Income Tax Appellate Tribunal - Bangalore
Smt. Mizar Anita Pal, Mangalore vs Assessee on 8 August, 2012
IN THE INCOME TAX APPELLATE TRIBNAL
BANGALORE BENCH 'B', BANGALORE
BEFORE SHRI N.BARATHVAJA SANKAR, VICE PRESIDENT
AND
SHRI N.V.VASUDEVAN, JUDICIAL MEMBER
ITA Nos.198 & 199(B)/2011
(Assessment years: 2007-08)
Smt. Mizar Anita Pai & The Asst.DIT,
Smt. Mizar Ashalatha Pai (Intl. Taxation)
D.No.P-II-44,C/o Mizar Govinda, Mangalore
Pai & Sons, Port Road, Bunder,
Mangalore-575 011.
PAN No.AJMPP 0282C
PAN No.AJMPP 0339G Vs
Appellant Respondent
Assessee by : S. Venkatesan, CA
Revenue by : Smt. Susan Thomas Jose, JCIT(DR)
Date of hearing : 08-08-2012
Date of pronouncement : 31-08-2012
2 ITA Nos.198 & 199(B)/2011
ORDER
PER SHRI N.V.VASUDEVAN, JM:
These are appeals by the two assessee's namely Smt. Mizar Anitha Pai & Smt Mizar Ashalatha Pai, against two orders both dated 29-11-2010 of CIT(A)-IV, Bangalore, relating to assessment years:
2007-08.
2. The facts and circumstances under which both these appeals have been filed and the issue involved in both the appeals are identical. Therefore, we deem it convenient to pass a common order.
3. There was a partition of the HUF of Mizar Annappa Pai, as per Court decree O.S.No.92/98 dated 22-03-2003, before the Second Addl. Civil Judge (Sr. Division) Mangalore. As per the Court decree the HUF status was severed with effect from 22-03-2003 and the property owned by the HUF was divided in equal shares among the following 4 members to be held as co-owners namely;-
a) Mizar Annappa Pai- Karta
b) Mrs Mizar Ashalatha Pai (Wife)
c) Mrs Mizar Anita Pai (Daughter)
d) Mr. Mizar Ajith Pai (Son) During the previous year the aforesaid co-owners sold the following properties;
i) Property at Kankanady 'B' Village bearing survey no.6/5A1P1, 26/5A1P2, 25/5A3, 70/1B measuring 2.90 3 ITA Nos.198 & 199(B)/2011 acres. This will be herein after referred to as the First property.
ii) Property at Kankanady 'B' village in survey no.27/3 measuring 0.46 acre. This will be herein after referred to as the Second property.
iii) Property at former Casba Bazar Village, Central Ward, bearing survey no.797/1 measuring 3.85 cents. This will hereinafter be referred to as "the Third Property".
4. The first property was sold for a sale consideration of Rs.1,71,12,500/-. The first property apart from land area also had a building with a plinth area of 11,925 sq.ft which had been built in the year 1956. The assessee Smt. Mizar Anita Pai, computed capital gains on sale of her 1/4th share of right, title and interest over the first property as follows;
Date of transfer: 20th Oct. 06 Sale consideration (1,71,12,500/4) Rs.42,78,122 Less: Indexed cost of fair market value as on 01-04-1981: Rs.46,09,691 Capital gains (-) Rs. 3,31,569 The fair market value as on 01-04-1981 was adopted at Rs.11,000/- per cent in respect of the land and Rs.3,57,750/- in respect of the building built on the land in 1956 and Rs.5,000/- for the common well in the property. These values adopted by the assessee are based on the valuation report of a registered valuer, Mr. Satish Rao Iddya. Therefore, the total value of the property was computed as under;
4 ITA Nos.198 & 199(B)/2011
Value of land as on 01-04-1981 290 cents x 11,000 Rs.31,90,000
Value of building as on 01-04-1981 Rs. 3,57,750
Value of the common well as n 01-04-1981 Rs. 5,000
Total value of the property as on 01-04-1981 Rs.35,52,750
1/4th share of the assessee Rs. 8,88,187
The dispute in these two appeals is with regard to the adoption of fair market value of the three properties as on 01-04-1991. As far as the first property is concerned, the FMV as on 1.4.1991 was adopted by the Assessee at Rs.11,000/- per cent by the assessee in her computation of capital gains.
5. Under the provisions of sec.55(2)(b)(i) of the IT Act, where the capital asset became the property of the assessee before 01-04-1981. The assessee has an option to adopt the FMV of the capital asset as on 01-04-1981 as cost of acquisition of the capital asset. Similar dispute exists in the case of other co-owners also and also in the case of Smt. Mizar Ashalatha Pai. According to the AO, the value of the land as on 01-04-19881 adopted at Rs.11,000/- per cent by the registered valuer was not done on the basis of comparable sale instances and had been done only on the basis of local enquiries. According to the AO, the better way of determining the FMV of the property as on 01-04-1081 was to refer to comparable sale instances in the same area. The AO accordingly, procured comparable sale instances from the Sub- registrar's office. The following were the comparable sale instances obtained by the AO.
5 ITA Nos.198 & 199(B)/2011
Survey No. Land extent Building on Total value of Date of
the land, any transaction transaction
26/13 5 cents Rs.6,000 05-01-1981
33/2B & 5 ½ cents 398.12 Sq.ft Rs.8,000 06-01-1981
2A2B & (five& one half
D.No.7-27 cents)
76/6B1B & 12 cents 42 Sq.ft Rs.25,000 02-03-1981
D.No.6-8-3
The AO found that the difference in the FMV as on 01-04-1981 in the comparable instances obtained by him and the value adopted by the assessee showed substantial variation. The AO therefore, summoned Shri. Satish Rao Iddya, the registered valuer, based on whose report the assessee had adopted the FMV as on 01-04-1981 of the land at Rs.11,000/-per cent. Shri Iddya, was questioned with regard to the local enquiries that he claimed to have made in arriving at the FMV as on 01-04-1981. He could not give the names and address of the persons whom he contacted in this regard. The AO therefore, concluded that there is no credibility in the claim of Shri Iddya, that he has estimated the FMV on the basis of local enquiries. He could not also explain as to why he did not try to get comparable sale instances for arriving at the FMV. Shri Iddya, was also shown the comparable sale instances which were obtained by the AO from the Sub-Registrar's office. As far as the property located at survey no.26/13, is concerned, he accepted that it was in the same locality, where the property of the assessee was also located. He however, expressed his opinion that the value as reflected in the comparable sale instances obtained by the AO did not reflect the actual market value.
6 ITA Nos.198 & 199(B)/20116. The assessee was confronted with all the above facts and in their reply the Assessees took a stand that the registered valuer, is an expert and his valuation has to be accepted. The AO however, held that the registered valuer's estimation of the FMV as on 01-04-1981 cannot be accepted. Thereafter, the AO has discussed the comparable sale instances obtained by him from the Registrar's office and has finally come to the conclusion that the comparable sale instances and the value's reflected therein were a true indicator of the FMV as on 01-04-1981 of the assessee's property. The assessee submitted before the AO that the Mangalore Urban Development Authority (MUDA) had given a letter to the assessee in the year 1987 in which they have charged Rs.10,000/- per cent in Kankanady Village, in a place named Nethravathi Nagar. The AO on perusal of the documents was of the view that the sale in question was in the year 1987 six years from 01-04-1981. Apart from this, the AO was also of the view that the MUDA property were closer to the city and was a planned layout development with facilities like roads, drainage, electricity, play area etc. He was also of the view that the cost in question also includes development cost and therefore, the land cost would at best can be only 60% and therefore, he was of the view that Rs.6,000/- as land cost in 1987 could be appropriate. The AO thereafter made the following observations;
" a) The valuation report submitted by the assessee cannot be relied upon in view of the deficiencies pointed out in earlier part of this order.
b) The sale instances procured from the Sub-registrar's office show that the maximum price for a land in that area is 7 ITA Nos.198 & 199(B)/2011 around at Rs.2,000/- per cent. No other comparable sale instances have been produced by the assessee to show a higher value.
c) The assessee's property as on 01-04-1981 was occupied by tenant thereby resulting in reduction of fair market value.
d) The property is a mulgeni property and the mulgar rights are vested with another and the multi rights are required to be purchased separately from the mulgar.
e) The property as on 01-04-1981 was under the Kankanady Panchayat".
7. With regard to the valuation of the building, the AO made the following observations;
" In respect of the building, the cost of construction has been taken at Rs.60 per sq.ft. as in 1956 and from that depreciation has been worked at 2% per year. In the case of one of the sale instances (I property) procure from Sub-registrar, there is a sale of 398 sq.ft building with stone foundation, mud walls and tiled roof, by taking the cost of the building as on 01-04-1981 at Rs.6,000/-, thus the cost as on 01-04-1981 come to around Rs.15 per sq.ft. The year of construction is stated to be 1961 and therefore working backwards with appreciation of 2% per year, the cost of construction as on 1961 comes to Rs.25 per sq.ft and as on 1956 come to Rs.28 per sq.ft as against Rs.60 per sq.ft claimed by the assessee. There are some minor differences in respect of the structure of the building but even considering these it can be seen that the regd. Valuer has adopted a higher value for the cot of construction".
8. Finally, the AO computed the LTCG on the sale of the first property as follows;
"Land cost: In view of the detailed discussion made above, the assessee's estimation of cost of Rs.11,000/- per cent cannot be accepted. Therefore, considering all the aspects mentioned above including the cost of land as per the sale instances (Max. rate Rs.2000/- per cent) and the cot of land sold by MUDA 8 ITA Nos.198 & 199(B)/2011 (estimated at Rs.4000/- per cent), it is hereby decided that Rs.3,500/- per cent should be the fair market value to be adopted as on 01-04-1981 in respect of the assessee's property measuring 2.90 acres.
Building cost: In view of the discussion made in the preceding paragraphs, the cost of construction of the building in 1956 is adopted at Rs.40/- per sq.ft as against Rs.60/- per sq.ft and from here working at a depreciation of 2% per year, the market value of the building comes to Rs.20 sq.ft as on 01-04-1981. IN view of the same, the fair market value of the building as on 01- 04-1981 is adopted at Rs.20/- per sq.ft.
In view of the above capital gains on this transaction is reworked out as under;
Date of transfer: 20th Oct.2006 Sale consideration (1,71,12,500/4) Rs.42,78,122 Less: Indexed cost of FMV as on 01-04-1981 Land cost (Rs.3,500 x 290 cent x 519/100)+4 Rs.13,16,962 Bldg.cost (Rs.20x11,925 Sq.ftx519/100)+4 Rs. 3,09,454 Well cost: (Rs.5000x519/100)+4 Rs. 6,487 Rs.16,32,903 Long term capital gains Rs.26,45,219
9. As far as the second property is concerned, the assessee had sold it for a consideration of Rs.29,87,500/- and computed her share of LTCG as follows:
Date of Transfer: 20th Oct.2006 Sale consideration (29,87,500/4) Rs.7,46,875 Less: acquisition details: indexed cost of fair market value as on01-04-1981:
1,15,000x519/100 Rs. 5,96,850
Long term capital gains Rs.1,50,025
9 ITA Nos.198 & 199(B)/2011
The AO did not accept the FMV of the land at Rs.10,000/- as on 01- 04-1981 for almost identical reasons discussed while dealing with the first property, the AO computed LTCG adopting Rs. 3000/- per cent as the FMV of the land as n 01-04-1981 and computed the LTCG on the sale of the second property as follows;
Date of transfer: 20th Oct. 2006 Sale consideration (29,87,500/4) Rs. 7,46,875 Less: acquisition details: indexed cost of fair market value as on01/04/1981 (Rs.3000x46x519/100) Rs. 1,79,055 Long term capital gains Rs. 5,67,820
10. As far as the third property is concerned, the same was sold for a consideration of Rs.3,65,750/-. The assessee declared her share of LTCG as follows;
Date of transfer: 14th Feb.2007 Sale consideration(3,650,750/4) Rs.91,438 Les: acquisition details: Indexed cost of fair market value as on 01/04/1981 (Rs.14,000x3.85 cent x 519/100) + 4 Rs.69,935 Long term capital gains Rs.21,503 The AO obtained the comparable sale instances in Kasba Bazaar village pertaining to AY: 1981 and obtained the following details from the Sub-registrar's office.
T.S.No R.S.No Land extent Bldg. on the Total value D/o
land, any of transaction
transaction
153/1 783/1 2 3/4 cents 625 sq.ft Rs.35,000 10.07.1981
bldg.
constructed
in 1965
10 ITA Nos.198 & 199(B)/2011
On the basis of the above, the AO came to the conclusion that the cost of the land would be Rs.4,477/- per cent.
11. The assessee cited comparable sale instances of property in Kasba Bazaar village on 10-07-1981 whereby the value of land value was adopted at Rs.35,000/- per cent. When the said documents was filed before the AO, the AO was of the view that the said property was a commercial property in the middle of the business centre of Mangalore i.e. Hampankatta. He also expressed the view that the assessee's property was on the 16 ft road and therefore, the rate of Rs.14,000/- per cent adopted by the Regd. valuer cannot be accepted.
12. Thereafter, the AO computed the LTCG on the third property as follows;
" Land Cost: In view of above mention ed aspects including the cost of land as per the sale instance and taking into account the cost difference between a highly valuable commercial property and a residential property located in a slightly interior area, it is hereby decided that Rs.7,000 per cent should be a fair estimate of the fair market value to be adopted as on 01-04-1981 in respect of the assessee's property measuring 3.85 cents. In view of the above, the capital gains on this particular transaction is worked out as under;
Date of transfer: 14th Feb.2007 Sale consideration (33,65,750/4) Rs. 91,438 Less: acquisition details; indexed cost of 11 ITA Nos.198 & 199(B)/2011 fair market value as on 01-04-1981 (Rs.7,000 x 3.85 cents x 519/100) +4 Rs. 34,968 Long term capital gains Rs.56,470
13. Aggrieved by the action of the AO in computing the capital gains in the manner as aforesaid the assessee preferred the appeal before the CIT(A). The CIT(A) after considering the AO's order was of the view that the AO was magnanimous to adopt to Rs.3500/- per cent for the first property whereas in the documentary evidence suggested that the FMV as on 01-04-1981 was even lesser. The CIT(A) however, confirmed the findings of the AO in this regard. As far as the second property is concerned, the CIT(A) upheld the order of the AO. As far as the third property is concerned, the CIT(A) upheld the order of the AO.
14. Aggrieved by the order of the CIT(A), the assessee's have preferred the present appeal before the Tribunal.
15. Before us, the learned counsel for the assessee filed the following chart;-
Sl.No Description of the Total sale Market Market Market
. property price value value value
adopted adopted derived by
as on by the AO cost index
1/4/1981 as on
by the 1/4/1981
appellant
1 Property 1,71,12,500 35,52,750 12,58,500 32,97,206
No.26/6A1P1,Kankan (Note No.1)
ady Vill. Mangalore
Tq.
12 ITA Nos.198 & 199(B)/2011
2 Property in RS 29,87,500 4,60,000 1,38,000 5,75,626
No.27/3, Kankanady (Note No.2)
Vill. Mangalore Tq.
3 Property in RS 3,65,750 53,900 26,950 70,472
No.797/1Kasba (Note No.3)
Bazaar Vill.
Mangalore q.
Note No.1 1,71,12,500 x 100 = 32,97,206 = 8,24,301
519
Note No.2: 29,87,500 x 100 = 5,75,626 = 1,43,906
519
Note No.3: 3,65,750 x 100 = 70,472 = 17,618
519
Drawing our attention to the aforesaid chart, learned counsel submitted that the present value of the property after applying the cost index and working backwards would be the best method of determining the FMV as on 01-04-1981 and the calculation as made by the assessee, as above should be accepted and the addition made by AO and confirmed by CIT(A) should be deleted.
16. Our attention was drawn to the decision of the Hon'ble Karnataka High Court in the case of Smt. S. Neelaveni Vs CWT, Karnataka (125 ITR 665) wherein the Hon'ble Karnataka High Court has expressed the view, that the best evidence in regard to the market value would be the value of the property itself if it has been the subject of purchase near about the valuation date. According to the learned counsel for the assessee, the sale value of the properties were therefore, adopted by him and backward working of the value done. Further, reliance was also placed on the decision of the Hon'ble Gujarat High Court in the case of Shantadevi Gaekwad Vs DCIT 13 ITA Nos.198 & 199(B)/2011 (2012) 72 DTR Guj. 241, wherein the Hon'ble Guj. High Court held as follows:
"Capital gains- cost of acquisition - computation of fair market value as on 1st April, 1974 by reverse indexation from the sale price in 1991 vis-a vis valuation for WT purposes as on 31st March, 1989 - Revenue having accepted the valuation of the selfsame jewellery give by the assessee as on 1st March, 1989, as correct valuation for the purposes of WT Act, the same valuation has to be treated to be a reliable base for arriving at the cost of acquisition of the jewellery by the process of reverse indexation for the purpose of computing the capital gain - revenue having accepted the said valuation for the purpose of WT Act is precluded from disputing the correctness thereof for the purpose of assessment of capital gains as the factor of 'fair market value' is decisive for the purpose of both WT Act as well as for ascertaining the cost of acquisition under the IT Act- date 31st March, 1989 being nearer to 1st April, 1974, than December, 1991, there was no jurisdiction for applying reverse indexation from a farther date- Moreover, the full value of consideration received on transfer of jewellery belonging to a royal family as in this case is generally higher than the market value- Thus, it would be unsafe to apply the process of reverse indexation on the basis of actual sale price in December, 1991 for the purpose of ascertaining the market value of said items as on 1st April, 1974".
Reliance was also placed on the decision of the Third Member Bench, Agra ITAT in the case of Jahanganj Cold Storage Vs ACIT (2010)133 TTJ 278 wherein it was held as follows;
" Capital gains - Cost of acquisition - fair market value as on 1st April, 1981assessee sold its factory which was set up during 1968-69 - For computing the capital gains, it estimated the fair market value of the land as on 1st April, 1981 @ Rs.20 per sq. metr. By applying the cost inflation index to the sale value of land for stamp duty purposes in the reverse order. The AO rejected the same and estimated 14 ITA Nos.198 & 199(B)/2011 the fair market value of the land @ Rs.4 per sq.mtr. which was the prevailing fair market value of agricultural land as on 1st April, 1981. Not justified land in question was used for commercial purposes and was not an agricultural land. Market rate of agricultural land cannot be made the basis for ascertaining the fair market value of assessee's land as on 1st April, 1981. A comparable instance has to be of similar nature of land and similar to the time of the transaction -use of the land makes a lot of difference in the value of land rates of commercial land are much higher than that of agricultural land. Instances taken by the AO cannot be regarded t be the comparable instance for the purpose of estimating the fair market value of the land. Therefore, the fair market value of the land as estimated by the assessee @Rs.20 per sq.metr. as sustainable".
17. The learned DR on the other hand, placed reliance on the order of the AO and the CIT(A). In particular, the learned DR drew our attention to the decision of the Hon'ble Karnataka High Court in the case of Smt. S. Neelaveni, (supra) wherein the Hon'ble Court has expressed the view that the next best evidence would be the value fetched for a similar property in the vicinity at about the same time. According to her, the AO has followed the method as advocated in the decision of The Hon'ble Karnataka High Court and therefore, the same should e accepted.
18. We have given a very careful consideration to the rival submissions. As far as the decision of the Hon'ble Karnataka High Court in the case of Smt.S. Neelaveni, (supra) is concerned, it was a case of determination value of self acquired house property. Observations rendered therein have to be understood in the context 15 ITA Nos.198 & 199(B)/2011 of facts and circumstances in that case. The question was whether the rental method was applicable for valuing residential house. The Hon'ble High Court held that rental method will be valid and relevant in determining the value of self occupied residential house. The observations relied upon by the learned counsel for the assessee have been made in the context of the above decision of the Hon'ble High Court. It is not an authority for the proposition that FMV as on 01- 04-1981 can be determined by admitting the sale consideration received on transfer and applying the cost index and working backwards and arriving at the value. As far as the decision of the Hon'ble Gujarat High Court in the case of Shantadevi Gaekwad Vs DCIT (supra) is concerned, the process of reverse indexation was accepted by the Hon'ble Gujarat High Court in the matter of valuation of jewellery where the valuation of the very same jewellery was available in the wealth tax assessment as on 31-03-1989. The Hon'ble Court held that the revenue had accepted the value of jewellery given by the assessee for wealth tax purposes as on 31-03- 1989. The aforesaid decision in our view, therefore, cannot be taken as laying down any general purpose as canvassed by the learned counsel for the assessee. The decision in the case of Jahanganj Cold Storage, supra was a case where the assessee admitted the FMV as on 01-04-1981 by applying the cost inflation index to the sale value of land for a stamp duty purpose in the reverse order. The AO further estimated the FMV on the basis of value of agricultural land whereas the property that was sold was a commercial property. In these circumstances, it was held by the Tribunal that basis adopted 16 ITA Nos.198 & 199(B)/2011 by the assessee has to be accepted. This decision also cannot be taken as laying down any proposition that FMV as on 01-04-1981 can be adopted by applying the cost inflation index to the sale value of land for stamp duty in the reverse order.
19. We have duly considered the several aspects of the valuation as brought out by the AO in the order of assessment and are of the view that the prima-facie the conclusion of the AO are justified. We are of the view that in the matter of valuation of FMV as on 01-04-1981 there is always an element of estimation and guess work as the data available cannot be comparable with the property in question in all aspects. We are also keeping in mind that even the AO does not dispute with the fact that the MUDA has sold house sites in the vicinity of the property in the year 1987 at Rs.10,000/- per cent. In the matter of valuation FMV as on 01-04-1981, the revenue always takes a stand that the same is less than what is adopted by the assessee, because doing so, will increase the quantum of capital gains. The assessee on the other hand, will content with the FMV as on 01-04-1981 is higher, because that will result in capital gains being computed at a lower figure. Keeping in mind that valuation can never be exact, we would be much more magnanimous than the AO and fix the value of FMV of the property as on 01-04-1981 at Rs.5,000/- per cent for the first and second property.
20. As far as he third property is concerned namely Kasba Bazaar property. There is evidence available that the value of the land was 17 ITA Nos.198 & 199(B)/2011 adopted as on 10-07-1981 at Rs.14,000/- per cent. The assessee has also adopted the same value while computing the capital gains. The reasons assigned by the AO for rejecting the comparable sale instances are not justified. The valuation as declared by the assessee for this property is directed to be accepted. Thus, the appeals are partly allowed.
21. In the result, the appeals filed by the assessee are partly allowed.
Order pronounced in the open court on the 31-08-2012.
Sd/- Sd/-
(N.BARATHVAJA SANKAR) (N.V.VASUDEVAN)
VICE PRESIDENT JUDICIAL MEMBER
Bangalore:
D a t e d : 31-08-2012.
am*/ds
Copy to :
1 Appellant
2 Respondent
3 CIT(A)-I, Bangalore.
4 CIT
5 DR, ITAT, Bangalore.
6 Guard
By Order
Senior Private Secretary,
ITAT, Bangalore