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TMI Blog2025 (3) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... ated provision in the statute and where the AO has verified and allowed the same, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. Valuation report of a registered valuer so submitted by the assessee during the course of assessment proceedings and the findings of the Ld. PCIT - We find force in the contention so advanced by the Ld AR as what is relevant for determining the fair market value is the comparative sale instance not just in terms of land area, built up structure, proximity of location but also the ownership rights and inherent risks associated with such ownership and therefore, where the assessee has sold a property having 100% ownership rights, the comparative sale instance where the seller holds 25% undivided share has to be suitably grossed up rather than discounted as currently done by the Valuer and where the adjusted value is considered, there is no prejudice which is caused to be Revenue as the same is on a higher side as compared to what has been considered by the assessee. AO, after calling for required information/documentation and after duly considering the explanations and documentation su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d had declared Long Term Capital Gain of Rs. 49,19,440/- on the same in the ITR. Computation of LTCG as per ITR is as under: Full value of consideration received 5,01,00,000/- Less: Cost of acquisition with indexation 4,51,80,560/- Long Term Capital Gains 49,19,440/- The indexed cost of acquisition was taken by taking the base year as 2001. You furnished a Valuation Report of the property in support of the Fair Market Value (FMV) of the property as on 01.04.2001. From the perusal of the Valuation Report, it is seen that the FMV of the property as on 01.04.2001 was taken at Rs. 1,66,10,500/- (FMV of the land and construction were Rs. 1,33,30,000/- and Rs. 32,80,500/- respectively). This property was received by you through gift deed dated 08.10.2009 executed by your father Sh. Sudershan Kumar Kathuria who had purchased this property through conveyance deed dated 18.06.1996. As per record, while executing gift deed dated 08.10.2009, FMV of the said property was determined at Rs. 1,08,00,000/- for calculating stamp duty of the gift deed. Further, perusal of the Valuation Report reveals that the Valuer has determined the FMV on the basis of a sale deed of a first floor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Act, especially as per clause (a) and (b) of Explanation 2 to Sec 263 of the Act, and take suitable remedial action u/s 263 of the Income-tax Act, 1961." 5. In response to the show cause, the assessee filed his submissions before the Ld. PCIT. In its submissions the assessee has submitted as under: "1. The Assessing officer has made extensive enquiry in respect of FMV of residential house as on 1-4-2001 vide notice under section 142(1) dated 17/11/2020 and demanded valuation report and assessee has given reply on 22/12/2020 in response to his question raised and submitted valuation report from Income Tax approved registered valuer. The Ao has already made enquiry and accepted the FMV as on 1-4-2001 on the basis documents/valuation report therefore the order passed under section 143(3) is neither erroneous nor prejudicial to interest of revenue. 2. Your honour has taken schedule of residential land for conversion lands rate of DDA for residential purposes. There are 2 element in schedule referred by you that (i) It is conversion rate (ii) It is land rate of DDA for residential purposes. We strongly object coercion rate cannot be considered FMV and second DDA flat land can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds upon the quality of construction and collector rate can not applied blankly on all type of construction and your honour shall appreciate the fact that DDA/Housing board provide flats at minimum possible price with low level of construction which cannot be compared with residential house on independent plot in posh area. 7. We also submit that your honour has again placed reliance on gift deed dated 8/10/2009. Stamp duty is charged on minimum collector for stamp duty purposes and it cannot reflect FMV as on 1-4-2001. The collector value is always fixed as minimum value on which buyer / seller has to pay stamp duty and it is well known fact that the stamp value cannot be substitute the Fair market value." 6. The submissions so filed by the assessee were considered but not found acceptable to the Ld. PCIT and the assessment order so passed by the AO was held to be erroneous in so far as prejudicial to the interest of the Revenue as per Clause (a) &(b) of Explanation 2 to Section 263 of the Act and the assessment order was set aside with direction to the AO to pass fresh assessment order after making requisite inquiries and verification and the findings of the ld PCIT read as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Masjit Moth, Uday Park, New Delhi Description of property sold as per Valuation report Plot No. 139, 180 sq.m., having Ground, First and Second floor. The G.Fl is having one drawing / dining room, three bed rooms, one kitchen, attached toilets, one store and one stairs. On 1st floor and second floor, it is same as on ground floor. Amount Date of sale Rs. 5,01,00,000/- F.Y 2017-18 Sale instance taken by Valuer in the valuation report C26, Gulmohar Park, New Delhi Description of property sold as per Registered Sale deed Plot measuring 183 sq. m (200 Sq. yard) Property of portion sold as per Registered Sale Deed Dwelling unit on the first floor comprising three bed rooms, one living room, on dining area, one kitchen, three toilets and balconies at entire 1st Floor along with 25% undivided and indivisible rights,, interest, liens and titles in the land beneath the same, common passages and staircases for approach, rights of usage of necessary amenities, services attached thereto collectively referred to as demised portion of the free hold property Amount / Date of sale Rs. 35,00,000/- 21.01.1998 In this sale instance, sale consideration of Rs. 35,00,000/- was fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NFAC New Delhi. 9. The ld. AR further submitted that the Assessing officer has made enquiry in respect of FMV of residential house as on 1-4-2001 vide notice under section 142(1) dated 07/02/2020 and asked for details of sale of property and capital gain &assessee has submitted complete details along with calculation of capital gain. It was submitted that the Assessing officer thereafter vide notice under section 142(1) dated 17/11/2020 & notice U/s 142(1) dated 11/01/2021 had sought valuation report and assessee has given reply on 22/12/2020 & 26/01/2021 in response to his question raised and submitted valuation report from Income Tax approved registered valuer. The AO has made due enquiry and accepted the FMV as on 1-4-2001 on the basis documents / valuation report therefore the order passed under section 143(3) is neither erroneous nor prejudicial to interest of revenue. 10. It was submitted that the Ld. PCIT has taken schedule of residential land for conversion lands rate of DDA for residential purposes. There are 2 elements in schedule referred by her that (i) It is conversion rate (ii) It is land rate of DDA for residential purposes. We strongly objected to the same as conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the quality of construction and collector rate cannot applied blankly on all type of construction and your honour shall appreciate the fact that DDA/ Housing board provide flats at minimum possible price with low level of construction which cannot be compared with residential house on independent plot in posh area. 15. The Ld. AR further submitted that PCIT has placed reliance on gift deed dated 8/10/2009 executed in favour of the assessee by his father. Stamp duty is charged on minimum collector for stamp duty purposes and it cannot reflect FMV as on 1-4-2001. The collector value is always fixed as minimum value on which buyer / seller has to pay stamp duty and it is well known fact that the stamp value cannot be substitute the Fair market value. It was submitted that the assessee's father had acquired the said property on 18/06/1996 prior to 1-4- 2001, the indexed cost of acquisition has therefore been worked out with reference to FMV as on 1-04-2001 and not with reference to date on which the assessee acquired the property by way of gift and in support, reliance was placed on the decision of Hon'ble Punjab and Haryana High Court in case of Rajiv Mehra vs CIT [2024] 168 taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation report as well as the FMV of the property sold at the time of registration of the gift deed. Therefore, we restrict our examination to these two issues and respective contentions in order to examine where the order so passed by the AO has been rightly held to be erroneous in so far as prejudicial to the interest of the Revenue or not. 18. Firstly, as regards to the findings of the Ld. PCIT that the FMV of the sold property assessed by the concerned said Revenue Authority for the purpose of stamp duty at the time of registration of the gift deed could not be ignored and it was best valuation of FMV available to the AO, we find that it is an admitted position that the assessee has acquired the said property through a gift deed dt. 08/10/2009 executed by his father Shri Sudarshan Kumar Kathuria who inturn had purchased this property through conveyance deed dt. 18/06/1996 before the first day of April 2001. 19. In this regard, during the course of hearing, with the assistance of the Ld. AR, we have gone through the definition of cost of acquisition and the relevant provisions are contained in 55(1)(b) of the Act wherein in Clause (ii), it has been provided that "where the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired the property prior to the 01/04/1981 and thereafter the property has been gifted to the assessee which has been sold in the year under consideration while computing capital gain the term "first year in which the asset was held by the assessee" as so interpreted by the Courts to means the year in which asset was first held by the previous owner and not the year in which the assessee became the owner of the asset in terms of the gift deed. In this regard, our reference was drawn to the decision of Hon'ble Bombay High Court in case of CIT Vs. Manjula J. Shah (Supra) wherein the relevant findings read as under: "Section 45 provides that any profits or gains arising from the transfer of a capital asset in the previous year shall be chargeable to income-tax under the head 'capital gains'. Where the gains arise on transfer of a short-term capital asset as defined under section 2(42A), the gains are taxed as short-term capital gains. Where the gains arise on transfer of long term capital asset, as defined under section 2(29A), the said gains are taxed as long term capital gains. Section 47(iii) provides that where a capital asset is transferred under a gift or will, then, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee sold the said capital asset on 30-6-2003. Since the assessee held the capital asset for less than thirty six months (2-1-2003 to 30-6-2003) in the ordinary course, as per section 2(42A), the assessee would have held the asset as a short-term capital asset and, accordingly, liable for short-term capital gains tax. However, in view of Explanation 1(i)(b) to section 2(42A) which provides that in determining the period for which any asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included, the assessee is deemed to have held the asset as a long term capital asset and, accordingly, liable for long term capital gains tax. Thus, by applying the deeming provision contained in the Explanation 1(i)(b) to section 2(42A) of the Act, the assessee is deemed to have held the asset from 29-1-1993 to 30-6-2003 (by including the period for which the said asset was held by the previous owner) and, accordingly, held liable for long term capital gains tax. [Para 13] It is not disputed by the revenue that the assessee must be deemed to have held the capital asset from 29-1-1993 (though actually held from 1-2-2003) by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 48 is accepted, then, the assessee would not be liable for long term capital gains tax, because, it is only by applying the deemed fiction contained in Explanation 1(i)(b ) to section 2(42A) and section 49(1)(ii) the assessee is deemed to have held the asset from 29-1-1993 and deemed to have incurred the cost of acquisition and, accordingly, made liable for the long term capital gains tax. Therefore, when the legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under section 48 has to be computed by applying the deemed fiction, it is not possible to accept the contention of revenue that the fiction contained in Explanation 1(i )(b) to section 2(42A) cannot be applied in determining the indexed cost of acquisition under section 48. [Para 18] It is true that the words of a statute are to be understood in their natural and ordinary sense unless the object of the statute suggests to the contrary. Thus, in construing the words 'asset was held by the assessee' in clause (iii) of Explanation to section 48, one has to see the object with which the said words are used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent cannot be accepted. [Para 20] Apart from the above, section 55(1)(b )(2)(ii) provides that where the capital asset became the property of the assessee by any of the modes specified under section 49(1) not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under section 48. The question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under section 49(1) would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under-section 49(1), the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. [Para 21] The object of giving relief to an assessee by allowing indexation is with a view to offset the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of the Hindu undivided family (HUF). Accordingly, the cost with reference to the acquisition of property would have to be assessed as per section 49(1)(i). [Para 16] * From the perusal of the aforesaid, it is apparent that a capital asset can be treated to be transferred where there is a consideration involved and would also include sale, exchange or relinquishment of an asset, or where a right of any person is extinguished. However, if there is any transfer of a capital asset like property by way of a gift or a will or an irrevocable trust, provisions of section 45 would have no application. Sections 48 and 49 provide the method and manner of computation of income chargeable under the head of capital gains. [Para 17] * For assessing the cost with reference to certain modes of acquisition has been now treated as per the Explanation (iii) to section 48 to be First day of April, 1981 or the cost of acquisition for the year in which the asset is transferred to the same proportion as cost of first year in which the asset held by the assessee, whichever is later. [Para 18] * Where the capital asset becomes the property of the assessee by way of any distribution of assets on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeing with the submission of the appellant-assessee that even if the existence of the will may be ignored so far as the appellant-assessee is concerned he has become the holder of the property on the basis of a family settlement and the cost of acquisition shall be with reference to 1-4-1981 alone. The calculation, therefore, has to be done accordingly and the order passed by the Commissioner (Appeals) was not required to be interfered with. [Para 37] 24. We therefore find that even on this account, where the assessee has computed the Index cost of acquisition by taking into consideration cost of inflation index for the year beginning first day of April 2001, the same is in consonance with the stated provision in the statute and where the AO has verified and allowed the same, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. 25. Now coming to the valuation report of a registered valuer so submitted by the assessee during the course of assessment proceedings and the findings of the Ld. PCIT. In this regard, as per the Ld. PCIT, in the valuation report, the sale instance which has been considered relates to the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n discounted as currently done by the Valuer and where the adjusted value is considered, there is no prejudice which is caused to be Revenue as the same is on a higher side as compared to what has been considered by the assessee. 27. In light of the aforesaid discussion and in the entirety of facts and circumstances of the case, we are of the considered view that the Assessing officer, after calling for required information/documentation and after duly considering the explanations and documentation submitted before him, reached a rightful conclusion in terms of determining the indexed cost of acquisition while working out the capital gains in the hands of the assessee. In our view, such a view is clearly a plausible view which a reasonable and prudent officer could have taken and the view so taken and order so passed by the Assessing officer cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue and the exercise of revisional jurisdiction by the Ld. PCIT u/s 263 cannot be sustained in the eyes of law. The order so passed by the ld PCIT is accordingly set-aside and that of the AO is sustained. 28. In the result, the appeal of the assessee is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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