Income Tax Appellate Tribunal - Pune
Rajendra Narayan Lavate, Nashik vs Assessee on 24 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND
SHRI G.S.PANNU, ACCOUNTANT MEMBER
ITA No. 630/PN/2009
(Assessment Year: 2004-05)
Shri Rajendra Narayan Lavate, .. Appellant
2158, Lavate Wada,
Somwar Peth,
Nashik - 422 001
PAN AABHL0991C
Vs.
ITO, Ward 1(4), Nashik .. Respondent
Appellant by: Mr.Nikhil Pathak, C.A.
Respondent by: Mr.Adarsh Kumar Modi/ Ms. Neera Malhotra
Date of Hearing : 24/05/2012
Date of Order : 25/05/2012
ORDER
PER G.S.PANNU, AM:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-I, Nashik dated 30.03.2009 passed under section 263 of the Income-tax Act, 1961 (in short "the Act), for the assessment year 2004-05.
The Grounds of appeal raised by the assessee in this appeal are as follows:
"I. The ld Hon'ble CIT Nashik-I has erred in law and in facts in enhancing the capital gain by Rs 51,80,558/- involving the provisions u/s 263 by adopting the rate of the cost of acquisition of land at rate Rs 125/- per square meter as on1.4.1981 instead of adopting the rate of the land that would have been sold in the market (Market Value) i.e. at the rate 344.28 sq.mt as on 1.4.1981.
II. The ld Hon'ble CIT Nashik-I ought to have considered the fact that the land as on 1.4.81 was an agricultural land and converted into non- agricultural land on 1.2.2001 and on the same date the said land introduced as stock in trade. The demarcated plotted area of land was sold in AY 2004-05.
III. The ld Hon'ble CIT Nashik-I failed to appreciate the fact that appellant sold the demarcated plotted ea of land 5102.66 sq. meters and therefore while giving deduction u/s 48, he should have adopted the market rate of the same plotted area of land i.e. 344.28 per sq. Meter as per certificate of approved valuer. However he committed a mistake of adopting rate of agricultural land prevailing as on 1.4.1981 i.e. Rs 125 per sq. meter instead of the market rate of demarcated plotted are of land i.e. 344.28 pr sq. meter.2 ITA No. 630/PN/2009
(Assessment Year: 2004-05) Shri Rajendra Narayan Lavate, IV. The order u/s 263 passed by the ld Hon'ble CIT Nashik-I is based on the change of opinion and not on the material from which it could e inferred that the order of 143(3) of AO is prejudicial to the interest of the revenue."
2. In this case, the assessment order u/s.143(3) of the Act was passed by the Assessing Officer on 25/07/2006, which has been found to be erroneous in so far as it was prejudicial to the interests of the Revenue within the meaning of Section 263 of the Act by the Commissioner on a single issue relating to the determination of long term capital gains. In order to appreciate the error noticed by the Commissioner in the determination of long term capital gain the following discussion is relevant. During the year under consideration i.e. assessment year 2004-05, the assessee sold plots of land admeasuring 5102.66 sq.mts., and declared long term capital gain on such sale, computed in the following manner and which was accepted by the Assessing Officer in the assessment order passed on 25/07/2006 :-
Sale of plots Rs 86,74,522/-
Less: Cost of acquisition at 1.4.1981 (Rs.17,56,744/-) Indexed Cost Rs 81,33,725/-
Long term capital gain Rs 5,40,797/-
3. As per the Commissioner the only error in the aforesaid determination of long term capital gain related to the ascertainment of cost of acquisition as on 01/04/1981. The assessee adopted a rate of Rs.344.28 per sq.mtrs. to determine the cost of acquisition on 01/04/1981 which has also been accepted as such by the Assessing Officer in the assessment order dated 25/07/2006. However, as per the Commissioner the cost of acquisition as on dated 01/04/1981 was to be ascertained by adopting a rate of Rs.125 per sq. mtr. as per the report of the Registered Valuer. The Commissioner has disagreed with the determination of long term capital gain at Rs.5,40,797/- and instead determined the long term capital gain at Rs.57,21,355/- and accordingly enhanced the income determined by the Assessing Officer in his order dated 25/07/2006 by Rs.51,80,558/- on this count. Against the aforesaid, assessee is in appeal before us.
3ITA No. 630/PN/2009
(Assessment Year: 2004-05) Shri Rajendra Narayan Lavate,
4. The brief background of the dispute raised by the Commissioner is as follows. The assessee HUF is engaged in the business of development of land. On partition of its bigger HUF, the assessee received certain land at survey nos. 748, 748A-1 and S.No.749 admeasuring in all 42100 sq.mtrs. on 20/10/1970. The said property was thereafter held by the assessee HUF as a 'Capital asset' till 01/02/2001, when it was converted into stock-in-trade of the business of land development. Upon such conversion, land was developed and divided into smaller plots for sale. Some of the plots have been sold during the present year and accordingly capital gain on conversion of capital asset into stock-in-trade was liable to be taxed in the present year as per the provisions of Section 45(2) of the Act. While computing the Capital gain u/s. 45(2) of the Act with respect to the plots sold during the year, assessee adopted the cost of acquisition as on 01/04/1981 @ Rs.344.28 per sq. mtr. as per the report of the Registered Valuer, accordingly the cost of acquisition as on 01/04/1981 was computed at Rs.17,56,744/- and indexed cost was arrived at Rs.81,33,725/-. The Commissioner, however was of the view that the cost of acquisition as on 01/04/1981 be adopted at Rs.125 per sq.mtrs. and not Rs.344.28 per sq.mtr, as per the same report of the Registered Valuer. On this aspect, it is seen that assessee received 42,100 sq. mtrs. of land on partition and on its conversion into stock-in-trade, the plotted area reduced to 21827.13 sq. mtrs., as the balance area was left for common amenities, open space, roads etc. The saleable area thus remained at 21,827.13 sq.mtr., out which plots admeasuring 5102.66 sq. mtrs. were sold during the year under consideration. In this background, the Ld.Counsel for the assessee referred to the report of the Registered Valuer, placed at pages 44-56 of the Paper Book to explain as to how the rate as on 01/04/1981 has been determined at Rs.344.28 per sq.mtr. for the purposes of arriving at the cost of acquisition. In the valuation report, the gross area of the land is taken at 42100 sq.mtr. The total value of gross plot of land is arrived at Rs.52,62,500/- i.e. at the rate of Rs.125 per sq.mtrs. By adding the value of construction, pump motor, pipe 4 ITA No. 630/PN/2009 (Assessment Year: 2004-05) Shri Rajendra Narayan Lavate, line etc. at Rs.22,52,215/-, the total value of the gross land is arrived at Rs.75,14,715/-. As the net plotted area or in other words the net saleable area remained at 21827.13 sq.mtr, the value of Rs.75,14,715 was spread over such area to arrive at the rate of Rs.344.28 per sq.mtr. In this manner, the Ld. Counsel for the assessee submitted that there was no error in adopting the rate of Rs.344.28 per sq.mtrs. for the purposes of computing the cost of acquisition as on 01/04/1981. The Ld. Counsel for the assessee has also pointed out that as on 01/04/1981 the construction, pipe lines etc. were in existence over the impugned land and therefore fair market value of the capital asset for the purpose of computation of capital gain shall be taken by including the fair market value of the land as well as the construction thereon and that the Commissioner was wrong in including only the value of land and that too on a wrong basis. In support, reference has been made to the decision of the Agra Bench of the Tribunal in the case of Subhash Chand Kapoor vs.ITO (2010) 46 DTR (Agra)(Trib) 314. It is further contended that adoption of Rs.125 per sq.mtr. by the Commissioner is otherwise also wrong. In this regard, it is pointed out that the value of land was adopted at Rs.52,62,500/- by the valuer for the gross area of land and that since the assessee had only left with a saleable area of 21827.13 per sq.mtr., the said amount was to be spread over the area of 21827.13 per sq. mtr. Even on this score, the stand of the Commissioner was wrong and finally it is submitted that there was no error in the determination of capital gain as declared by the assessee and thereafter accepted in the assessment order dated 25/07/2006.
5. However, the Ld. DR relied upon the order of the Commissioner and pointed out that when the assessee has introduced the gross land area of 42100 sq.mtrs. as stock in trade, it is not correct for the assessee to claim the entire cost of acquisition on to the saleable area alone, thereby including the cost of area left for open spaces etc. which have not been sold. 5 ITA No. 630/PN/2009
(Assessment Year: 2004-05) Shri Rajendra Narayan Lavate,
6. In reply, it was pointed out that area left for open spaces, common amenities, roads, etc. did not remain with the assessee as accepted by the Commissioner in para 5.1(iv) of the impugned order, and therefore the adoption of Rs.344.28 per sq.mtr. for the purposes of computing cost of acquisition as on 01/04/1981 was fair and proper. Further, the Ld. Counsel for the assessee submitted that similar issue was also subject matter of dispute in the course of assessment proceedings for the assessment year 2006-07, however the CIT(A) after considering the entire circumstances directed for adoption of Rs.344.28 per sq.mtr. for the purposes of determining long term capital gain, and in this regard a copy of the order of CIT(A) for assessment year 2006-07 dated 12/09/2011 has been placed on record.
7. We have carefully considered the rival submissions. The power of revision u/s.263(1) of the Act is to be exercised by the Commissioner only if circumstances prescribed therein exist. The two circumstances prescribed are, namely, that the order should be erroneous; and, that such error should be prejudicial to the interests of the Revenue. It is a well settled proposition that an the order of the Assessing Officer cannot be construed as erroneous unless the same is found to be unsustainable in law or on facts, as opined by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 243 ITR 83(SC).
8. In this background we may now examine the error sought to be pointed by the Commissioner in the instant assessment order to invoke Section 263 of the Act. Our discussion in the earlier paragraphs show that as per the Commissioner the cost of acquisition as on 01/04/1981 has been wrongly adopted by the assessee, which has resulted in an erroneous assessment that is prejudicial to the interests of the Revenue. As per the Commissioner, fair market value of land as on 01/04/1981 is to be adopted at the rate of Rs.125 per sq.mtr. In this connection, we have perused the Valuation report placed at 6 ITA No. 630/PN/2009 (Assessment Year: 2004-05) Shri Rajendra Narayan Lavate, pages 44-56 of the Paper Book. As per the Valuation report, as on 01/04/1981 apart from the land, there was other structures on such land which have been enumerated as construction, well, pipeline, pump, etc. The aforesaid structures alongwith the land 42,100 sq.mtrs has been valued at Rs.75,14,715/- . The rate applied to value the bare land was Rs.125 per sq.mtr., which came to Rs.52,60,500/- and the balance of Rs.22,52,215/- was for the other structures existing on such land. In the entire order of the Commissioner, there is no assertion much less a finding, that elements of construction, pipelines, well, motor pump, etc. considered by the Registered Valuer were not in existence on the land as on 01/04/1981. Therefore, fair market value of the land as on 01/04/1981 for the purposes of ascertaining the cost of acquisition to compute capital gain is to be the fair market value of the bare land as well the construction, pipelines, well, etc. thereon. Under the circumstances of the present case, the Commissioner was wrong in taking the fair market value only of the bare land alone. The fair market value of the construction, pipeline, well motor pumps etc. was also to be considered and the same in our view, was rightly considered by the assessee and thereafter accepted in the assessment order dated 25/07/2006.
The second point made by the appellant is that even the adoption of the rate of Rs.125 per sq.mtr. for the bare land is also wrong. In this connection, it is evident that the assessee received a total land area of 42100 sq.mtr. on partition, which was subsequently converted into stock-in-trade in the business of land development. After developing the land into smaller plots, the total saleable area or in other words, the net plotted area remained 21827.13 sq.mtr and the balance was left for open space, roads, common amenities, etc. For computation of Capital gains on the sale of the net plotted area, the cost of acquisition of the asset has to be ascertained and in this regard, it is seen that the fair market value as on 01/04/1981 of the land area of 42100 sq. mtrs. inclusive of the construction, pump, etc. thereon is Rs.75,14,715/- (and for bare land is Rs.52,60,500/-). Ostensibly, the fair 7 ITA No. 630/PN/2009 (Assessment Year: 2004-05) Shri Rajendra Narayan Lavate, market value of entire gross area of 42100 sq. mtrs. is to be considered to ascertain cost of acquisition for the purpose of computing capital gains on the sale of net plotted area. Accordingly, the rate of Rs.344.28 per sq.mtr. considered by the assessee and which has been accepted by the Assessing Officer, does not require any interference. Quite clearly the fair market value of the gross area of land inclusive of construction, etc. as on 01/04/1981 is Rs.75,14,715/- and if the same is applied to compute cost of acquisition of the net plotted area / saleable area, the rate would be Rs.344.28 per sq.mtr. Therefore, in our view, having regard to the facts and material on record the cost of acquisition as on 01/04/1981 adopted by the assessee for determination of capital gains cannot be considered as erroneous so as to be prejudicial to the interest of the Revenue within the meaning of Section 263 of the Act. Thus, the order of the Commissioner is set aside and that of the Assessing Officer dated 25/07/2006 is restored qua the issue relating to the determination of long term capital gain on sale of plots of land.
9. In the result, the appeal of the assessee is allowed.
Decision pronounced in the open Court on 25 th day of May, 2012.
Sd/- Sd/-
(I C SUDHIR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated 25 th May, 2012
Ashwini
Copy to:-
1) Shri Rajendra N Lavate, Nashik
2) ITO Wd 1(4) Nashik
3) The CIT-I, Nashik
4) CIT Concerned
5) DR, "A" Bench, I.T.A.T., Pune.
6) Guard File
True copy By Order
Sr. PS, ITAT Pune