square yards whereby the building constructed is on plot area of 3224 square yards(approx.) consisting of ground floor and three upper floors (total built up area 116086 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove-stated three components included in the sale consideration. The dispute has arisen about the allocation/ bifurcation of the sale proceed mainly between the land and Building. The Ld. Counsel submitted that this property is owned by the assessee company for a very long period of time i.e. even prior to 01/04/1981 which is not disputed by the Revenue . The gain arising on the sale of land in question shall be chargeable to tax as Long Term Capital Gain after availing cost inflation index while the gains arising on the sale of building being part of block of asset on which depreciation is availed by the assessee company shall be chargeable to tax as short term capital gain without availing cost inflation index as per provisions of Section 50 of the Act, hence the need for allocation and bifurcation of composite aggregate consideration of ₹ 62 crores between the three components of Land, Building and Accessories like lifts, AC's etc has arisen as well to value the said property as on 01/04/1981 for the purposes of computing the long term capital gains on land after allowing the benefit of cost inflation index . The Ld. Counsel relied upon the decision of the Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the value so claimed [is at variance with its fair market value]; (b) in any other case, if the [Assessing] Officer is of opinion -- (i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and subsections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the [Assessing] Officer under sub-section (1) of section 16A of that Act. Explanation : In this section, Valuation Officer has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]" The ld. Counsel submitted that as per Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the taxpayer based on the registered valuer report.He stated that the courts have quashed the proceedings by holding that reference to the DVO in such case is mandatory. He also stated that Section 16A of Wealth Tax Act,1957 and Section 55A of the Income Tax Act,1961 are similar and the word 'may' used in both the sections has to be read as 'shall' as reference to the DVO by the AO being mandatory in the circumstances so mentioned in the said Sections as held by the several courts vide decisions cited above. The Ld. Counsel submitted that the AO has adopted stamp duty value i.e. ready reckoner rates announced by Government of Maharashtra as the value for land and the residual value is assigned to the building which is not correct as the same is giving absurd results. The AO has adopted the value of developed land of ₹ 24,400 per square meters as per ready reckoner rates for 2004 which is not correct as the value for office premises consisting of both land and building is ₹ 71000 per square meters as per ready reckoner rates for 2004. Similarly, it was submitted by the ld Counsel that AO adopted ready reckoner rate of ₹ 280 per square feet for vacant land as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re feet) and the open plot area is 2260 square yards situated at 414, Veer Savarkar Marg, Prabhadevi, Mumbai for a composite aggregate consideration of ₹ 62 crores for which the assessee company has placed on record the sale agreement dated 15th March, 2005 for transfer of this property which is placed at page 1-15 of paper book. The assessee company has obtained two valuation reports both dated 11.11.2004 issued by a government approved registered valuer Dr. Roshan H.Namavati, , valuing this entire office property as on 08-11-2004 and 01-04-1981 and the valuation reports are also placed by the assessee company in the paper book at page 16-29.These afore-stated documents i.e. sale agreement and two valuation reports are also stated to be placed before the authorities below during relevant proceedings. The afore-stated property was sold for a composite aggregate consideration of ₹ 62 crores which is not in dispute as the same is accepted by the Revenue. The said composite aggregate consideration of ₹ 62 crores in the sale deed dated 15th March 2005 included the sale consideration for land, office building constructed on the land and thirdly accessories such as lift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved registered valuer has mentioned various factors in the report including the rate as per stamp duty ready reckoner for Mumbai. The registered valuer has adopted land residual technique while valuing the property. The value using land residual technique assigned by the registered valuer to the land and building separately as on 08th November 2004 vide his valuation report dated 11th November 2004 are as under: Land Component ₹ 30,94,85,276/- Building ₹ 13,09,91,820/- Builder's Profit ₹ 12,81,58,944/- Total ₹ 56,86,38,040/- We have observed that the assessee company submitted that the basis for valuation by the said registered valuer in his valuation report for value as on 08-11-2004 is the actual comparable sale of two office properties in the vicinity (one admeasuring 1916 sq feet sold in May 2000 @ ₹ 7481 psf and another admeasuring 462 sq. feet in December 2001 @ ₹ 4329 psf both located at Prabhadevi ) and the ready reckoner rate for office for the year 2004 for G Ward sub-zone 17/121 which was ₹ 71000/- per square meter i.e. ₹ 6596 psf. The value so arrived at by averaging the three rates was ₹ 5520 psf aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold during the assessment year. f) The valuer has not followed the method of valuation as mentioned in stamp duty ready reference reckoner 2004 and has not adopted the cost of construction and depreciation rates given therein. The ready reckoner has mentioned cost of construction at ₹ 6500/- per square meter whereas the valuer has adopted the cost of construction at ₹ 16,953/- per square meters. g) The rate of depreciation for a 32 years old building should be taken at 40%. h) The adjustment for carpet area and build up area does not appear to have been done as mentioned in the ready reckoner by the registered valuer. The AO observed that the reference rate of two buildings adopted by the said government approved registered valuer are not appropriate and reliable references. Further , the AO observed that value of land on the date of transfer determined by the valuer does not match with the value of land as given in the stamp duty ready reckoner for the year 2004 for plot of the assessee which in developed land in subzone 17/121 of 2004 stamp duty ready reckoner is ₹ 24,400/- per square meter. The AO referred to Section 50C of the Act and stated that the full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of construction depends upon the quality of construction and if higher value is adopted by the assessee company as compared to ready reckoner rate , then the AO should have no objection as the value of building will be higher . 6. The rate of depreciation should be 40% for 32 year old building- The assessee company submitted that valuer has adopted depreciation at 90% of 40% i.e. 36 year keeping in view the quality of construction was better. 7. There is requirement of adjustment for carpet area and built up area- The assessee company submitted that the adjustment is required when the property is valued on carpet area basis . The valuer has valued the property based on built up area and hence no adjustment is required. We have observed that for purpose of computation of capital gains chargeable to tax u/s 45 of the Act , the assessee company also got the said property valued as on 1st April 1981 from the same government approved registered valuer Dr. Roshan H Namavati vide valuation report dated 11th November 2004 as under: Land Component Rs.3,93,37,068/- Building Rs.2,62,75,430/- Builder's Profit Rs.1,70,64,642/- Total Rs.8,62,77,140/- We have observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as reference rate which is highly improper as per the AO. We have observed that the AO also referred to the ready reckoner published by Architect Publishing Corporation of India(APCI) for market value of property as on 01/04/1981 whereby it has held that the rates adopted by the Collector of Stamps , Mumbai appeared to be fairly reasonable and which can be adopted with suitable modifications for valuing the property in Mumbai as on 01/04/1981 for capital gain tax purposes. The rate of ₹ 280 per square feet for the value of the land as on 01/04/1981 was adopted by the AO as per date available in the compilation of APCI and 1981 ready reckoner rate for zone 3A which contained the same description of location property as per zone 17/121 of 2004 ready reckoner by which the total value of land transferred as on 01/04/1981 is ₹ 1,38,15,664/- as per AO. We have observed that the assessee company submitted before the AO that the value of vacant land in the 1981 ready reckoner is not applicable to its case rather the value of the property along with land is applicable as the land is not vacant land as on 01/04.1981. We have observed that the AO due to following reasons he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the rate prevailing in 1981 for property assuming full payment is made in white. As such these rates are adopted by the Collector of stamps , Mumbai and sub-registrar of Assurance, Mumbai for valuation purpose for all documents executed during the year 1981 for determining the stamp duty. Accordingly, Income Tax Department should have no objection if the valuation report is prepared on the basis of rates and guidelines illustrated in this chapter."(emphasis supplied) We have observed that the assessee company submitted that : (a) That the ld author submitted that fair market value of the property to be computed as on 01/04/1981 based on the Government registered valuer report as on 01/04/1981 which has been done by the assessee company. (b) The assessee company submitted that the ld author has observed that the rates given in the valuation book could be reasonably relied with suitable modification as per judgment of registered valuer. (c) That the rates given in the valuation book should not be considered as final and binding. (d) That the valuer has considered two sales instances for computing FMV of the property as rates in the valuation book are not final and binding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly factored for FSI- The assessee company submitted that it is not correct as the valuation book provides rate of land considering FSI at 1.33 while the assessee company has utilized FSI of 2.35. This need to be done to arrive at correct FMV as on 01/04/1981. The AO itself applied FSI of 2.35 for computing FMV on the date of transfer. 4. The valuer has considered the land area equal to the constructed area- The assessee company submitted that constructed area is plot of area multiplied by the FSI utilized. The area of the plot of the land is 5484.22 square yards and FSI utilized is 2.35 and hence constructed area is 12898.50 square yards or 116086.52 sq feet. 5. The rate mentioned by the assessee company in letter dated 19.08.2008 was not correct- the assessee company submitted that no adequate opportunity was given to the assessee company to explain the same. 6. The correct depreciation rate as provided in the valuation book is not adopted by the registered valuer- The assessee company submitted that the registered valuer has adopted the rate based on quality of construction. 7. The cost of construction of the building as per valuation book is ₹ 80 per square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technique be accepted which gives correct value of land while the method adopted by the AO gives absurd results.We have observed that the assessee company submitted that as per valuation method of building residual method adopted by the AO, the value of building as on date of sale comes to ₹ 35,46,02,813/- with the built up area of 116086.52 sft i.e. ₹ 3050 psft while ready reckoner rate of RCC Cost of building is ₹ 6500 per square meters which comes to ₹ 603.86 psf which is absurd. The assessee company referred to book of author Kahn - Cases - Schirmmel 1963 Ed. P 149 whereby it is written that the building residual technique can be adopted when : " The building residual technique is a means of determining building values under the following conditions: 1. The value of the land can readily be estimated by sales or by use of the hypothetical - building land residual technique. 2. The building is an improper improvement. 3. The building is in late or middle life, with obvious deficiencies due to deterioration or obsolescence." We have observed that the assessee company submitted that its case does not fall within above parameters as laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O for obtaining his valuation report to ascertain the fair market value as per mandate of Section 55A of the Act as the AO has challenged the fair market value adopted by the assessee company based on the estimate in the valuation report prepared by the registered valuer so far so for computing cost of acquisition of the land being fair market value as on 01/04/1981 in terms of Section 55 read with Section 48 of the Act and instead the AO chose to compute fair market value of the land of his own as on 01/04/1981 based on the ready reckoner rates for vacant land published by Government of Maharashtra while the land incidentally was not a vacant land but consisting of land and office building constructed on the land which is not in dispute. The method of valuation based on building residual technique as adopted by the AO in this peculiar case based on facts and circumstances of the case is erroneous as the AO adopted the value of land based on ready reckoner rate announced by the Government of Maharashtra for developed land in 2004 and thereafter the residual value was considered as the value of the building . It is well established fact that the ready reckoner rate announced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise to evaluate the results arrived at by using the land residual techniques which are contained in para 1.10 page 21-25 of the CIT(A) orders dated 26-05-2009 to arrive at conclusion that the land residual technique method adopted by the assessee company is most appropriate to the facts and circumstances of the case and is producing the results which are more accurate. The CIT(A) even demonstrated that even by following the building residual method as followed by the AO , if it is properly and correctly followed by the AO will lead to no prejudice to the revenue by following the method of valuation adopted by the assessee company based on the valuation report of the government approved registered valuer. The extract of the CIT(A) orders page 23-24 are as under: "Further at para 3 page 4 of the assessment order , the AO has admitted that the value of the property (land and building together) as per ready reckoner rate is ₹ 71,000 per square meters. Further at the end of page 5 of the assessment order, the AO has stated that the cost of construction as per the ready reckoner rate is ₹ 6500 per square meters and the depreciation for a 32 year old building should be take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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