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TMI Blog2021 (6) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... amela Jean Colleco and continues to carry the same consequences and implication in terms of section 160, 161 and 162 of the Act as the original order passed u/s 147/144 except for the variation of the fair market value which the assessee has challenged and we shall be dealing while adjudicating the subsequent ground of appeal. In the result, we donot find any merit in the ground so taken by the assessee and the same is hereby dismissed. Determination of the Fair Market Value of the two properties - assessee is challenging the findings of the ld CIT(A) for considering part of property as residential and part commercial, and submitted that entire property is residential and should therefore be valued at ₹ 1.21 crores each as alternatively determined by the DVO in his valuation report - Revenue challenging the findings of the ld CIT(A) for considering part of property as residential and part commercial and at the same time, submitted that entire property be treated and valued as commercial property as done by the DVO and should therefore be valued at ₹ 3.00 crores each as determined by the DVO in his valuation report - HELD THAT:- Both the documentary evidences and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amela Jean Colleco , which is in violation of the direction of Hon ble ITAT and therefore, the impugned assessment order deserves to be quashed. 2. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the addition to the tune of ₹ 29,51,572/- out of addition made by ld. AO. Appellant prays addition confirmed by ld. CIT(A) deserves to be deleted. 3. In ITA No. 558/JP/2019, the Revenue has taken the following grounds of appeal:- 1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing certain concessions in value of the property as against the valuation made by the DVO who is an expert in the field and has taken into consideration all the aspects of the properties particularly the situation of the properties in question? 4. The ld. AR submitted that in this case, an order was initially passed u/s 163 of the Income Tax Act, 1961 dated 24.03.2011 wherein the assessee was held as Representative Assessee (within the meaning of section 160 of the I.T. Act, 1961) of Smt. Pamela Colleco, a non-resident. The assessee was appointed as the power of attor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 50C of the Income Tax Act, 1961. On the other hand, in the case of purchasers i.e. Sh. Vivek Gupta and Sh. Ashish Gupta, assessments were completed u/s 147 / 143(3) of the Act and addition on account of capital gain of ₹ 6,34,62,356/- was made on substantive basis. 9. Against the order of Ld. AO, the assessee preferred an appeal before the Ld. CIT(A), who after holding the assessee as representative assessee of Smt. Pamela Colleco, sustained the addition made on account of long term capital gain on substantive basis in the hands of the assessee. 10. Aggrieved by the said order of Ld. CIT(A), assessee preferred an appeal before the ITAT, Jaipur bench. The ITAT vide its order dated 05.03.2014 setaside the matter to the Assessing Officer with the directions to refer the matter to valuation officer for determination of the Fair Market Value of the subject property. 11. In compliance of the said directions of the ITAT, the Ld. AO referred the matter to Valuation Officer u/s 55A of the Act for the purpose of determination of FMV of the subject property. Thereafter, by misinterpreting the valuation done by the Valuation Officer, the Ld. AO passed the impugned asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the status of assessee was shown as As representative assessee of Smt. Pamela Jean Colleco and the nature of business was shown as N.A. . It is thus evident that, when the original assessment was set-aside by the Hon ble ITAT to the file of Ld. AO with the direction to complete assessment de novo, the same could have been done only in the hands of the assessee in the capacity of representative assessee of Smt. Pamela Jean Colleco and not as an individual. However, the fresh assessment order so passed does not show assessee as representative assessee of Smt. Pamela Jean Colleco, but as an individual. This action of Ld. AO is clearly bad in law and renders the entire assessment order null and void. On appeal, ld. CIT(A) also upheld the validity of Assessment order so passed in Individual capacity of assessee by treating the same as mistake curable u/s 292BB of the Act. 17. It was submitted that in the instant case, no income in the shape of capital gain has accrued to the assessee, and therefore, he cannot be assessed with an income which has not accrued to him. Accrual or receipt of income is the basis for charging tax on such income by assessee in his individual cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice shall be deemed to be served in a situation that assessee has cooperated/ attended / participated in assessment/ re assessment proceedings and no objection regarding non receipt of notice was filed during assessment stage. In other words, section 292BB cures only procedural infirmities that too specifically relating to service of notice. In fact, there are various judicial pronouncements which hold that if a validly issued notice is served to unauthorized person or at a wrong address, such defects are not curable and render entire proceedings null and void even though the intention of AO may not be that. Similarly, notice u/s 148 issued in the name of dead person, even though served on legal representative (even if all subsequent notices issued in the name of Legal representative) of such deceased renders entire proceedings bad in law even though intention of assessing officer may be to assess legal representative of deceased. Your honours would appreciate that passing assessment order in the Individual capacity as against in Representative capacity of Non resident is as good as passing assessment order in the name of some other person which is a serious error and not cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him. The A/R has raised an additional legal ground no. 5 5.1 in this regard. In my opinion, once the liability of assessee was crystallized towards capital gains on the land sold, the only issue was towards the valuation of the land assessment of the capital gains thereon instead of the capacity in which the liability was to be paid being a representative or an individual. There is no inherent preference for assessment directly on the principal and the only limitation on the assessment vis-a-vis these two parties, i.e., agent and the principal, are concerned, that once an assessment is made on one of them, the assessment for the same income thereafter cannot be made on the other. The fact that there was no evidence of the assessee having transferred any amount of the sale consideration to his alleged principal Pamella Colleco, made him liable for capital gains in his capacity as an individual I see nothing wrong in the said assessment accordingly once the direction of the superior court was clear that the liability of capital gains was assessable on Substantive basis in hands of the assessee. The initial dispute was only in regard to the assessee's deni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings have its origin way back in year 2011 where the assessee was held as an agent u/s 163(1)(c) of Smt. Pamela Jean Colleco in respect of capital gains on sale of two immoveable properties by virtue of order u/s 163 dated 24.03.2011 passed by the AO and thus a representative assessee u/s 160(1)(i) of the Act. The assessee unsuccessfully contested the matter before the ld CIT(A) and thereafter, before the Tribunal where the Tribunal vide its order dated 5.03.2014 confirmed the action of the AO in treating the assessee as representative assessee of Smt. Pamela Jean Colleco. Admittedly, this matter has attained finality in absence of any further appeal by the assessee and the action of the AO in treating the assessee as representative assessee therefore carries all the necessary consequences and implications in terms of section 160, 161 and 162 of the Act. As part of the same, the AO initiated the proceedings u/s 147 by issue of notice u/s 148 dated 25.03.2011 to the assessee as representative assessee of Smt. Pamela Jean Colleco and the proceedings were thereafter completed by passing of the assessment order u/s 147/144 dated 29.12.2011 where long term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative assessees and has also taken note of order passed by the AO on remand by the Tribunal for determination of the fair market value. There is apparently no further appeal against the order of the Hon ble High Court and therefore, as far as the matter treating the assessee as representative assessee of Smt. Pamela Jean Colleco is concerned, it has attained finality with passing of the order of Hon ble High Court and the order of the AO passed u/s 147/144 has since merged with the order of the Hon ble High Court in so far as treating the assessee as representative assessee of Smt. Pamela Jean Colleco is concerned and the same carries the necessary consequences and implication in terms of section 160, 161 and 162 of the Act. 25. Now, coming to the impugned order passed by the AO u/s 147/144/setaside dated 9.03.2016, we find that the same is pursuant to directions of the Tribunal vide the aforesaid order dated 5.03.2014 wherein the matter was restored to the file of the AO with the following directions: 3.3 The ld. DR also supported the arguments advanced by the AR of the assessee and submitted that the matter should have been referred to the valuation officer to dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is concerned. Therefore, the impugned order so passed by the AO is clearly not an independent and standalone or denovo order rather it is an order in continuation of earlier order passed u/s 147/144, proceedings in respect of which were initiated by issuance of notice u/s 148 and also pursuant to directions of the Tribunal, in order to give effect to such directions, such an order has been passed and not on account of any fresh jurisdiction acquired by the AO. The order so passed therefore have to be read and understood accordingly and not otherwise and what needs to be seen is as to whether the directions so given by the Tribunal has been complied with or not by the AO while passing the impugned order and which we find has been duly followed by the AO by referring the matter to the DVO and taking into consideration the valuation report so submitted by him, determination of fair market value. In fact, if we look at the body of the order so passed in the set-aside proceedings, it refers to the order of the Tribunal and directions so given and also the past history of the case and infact, towards the end, it does provide that Since the assessee has failed to make payment of Long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Ld. AO issued a letter dated 27.08.2014 to the Valuation Officer, requesting him to provide valuation report in respect of the aforesaid two plots. The Valuation Officer issued notices to the assessee seeking his submissions and in response to the same, the assessee submitted detailed submissions/objections before the Valuation Officer vide letter dated 21.05.2015 and complete details as required by the Valuation Officer were also supplied by the assessee. However without considering the objections raised by assessee against the proposed valuation, the Valuation Officer provided his valuation report vide letter dated 28.08.2015 wherein the value of each of the plots was wrongly assessed at ₹ 3.00 crores. 29. It was submitted that before the Valuation Officer as well as the AO, it was submitted by the assessee that the plots in question are absolutely of residential nature and use and therefore, cannot be valued on the basis of commercial rates. However, ld. Valuation officer valued the subject properties by holding 40% Commercial and 60% Residential. Moreover, a completely hypothetical rate of 82,500/- per sq mtr was adopted for valuing such alleged commercial comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the lease premises remained with the Sethi family, who regularly occupied the same for their own usage and purposes. Because of the non-co-operative attitude of Sethi family who was having physical possession of not only the leased premises but also spread their possession to the premises not under lease. Repeated requests were made to Sethi family to vacate the premises, however, they were not ready to vacate their occupancy. As submitted above, the main front of the subject property was in the possession of Sethi family, therefore, the approach to the remaining portion of the plot was almost impossible as the only entrance was under the possession of the tenant. Further due to the reason that the actual owner of the property i.e. Pamela Colleco was not residing nor in the position to look after the said premises some Anti-Social elements had taken illegal and unauthorized possession on the remaining portion as a result of which even the sale of the subject property became almost impossible. It is further submitted that due to the existence of the Central Jail just opposite to the subject property, construction could not be permitted for more than two floors abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the sale transaction was actually executed and therefore the same be considered as the fair market value. An affidavit of Shri Banwari Lal Sharma is enclosed in confirmation to the facts narrated herein above. 32. It was submitted that in light of above, following facts were apparent and were submitted before the Ld. Valuation Officer for the purpose of determination of FMV of the subject properties: 1. That, the assessee has already disputed the valuation adopted by the Stamp Valuation Authorities before the appropriate appellate authorities. Copy of relevant papers of such litigation as submitted before Valuation officer. 2. That, the subject properties are purely residential prior to sale as well as post sale period and the land use has not been converted by the prospective buyers of the land. 3. The Municipal Corporation, Jaipur has already certified the said properties as residential and a Certificate issued by the Municipal Corporation to such effect has already been submitted before the Ld. Valuation Officer, which is placed on record. 4. That, the buyers namely, Sh. Vivek Gupta and Sh. Ashish Gupta had applied for obtaining approval of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,86,37,636.00 287% Higher From perusal of the chart above, you would observe that in the neighboring localities, the valuation done by the stamp authorities is higher by more than 235% to 294% of the agreed consideration and the situation is very much similar with the case of the assessee where against the agreed consideration of ₹ 1,50,00,000/- the valuation has been taken by stamp authorities at ₹ 4,75,26,460/-, thus the claim of the assessee that the fair market value in the same locality is similar to the value at which the assessee has sold the property under reference deserves to be accepted. 6. That, in addition to the aforesaid sale instances, the assessee has also submitted some more sale instances which are of the commercial shops auctioned by Jaipur Development Authority in nearby / adjoining area of commercial property which were required to be considered for determination of fair market value of the property under reference. Those sale instances are as under: S.No Address of Property Date of sale Area (in sq. mtrs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is rate comes at ₹ 1,92,54,100/- which is quite close to the value declared by assessee. 33. It was further submitted that the Ld. Valuation Officer in Annexure III of his valuation report has made following observations: As per the actual status at the site, following observations are made: 1. The adjacent land has residential quarters for the jail staff. 2. The other side has industrial shed/workshops, and most structures on the road stretch adjacent to jail boundary are temporary in nature, with height not exceeding single storey. Only the telephone exchange is the proper building on the stretch. 3. While on one property under consideration has 30% area under the industrial shed, the other 70% was still being used as open area and for residential houses. 4. The property under consideration has 50% area under the industrial shed, the other 50% was still being used as residential. From the above observations of the Valuation Officer, it is clear that he has clearly admitted the fact that a major portion of the subject property is being used for residential purposes. Also, he has not alleged that the remaining small portion is being used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .21 crores only. It is requested before your honours that the value declared in the sale deeds is the actual consideration and the same has been shown at a value much higher than the Fair Market Value so determined and therefore value declared by assessee deserve to be accepted as such. 36. In her submissions, the ld DR submitted that during the course of set aside/re-assessment proceeding, as per direction of the Hon'ble ITAT also to follow the terms of the provisions of section 50C(2)(a) of the Income tax Act, 1961, the AO has called for the valuation report and in compliance thereto, the Valuation Officer has sent his Valuation report wherein FMV of the property situated at Plot No. 55A 55B, Near Central Jail, Agra Road, Jaipur as on May, 2007 has been determined at ₹ 3,00,00,000/- per plot and thus determining the total value of two plots at ₹ 6,00,00,000/-. Subsequently, copy of valuation report alongwith notice u/s 142(1) of the Income tax Act, 1961 was shared with the assessee and basis the report of the valuation officer who has carried out physical inspection of the properties and his report being binding on the AO, the latter considered the Fair M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amined the report of the DVO and has recorded his findings wherein he has stated that there were certain encumbrances on the property and construction for commercial exploitation beyond a certain height was not possible due to nearness to the Central jail and other heritage concerns which were not considered by the DVO. Further, the ld CIT(A) has stated that the land use of the two properties have not been officially changed in the Municipal records these properties continued as residential properties and the buyers had also applied for obtaining permission for construction of residential house on the land so there was no 'commercial' intention in the purchase as well. It was accordingly held by the ld CIT(A) that the DVO has ignored all the supporting evidences which categorized the property towards 'Residential usage like JDA checklist for purchaser to construct residential house upto 2 storeys, municipality letter certifying its residential use, bills of electricity showing residential consumption, house tax receipts showing residential valuation subsequent payment, and the fact that in all the adjacent constructed area, the DVO himself has noted residential usa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: As per the actual status at the site, following observations are made: 1. The adjacent land has residential quarters for the jail staff. 2. The other side has industrial shed/workshops, and most structures on the road stretch adjacent to jail boundary are temporary in nature, with height not exceeding single storey. Only the telephone exchange is the proper building on the stretch. 3. While on one property under consideration has 30% area under the industrial shed, the other 70% was still being used as open area and for residential houses. 4. The property under consideration has 50% area under the industrial shed, the other 50% was still being used as residential. 43. The DVO therefore in his report has stated clearly that in respect of one of the property, 70% is still used for residential purposes and remaining 30% is under industrial shed (commercial) and in respect of second property, ratio between residential and commercial is 50:50. To our mind, both the documentary evidences and the actual usage of the property have their own relevance and importance and need to be considered while determining the fair market value of the property. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial purposes and in respect of second property, ratio between residential and commercial is estimated at 50:50 and basis such estimation, an overall ratio has been arrived at as 60% towards residential purposes and 40% towards commercial purposes. However, we don t find any evidence on record to support such estimation and allocation. To our mind, a better methodology of determining the same is the actual measurement of the property towards residential and commercial usage rather than percentage and that too, at the execution of the sale deed and we find the same is clearly apparent from the two sale deeds where there is clear description and measurement of property under industrial shed (commercial) and other residential built up area. Therefore, taking the actual measurement into consideration, and rate of ₹ 41,214 per sq mtr towards commercial property and ₹ 12,000 per sq mtr towards residential property as determined by the DVO, the valuation of the two properties is arrived at as under: First property: Commercial: 244.10 Sq.mtr. X ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking a consistent view that the third proviso to section 50C should be treated as curative in nature and will apply retrospectively from 1.4.2003 i.e. from the date of insertion of section 50C in the Statute and therefore, the limit of 10% should also be read retrospectively. In this regard, we refer to a decision of the Mumbai Benches of the Tribunal in case of Maria Fernandes Cheryl vs. Income Tax Officer International Taxation 2(3)(1), Mumbai (ITA No. 4850/Mum/2019 dated 15.01.2021) wherein it was held as under: 7. .As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location . Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an unintended consequence of Section 50(1) that even in suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t take a call on, therefore, is as to what is the rationale behind the insertion of the third proviso to Section 50C(1), and if that rationale is to provide a remedy for unintended consequences of the main provision, we must hold that the third proviso to Section 50C(1) comes into force with effect from the same date on which the main provision, unintended provisions of which are sought to be nullified, itself was brought into effect. Let us understand what the nature of the provisions of Section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle rate, this stamp duty valuation report is assumed as sale consideration for the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of a stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by understating the sale consideration amount in a sale deed. As noted by the CBDT, while explaining the justification for insertion of Section 50C, (t)he Finance Act, 2002, has inserted a new secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis- -vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti-avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking an antiavoidance provision. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there were lacunas in the provisions of Section 50C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, antiavoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to be retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that relief is being provided as a special case and this decision may not be considered as a precedent . Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of equality before the law, which is one of our most cherished constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be ignored and the addition made by the AO cannot be sustained. Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur, we are of the considered opinion that the AO in the instant case is not justified in substituting the sale consideration at ₹ 20,55,000/- as against the actual sale consideration of ₹ 19,00,000 disclosed by the assessee. We, therefore, set aside the order of the CIT(A) and direct the AO to take ₹ 19,00,000/- only as the sale consideration of the property. The grounds raised by the assessee are accordingly allowed In the instant case, the difference between the valuation adopted by the Stamp Valuation Authority and declared by the assessee is less than 10%. Therefore, respectfully following the decision of the Hon ble Coordinate Bench, we hereby direct the AO to adopt the value as declared by the assessee. This ground of the assessed is allowed . 49. In view of the aforesaid discussions, in the instant case, we note that the revised valuation as so determined in respect of both the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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