Income Tax Appellate Tribunal - Delhi
Harbir Singh, New Delhi vs Assessee on 27 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'C' BENCH
BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM
ITA no.1481/Del/2012
Assessment year: 2003-04
D.D.I.T.,International. V/s. Harbir Singh C/o TAS
Taxation,Circle-2(2), Associates, Flat No.4, 11/71,
New Delhi Punjabi Bagh (W est),
New Delhi
[PAN :AHEPS 1587 R]
ITA no.1044/Del/2012
Assessment year:2003-04
Harbir Singh C/o TAS V/s. ADIT(International. Taxation)
Associates, Flat No.4, Circle-2(2),
11/71, Punjabi Bagh New Delhi
(W est), New Delhi
(Appellant) (Respondent)
Assessee by Shri Subhodh Gupta, AR
Revenue by Ms. Y. Kakkar, DR
Date of hearing 13-09-2012
Date of pronouncement 21-09-2012
ORDER
A.N.Pahuja:- These cross appeals filed on 02.03.2012 by the assessee and on 29.03.2012 by the Revenue against the order dated 27.12.2011 of the ld. CIT(A)- XXIX, New Delhi, raise the following grounds:-
I.T.A. No.1481/Del./2012[Revenue]
1. "Whether on the facts and circumstances of the case, the CIT(A) has erred in allowing relief to the assessee on ad hoc basis where the assessee sought to reduce his taxability by raising his cost of acquisition without giving any instance of such a high sale price.
2 ITA nos.1044& 1481/Del./2012
2. Whether on the facts and circumstances of the case, the CIT(A) has erred in allowing partial relief on ad hoc basis to the assessee by holding that a premium of 40% would be fair over the average auction rates prevailing in Safdarjung Enclave to arrive at the fair market value as on 1.4.1981 for the purpose of determining the cost of acquisition of the property sold by the assessee, without any underlying basis and ignoring that the assessee had not given any instance of such a high sale price in same locality.
3. Whether on the facts and circumstances of the case, the CIT(A) has erred in ignoring the finding given by the Assessing Officer who adopted a scientific basis for assessing the value of the land as per average auction rate of the surrounding are corroborated by DDA circular for determining the fair market of the land as on 1.4.1981 at ``3,128/- as against the assessee's claim at ``5,192/- per sq meter which hypothetically included a premium 66% on ad hoc basis over the average land rates prevailing in the surrounding areas.
4. Whether on the facts and circumstances of the case the order of the CIT(A) is perverse and liable to be quashed.
5. The appellant prays for leave to add, amend, modify or alter any grounds of appeal the time of before the hearing of the appeal."
I.T.A. No.1481/Del./2012[Assessee]
1. "The lower authorities have acted in a sheer arbitrary & subjective manner and have failed to fully appreciate the facts and written submissions of the appellant for making the assessment in a judicious manner.
2. On facts and circumstances of the case and in law, lower authorities have erred and have exceeded their jurisdiction by arbitrarily altering the fair valuation of ``5,192.50 sqm. As on 1.4.1981 conducted by an expert, duly recognized by the tax department, for the purpose of computation of indexed cost of acquisition.
3. On facts and circumstances of the case and in law, learned lower authorities have erred while accepting all the positive attributes of the property concerned but applying ad hoc premium in a subjective way in total disregard, without assigning any reason, to the detailed submission made before him.
4. The above grounds of appeal are independent without prejudice to each other.
3 ITA nos.1044& 1481/Del./2012
5. The appellant craves to add, modify any ground of appeal or to adduce new evidence during the course of hearing of appeal, as may be necessary for discharge of due justice."
2. Facts, in brief, as per relevant orders are that return declaring income of ``1,75,23,018/- filed on 05.09.2003 by the assessee and revised on 30th October, 2003 ,declaring income of `1,51,11,039/-, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer (A.O. in short), noticed that the assessee sold a house property for a consideration of `5,25,00,000/-. After deducting indexed cost of acquisition of ``2,11,73,344/- as on 1.4.1981 on the basis of valuation report of a registered valuer, long term capital gain of ``3,13,26,656/- was reflected. The assessee claimed deduction u/s 54 and 54EC of the Act. to the extent of ``1,24,01,000/- and ``50,00,000/- respectively. After these deductions, taxable long term capital gain of ``1,39,25,656/- was shown. On perusal of valuation report submitted by the assessee , the AO noticed that fair market value of the property was shown at ``47,36,766/-, comprising cost of land at ``37,64,126/- and cost of building at ``9,72,640/-. The land was valued on the basis of average auction rate in 1981 in Safdarjung Enclave, New Delhi @ `3128/- per square meter. The said auction rate was further enhanced by 66% of above rate, on the basis of Malhotra Committee report to determine the fair market value as on 1.4.1981. To a query by the AO, seeking the basis of determination of the aforesaid fair market value, the assessee replied that the valuer in his report indicated complete particulars of the basis for arriving at the fair market value as on 1.4.1981, indicating land value, rates adopted and estimated cost of construction etc. besides having inspection of the property and considering additional privileges attached to the property, condition of construction, future potential of area and its development. The assessee further submitted that the cost was increased by 66% over and above the auction rate in S.J. Enclave, New Delhi, since Defence Colony, New Delhi was better area than S.J. Enclave . Moreover, the property was freehold 4 ITA nos.1044& 1481/Del./2012 and situated on the main ring road and the Malhotra Committee in their report treated it commercial . However, the AO did not accept the submissions of the assessee on the ground that as per circular of the DDA, the land rates from 1981 to 1985 in Vasant Vihar and all posh area of the Delhi were @ `940/- per square meter. Therefore, it was not convincing and logical to adopt such a high value and further appreciation by 66% over and above average auction rate by DDA, especially when the valuer or the assessee did not give any instance of sale in the same locality as on 1.4.81 or in the years around, where such a high price was paid. Since the assessee and the valuer did not value the cost of acquisition as on 1.4.1981 on the basis of sale instances in that area or adjoining area prevailing at that point of time, accordingly, the AO adopted the price of land @``3128 per sq. mtr. As on 1.4.1981 and added an amount of ``66,89,780/- (`2,11,73,344 - 1,44,83,564).
3. On appeal, the ld. CIT(A) concluded as under:-
"5. I have considered the submissions of the appellant as well as those given by the ld. AO in the assessment order. Here, the only question to be decided is that whether the fair market value adopted by the AO was reasonable or not. The main reason given by the appellant for applying 66% premium over the auction rate prevalent in Safdarjung Enclave during the relevant period are as follows:
(i) the land in question was a free hold land,
(ii) Defense Colony was a much better and posh locality as compared to Safdarjung Enclave and, therefore, a premium of 10% to 15% would be justified on account of location,
(iii) The plot was situated on main Ring Road and, therefore, commanded premium due to its potential of commercial use. As per Malhotra Committee Report, the large plots on the main road could be used for commercial purpose.
5.1 I have carefully considered submissions. It cannot be disputed that freehold land always commands a premium over the leasehold land. As per DDA's official policy, the lessor is entitled to only 50% share in the unearned increase in the value of land when the owner applies for conversion from leasehold plot into freehold 5 ITA nos.1044& 1481/Del./2012 plot and balance 50% is to be paid to DDA as conversion charges, i.e., substantial amount is required to be paid for conversion of leasehold land to freehold land. Therefore, I find considerable merit in the argument of the appellant that freehold plot should command substantial premium over leasehold plots.
5.2 The situation of the plot was on the main Ring Road and, therefore, enjoyed potential for commercial exploitation. Malhotra Committee had recommended to allow the use of ground floor for commercial purpose on the plots situated on the main road. Therefore, I agree with this contention also of the appellant that the plot being situated on the main Ring Road would command premium over the plots situated inside the colony. Further, it can also not be disputed that Defense Colony is definitely more centrally located and posh area as compared to the Safdarjung Enclave.
5.3 As already discussed above, the data regarding auction rate or market rate was not available in respect of the Defense Colony area where land in question was situated. Therefore, we have to rely upon the data relating to other similar locations, such as, Safdarjung Enclave being in South Delhi. Keeping in view factors discussed in para 5.1 & 5.2 above, I am of the view that appellant was justified in adding premium over and above the rates of Safdarjung Enclave during that period. However, keeping in view that (i) the property was a freehold property, (ii) it was situated on main Ring ,Road and (iii) it was located in a more central locality as compared to Safdarjung Enclave, I am of the opinion that a premium of 40% would be fair over the rates prevailing in Safdarjung Enclave to arrive at the fair market value as on 01.04.1981. The ld. AO is, accordingly, directed to recompute the income of the appellant from capital gains by allowing a premium of 40% over the rates prevailing in Safdarjung Enclave during that period i.e., Rs.3,148 per sq.mt. the purpose of determination of fair market value of the land under consideration as on 01.04.1981.
4. Both the Revenue as well as the assessee are now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR on behalf of the assessee, at the outset ,pointed out that the AO did not disturb the cost of construction .While inviting our attention to a copy of valuation report placed at page 53 of the paper book, the ld. AR submitted that valuation was made on 18th 6 ITA nos.1044& 1481/Del./2012 January, 2003 for determining cost of acquisition of the property as on 1.4.1981, by adopting land rate at ``3128 per sq. mtr. and appreciation of 66% thereof. While referring to reply dated 28th February, 2006 submitted before the AO, the ld. AR contended that the property was situated on the main road having potential for commercial exploitation. To a query by the Bench, the ld. AR admitted that there was no basis for increase in rate of ``3128 per sq. meter by 66% and argued that even the AO did not adduce any reasons for rejecting the basis adopted by the registered valuer while the AO himself adopted average cost of land in Safdarjung Enclave area instead of referring the matter to DVO.
5. On the other hand, the ld. DR while carrying us through the copy of valuation report of registered valuer contended that the valuer did not give any basis for appreciating the cost by 66% over the rate of ``3128 per square meter prevalent in Safdarjung Enclave area nor furnished any sale instances of any adjoining property as on 1.4.1981 or around that date. Even the basis for land rates adopted by the registered valuer is not given and col. 40 in his report mentions 'NA'. The ld. DR argued that basis for adopting cost of construction and cost of land having not been given ,the report of registered valuer could not be relied upon. While inviting our attention to col. 16 of the valuation report, the ld. DR submitted that restrictive covenant mentioned is 'residential' and therefore, commercial rates could not be applied ,relying upon Malhotra Committee report.. While submitting a copy of news item appearing in Hindu , the ld. DR pointed out that Malhotra Committee report related to unauthorized colonies and not to the posh areas like the Defence Colony. The ld. DR while pointing out that the assessee or the valuer did not give any basis for choosing the rates in Safdarjung Enclave, ignoring the South Extension area near the Defence Colony, relied upon a decision in D.N.Prasanna Kumar vs. ACIT, 66 ITD 109 (Bangalore) and contended that the land rates adopted by the registered valuer, being without any basis nor supported by comparative instances, the findings of the ld. CIT(A) on that basis were not in accordance with law. The ld. DR added that the assessee did not appear to have filed copies of Wealth tax returns, in order to 7 ITA nos.1044& 1481/Del./2012 ascertain the basis of valuation disclosed therein nor the ld. CIT(A) addressed these issues. .
6. In his rejoinder, the ld. AR submitted that the AO did not adduce any reasons for discarding registered valuer report nor referred the matter to the DVO. While referring to page 13 and 15 of the paper book, the ld. AR reiterated that Defence Colony was better area than Safdarjung Development Area, therefore, the AO was not justified in disturbing the cost of acquisition land determined by registered valuer. The ld. AR added that one residential house was exempt under the WT Act .
7. We have heard both the parties and gone through the facts of the case as also the decision relied upon by the ld. DR.. The only dispute raised before us is in respect of cost of acquisition as on 1.4.1981 of the land situated at E-25, New Defence Colony, New Delhi. The assessee adopted cost of acquisition as per report of registered valuer while the AO did not accept the submissions of the assessee or 66% increase in rates for determining cost of acquisition over and above the average auction rates of land in the Safdarjung Enclave Area . Both the assessee and Revenue are aggrieved with the findings of the ld. CIT(A). The ld. AR fairly admitted before us that there was no basis for increasing the average auction rates prevailing in Safdarjung Enclave 66% while the ld. DR vehemently argued that report of registered valuer being without any basis nor having considered comparative instances of cost of land as on 1.4.1981 in Defence Colony or adjoining areas ,could not be relied upon. In the light these submissions on behalf of both the parties, considering the totality of facts and circumstances of the case, especially when the report of registered valuer does not disclose the basis for choosing average land auction rates in Safdarjung Enclave Area nor the basis of increase of such rates by 66% and nor even any reasons for not identifying comparative instances of cost of similarly situate properties in Defence Colony area while the impugned order does not disclose the basis of increase by 40% over the average auction rates in Safdarjung 8 ITA nos.1044& 1481/Del./2012 Enclave Area , we are of the opinion that not much reliance can be placed on the valuation report prepared by the registered valuer and partly relied upon by the ld. CIT(A). The determination of cost of acquisition of a property is a technical aspect and without having complete facts and details of property, its location, and its surroundings and comparative instances of similarly situate properties , cost of acquisition as on 1.4.1981 cannot be determined in a precise manner. The ld. CIT(A) having not adverted to all these aspects now raised before us, apparently the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to the file of the AO for deciding the matter afresh in accordance with law, after having a report of District Valuation Officer on the cost of acquisition as on 1.4.1981 of the said property and of course after allowing sufficient opportunity to the assessee. W ith these observations, ground nos.1 to 3 in both these appeals are disposed of.
8. Ground no.4 in the appeal of the Revenue and the assessee, being general in nature, do not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no.5 in their appeals, accordingly, all these grounds are dismissed.
9. No other plea or argument was made before us.
10. In the result, both these appeals are allowed but for statistical purposes.
Order pronounced in open Court
Sd/- Sd/-
(C.M. GARG) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
9 ITA nos.1044& 1481/Del./2012
Copy of the Order forwarded to:-
1. Assessee
2. D.D.I.T.,International. Taxation,Circle-2(2),New Delhi
3. DIT,International Taxation,New Delhi.
4. CIT(A)-XXIX, New Delhi
5. DR, ITAT,'C' Bench, New Delhi
6. Guard File.
By Order, Deputy/Asstt.Registrar ITAT, Delhi