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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & MS KAVITHA RAJAGOPAL, HONBLE&
O R D E R PER S. RIFAUR RAHMAN (AM)
The present two appeals are recalled vide Miscellaneous Application Nos. 49 & 50/Mum/2023 by observing that the issue raised in Ground (A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., No.IV of ITA.No. 335/Mum/2020 for the A.Y. 2009-10 and Ground No. 2 in ITA.No. 2741/Mum/2019 for A.Y. 2010-11 have not been decided vide order dated 05.07.2022. Since the mistake was apparent on record these Miscellaneous Applications were allowed and recalled the issue under consideration for fresh adjudication.
At the time of hearing, Ld. AR submitted that the lead case is A.Y.2010-11, accordingly, Ground No. 2 raised in A.Y. 2010-11 is adjudicated below.
Since the issues involved in both these grounds of appeal are exactly similar, accordingly, both these grounds are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No.2741/Mum/2019 for Assessment Year 2010-11 as a lead assessment year.
4. Coming to the facts relating to Ground No. 2 in A.Y. 2010-11, during the assessment proceedings the Assessing Officer observed that assessee has taken a fair market value (FMV) as on 01.04.1981 for the purpose of LTCG as cost of acquisition @ ₹.293 per sq. feet for the area of 272923 sq. ft. Accordingly, the assessee has declared LTCG of Page No. | 2
(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., ₹.2,05,75,42,554/- on conversion of land into stock in trade. He observed that, however, ongoing through the valuation report it is seen that the FMV of the property as on 1.4.1981 is shown at ₹.220/-. Therefore, the LTCG has to be reworked out taking into consideration the FMV at ₹.220 per sq.ft. Accordingly, he has worked out the LTCG as under: -
Statement of Revised LTCG A.Y. 2010-11 FMV (ft) Year of Sales in sq. 1981(cost) Index Conversion Cost Indexed cost Capital Gain Sale(FY) ft. @ Rs. 220 factor (Sale u/s 45) /sq. ft. 2009- 10 272923 6,00,42,965 632 37,94,71,541 256,29,29,652 218,34,58,110 . 37,94,71,541 256,29.29,652 218,34,58,110
Accordingly, Assessing Officer taken the LTCG at ₹.218,34,58,110/- instead of ₹.205,75,42,554/-.
Aggrieved with the above order, assessee preferred an appeal before the Ld.CIT(A) and filed the detailed submissions before him, for the sake of clarity it is reproduced below: -
“7.1 At the outset, the Appellant submits that it had, on conversion of its capital asset into stock in trade, duly offered long term capital gains (LTCG) at Rs. 205,75,42,553/- 7.2 The impugned LTCG has been worked out on the basis of a valuation report from an independent registered valuer (refer page 84-87A of the FPB). 7.3 The FMV as at 01.04.1981 has been arrived at by the valuer considering the rate of Rs.293/-psf equivalent to Rs. 293/- psf of FSI.
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(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., 7.4 In this regard, the Appellant most humbly submits that what has been converted into stock in trade is the area available to the Appellant to actually offer to third party. During the year under consideration, the Appellant has converted area equivalent to FSI 296,325 sqft out of which, it had actually sold area admeasuring FSI 2.72,923 sqft to one White Horse Real Estate Pvt. Ltd 7.5 Since the area has been sold in terms of FSI, the market value as of 01.04.1981 has to be considered at FS! only. Since, the FS! at 01.04.1981 as per the ready reckoner was available at 1.33 for 1 FSI, the market value hat to be determined considering the same. It may please be appreciated that the registered valuer has duly certified the said FMV as of 01.04.1981 at normal rate as well as at FSI rate. 7.6 The AO has overlooked the co-relation between area sold vis- a-via area sold in terms of FSI and the corresponding value arrived at by the registered valuer. The AO merely looking at the normal value peer sqft as on 01.14.1981 went on to reduce the FMV of the said plot, thereby resulting in the addition in the LTCG offered by the Apellant. 7.7 It may also be appreciated that the basis on which the valuer has arrived at the said FSI valuation has also been attached at page 87A of the FPB 78 The Appellant therefore most humbly submits that the value determined by the registered valuer at FSI has to be considered for the purpose of computing the LTCG as done by the Appellant in its computation of income. 7.9 Without prejudice to above. Your Honour has posed a query as to whether reference can be made to the DVO having regard to the provisions of section 55A of the Act, it is most humbly Submitted that the said provision as applicable for the year under consideration ie, prior to its amendment vide Finance Act 2012 wef 1.07 2012, cannot be pressed since the under pre-amended provision of section 55A the reference to DVO could be made only where the AO is of the view that the value of the property so claimed by the assessee is less than its fair market value. In the present case, the value considered by the Appellant at Rs. 293/ has been reduced by the AO to Rs. 220 Le the AO has arrived at a lower valuation Therefore the provisions of section 55A are not applicable for the year under consideration with the present facts on hand. 7.10 The Appellant thus most humbly submits that the addition of Rs. 12.59 15,556% towards Incremental long term capital gains deserves to be deleted.” Page No. | 4
(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., 6. After considering the above submissions, Ld.CIT(A) sustained the addition with the following observations: - “21. The dispute is regarding the conversion rate 1.33 i.e. Allowable FSI applied to Rs. 220/- The difference resulted in additional assessment of Rs. 12,59,15,556/- (Rs. 2,18,34,58,110/- Rs. 2,05,74,42,554/-). The crucial argument part is that area sold is in terms of FSI. According to appellant due to this the factor 1.33 is to be considered as for deciding FMV.
The definition of FMV is as under As per Section 2 (228) of the Income Tax Act, 1961, unless the context otherwise requires, the term "fair market value, in relation to a capital asset, means- i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date, and ii) Where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act. From above it is clear that multiplication factor of 1.33 is not a relevant factor in computation of FMV as on 01.04.1981. It is not proved whether there was a conversion rate in 1981 and if so what it was. The definition of FMV as provided in the act cannot be extended. It is the probable sale value as on 01.04.1981 that defines computation of FMV and consequent capital gain. The conversion factor is not of relevance. Being so, I uphold the decision of Assessing Officer. The Ground is dismissed.”
Aggrieved with the above order, assessee is in appeal before us and raised the Ground No.2 as under: -
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(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., “GROUND NO. 2: ADDITION OF INCREMENTAL LONG TERM CAPITAL GAINS ON ACCOUNT OF CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE: On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the AO on account of incremental long term capital gains (LTCG) arising on account of conversion of capital asset, being land, into stock-in-trade, considering the fair market value as on 01.4.1981 applying the rate of Rs. 220/- per sq. ft. instead of Rs. 293/- per sq. ft. as determined by the registered valuer. The Appellant prays that the addition of Rs. 12,59,15,556/- on account of incremental capital gains as determined by the AO be deleted.”
At the time of hearing, Ld. AR brought to our notice the issue raised by the Assessing Officer in his Assessment Order at Page No. 19 of the Assessment Order. Ld. AR submitted that Assessing Officer himself adopted the fair market value based on the valuation report submitted by the assessee. Further, he brought to our notice Page No. 84 of the Paper Book which is the valuation report submitted by Shrinivas M. Kini & Co. dated 15.12.2008. He brought to our notice the details of the plot and the valuation adopted by the registered valuer. He submitted that no doubt the valuation submitted by the registered valuer determined at ₹.220 per sq. feet. However, the valuer himself has determined the valuation of ₹.293 per sq. feet by adopting allowable Floor Space Index (FSI) for the plot under consideration.
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(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., 9. Ld. AR of the assessee insisted that the assessee has completed the project and sold the same to the respective buyers on the basis of FSI. Therefore, valuation as on 01.04.1981 also has to be done on the same basis by adopting the allowable FSI. He brought to our notice Page No.14 of the appellate order wherein Ld.CIT(A) has merely referred the definition of FMC as per section 2(22B) of the Act and observed that the multiplication factor of 1.33 is not a relevant factor in computation of FMV as on 01.04.1981 and the probable sale value as on 01.04.1981 that defines computation of FMV and consequent capital gain. The conversion factor is not of relevance. Accordingly, he sustained the addition made by the Assessing Officer. Ld.AR prayed that the value submitted by the registered valuer may be adopted and delete the addition made by the Assessing Officer.
On the other hand, Ld. DR relied on the findings of the Ld.CIT(A) and submitted that the issue involved is “whether the FSI factor has to be adopted or not”. He brought to our notice Page No. 87-A of the Paper Book and submitted that as per the chart submitted by the assessee clearly shows that the value to be adopted is only ₹.220/-. Therefore, the value adopted by the Assessing Officer is justified.
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(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., 11. Both the parties agreed that the issue involved under consideration is exactly similar in A.Y.2009-10.
Considered the rival submissions and material placed on record, we observe from the record that assessee has obtained the valuation of plot of 272923 sq.ft of land which was converted into stock in trade by adopting the valuation determined by the registered valuer of ₹.293 per sq. feet. No doubt the valuer has considered the value as on 01.04.1981 from the stamp duty ready reckoner as on 01.04.1981 at ₹.220 per sq. feet. Here, the total plot of land is converted into stock in trade and the fair market value has to be determined based on the values existed as on 01.04.1981. After carefully considering the valuation report submitted by the assessee in Page No. 84 of the Paper Book we observe that the plot under consideration consist of Industrial sheds, as per the plan enclosed at Page No. 88 of the Paper Book which is part of the valuation report consists of structures being constructed in the year 1930. The registered valuer clearly indicated that the above structure physical life as on 1981 are over by considering the future value of the structures as 50 years. The structures were of load bearing walls with north light trusses for the roof and windows. It clearly shows that the plot is not just free land but it has constructed structures which may be industrial sheds existed in Page No. | 8
(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., industrial zone. Once the land consists of building, the valuation has to be done on the basis of FSI. Only for freehold land the valuation as per stamp duty ready reckoner can be adopted as on 01.04.1981. However, in the present case, the plot under consideration is not just freehold land rather it consists of industrial sheds and structures. Therefore, the FSI has an important role to be considered. At this stage, we are not sure what is the FSI value as on 01.04.1981. However, as brought on record by the assessee that the assessee has considered the FSI at 1.33 and the same was adopted for construction and in the subsequent conversions. Therefore, it is fair on the part of the assessee to claim the FSI on the above said plot of land. Therefore, we are inclined to accept the submissions of the assessee and the valuation report submitted by the assessee and the valuer has considered all these aspects while submitting the valuation report and he also reworked the allowable FSI @1.33. Therefore, FSI has an important role when we are dealing with the plot of land which has structures existed as on 01.04.1981. Accordingly, ground raised by the assessee is allowed.
Coming to Ground No. IV raised by the assessee in ITA.No.335/Mum/2020 for the Assessment Year 2009-10, this ground is similar to Ground No. 2 of grounds of appeal
raised for the A.Y. 2010
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(A.Y. 2010-11) (A.Y. 2009-10) M/s. The Bombay Dyeing & Mfg. Co. Ltd., and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2009-10. We order accordingly.
In the result, grounds raised in the above appeals are allowed.
Order pronounced in the open court on 04th August, 2023.