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(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 (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.

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 (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.