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TMI Blog2010 (9) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... d in adopting the guideline rate determined by the SubRegistrar for the purpose of stamp duty for computing capital gains on the basis of proviso to s.50C of the Act; & (iii) the CIT(A) erred in rejecting the claim of exemption u/s 54 of the Act of investment of capital gains in two residential properties. 3. The issue, in brief, is that the assessee, an individual, furnished his return of income admitting income of ₹ 1.68 crores being receipts from salary, house property, STCG, LTCG, Other Sources etc. The records do not indicate whether the return of income was processed either u/s 143(1) or 143(3) of the Act. This very fact has also been highlighted by the CIT(A) in his impugned order which is under challenge. 4. The AO had resorted to issue a notice u/s 148 of the Act on 17.3.2008 on the basis of examination of records, it was noticed that the assessee had not disclosed his true income chargeable to tax etc., Though, the assessee in his communication dt.31.3.08 required the AO to treat his return of income furnished originally as the return of income furnished in compliance to the said notice and simultaneously sought for the reasons recorded for the issuance of notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) r.w.s.147 of the Act dated: 24.12.2008, had observed thus: "4. The objections filed by the assessee's representative are considered. In view of the assessee's objections, the matter has been referred to the District Valuation Officer……..Chennai through this office letter dated 25.11.2008 seeking the fair market value of the property sold as required under subsection 2 of section 50C of the I.T.Act 1961………………..However, the valuation report is yet to be received and the same is awaited. The likely date of the receipt of the valuation report as regard the fair market value from the DVO is uncertain as on date. But, the assessment proceedings are bound to be completed on or before 31.12.2008. Therefore, the fair market value for the purpose of assessment is to be adopted on the basis of the guidance value as prescribed the Stamp Valuation Authorities. The guidance value of the property sold has been reported at ₹ 4,62,56,000/- by the ACIT, C-IV(1) Chennai through his letter dt:6.12.2007…………The guidance value so reported at ₹ 4,62,56,000/- is adopted subject to valuation report, as an ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 167 ITR 22 (Kar) (b) Hindustan Lever v. R.B.Wadkar 268 ITR 332 (Bom) (c) CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC) (d) Prashant S.Joshi v. ITO 324 ITR 154 ( Bom) (e) CIT v. Smt.Paramjit Kaur (2009) 311 ITR 38 (P & H) (ii) the AO does not have any valid basis for fixing the guidance value of the property at ₹ 4,62,56,000/- to arrive at a conclusion that income assessable to tax had escaped assessment, that he had not mentioned particulars or the basis of this valuation either in the Note recording the reasons for re-opening assessment nor in the order under dispute which again was indicative that no enquiry was made by the AO before recording satisfaction; (iii) The CIT(A) had relied on the ruling of the SC in the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd [291 ITR 500 (SC)] which was primarily to consider the proposition that an order u/s 143(1)(a) cannot be treated as an assessment so as to bar jurisdiction either for a regular assessment or reassessment where the conditions therefor were otherwise satisfied. This decision had absolutely no relevance to the facts on hand (iv) In the absence of any material on record or rational belief, due to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as was evident from the remand report; - relies on the case laws: (a) Allana Cold Storage Ltd. v. ITO 287 ITR 1 (Bom) (b) Vidyasagar v. ITO & Another 305 ITR 124 (P & H) (c) K.S.Suresh v. DCIT (2005) 279 ITR 61 (Mad) - the CIT(A)had merely relied on the remand report for sustaining jurisdiction and had failed to discharge his responsibility to consider the omission of the AO to pass a speaking order on the objections raised by the assessee; - the assessment was bound by limitation and the reasoning of the AO had no basis as he had ample time at his disposal to disposed off the assessee's objection; - relies on in the case of Karnataka Golf Association v. DDIT (2005) 275 ITR 297 (Kar) On merits: (viii) the AO was not justified in adopting the guidance value for the purpose of determining the CG in terms of s.50C. The basis of adopting the guidance value had not been made known to the assessee during the proceedings. As there was no information that the assessee had received any amount over and above the consideration specified in the sale deed, s.147 had no application - K.P.Verghese v. ITO - 131 ITR 597 (SC) - ruled that in such a situation sale consideration as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved around the fact that the guidance value of the property sold at Chennai was ₹ 4,62,56,000/- which was informed by his counterpart at Chennai. However, the assessee had admitted the sale consideration of only ₹ 2,68,89,375/- as per the sale deed executed which got registered on 9.10.2002 before the Sub-Registrar, Periamet, Chennai wherein the land value has been fixed at ₹ 2560/Cent/sft and building value was fixed at ₹ 39.43 lakhs [P 47 of PB] and on the basis of which extra stamp duty of ₹ 18.28 lakhs was levied and duly collected by the Stamp duty Authority [Source: P 90 of PB - AR]. This very fact has not been disputed by the assessee. 7.2. The reasoning of the AO for the issuance of notice u/s 148 of the Act was hotly contested by the assessee through his A.R. The assessing officer did acknowledge the objections filed by the assessee's representative which has also been taken due cognizance and observed, in brief, in the impugned order that "In view of the assessee's objections, the matter has been referred to the District Valuation Officer………through this office letter dated 25.11.2008 seeking the fair market value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of s.148 of the Act. With due regards, we affirm that the finding of the jurisdictional High Court cited supra relied on by the assessee is distinguishable and not applicable to the facts of the issue on hand. 7.6. We have also attentively perused yet another finding of the jurisdictional Hon'ble High Court in ITA Nos: 21 & 22 of 2008 dated: 3.4.2008 in the case of CIT v. B.N.Keshav [on which the assessee had placed strong reliance] wherein the Hon'ble Court dealt with primarily the issuance of notice u/s 148 of the Act. After due perusal of the said notice, the Hon'ble Court observed thus - "8. Critical examination of the said notice shows that most of the relevant places have been left blank. Nothing has been mentioned in the notice which would have conveyed the necessary information to the assessee to have acted pursuant to the said notice. Requirement of sending notice under section 148 of the Act is that before making assessment, reassessment or recomputation under section 147, the assessing officer shall serve on the assessee a notice requiring him to furnish within such period as may be specified in the notice, a return of his income or the income of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Accordingly, Notice u/s 148 is issued." 7.9. In this connection, we shall, with due respects, quote the ruling of the Hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhavari Stock Brokers P. Ltd (291 ITR 500) wherein the Hon'ble Court, after analyzing the issue in depth, was pleased to observe thus - "The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property sold by the assessee was a corner plot as per the accepted methodology, a premium of 10% is adopted in the comparable sale instances to make the comparison justifiable. Thus, the revised unit rate of the comparable transactions works out to 110% of 1472 =₹ 1619. As compared to this, the unit sale price of the assessee's property is ₹ 1869. The DVO has fixed the land rate of ₹ 2220/sft without disclosing the basis for such determination. This appears to be excessive. Hence, the value as declared by the assessee may kindly be considered as fair market value. Assessee's submission in respect of building: The DVO has mentioned that he has inspected the property on 9.9.2009. He has failed to mention that the old building no longer exists; and that a new building has been constructed by the purchaser. The DVO has broken up the estimated building cost under various heads and has arrived at a value of ₹ 3184102. The valuation report is silent as to how he has arrived at this figure without the building being available for inspection. The salvage value of the building has been determined by the DVO at ₹ 7,00,000. The age of the building was 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xena (supra), the AO is directed to recomputed the value of the property at ₹ 4,06,56,735/-." 7.13. This has been vehemently contested by the Ld. A.R during the course of hearing before us. (i) the AO was not justified in adopting the guidance value for the purpose of determining the CG in terms of s.50C. The basis of adopting the guidance value had not been made known to the assessee during the proceedings. As there was no information that the assessee had received any amount over and above the consideration specified in the sale deed, s.147 had no application - K.P.Verghese v. ITO - 131 ITR 597 (SC) - ruled that in such a situation sale consideration as mentioned in the sale deed had to be adopted; - valuation prescribed by any State agency for the purpose of stamp duty would not ipso facto be a substitute for the actual consideration in the absence of any admissible additional evidence - CIT v. Chandani Bhochar 323 ITR 510 ( P & H); (ii) The CIT(A) had overlooked the fact that the DVO had adopted the value of land at 2220/sft whereas the value did not exceed ₹ 1542/sft - based on seven sale instances in the area - the documentary evidences furnished before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2), (3), (4), (5) and (6) of section 16A ………………………………………………… ………………………………………………………………………………………… ………………………… (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer." 8.2. At this juncture, we recall the finding of the Hon'ble ITAT, Lucknow Bench in the case of Jitendra Mohan Saxena v. ITO reported in 305 ITR (AT) 62 wherein, the Hon'ble Bench, after duly analyzing the intention of the Legislature in introducing section 50C of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, placing the DVO's valuation as the base value, the appellate authorities will have to examine the reasonableness of the value fixed by the DVO, since valuation of the DVO is justiciable before the appellate authorities, though binding on the AO [see 228 ITR 590 (Del) and 238 ITR 343]. 8.4. Further, while dealing with the issue, the Ld. CIT (A) had neither addressed to the objections raised by the assessee's AR [P.92 of PB AR] with regard to the property valued by the DVO nor taken cognizance of the same. On a careful perusal of the assessee's objections, the following crucial points emerge: (i) When the DVO appears to have visited the subject property's premises on 9.9.2009, the assessee alleges that the old building (i.e., the subject property) was not existed as a new building had already been constructed by the purchaser; (ii) According to the assessee, the DVO had broken up the estimated building cost under various heads and had arrived at a value of ₹ 31.84 lakhs. - How the DVO arrived at this figure without the subject building was in non-existence is anybody's guess? (iii) According to the assessee, the DVO had determined the salvage value at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted salvage value of the building on dismantled materials) = ₹ 3,25,37,000/-. The moot question lingering in our minds was - Whether the DVO did consider the sale instances which took place in the vicinity of the subject property cited by the assessee and if so, the out of the same? 8.5.3. The sweeping remark of the DVO in his final report that "Having considered the evidence produced by the assessee and taking into account all relevant materials gathered by me, the fair market value of the property…… at ₹ 3,25,37,000/- only as per Annexure 'A' enclosed " would not, in our considered view, suffice. Glancing at the DVO's Notice dt: 24.9.2009 calling upon the assessee to state his objections, if any, to the estimation of FMV at ₹ 3,25,38,000/- and his final Order dt.30.9.2009, one could fairly assume that there was absolutely not any material change except the DVO's gesture of allowing a discount of ₹ 1,000/- only on FMV. 8.5.4. Turning our attention to the assessee's strong objection to the DVO's proposal to adopt the value of land cost at ₹ 2220/sft, we find that the assessee had cited almost seven sale instances which took place in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the comparable sale instances to make the comparison justifiable. Thus, the revised unit rate of the comparable transactions works out to 110% of 1472 =₹ 1619. As compared to this, the unit sale price of the assessee's property is ₹ 1869. The DVO has fixed the land rate of ₹ 2220/sft without disclosing the basis for such determination. This appears to be excessive. Hence, the value as declared by the assessee may kindly be considered as fair market value." 8.5.7. Taking into account all these facts and the circumstances of the issue as deliberated upon in the fore-going paragraphs, also (i) the sale instances in the vicinity during the relevant period put forth by the assessee; (ii) that the subject property being a corner plot, the assessee had worked out the sale price of the subject property at ₹ 1869/sft; and (iii) that the DVO had fixed the land rate at ₹ 2220/sft [without assigning any basis or comparison/citing any sale instances in the vicinity at the relevant period for adopting such FMV], we are of the considered view that the value of land cost at ₹ 1869/sft would meet the end of justice which works out to 14341 sft x 1869 = ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asappa reported in 309 ITR 329 (Kar). 9.1. With due respects, we have perused the finding of the Hon'ble Court, the relevant portion of which is extracted as under: "The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building. When a Hindu undivided family's residential house is sold, the capital gain should be invested for the purchase of only one residential house is an incorrect prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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