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TMI Blog2022 (7) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, and therefore, the CIT(A) action in confirming such order is held unjustified and against law by sustaining stamp duty value of property Rs. 11,19,40,441/- as deemed sale consideration u/s. 50C against actual sale consideration and fair market value Rs. 8,81,00,000/-. Accordingly, the AO is directed to adopt the value of sale consideration at Rs. 8,81,00,000/- of the subject property for the purpose of computation of Long Term Capital Gains. Allowability of deduction to the assessee u/s. 54F - appellant has ownership of more than one residential house - HELD THAT:- Admittedly, the AO had accepted the contention of the assessee that the said residential houses are unsold properties of the trading business of the assessee and the assessee himself has reflected the seven residential house properties as stock in trade in his books of account and thus it is not disputed by the AO that the aforesaid seven house properties were accounted for by the assessee in his books of accounts as stock in trade. Thus, in our considered opinion, the said residential houses cannot be taken as capital asset within the meaning of Section 2(14) - it cannot be held that the assessee owned more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the case of Ansal Housing Finance Leasing Co. Ltd. ( 2009 (8) TMI 846 - ITAT MUMBAI] cited by the authorities below does not apply to the facts of the present case. As in the case of M/s. Ansal Housing Finance Leasing Co. Ltd. (Supra) there was a new building ready to use in for habitable purpose whereas in the assesses case it was a damaged/dilapidated and inhabitable building. Therefore, the finding of the AO/CIT(A) based on decision of Ansal Housing Finance Leasing Co. Ltd. are devoid merit. Considering the facts and circumstances of the case we do not incline to agree with the findings of the ld. CIT(A). Thus, the Ground No. 3 of the assessee is allowed. - ITA No. 64/JP/2022 And ITA No. 62/JP/2022 - - - Dated:- 7-6-2022 - Dr. Meetha Lal Meena, AM And Smt. S. Seethalakshmi, JM For the Assessee : Shri S.L. Gupta, CA For the Revenue : Shri Manoj Nehar. CIT-DR ORDER DR. MEETHA LAL MEENA, MEMBER (A) 1. These appeals are the cross appeals filed against the order of the ld. CIT(A) dated 21-12-2021, National Faceless Appeal Centre, Delhi [hereinafter referred to as (NFAC)] for the assessment year 2017-18. 2. In ITA 64/JP/2022, the grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned property Under Section 50C of the Act. The facts as emerges from the order of the ld. CIT(A) are as under:- 6.1 Ground No. 1: In this ground, appellant has contended that the sale consideration adopted at Rs. 11,19,40,441/- as per stamp duty valuation as against actual fair consideration Rs. 8,81,00,000/- which exceeded the fair market value of property as per valuation report submitted by the appellant is unjustified and against the law. 6.1.1. The Assessing Officer in Para 3.13 discussed the provisions of Section 50C as introduced by the Finance Act, 2002 with effect from 1st April 2003 and the proviso inserted to sub-section 1 of Section 50C by the Finance Act, 2016 effect from 1st April 2017 with reference to section 45(1) and section 48. In the case on hand, appellant has shown full value of consideration of the property received on transfer of capital asset, viz., land and buildings at Rs. 8,81,00,000/- where as the Stamp Valuation Authority has fixed the value of the property at Rs. 11,19,00,441/-. The Assessing Officer commented that capital gain upon transfer of capital as set is to be charged as per provisions of section 45 of the Act, which shall be deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mp Duty Valuation Authority exceeds the fair market value of the property as on date of transfer in support of which appellant submitted valuation report of fair market value by a registered valuer. Appellant submitted that the sold land situated in Industrial Park, Bornada Industrial Area is adjacent to the boundary wall of Agro Food Park, Boranada and share common boundary wall but the land in Agro Food park has been valued by the Stamp Valuation Authority at Rs. 2,500/- per square meter whereas appellant's land has been valued at Rs. 7000/- per square meter. It is apparent that the stamp duty authority has taken different DLC rate for virtually the same part and parcel of land without any reasonable basis. Further, it is stated that the buyer of the impugned property contested hat stamp duty assessed by the Stamp Duty Valuation Authority was excessive and a legal notice w was served to the stamp duty authority to refund excess stamp duty charged. The appellant also contended that the Assessing Officer adopted deemed value for land at Rs. 9,90,99,000/- and for building at Rs. 2,18,50,441/- totaling to Rs. 12,09,49,441/- which is higher than the stamp duty value of Rs. 11,19,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is obligated to adopt the stamp duty value as the deemed sale consideration for calculating capital gain. However, the objection raised by the appellant during the assessment proceedings in response to the proposal put forth by the AO should have been considered and the Assessing Officer should have referred the matter to the District Valuation Officer (DVO) which has not been done. Having stated as above, I find there is an inhibiting factor for the Assessing Officer to refer to the DVO, since in this case against the stamp duty value fixed by the Stamp Valuation Authority, the buyer has contested before the Stamp Valuation Authority to refund the excess stamp duty collected. In the event of pendency of an appeal under the Stamp Act, filed before the Stamp Duty Valuation Authority, making reference to the DVO on the same issue -is legally unviable. 6.1.4 Nevertheless, before this Office during the appellate proceedings, the appellant has not made any submission regarding the outcome of the appeal filed before the Stamp Valuation Authority by the buyer of the impugned property. In the given facts and circumstances, considering the entire facts discussed above, I am inclined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y stamp valuation authority for the purpose of stamp duty collection in respect of such transfer, the value so adopted, assessed or assessable shall for the purpose of section 48 be deemed to be the full value of consideration for transfer received or accruing as a result of such transfer. In plain terms, the stamp valuation assessment by the stamp duty officer of the State Government would be deemed to be the sale consideration of capital asset, replacing the declared sale consideration, if it happens to be less than stamp duty valuation. For the purpose of charging capital gain in view of section 45, to be computed as provided in section 48, this deemed consideration would be applied. 6. The Ld. AR of the assessee submitted that the ld. CIT(A) grossly erred in law and on facts in sustaining the stamp duty value of the property at Rs. 11,19,40,441/- as deemed consideration u/s. 50C of the I.T. Act as against the actual sale consideration of Rs. 8,81,00,000/- coincides with the fair market value of property prevailing on the date of transfer of property by ignoring the objection raised by the appellant during the assessment proceedings giving full particulars of the fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted in support of claim. However if the assessee had made an objection for invoking section 50C(1), the Assessing Officer has to referred to the Valuation Officer as per section 50C(2). Without doing so, the Assessing Officer had estimated the capital gains tax with taking estimated value, higher from the actual consideration or fair market value. In the various judicial decision, it is very much clear that in such case, the LD A.O. should have adopt the provision of section 50C(2) for applying deeming provision of sale consideration. Jurisdictional ITAT Jaipur Bench 'A' Jaipur in the case of Smt. Sharda Devi Alwar Vs ITO 1(4), Alwar Tax World may 2013, Vol 49-part 5. In this case Hon bench observed that if objection made for value taken, A.O. should have adopted provision of sec 50C(2) ITAT Jodhpur in the case of Meghraj Baid v. ITO 2008 23 SOT 25 (Jodh.).TTJ 114, 841, [2008] 23 SOT 25 (JODH.)(URO) IT APPEAL NO. 197 (JODH.) OF 2007 Hon'ble bench observed that in case the AO does not agree with the explanation of the assessee with regard to lower consideration disclosed by him then he should refer the matter to DVO for getting its market rate established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when an objection is made by the assessee to the Assessing Officer with regard to the adoption of market value under section 50C(1), the Assessing Officer ought to have referred the valuation of the capital asset to the Valuation Officer and remitted the matter back to the Assessing Officer to work out the capital gains by invoking the provisions of section 50C(2). As submitted above, applying higher value even after objection of assessee on basis of valuation report of registered value, without adopting 50C(2) is wrong, unjust and erred in law therefore you are requested to kindly direct assessing officer to accept the actual sale consideration which coincides with fair market value for purpose of computing capital gain. 6.1. The ld. AR in objection to the ground No. 2 of the Department filed a written submission in support of his contentions as under:- 2.2.1 The ground of department stating allowing relief to assessee by considering lesser value u/s. 50C of the I.T. Act 1961 sold as taken by the assessee without any base and against the fact. 2.2.2 Without prejudice to our ground against applying 50C at para 2.1 above, it is submitted that the while applying deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - and for building at Rs. 2,18,50,441/- totals to Rs. 12,09,49,441/- which is higher than the stamp duty value of the impugned property, land and building of Rs. 11,19,40,441/-. In our view, the Assessing Officer cannot apply double standard that in adopting the stamp duty value for land alone and not adopting for the buildings when the Stamp Valuation Authority has specifically fixed the value for buildings at Rs. 1,28,41,441/-. Therefore, the ld. CIT(A) directed the AO to adopt the stamp duty value of Rs. 1,28,41,441/- as the value/sale consideration for the buildings as well. Except as above, in the absence of any documentary proof that the dispute raised by the buyer before the Stamp Valuation Authority has been decided in favour of the buyer thereby lowering the stamp duty value, the ld. CIT(A) sustained the stamp duty value of the property at Rs. 11,19,40,441/- as deemed consideration of the impugned property inconformity with the provisions of Section 50C and direct the Assessing Officer to take the value of land at Rs. 9,90,99,000/- as deemed sale consideration of land for computing long-term capital gain. 8. It is undisputed fact that during course of hearing, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation officer. In the present case, despite assessee's specific request and claim before the AO that stamp valuation of the property sold was not its fair market value , it was the bounden duty of the AO to have referred to the Valuation Officer which, for the reasons not borne on records, was not made. 11. Now, being aggrieved the revenue contends that, as the legislature vide section 50C(2) has used the term 'may' therefore, the intent of legislature is that reference to valuation cell is dependent upon the sweet will of the AO and it is not necessary for the AO to refer to valuation cell in all cases. This stand of the revenue is in direct conflict with the view propounded by the Hon'ble Calcutta High Court in the case of 'Sunil Kumar Agarwal Vs CIT', (2015) 372 ITR 83 (Calcutta) wherein examining the similar issue the Hon'ble High Court observed that: for the aforesaid reasons, the valuation by the departmental valuation officer contemplated under section 50C is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub-R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding ground no 2. Of the department is dismissed. 15. Apropos Ground No. 1, the Department objected to allow ability of deduction to the assessee u/s. 54F of the Act. The facts as emerges from the order of the ld. CIT(A) are as under:- ''6.3 With regard to the contention of the Assessing Officer that appellant has ownership of more than one residential house pointing to the seven residential house s shown as stock in trade, because of which the Assessing Officer has denied deduction u/s. 54F, I find that vide written submission dated 24.12.2019 appellant furnished with supporting documents, details of opening stock, purchases, expenses incurred, sale and closing stock of trading activities in properties from F.Y. 2012-13 to 2016-17 as per Para 3.14.5 of Assessment order extracted in the foregoing Para 4.14.5. The AO has not refuted appellant's submission that a separate trading account for such property business was regularly prepared and is part of audited financial accounts. I have perused copy of trading account and audited financial statements of four years submitted to the AO for reference and verification and found that the properties are reflected therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income or income from House Property. The Hon'ble Delhi High Court held that the levy of income tax in the case of one, holding house property is premised not whether the assessee carries on business as landlord but on the ownership. The incidence of charge is because of the fact of ownership. Hence, the said decision is in the perspective of Section 22 r.w.s. 28 and not in the context of Section 54F. The fact that appellant has purchased new house property for Rs. 9,93,42,000/- within the period specified in Section 54F is not doubted by the AO. Since all the conditions stipulated in Section 54F stand fulfilled, I hold that appellant is eligible to avail deduction u/s. 54F. The AO is directed to allow deduction u/s. 54F in computing long term capital gain of sale consideration of land valued at Rs. 9,90,99,000/-.Accordingly, ground of appeal No. 2 is Allowed.'' 16. During the course of hearing, the ld. DR relied on the order of the AO. He argued that the ld. CIT(A) was not justified in allowing deduction to the assessee u/s. 54F of the I.T. Act, 1961 though the assessee had more than one house property. 17. On the other hand, the ld. AR relied on the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,55,50,000 1,28,82,260 3,82,32,260 0 2016-17 3,82,32,260 0 3,82,32,260 2018-19 38432260 0 1470000 38102848 1140588 A separate trading account named as trading account 2 for such property business being regularly prepared and part of audited accounts submitted. Copy of separate trading account which is part of audited accounts of all five year and next one year and detail of closing stock submitted during assessment proceeding(PB Page 167-173). As per position of trading account summarized, all properties which has been purchases for intention to trading has been shown in trading account and shown as stock in trade. The allegation that there is no single sale since long is totally against the fact. The purchases of various properties are upto period relevant to AY 2015-16 and various sale made in year relevant to AY 2012-13, 2013-14 and continuing in nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital assets hence the provision relates to capital assets. Hence in section 54F the word used for investment in residential house is to understood house kept as capital assets. Property held as stock in trade are never be treated in preview of section 45 to 55. There can not be second opinion on the point that capital gain should arise out of the transfer of capital assets. Section 2(14)(a) of the Income Tax Act define capital asset as under: capital asset means- (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) xxxxx but does not include- (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession; .... This shows that any stock in trade by business or profession is excluded from the definition of capital asset and in these circumstances the contention of Ld. A.O. is that stock in trade is also included for applicability of Section 54F of is not correct. As per language of section and it's placed with related provision for capital assets, it is clear intention of Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown as capital assets but was shown as stock-in-trade, naturally the view taken by the tribunal cannot be said to be erroneous. As submitted, the assessing office wrongly interpreted the property held in stock in trade as house property for purpose of disallowing claim u/s. 54F. We rely on finding by ld. CIT appeal at para 6.3 and 6.3.1 on fact while allowing exemption u/s. 54F for investment in new house where all conditions has satisfied. Your honor is requested to dismiss the ground of department.'' 18. We have heard both the parties and perused the materials available on record. It is seen that the ld. CIT(A) after going through assessment order and the details filed by the assessee has observed that the assessee has purchased new house property for Rs. 9,93,42,000/- within the specified period as per provisions of Section 54F which is not under dispute. The ld. CIT(A) has held that the assessee is eligible to avail deduction u/s. 54F of the Act and directed the AO to allow deduction u/s. 54F of the Act, in computing long term capital gain from the sale consideration of land, valued at Rs. 9,90,99,000/-. Admittedly, the AO had accepted the contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consolidated figure. It is pertinent to mention here that once an asset has been treated as block of asset, then, irrespective of its disposal and in the manner done by the assessee, it would continue to be treated as such. Once it is treated on its initial introduction in the block as 'block of asset', then, that treatment continues and that is how the law has been under stood throughout. The assessee has originally purchased above plots and constructed building on these plots and started claiming depreciation from AY 2008-09. He claimed depreciation of the cost of construction of buildings together. The claim of the assessee that he did not claim depreciation from AY 2013-14 is also not alter the very nature of the assets under reference. 3.8 The definition of block of assets, as appearing in Section 2(11) of the IT Act was in force. For sake of clarity, provisions of section 2(11) of the IT Act are reproduced below: (2) (11) block of assets means a group of assets falling with in a class of assets comprising- (a) Tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade-marks, licences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely in connection with such transferor transfers; (ii) The written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year as in creased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets. As is evident, the section opens with a non obstante clause and states that notwithstanding anything contained in clause (42A) of Section 2, where the capital asset is an asset forming part of a block of assets in respect of which depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of depreciation is prescribed. Section 32 of the IT Act which provides for claiming depreciation, enables an assessee to claim it and in the case of any block of assets, on such percentage of written down value thereof, as may be prescribed. It is also pertinent to mention here that an asset cannot move out of the block of assets once depreciation is allowed on that particular asset. In the present case, initially depreciation was claimed and allowed on the building under reference. It was only during AY 2013-14 to 2016-17 that no depreciation was claimed or allowed, as the assets were not used for the purpose of business. Even though the assets were not used for the business of the assessee, they continued to be part of block of assets on which depreciation was allowed. Once an asset ceased to be in use for the purpose of business, it does not remain a part of block of assets' and it was not open for the assessee to claim depreciation there on. Once the depreciation has been granted on the building under reference and even if business s operations were not carried out there from, merely at the convenience of the assessee, it does not cease to be a business asset. Thus, the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines short-term capital asset as an asset held for not more than 36 months. The non obstante clause with which section 50 opens makes it clear that it is an exception to the definition of short-term 14 of 22 ITR. 9.6.2000 capital asset which means that even though the duration of holding of an asset is more than the period mentioned in section 2(42A), still the asset referred to therein will be treated as short-term capital asset. No one can doubt that assets covered by section 50 are depreciable assets forming part of block assets as defined under Section 2(11) of the Act. Section 50 has two components, one is as to the nature of treatment on an asset, the profit on sale of which has to be assessed to capital gains. The section mandates that a depreciable asset in respect of which depreciation has been allowed when sold should be assessed to tax as short-term capital asset. The other purpose of section 50 is to provide cost of acquisition and other items of expenditure which are otherwise allowable as deduction in the computation of capital gains and covered by sections 48 and 49 of the Act. Here again section 50 provides an exception for deduction of cost of acquisition and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, if the assessee started using the building after two years for business purposes the assessee can continue to claim depreciation based on the written down value available as on the date of ending of the previous year in which depreciation was allowed last. In nut shell, it is observed that the AO has worked out short term capital gain u/s. 50 of the Act. 21. In first appeal, the ld. CIT(A) confirmed the finding by holding applicability of the provision of Section 50 in the case of the assessee by observing as under:- 6.2.3............ In terms of the period of holding of the property by the appellant as per the provisions of Section 2(29A) r.w.s. 2(42A), the buildings are long-term capital assets since they have been owned by the appellant for more than three years. And so, what follows next is that the gain from sale of the a fore said assets is long term capital gain. However, Section 50 is a specific Section which deals with the nature of gain on sale of capital assets used for business activity on which depreciation has been claimed. In the case of the appellant, it is an admitted fact that these two buildings were used for business of the appellant and deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 368 but in return of AY 2013-14 schedule DOA (PB page 210) opening WDV of block taken Rs. 72,13,746 by excluding WDV of this building Rs. 70,12,622 in compliance of section 50. After compliance of section 50 in 2013-14, the assets transferred to investing assets being incapable to depreciation and sale of such assets made after 3 year from date of such transfer/discarded from business assets. 3.2 The Ld. CIT appeal has also confirmed the action of A.O simply stating provision of section 50 is applicable on depreciable assets. However the ld. CIT Appeal not appreciated the fact that on date of sale the asset is incapable of depreciable assets. As per provision of section 32(1) of the I.T. Act, the said building at Jodhpur was incapable of being termed as depreciable asset as on 1st April 2012 due to asset was discarded from business. Once the assets is incapable of being termed as depreciable assets, it ceased to a part of the block of assets hence reduced from value of block of assets correctly. It is settled law that for availing depreciation under I.T. Act, it is imperative that two criteria are to be satisfied. First is the ownership and second is the use for the purpose of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also noted that the ld. CIT(A) has confirmed the action of the AO holding that the provisions of Section 50C is applicable on depreciable assets. However, authorities below have ignored the fact that once the assets is incapable of being termed as depreciable assets then it will be ceased to a part of the block assets after reducing the value of the same from the value of the block assets. The AO has taken the recourse of Bombay High Court judgment in case of Smt. Meena Pamnani and Hon'ble Kerala High Court in case of Sakthi Metal Depot (supra) but the facts of the judgement do not match to the facts of the assessee's case. Thus, both the judgements are not applicable in assessee's case. Even if Section 50 is to be applied as per the dictum of the AO, then full value of the consideration had to be reduced from the complete block of WDV i.e. all building (Jodhpur and Jaipur). However, the AO had reduced the WDV of Jodhpur in his assessment order where as he should have reduced the WDV of both the places of Jodhpur and Jaipur meaning thereby the AO has treated separate building from block of depreciable asset. In view of the matter, we feel that there has been lacu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, the property was old, dilapidated condition and not fit for habitable purposes. In this situation, the building cannot be let out unless major renovation take place. Thus, Hon'ble Court applied notional rent on the income computed on the unsold constructed flats accounted as stock-in-trade which are in usable and live in conditions but in case of appellant, the house properties were in damaged condition and not fit to use. 29. The ld. DR relied on the order of the ld. CIT(A). 30. We have heard both the parties and perused the materials available on record. It is noted from the available record that the assessee had 07 buildings at Jawahar Nagar which were held by the assessee as stock in trade for trading purpose. The conditions of the house building was very old, dilapidated condition and not fit for habitable purposes. The AO also deployed his Inspector to inspect the conditions of the building whose report was silent on the evidences produced by the assessee during the assessment proceedings which approved the validity of the submission of the Assessee as to the state of affairs of the building. It is also imperative to mention that the case of Ansal Housing F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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