Income Tax Appellate Tribunal - Hyderabad
Late G Somaiah, Represented By G Raghava ... vs Ito,Ward-13(2), Hyderabad, Hyderabad on 9 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 1160/Hyd/2015
Assessment Year: 2009-10
Late G. Somaiah, Rep. by Vs. Income-tax Officer, Ward -
G. Raghava, Hyderabad. 13(2), Hyderabad.
PAN - AFGPG 6424B
(Appellant) (Respondent)
Assessee by : Shri S. Rama Rao
Revenue by : Shri L. Ramji Rao
Date of hearing : 24-07-2017
Date of pronouncement : 09-08-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This is an appeal of the assessee directed against the order of the learned Commissioner of Income-tax(A) - 4, Hyderabad, dated 17/07/2015 for AY 2009-10.
2. Briefly the facts of the case are that the assessee filed return of income for the AY 2009-10 on 03/07/2009 declaring income of Rs. 4,65,350/-. In this case assessment was completed u/s 143(3) on 28/12/2011 assessing long term capital gain and interest income with a total income of Rs. 12,75,494/-. Later, the AO on verification of the records, observed that in the assessment order while calculating long term capital gains, the sale consideration adopted by his predecessor/AO is far below the market value adopted by the SRO i.e. Rs. 88,45,500/- as per agreement of sale cum general power 2 ITA No. 1160/H/15 Late G. Somaiah, Rep. by G. Raghava attorney dated 08/08/2008 which attracts the provisions of section 50C of the IT Act. Therefore, the AO by issuing notice u/s 148 completed the assessment u/s 143(3) r.w.s 147 on 31/12/2013 by assessing income under long term capital gains at Rs. 61,21,302/-.
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and made elaborate submissions, which were extracted by the CIT(A) in his order at pages 3 to 12, which includes the submissions in compliance to the copy of the remand report.
4. The CIT(A) after considering the submissions of the assessee as well as the remand report of the AO, directed the AO to adopt the fair market value as per the valuation report as stated in remand report and allow 15% supervision charges and rework the amount of long term capital gain, by observing as under:
4. I have carefully considered the facts of the case, assessment order and written submissions filed by the assessee.
5. The Assessing Officer in the assessment order mainly observed as under:
"The onus to prove the fact that the fair market value is less than the Stamp Duty valuation shifts to assessee. As long as the assessee can reasonably discharge this onus, the consideration adopted by the assessee is to be adopted. In the present case of the assessee, the assessee accepted the valuation determined by the Stamp Valuation Authority for the purpose of payment of stamp duty for registration of the deed. The assessee has not filed any objections for paying stamp duty on the valuation as per deed at higher valuation".
6. Thereby, the AO issued notice u/s 148 and completed the assessment u/s 143(3) rws 147 by adopting the SRO value and worked out the Long term capital gains at Rs.61,21,302/-. The then CIT(A) directed the Assessing Officer to refer the matter to the Valuation cell to find out the market value of the property as on 08-08-2008. Accordingly, the matter was referred to the Valuation Cell and the Valuation report dated 09-03-2015 was obtained. As per the Valuation report, the valuation officer 3 ITA No. 1160/H/15 Late G. Somaiah, Rep. by G. Raghava adopted the fair market value as Rs 71,13,000/-. As per the Remand report dated 18-03-2015 submitted by the Assessing Officer, the AO reworked the capital gains at Rs. 43,88,802/- by adopting the fair market value as Rs. 71,13,000/- as per the Valuation report. This remand report was forwarded to the assessee and the assessee submitted that the Valuation cell is not justified in fixing the value at Rs. 71,13,000/- which is very high for the following reasons.
"A copy of the plan of the building is annexed to the sale document from which it can be seen that the said property has several disadvantages. The main road is 20' width and, therefore, four wheelers can not move in the lane. The plan annexed to the Agreement of Sale cum General Power of Attorney gives clearly an indication that the front road is only of 20' width and it is not possible for vehicles to enter the road. Even the approach road is only of25' width. It is also too small. It can be seen that the width in the Northern side of the building is 14' whereas the southern portion is 48' width. This is against Vastu. Further, from the plan it can be seen that the south most part was 48' and it is reduced to 27' in the middle and 14' towards extreme Northern. Therefore, the entire area towards North was cut off. This is against Vastu. There are rooms separately constructed with 10'x10' not connected with the main building. They are not much of use. There are only two small bath rooms for each floor. Therefore, the normal market price can not be made applicable. It is also submitted that the municipality is collecting a tax of Rs. 2030/- per year. This would clearly indicate that the rental value of the building is not more than Rs. 15,000/- and by applying the rent capitalization method, the market value of the building would be much lower".
7. After considering the Remand Report and assessee's submissions, the Assessing Officer is directed to adopt the fair market value as per the valuation report as stated in Remand report and allow 15% supervision charges and rework the amount of long term capital gain."
5. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
" 1. The order of the learned Commissioner of Income-Tax (Appeals) is erroneous to the extent it is prejudicial to the assessee.
2. The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing officer in initiating the proceedings u/s 147 of the I.T. Act. The learned Commissioner 4 ITA No. 1160/H/15 Late G. Somaiah, Rep. by G. Raghava of Income-Tax (Appeals) ought to have seen that the re- assessment is not valid.
3. The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing officer in applying the provisions of Sec. 5OC of the I.T. Act.
4. The learned Commissioner of Income-Tax(Appeals) erred in determining the sale consideration for the purpose of determination of the capital gain at Rs.60,46,050/-
5. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the market value be determined by adopting the rent capitalization method for the purpose of Sec. 5OC of the I.T. Act."
6. With regard to the application of the provisions of section 147, the ld. AR of the assessee submitted that the return of income for the AY 2009-10 was submitted by the assessee on 30/07/2009 admitting an income of Rs. 4,65,350/- and the said return was initially processed u/s 143(1) of the Act. It is submitted that the Assessing Officer issued notice u/s 143(2) of the I.T. Act on 04.07.2011 and the assessee filed all the details connected with the assessment. It is submitted that the assessee sold the house for a consideration of Rs.35 lakhs on 08.08.2008 and also worked out the capital gains. The Assessing Officer, while completing the assessment u/s 143(3) of the I.T. Act on 28.12.2011 made the following computation of the capital gains:
Capital gain calculation Amount (Rs.)
Sale consideration 35,00,000
Less: Cost of acquisition
1) Land (date of purchase 1,50,517
29.10.1983) Rs.30,000 x 582/116 of
186 Sq.Yds. out of 266 Sq.Yds.
2) Cost of improvement Construction
Building in different stages:
A. 1310 sft.xRs.360/- per sft. X
582/389 in the year 1999-2000 7,05,581
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ITA No. 1160/H/15
Late G. Somaiah, Rep. by G. Raghava
B. 1645 sft x Rs.400 per sft 9,43,241
x 582/406 in the year
2000-01
C. 1645 sft. X Rs.400 sft x 8,98,958 26,98,297
582/426 in the year 2001- 02
Less: Commission paid 70,000
(receipts submitted)
Long term Capital Gain. 7,31,703
6.1 It is submitted that the said computation is annexed as Annexure-I to the Assessment Order. In the said Assessment Order, the Assessing Officer referred to the report. The Assessing Officer mentioned that the working of the capital gains was made based on the inspection report given by the Departmental approved property valuer and based on the sale deed of the property and the market price as on the date of purchase. It is submitted that this information makes it clear that the Assessing Officer was having with him
a) The sale document;
b) The inspection report by the Departmental valuer;
c) The market value of the property as on the date of purchase;
6.2 Ld. AR submitted that it clearly indicates that the Assessing Officer applied his mind and worked out the capital gain as per the computation annexed. He submitted that the Assessing Officer later initiated proceedings by issue of notice u/s 148 on 01.02.2013. In the said notice, the Assessing Officer mentioned that the notice was being issued with the approval of the Addl. CIT ICIT, Hyderabad but did not mention whose approval was obtained by him. The Assessing Officer in the re-assessment made u/s 143(3) rws 147 at para 2, page 2 mentioned as under:
6 ITA No. 1160/H/15Late G. Somaiah, Rep. by G. Raghava "However, subsequently it was observed from the 3rd page of the 11 pages of agreement of sale cum GPA executed by the assessee dt.8.8.2008 vide No. 1865/2008 of Sub Registrar, Sanjeevareddynagar, the market value of the said capital asset was observed as Rs. 88,45,500/ -. As per the provisions of sec. 5OC, the market value is to be adopted for the purpose of computing long term capital gains."
6.3 Referring to the above, the ld. AR submitted that it clearly shows that the Assessing Officer based his assessment only on the information available on record and no fresh information was brought on record. At the time of regular assessment, the Assessing Officer was in possession of the same information and he completed the assessment without application of the provisions u/s 5OC of the I.T. Act. It is submitted that the Assessing Officer, at the time of completion of regular assessment came to the conclusion that the sale price of Rs.35 lakhs was the real market value as on the date of sale and, therefore, did not apply the provisions of Sec. 5OC.
Subsequently, the Assessing Officer entertained a difference of opinion and issued notice u/s 148 of the I.T. Act. This is not legally valid. For this proposition, he relied on the decision of the Agra Bench of the Hon'ble ITAT in the case of ITO vs. Haresh Chand Agarwal, HUF in ITA No.282/Agra/2013 dated 20.12.2013 wherein it is held that the provisions u/s 147 can not be applied for applying the provisions u/s 5OC of the I.T. Act. Ld. AR, therefore, submitted that the Assessing Officer is not justified in initiating proceedings u/s 147 of the I. T.Act.
6.4 On facts, Ld. AR submitted that the Valuation Cell reduced the value of the property to Rs.71,13,000/- from Rs.88,45,500/-. It is submitted that the Valuation Cell is not justified in fixing the value at Rs.71,13,000/- which is very high for the following reasons:
6.5 A copy of the plan of the building is annexed to the sale document from which it can be seen that the said property has 7 ITA No. 1160/H/15 Late G. Somaiah, Rep. by G. Raghava several disadvantages. The main road is 20' width and, therefore, four wheelers cannot move in the lane. The plan annexed to the Agreement of Sale cum General Power of Attorney gives clearly an indication that the front road is only of 20' width and it is not possible for vehicles to enter the road. Even the approach road is only of 25' width. It is also too small. It can be seen that the width in the Northern side of the building is 14' whereas the Southern portion is 48' width. This is against Vastu. Further, from the plan it can be seen that the South most part was 48' and it is reduced to 27' in the middle and 14' towards extreme Northern. Therefore, the entire area towards North was cut off. This is against Vastu. There are rooms separately constructed with 10'x10' not connected with the main building. They are not much of use. There are only two small bath rooms for each floor. Therefore, the normal market price cannot be made applicable.
It is also submitted that the municipality is collecting a tax of Rs.2030/- per year. This would clearly indicate that the rental value of the building is not more than Rs. 15,000/- and by applying the rent capitalization method, the market value of the building would be much lower.
6.6 Without prejudice to the above submissions, the ld. AR submitted that the valuation by the valuer is on the higher side as the valuer took into consideration the values based on CPWD rates. The AO adopted the plinth area method and applied CPWD rates. He, therefore, submitted that various tribunals held that the value fixed has to be reduced by 10% towards self supervision and 15% towards rate difference and the same was not allowed by the Valuation Cell.
6.7 The ld. AR relied on the following cases:
1. M/s Amarsaria Constructions, Hyd. Vs. ITO, ITA No. 868/H/2006, order dated 8 th August, 2008.8 ITA No. 1160/H/15
Late G. Somaiah, Rep. by G. Raghava
2. ITO Vs. Shri Haresh Chand Agarwal, HUF, ITA No. 282/Agra/2013, order dated 20/12/2013.
7. Ld. DR relied on the order of CIT(A) and submitted that in all the reopened cases, as per the provision, first condition i.e. income escaped assessment, has to come to the notice of AO within the limitation period of 4 years and the second condition will apply only when the assessment is reopened after expiry of four years. He submitted that in the given case, the case was reopened within 4 years and the AO has exercised his power and assessment was reopened as per the provisions of law. He further submitted that AO can initiate the proceedings when he notices escapement of income, for which, he relied on the decision of Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd., [2007] 161 Taxman 316 (SC).
7.1 Further, the ld. DR submitted that the earlier AO has not applied the provisions of section 50C, though the mistake was apparent on record and it is factual issue. Moreover, he submitted that CIT(A) has already given substantial relief to the assessee.
8. Considered the rival submissions and perused the material facts on record. We have noticed that original assessment was completed by AO u/s 143(3) by relying on the valuation report of DVO, which the AO has declared while completing the assessment and calculating the income under the head 'capital gains'. Subsequently, AO has reopened the assessment by noticing that his predecessor has not applied the provisions of section 50C of the Act. From the record, it is clear that previous AO has not applied the provisions of section 50C but at the same time, he has calculated the capital gains after obtaining the valuation from the DVO, it shows that AO has applied his mind consciously and did not apply the provisions of section 50C. In our opinion, when the evidence is clearly available on record 9 ITA No. 1160/H/15 Late G. Somaiah, Rep. by G. Raghava for not applying the provisions of section 50C, the present AO cannot apply the provisions of section 50C terming it as mistake and there is escapement of income. It amounts to change of opinion. Various Courts have held that assessment cannot be reopened merely by change of opinion.
8.1 Coming to ld. DR's contention that AO can reopen when there is escapement of income by relying on the case i.e. ACIT Vs. Rajesh Jhaveri Stock Brokers Ltd. (supra), wherein, the case was reopened with the audit objection on the assessment u/s 143(1), it was a case in which assessment was completed u/s 143(1) and reopened with the factual findings brought out by the audit party, the Hon'ble High Court has dismissed the case by referring to the facts of Adam Exports Vs. DCIT [1999] 240 ITR 224 (Guj.), as per which the reopened assessment was completed u/s 143(3). Hon'ble Supreme Court distinguished this case and allowed SLP in favour of revenue. In the given case, the facts are not similar to the case of Rajesh Jhaveri (supra) and cannot be applied as the facts are completely different.
8.2 Therefore, the ground raised by the assessee relating to reopening of assessment is allowed and other grounds are not required to be adjudicated since the main ground relating to reopening is adjudicated in assessee's favour.
9. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 9 th August, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 9 th August, 2017.
kv
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ITA No. 1160/H/15
Late G. Somaiah, Rep. by G. Raghava
Copy to:-
1) Late G. Somaiah, Rep. by G. Raghava, C/o Shri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, 3-6-643, Street No. 9, Himayat Nagar, Hyderabad - 500 029.
2) ITO, Ward - 13(2), Aayakar Bhavan, Basheerbagh, Hyderabad.
3) CIT(A) - 4, Hyderabad 4 CIT -4, Kurnool.
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File