Income Tax Appellate Tribunal - Hyderabad
Vittal Rao Natarajan Conjeevaran Rep By ... vs Income Tax Officer, Ward-10(5), ... on 23 March, 2021
ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
(Through Video Conferencing)
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri A. Mohan Alankamony, Accountant Member
ITA No.299/Hyd/2019
Assessment Year: 2013-14
Sri Vittal Rao Natarajan Vs. Income Tax Officer
Conjeevaran, Rep. by L/R Ward 10(5)
Smt. C. Mangamma, Hyderabad
RR Distt.
PAN:ADRPC3127G
(Appellant) (Respondent)
Assessee by: Sri V.Srinivas
Revenue by: Sri Sunil Kumar Pandey,DR
Date of hearing: 11/03/2021
Date of pronouncement: 22/03/2021
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is assessee's appeal for the A.Y 2013-14 against the order of the CIT (A)-6,Hyderabad, dated 23.10.2018.
2. Brief facts of the case are that the assessee is an individual having income from house property, capital gains and other sources. The AO received information that the assessee along with his brother had entered into a development agreement cum GPA vide document No.1542/2012, dated 30.07.2012 entrusting the property bearing No.1-8-220 to 229/9/1, Plot No.6 forming part of old bungalow No.144, admeasuring 1180 sq.yards situated at Natarajan Colony, Secunderabad to M/s LB's Ganesh Constructions, Marredpally, Secunderabad after dismantling the Page 1 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran existing building at the owner's cost for the development of a residential complex and that the assessee and his brother was having equal share in the property.
3. The AO observed that in view of the judgment of the Hon'ble High Court of A.P in the case of Sri Potla Nageswara Rao vs. DCIT in ITTA No.245 of 2014, the capital gain arising out of a Development Agreement is taxable in the year of entering into the Development Agreement and handing over of possession. Since the assessee did not offer capital gains arising from the development agreement to tax, AO was of the opinion that there is a reason to believe that the income chargeable to tax has escaped assessment. Accordingly, the assessment was reopened by issuance of a notice u/s 148 of the Act on 14.09.2016. In response to the same, the assessee filed his reply on 1.9.2016, Thereafter, the assessee expired on 2.1.2017 and his daughter Ms. Mangamma was brought on record as his legal heir. During the assessment proceedings, the legal heir filed a letter dated 11.12.2017 stating as under:
"7.1 With reference to the subjected cited above, I would like to state that as per the information available with me, my father Late Sri C.N. Vittal Rao & his brother Sri C.N. Ramesh, were the joint owners of the property bearing No.6 (New Municipal No.1-8-220 to 229) at Natarajan Colony, P.G. Secunderabad, which was given on development to M/s. L.B.'s Ganesh Constructions vide Development Agreement cum GPA dated 30.07.2012 bearing Doc No.1542/2012. However, my father apparently did not admit capital gains in his individual return for the A.Y 2013-14 since the property belongs to his HUF, and further the construction permission was not obtained nor the flats were constructed and allotted by the developer during the year. The permission for construction was obtained only in Dec 2013. Hence, the same is not chargeable to Capital gains tax in his individual status for the year under consideration.
Originally, the above property was part-of the joint family property comprising of my Grandfather Late Sri C.P. Natarajan, Grandmother Late Smt. C. Bhagvalaxmi, father Sri C.V. Vittal Rao, my uncle Sri C.N. Ramesh and two aunts as its members. The joint family properties were partitioned in the year 1973-74 vide Memorandum of Past Partition and family arrangement dt. 17-03-1974 which has also been recognized under section 171 of the I.T. Act, 1961 vide order dt.29-07-1975. I am enclosing herewith copy of the Memorandum of Past Partition and family arrangement along with order u/s 171 of the IT Act for your ready reference. In the said Partition, the property under consideration has been allotted to all the three male members of the joint family i.e., my grandfather, father and uncle in 3 Page 2 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran equal shares, Later, up on demise of my Grandfather Sri CP. Natarajan in the year 1982, his 1/3rd share devolved on my father and uncle equally under Hindu Succession Act 1956. Thus my father became 50% shareholder in the property, partly through partition of the Joint family and partly by way of succession from my Grandfather. Now, I have been legally advised that the property under consideration is assessable partly in the status of HUF and partly in the status of individual as under; .
a) 1/3rd share - In the status-of HUF having been allotted to him in the partition in his capacity as Coparcener of the Jt. Family
b) 1/6th share In his individual status as legal heir of my Grandfather Sri C.P. Natarajan However, as explained above, the capital gains is not chargeable to tax for the year under consideration since neither the permission for construction was obtained nor. the construction was commenced by the developer during the year. Further, while computing the capital gains indexed cost of land and indexed cost of old residential building that was existing at the time of giving the property on development is allowable. The old residential complex comprising of Ground plus 3 upper floors was constructed in the year 1982 after obtaining permission from the then Municipal Corporation of Hyderabad vide Permit No. 128/41/E of 1981-82. A copy of the old permission plan is enclosed herewith for your perusal. The said building was dismantled at the time of giving the property on development. Therefore, the indexed value of the building is allowable as deduction in computation of capital gains. Further, deduction u/s 54 of IT Act, 1961, is allowable in respect of residential flats being allotted by the developer in terms of Development Agreement, in exchange of old residential property consequent to which there will be no capital gains on this count also.
Kindly complete the assessment as per the return filed on 23-07-2013 by treating the same as one filed in response to notice u/s 148 of LT. Act, 1961, since no portion of Capital gains is assessable to Income Tax in the year under consideration for the reasons stated above".
4. The AO however, did not accept the claim of the assessee that the property is belonging to the HUF as he noticed from the encumbrance certificate that the assessee's name is not figuring in HUF status but was figuring in individual status and also PAN card was in individual status and not in HUF status. The assessee had also claimed that the permission for construction was granted only in December, 2013 and therefore, the capital gain was not chargeable to tax in A.Y 2013-14. The AO did not accept this contention also by following the Hon'ble jurisdictional High Court decision in the case of Sri Potla Nageswara Rao vs. DCIT (Supra). Thereafter, the AO considered the valuation report furnished by the assessee in support of the cost of the land and old building and observed that the rates Page 3 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran adopted by the Valuer for land and old building are very exorbitant. The Valuer adopted rate for land and building at Rs.120/- per sq. yd and Rs.147 per sq.ft respectively for the year 1981-82 as against the rate adopted by the SRO, Secunderabad at Rs.40 per sq. yd and Rs.100 per sq. ft for the year 1981-82 respectively. Therefore, he computed the assessee's share of capital gain and thereafter allowed deduction u/s 54 and arrived at taxable income of Rs.34,35,628/-. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO with regard to the computation of taxable capital gain. Aggrieved, the assessee is in second appeal before the Tribunal by raising the following grounds of appeal:
"1) On the facts and in the circumstances of the case, the order of CIT(A) is erroneous and bad in law to the extent it is prejudicial to the assessee.
2) On the facts and in the circumstances of the case, the learned C1T(A) erred in assessing the capital gains in respect of the property given on development in the year under consideration instead of assessing the same in the year of construction permission.
3) On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the value of land and building at Rs. 9,16,083/- as on 01-04-1981 as against Rs.
13,41,000/- valued by the registered valuer.
4) The learned Assessing Officer erred in adopting the value of builtup area allotted by the developer at Rs. 630/- per Sq. Ft. instead of valuing the same based on cost to the builder.
5) Any other grounds your Appellant may urge at the time of hearing".
1.7. The ground no.2 with respect to the year of assessability and ground 4 are not pressed".
5. At the time of hearing, the learned Counsel for the assessee submitted that Grounds 1 & 5 are general nature and Ground No.2 with regard to the year of assessability and ground No.4 with regard to the value of built up area allotted by the builder are not pressed by the assessee. Therefore, ground No.2 & Page 4 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran 4 are rejected as not pressed. The only ground to be considered now is Ground No.3.
6. The learned Counsel for the assessee reiterated the submissions made by the assessee before the authorities below, while the learned DR supported the orders of the authorities below.
7. Having regard to the rival contentions and the material on record, we find that the assessee has submitted registered valuer's report, whereas the AO has adopted the SRO value for arriving at the value of land and building as on 1.4.1981. It is settled law that where an assessee disputes the SRO value, and the AO is not satisfied with the report submitted by the assessee, in such circumstances, the AO ought to have referred the matter to the Valuation Officer u/s 55A of the I.T. Act. The assessee had relied upon various case laws in support of this contention. In the case of Shri Barjinder Singh Bhatti vs. ITO in ITA No.1101/CHD/2014, the Coordinate Bench at Chandigarh held as under:
"9. We have considered rival submissions and do not subscribe to the views of the authorities below. The assessee filed report of Registered Valuer in support of the market value as on 01.04.1981. The Assessing Officer was not having any evidence or material before him to contradict the report of the Registered Valuer. The Assessing Officer, if was not satisfied with the report of the Registered Valuer, could have made a reference to the Departmental Valuation Officer under section 55A of the Act for the purpose of computing income from capital gains. The Assessing Officer has thus, not acted in accordance with law and without any basis or evidence in his possession, did not accept report of the Registered Valuer. In the absence of any material on record, Assessing Officer should not have made his own calculation for the purpose of computing the capital gains. The orders of the authorities below, thus, cannot be sustained in law. We, accordingly, set aside the orders of authorities below and direct Assessing Officer to accept valuation reported by the Page 5 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran assessee as per report of the Registered Valuer as on 01.04.1981 and accept the computation filed by the assessee".
8. In the case of Ajanta Tubes Ltd in ITA No.4432/Del/2014, vide order dated 5.9.2019, the Coordinate Bench at New Delhi has held as under:
"15. We have carefully considered the rival contention and perused the orders of the lower authorities. Brief facts of the case are that the business of the appellant Company was to manufacture of steel and P.V.C. pipes at its works at Ghaziabad (UP). The appellant company filed its return of income for the assessment year 2008-2009 declaring the total income at Rs. 12,09,46,$10. The appellant company sold part of the immovable property consisting of land and building on 12th March, 2Q08 for Rs. 18,37,00,000 and Rs.9,09,45,000, respectively. The appellant in its return of income had shown Rs.11,77,91,426 as Long-Term Capital Gain from sale of land and 'Nil as Short-Term-Capital Gain from sale of building/shed. The notice under section 148/143(3) of the Income Tax Act, 1961 dated 29th December, 2011 was served upon the appellant. The assessment was completed by the Assistant Commissioner of Income-Tax on 30.Q3.2012 under section 143(3) of the Act at a total income of Rs. 17,90,52,975 after making additions on account of short-term capital gains of Rs.2,33, 77,352 and Rs.3,47,28,818 on account of long term capital gains. The sale deeds in question were for composite sale of land and building (i.e., sale deed did not mention the break-up of consideration for land and building separately) for Rs. '18,31,00,000 and Rs.9,09,45,000. The dispute between the appellant company and the Assessing Officer is three folds; one related to the apportionment of sale price of the two sale deeds between land component and the building and second related to non-consideration of the fair market value (FMV) of land as on 1-4-1981 as per the approved valuer's report and lastly inclusion of stamp duty paid by the appellant as part of sale consideration. The learned CIT - A has dealt with the whole issue as per ground number 4 of the appeal at para number 7 of his order. The only grievance of the learned assessing officer is that that assessee should not have been granted the deduction of the valuation of the land as on 01/04/1981 at INR 9 102600/- wherein the valuer has taken the land at the rate of INR 130/- per square metre. The learned assessing officer has rejected the valuation report stating that it is without any basis. The learned CIT - A has held that assessee has been given an option according to the provisions of section 55 (2) (b) of the income tax act to adopt the fair market value as on 1/4/1981 by submitting the valuation report from an approved valuer to substitute in option to the cost of acquisition of the asset. Therefore, this is a beneficial provision. The learned assessing officer has not put on record any evidence to show that the valuation report obtained by the assessee is devoid of any merit or the Page 6 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran prevailing rate as on that date on 01/04/1981 of the similar property were less than INR 1 30/per square meter. No such evidences have been shown to us or before the learned CIT - A. In view of this, the rejection of the valuation report by the learned assessing officer cannot be accepted. Even otherwise in the grounds of appeal the learned ,AO has raised an issue that taking the valuation of land as per approved valuer's report means that the land purchased in 1993 has not been distinguished for the taxation purposes separately. However, no evidence has been produced before us that the impugned land sold by the assessee is acquired post 1/4/1981. In view of . this ground number 1 of the appeal is dismissed".
9. In the case of ITO vs. Padarti Venkata Rama Chandra Rao, reported in (2016) 74 Taxmann.com 195, vide its decision dated 16.09.2016, the Coordinate Bench at Visakpatnam has held as under:
"9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The first issue that came up for our consideration is cost of acquisition of the property. The assessee has adopted cost of acquisition of the property as on 1.4.1981 based on the certificate of registered valuer. The A.O. has determined cost of acquisition of the property based on the SRO value of the property fixed by the State Government for the purpose of determination of stamp duty. The A.O. was of the opinion that cost of acquisition adopted by the assessee based on the registered valuer certificate is not in accordance with the provisions of section 48 & 49 of the Act. According to the A.O., when asset is acquired by the assessee by way of one of the mode specified uls. 49(1) of the Act, the assessee can either adopt cost to the previous owner or fair market value of the property as on 1.4 .1981. According to the A.O., the fair market value of the property as on 1.4.1981 is as per the SRO value. .
10. It is the contention of the assessee that he has adopted fair market value of the property based on the certificate of the registered valuer. The assessee further contended that the A.O. was not correct in applying SRO value as fair market value of the property, as the SRO value fixed by the State Government is not correct market value of the property. The A.O. was erred in equating with full value of consideration as a result of transfer to the fair market value of the property for the purpose of computation of cost of acquisition. We find force in the argument of the assessee for the reason that the A.O. was erred in adopting SRO value to substitute fair market value of the property for the purpose of computation of cost of acquisition of the property. Section 48 of the Act deals with the mode of computation of income chargeable under the head "capital gains" and in that context full value of consideration Page 7 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran would mean the consideration or price received as a result of the transfer of a capital asset. It is different from fair market value of the property, which phrase is used in section 45(2)of the Act relating to capital gains and section 55(3 )(b) in relation to cost of acquisition.
11. The legislature has expressly drawn a distinction between the two phrases 'full value of consideration' and 'fair market value'. The former would be the price received on transfer of capital asset and the later would be the price of a capital asset would ordinarily petch on sale in open market on the relevant date. In the present case on hand, the assessee has adopted fair market value of the property as on 1.4.1981 as cost of acquisition which is based ort a certificate issued by the registered valuer. The A.O. without assigning any reasons disbelieved registered valuers report and adopted SRO value of the property for the purpose of determination of computation of cost of acquisition, when Act specifically provides powers to the A.O. under the provisions of section 55(2) of the Act, to refer the valuation of the property to the valuation officer, when he is of the opinion that the fair market value of the property adopted by the assessee is higher than the fair market value of the property. The A.O., without exercising the option of referring the matter to the valuation officer, simply adopted SRO value which is fixed in a different context to determine the cost of acquisition of the property. Therefore, we are of the opinion that the A.O. was erred in adopting SRO value to substitute the fair market value adopted by the assessee, which is based on a registered valuer certificate.
12. Now it is pertinent to discuss here the case law relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Karnataka High Court in the case of N. Govindaraju (supra), wherein the Hon'ble High Court under similar circumstances held as under:
"Section 48 of the Act deals with the 'Mode of Computation' of income chargeable under 'Capital gains' and in that context 'full value of the consideration' would mean the consideration or price received as a result of the transfer of a capital asset. It is different from 'fair market value' of the property, which phrase is used in section 45(2) [relating to capital gains] and section 55(2)(b) (relating to cost of acquisition). (para 44) The legislature has expressly drawn a distinction between the two phrases: 'full value of the consideration' and 'fair market value. The former would be the price received on transfer of a capital asset and the latter would be the price that a capital asset would ordinarily fetch on sale in open market on the relevant date. (para 47) Assessee had provided the reasons for determining Rs. 225/- per sq. ft. as the fair market value of the property by producing the relevant material, including valuation report of a registered valuer, which all have been ignored while arriving at the price of Rs 84/- per sq. ft. The Assessing Officer assessed the value of the property as on 1.4.1981 on the basis of sale deeds of Page 8 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran some nearby properties registered for such price in the year 1981 and thus, arrived at that figure. In our opinion, the same cannot be the proper mode of arriving ~t the 'fair market value' of the property in question as on 1.4.1981, for the purpose of determining 'Capital gains' under the Act. (para 48) Tribunal was not justified in arriving at the fair market value of the property in question as on 1.4.1981 without taking into consideration the material on record, including the valuation report filed by the assessee. The matter thus requires to be remanded to the Assessing Officer for determination of the fair market value of the property in question in accordance with law and in the light of the observations made hereinabove. (para 51)"
13. The CIT (A) after considering the relevant details has rightly directed the A.O. to substitute value adopted by the assessee as fair market value of the property as on 1.4.1981 to compute cost of acquisition. We do not find any reasons to interfere with the CIT (A) order. Hence, we inclined to upheld CIT (A) order and reject ground raised by the revenue.
14. The next issue that came up for our consideration is benefit of indexation. The facts relating to the issue are that the assessee has sold a property which he had acquired by way of partition deed in the year 2007-08. The assessee claims that he got right over the property by way of partition deed, which was acquired by his father prior to 1.4.1981. The assessee further submitted that as per the provisions of section 49(1) of the Act, when he got right over the asset by way of any modes specified u/s. 49( I) of e Act, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it as increased by the cost of any improvement of the asset incurred or born by the previous owner or the assessee as the case may be. Since, he got right over property by way of inheritance or succession, as per the provisions of the Act, he has adopted fair market value of the property as on 1.4.1981 and applied indexation benefit from the date the asset was first held by the previous owner and computed long term capital gain. The A.C. was of the opinion that when assessee is owner of the property by way of anyone of the mode specified u/s. 49(1) of the Act, then the indexation benefit should be allowed from the date the asset first held by the assessee. The A.O. further was of the opinion that the assessee has got right over property by way of inheritance/succession through 'a partition deed dated 28.5.2007 which pertains to the assessment year 2008-09 and accordingly, the assessee is eligible to claim benefit of indexation from the assessment year 2008-09 onwards.
15. We do not find any merits in the findings of the A.O. for the reason that when the asset was acquired under any circumstances given by section 49( 1) of the Act, for the purpose of reckoning the period of holding, the period of holding of asset by the previous owner is considered to compute the period of holding whether it is long term or short Page 9 of 10 ITA No 299 of 2019 Vittal Rao Natarajan Conjeevaran term. In a similar way, when the assessee got right over property by any of the modes specified u/s. 49(1) of the Act, obviously the assessee is eligible for the benefit of indexation from the period the asset was first held by the previous owner, but not the period from which the asset was held by the assessee. This view was upheld by the Hon'ble Bombay High Court, in the case of Manjula J Shah (supra), wherein the Hon'ble High Court held that indexed cost of acquisition has to be computed with reference to year in which previous owner first held asset and not year in which the assessee became owner of asset. A similar view is given by the Hon'ble High Court of Delhi, in the case of Arun Shungloo Trust v. CIT [2012] 205 Taxman 456/18 taxmann.com 261 and also the Hon'ble High Court of Gujarat, in the case of CIT v. Gautam Manubhai Amin [2013] 218 Taxman 319/38 taxmann.com 42.
10. Respectfully following the above decisions, we remand the issue to the file of the AO with a direction to refer the valuation of the property to the Valuation Officer and after obtaining his report, the AO shall recompute the taxable capital gain. Needless to mention that the assessee shall be given a fair opportunity of hearing.
11. In the result, assessee's appeal is treated as allowed for statistical purposes.
Order pronounced in the Open Court on 22nd March, 2021.
Sd/- Sd/-
(A. MOHAN ALANKAMONY) (P. MADHAVI DEVI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 22nd March, 2021.
Vinodan/sps
Copy to:
1 Sri V. Srinivas, FCA, C/o H.No.10-2-195, 2nd Floor, VAG Ganesh Complex, East Marraedpally, Secunderabad 500026 2 ITO Ward 10(5) 5th Floor, IT Towers, AC Guards, Hyderabad 500004 3 CIT (A)-6 Hyderabad 4 Pr. CIT - 6 Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 10 of 10