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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
O R D E R
PER DR. A. L. SAINI, ACCOUNTANT MEMBER:
Captioned appeal filed by the assessee pertaining to assessment year (AY) 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax(Appeals)-2, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS/2/024/2016-17 dated 24.11.2017, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Act (hereinafter referred to as “the Act”), dated 31.03.2016.
2. Grounds of appeal
raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of assessing officer in making addition of Rs.34,70,000/- u/s. 50C of the Act on account of difference in the value adopted by the DVO and the sale consideration taken by the assessee in his return of income.
2. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of assessing officer in making addition of Rs.1,20,95,753/- on account of cost of indexation claimed by the assessee by adopting cost of indexation at Rs. 19,45,130/- instead of Rs.1,40,40,883/- claimed by the assessee.
Assessment Year.2013-14 Dharmendra B. Patel 3. It is therefore prayed that the additions made by Assessing Officer and confirmed by CIT(Appeals) may please be deleted.
4. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
The relevant material facts, as culled out from the material on record, are as follows. The return of income for the A.Y 2013-14 was filed by assessee on 30.03.2014 showing total income at Rs.34,75,330/-. The assessee`s case was selected for scrutiny under CASS. The notice U/s 143(2) of the I.T Act dated 04.09.2014 was issued and duly served upon the assessee. Detailed questionnaire along with notice u/s 129 and 142(1) dated 21.10.2015 was issued and duly served upon the assessee.
In response to the above said notices, the assessee appeared before the assessing officer and furnished written submissions and documents. The assessing officer noticed that during the year under consideration, the assessee has earned income from House Property, capital gain and other sources. A land at R.S. No.18/1 + 19/4, Block No. 59, IP No. 13, FP No. 36, Moje Bharthana Vesu, Surat has been sold by the assessee alongwith 2 other co-owners for a total sale consideration of Rs.4,00,00,000/-on 07/11/2012 wherein the assessee has received Rs.1,79,50,000/-. Thus, the share of the assessee becomes 44.875%. However, the Stamp Valuation Authority, viz., Sub-Registrar, Rander, Surat has valued the same properly at Rs.5,29,72,000/-. The assessing officer observed that as per the provisions of section 50C of the IT Act, the assessee has earned deemed capital gain of proportionate share of the differential value between sale value and valuation adopted by the stamp valuation authority. Hence, a show cause notice
Assessment Year.2013-14 Dharmendra B. Patel dated 11.03.2016, was issued to the assessee to explain the transaction of capital gain.
In reply to the said show cause notice, the assessee submitted a copy of valuation report of the Valuation Officer, Valuation Cell, Income-tax Department, Surat. The assessing officer has gone through the said valuation report and considering said valuation report, the assessing officer has issued further show cause notice to the assessee, dated 21.03.2016, the relevant portion of the same is reproduced below:
"The undersigned has considered the submissions filed, by you/ your AR from time to time which has been placed in file. During the year under consideration, alongwith 2 other co-owners, you have sold land at R.S. 18/1 + 19/4, Block No. 59, TP No. 13, FP No. 36, Moje Bharthana-Vesu, Surat for a total sale consideration of Rs.4,00,00,000/- on 07/11/2012 wherein you have received Rs.1,79,50,000 /-, i.e. 44.875% of total sale consideration. Vide this office letter dated 11.03.2016 you are requested to show cause as to why the full value of consideration should not be taken at Rs.5,29,72,000/-, i.e., at par with the valuation adopted by the Stamp Valuation Authority, viz., Sub-Registrar, Rander, Surat. In reply to the same, your authorized representative has submitted the valuation, report dated 11/03/2016 of Valuation Officer, Income-tax Department, Surat for which reference was made by the Income tax Officer, Ward 2(3)(3), Surat in the case of Shri Prafulchand Baichandbhai Patel who was one of the co-sellers of the land in question. In the said report, the valuation of the property has been made as under: Valuation as on 01.11.2012 Rs.4,77,32,590/- Valuation as on 01.04.1981 Rs.5,08,750/- Considering the above, I do propose to recalculate the Long Term Capital Gain for the AY under consideration as under: Particulars Total Assessee’s share Consideration Full value of consideration Rs.4,77,32,500/- Rs.2,14,20,000/- Less: Indexed Cost of acquisition Rs.43,34,550/- Rs.19,45,130/- (508750 x 852/100) LTCG Rs.1,94,74,870/- Less: Deduction u/s 54B Rs.39,09,117/- Chargeable capital gain Rs.1,55,65,753/- Your explanation/objection, if any with respect to the proposed calculation should reach, to the undersigned by 28/03/2016. Kindly note that as the assessment proceedings are getting time barred by 31.03.2016, no adjournment will be granted. In case no reply Assessment Year.2013-14 Dharmendra B. Patel or part reply is submitted before the undersigned, it will be held that you have no explanation with regard to the issues raised as above and assessment will be made on the documents/information available on records.”
In response to the above show cause notice, the assessee did not submit reply before the assessing officer, therefore, assessing officer held that, assessee has no objection in adopting the calculation for long term capital gain as proposed in the above show cause notice, hence, the capital gain arisen out of sale of the impugned land was determined at Rs.1,55,65,753/- and added under the head income from long term capital gain (LTCG).
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
Shri Mehul Shah, Learned Counsel for the assessee submitted before us that assessee has entered into agreement to sale, for the land, not during A.Y.2013-14 but during F.Y.2010-11 relevant to A.Y. 2011-12, by executing agreement to sale made on 29.09.2010. Copy of the same is filed in the paper book. The substantial payment for the said sale of land was received by the assessee in the year 2010-11 i.e. approximately 54.20%. The possession was given on 30.05.2012 and sale deed was registered on 07.11.2012 and hence the assessee has shown the capital gain on the basis of possession given on 30.05.2012 relevant to A.Y. 2013-14. Therefore, the assessee executed the sale deeds for consideration as per the agreement to sale executed during preceding year. Although in meanwhile, the jantri rate has increased indicating the notional
Assessment Year.2013-14 Dharmendra B. Patel increase in the market price but the assessee was bound by the previous agreements which were duly registered in the preceding year when the land was agreed to sale. As per the Transfer of Property Act, the transfer of the property was effected by the assessee not during F. Y. relevant to A. Y. 2013-14 but during the F. Y. relevant to A. Y. 2011-12 where the jantri rate was Rs.12,000/- per sq. meter. However, the capital gain was shown in the present A.Y. i.e. A.Y. 2013-14 when the possession was given and sale deed was executed. For the purpose of the determination of stamp duty valuation, the transfer should be considered to have been made in the year relevant to A.Y. 2011-12 when the agreement to sale was executed. There is no change in Sale consideration as per Sale agreement dated 29.09.2010 and Sale deed dated 07.11.2012. It is pertinent to note that the sellers have also received Rs. 50,00,000/- at the time of Sale agreement through Account payee cheques and hence as a matter of fact, it is never possible by any law for the assessee to demand more Sale consideration from the buyer subsequent to Sale agreement and receipt of substantial advance of Rs. 50,00,000/- just because the jantri rate has increased and hence the assessee is abide by law to carry his performance of contract by the terms of Sale agreement and even as per the Indian Contract Act, 1872. Thus, by executing the Sale deed, the assessee has only completed the contractual obligation imposed upon it by virtue of the sale agreement, Since the process of sale has been initiated from the date of sale agreement, the character of the transaction vis-a-vis Income tax should be determined on the basis of the conditions that prevailed on the date the transaction was initially entered into. Accordingly, the applicability of the provisions of section 50C should be looked at only on the date of sale
Assessment Year.2013-14 Dharmendra B. Patel agreement. Therefore, the long term capital gain offered by the assessee in his return of income should be considered and addition confirmed by the ld CIT(A) should be deleted.
On the other hand, the Ld. DR for the Revenue submits that a land has been sold by the assessee along with two other co-owners for a total sale consideration of Rs.4,00,00,000/-on 07/11/2012 wherein the assessee has received Rs.1,79,50,000/-. Thus, the share of the assessee becomes 44.875%. However, the Stamp Valuation Authority, has valued the same properly at Rs.5,29,72,000/-. During the assessment stage the assessee has submitted the valuation, report dated 11/03/2016 of Valuation Officer, Income-tax Department, Surat for which reference was made by the Income tax Officer, Ward 2(3)(3), Surat in the case of Shri Prafulchand Baichandbhai Patel who was one of the co-sellers of the land in question. In the said report, the valuation of the property has been made at Rs.4,77,32,590/-. The assessing officer has gone through the said valuation report and considering said valuation report, the AO has taken value of the land at Rs.4,77,32,590/-. Thus, assessing officer has rightly made addition observing that assessee has earned deemed capital gain of proportionate share of the differential value between sale value and valuation adopted by the stamp valuation authority, therefore, order of the assessing officer may be upheld.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Before us, assessee has raised Assessment Year.2013-14 Dharmendra B. Patel two issues stating that assessing officer has erred in making addition of Rs.34,70,000/- u/s 50C of the Act on account of difference in the value adopted by the DVO and the sale consideration taken by the assessee in his return of income. The assessing officer also has erred in making addition of Rs.1,20,95,753/- on account of cost of indexation claimed by the assessee by adopting cost of indexation at Rs.19,45,130/- instead of Rs.1,40,40,883/- claimed by the assessee. During the year, the assessee has sold an immovable property along with two other co-owners for sale consideration of Rs.4,00,00,000/- on 2.11.2012 and the assessee had received Rs.1,79,50000/- being 44.87% share. The Stamp Valuation Authority, had valued the property at Rs.5,29,72,000/-. The assessee submitted before the A.O. that the property was referred to the DVO by ITO, Ward-2(3)(3), Surat in the case of Prafulchand B. Patel, one of the co- owners of the land and the DVO has calculated the value of the property at Rs.4,77,32,590/-. The AO adopted the value as per the DVO's report and recalculated the long term capital gain (LTCG) at Rs.1,55,65,753/- and made addition.
In the return of income filed, the assessee had shown his share in the sales consideration at Rs.1,79,50,000/- and after deducting the cost of indexation and deduction u/s 54B of the Act, the net long term capital gain (LTCG) was shown at Rs. nil. We note that AO has taken fair market value (FMV) as on 01/04/1981, at Rs.5,08,750/- @ Rs.114.30 per sq.meter. The Ld Counsel submitted that the AO has erroneously adopted the report of the Valuation Officer though he had relied on the report of the government approved valuer who is an expert for valuation of the agricultural land (Category-11 valuer) and he is the only qualified person for Assessment Year.2013-14 Dharmendra B. Patel proper valuation of the agricultural property. It was contended that the valuation report by the DVO who appears to be a category-1 valuer is not qualified to give valuation of agricultural land and therefore the valuation report of the government approved valuer who has valued the land as on 01/04/1981 @ Rs.825 per sq.mt. should be taken into consideration. The assessee also submitted that the DVO has not taken proper sales instances into consideration while determining the FMV of the property. Learned Counsel also contends that AO has wrongly made reference to DVO without pointing out any defect in the report of the Registered Valuer Shri PK Desai. It was contended that Registered Valuer was entitled to carry out valuation of agricultural land. He had issued his valuation report in Form O-2 and has given detailed reasons for applying reverse method for valuation of impugned land. However, assessing officer referred the valuation of impugned land to Department's Valuation Officer (DVO). The value determined by DVO cannot be taken into consideration because DVO is not technically qualified to undertake valuation of agricultural land as same can be done only by a qualified person approved by government. Valuation report of agricultural land has been submitted in appropriate form i.e. form O-2 by Registered Valuer in which various aspects typically related to agricultural land like quality and fertility of land, mode of irrigation available, special features such as fertility and quality of land etc. have been specifically taken into consideration and commented upon. While in the valuation report of DVO such important aspects concerning valuation of agricultural land are not at all discussed. This clearly manifest that valuation report submitted by DVO cannot be considered whereas, valuation report of registered valuer is required to be considered as he is technically
Assessment Year.2013-14 Dharmendra B. Patel qualified to value agricultural land and has considered special features relating to impugned land.
We note that both the grounds relate to the solitary transaction for sale of property located at R.S.No.18/1+19/4, Block No. 59, TP No.13, FP No.36, Moje Bharthana – Vesu, Surat, which was sold on 02/11/2012 along with two other co-owners for the sale consideration of Rs.4,00,00,000/- wherein the assessee’s share is of 44.875% i.e. 1,79,50,000/-. The first grievance of the assessee is that assessing officer has erred in making addition of Rs.34,70,000/- under section 50C of the Act on account of difference in the value adopted by the DVO and the sale consideration taken by the assessee in his return of income. The working of addition of Rs.34,70,000/- u/s 50C of the Act can be tabulated as below:
Particulars Amount (In Rs) Share of value of deemed sale consideration of (A) 2,14,20,000/- the assessee as per the valuation report of the DVO, Surat.(Rs.4,77,32,590/- * 44.875%) Less: Sale Consideration as per computation of (B) 1,79,50,000/- Income filed by the assessee (Rs.4,00,00,000/- * 44.875%) Addition u/s 50C (A-B) 34,70,000/- It is the contention of the Ld.Counsel that assessee has entered into an agreement of sale for land not during A.Y. 2013-14 but during F.Y. 2010-2011 relevant to A.Y. 2011-12 by executing "Agreement to Sell" made on 29.09.2010. The substantial payment for the said sale of land was received by the assessee in the year FY 2010-11 i.e. approx. 54.20% and the sale deed was executed during A.Y. 2013-2014 i.e. during the year under consideration and the capital gain was Assessment Year.2013-14 Dharmendra B. Patel computed in the return of income (ROI) considering the Sale consideration at Rs. 1,79,50,000/- as per Sale deed. Although in meanwhile, the jantri rate has increased but the assessee was bound by the previous "Agreement to Sell" dated 29.09.2010 and hence it is submitted that the Jantri rate of land as on 29.09.2010 should be considered for the purpose of section 50C of the Act. The agreement to sale dated 29.09.2010 is flied by assessee in the Paperbook at Pg No 35 to 40 wherein the sale consideration is fixed at Rs 4,00,00,000/- and the details of the cheque for advance of sale of property of Rs. 50,00,000/- is mentioned in tabular format as given below:
Sr Particulars Cheque No and Amount No Date 1. The Surat District Co.Op. 191103 dtd 25,00,000/- Bank,Ghod Road Branch, 29/09/2010 Surat.
The Surat District Co.Op. 191104 dtd 25,00,000/- Bank,Ghod Road Branch, 29/09/2010 Surat. We note that the cheque of Rs 25,00,000/- is credited in the bank account of the assessee, as a co-owner and the bank statement is filed in the Paper book at Pg No 64 wherein the penultimate entry shows that the cheque is cleared on 01. 10.2010 bearing Cheque No. 191103 with amount of Rs. 25,00,000/-, it is not the case of the Department that the said amount of Rs. 25,00,000/- is received for the purpose other than sale of land and hence the first proviso of sub-section 1 of section 50C are clearly applicable which are reproduced below:
"Provided that where the date of an agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purpose of computing full value of consideration for such transfer.... Page | 10
Assessment Year.2013-14 Dharmendra B. Patel Provided further that the first proviso shall apply only in a case where the amount of consideration or a part thereof has been received by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account (or through such other electronic mode as may be prescribed) on or before the date of agreement for transfer."
Thus, we note that both the conditions of the proviso of section 50C are satisfied because the seller have also received Rs 50,00,000/- at the time of Sale agreement dated 29.9.2010 through account payee cheques i.e through mode other than cash and hence as a matter of fact, the total sale consideration is always fixed at the time of receipt of advance and hence it is never possible by any law for the assessee to demand more sale consideration from the buyer subsequent to sale Agreement and receipt of substantial advance of Rs. 50,00,000/- just because the Jantri rate has increased and hence the assessee is abide by the law to carry his performance of contract by the terms of Sale Agreement and even as per the Indian Contract Act, 1872. Thus, by executing the Sale Deed, the assessee has only completed the contractual obligation imposed upon it by virtue of the Sale Agreement. Since the process of sale has been initiated from the date of Sale Agreement, the character of the transaction vis-a-vis Section 50C of the Income tax Act should also be determined on the basis of the conditions that prevailed on the date the transaction was initially entered into. Accordingly, the applicability of the provisions of section 50C should be looked at only on the date of Agreement to Sell i.e. 29.09.2010. According to the Jantri rate on that date, the stamp duty valuation is less than the sale consideration under the sale deed and hence no addition u/s 50C is required to be made as per proviso to Section 50C of the Act. Although the said amendment is effective from 01.04.2017, however it is to be noted that the said provisions are amended to remove an undue hardship to the assessee or to remove an apparent incongruity and hence it can be applied even in the pending matters and treated as retrospective in nature. There cannot be any dispute that this amendment in the scheme of section 50C has been made to remove an incongruity, resulting in undue hardship to the assessee, as is evident from the observation in Easwar Committee report that "The (then prevailing) provisions
Assessment Year.2013-14 Dharmendra B. Patel of Section 50C do not provide any relief where the seller has entered into an Agreement to Sell the asset much before the actual date of transfer of the immovable property and the sale consideration has been fixed in such agreement". Recognizing the incongruity that the date of agreement of sale has been ignored in the statute even though it was crucial as it was at this point of time that the sale consideration is finalized. The incongruity in the statute was glaring and undue hardship not in dispute. Once it is not in dispute that a statutory amendment is being made to remove an undue hardship to the assessee or to remove an apparent incongruity, such an amendment has to be treated as retrospective, effective from the date on which the law, containing such an undue hardship or incongruity, was introduced. In this regard, reliance can be placed on the judgment of ITAT, Ahmedabad Bench, in the case of Dharmshibhai Sonani Vs. ACIT[ dated 30.09.2016, wherein it was held as follows:
“[3]I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. [4]The fundamental purpose of introducing section 50C was to counter suppression of sale consideration on sale of immovable properties, and this section was introduced in the light of widespread belief that sale transactions of land and building are often undervalued resulting in leakage of legitimate tax revenues. This Section provides for a presumption, a rebuttable presumption though-something with which I am not concerned for the time being, that the value, for the purpose of computing stamp duty, adopted by the stamp duty valuation authority represents fair indication of the market price of the property sold. Section 50C(1) provides that, “Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer”. The trouble, however, is that while the sale consideration is fixed at the point of time when agreement to sell is entered into, there is sometimes considerable gap in parties agreeing to a transaction (i.e. agreement to sell) and the actual execution of the transaction (i.e. sale deed), and yet, it is the value as on the date of execution of sale deed which is recognized by Section 50C for the purpose of computing the capital gain because that is what is relevant for the purpose of computing stamp duty for registration of sale deed. The very comparison between the value as per sale deed and the value as per stamp duty valuation, accordingly, ceases to be devoid of a rational basis because these two values represent the values at two different points of time. In a situation in which there is significant difference between
Assessment Year.2013-14 Dharmendra B. Patel the point of time when agreement to sell is executed and when the sale deed is executed, therefore, should ideally be between the sale consideration as per registered sale deed, which is fixed by way of the agreement to sell, vis-à-vis the stamp duty valuation as at the point of time when agreement to sell, whereby sale consideration was infact fixed, because, if at all any suppression of sale consideration should be assumed, it should be on the basis of stamp duty valuation as at the point of time when the sale consideration was fixed. Income Tax Simplification Committee set up in 2015, headed by Justice R V Easwar- a former judge of Delhi High Court and one of the most illustrious former Presidents of this Tribunal, took note of this incongruity and, in its very first report (http://taxsimplification.in/REPORT.pdf), observed as follows: 6.1 RATIONALISATION OF SECTION 50C TO PROVIDE RELIEF WHERE SALE CONSIDERATION FIXED UNDER AGREEMENT TOSELL Section 50C makes a special provision for determining the full value of consideration in cases of transfer of immovable property. It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (i.e. “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration, and capital gains shall be computed on the basis of such consideration under section 48 of the Income-tax Act. The scope of section 50C was extended w.e.f. A.Y. 2010-11 to the transaction which were executed through agreement to sell or power of attorney by inserting the word “assessable” alongwith words “the value so adopted or assessed”. Hence, section 50C is now also applicable in case of such transfers. The present provisions of section 50C do not provide any relief where the seller has entered into an agreement to sell the asset much before the actual date of transfer of the immovable property and the sale consideration has been fixed in such agreement. A later similar provision inserted by way of section 43CA does take care of such a situation. 6.2 It is therefore proposed to insert the following provisions in section 50C: (4)Where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the value referred to in sub- section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (5)The provisions of sub-section (4) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before a date of agreement for transfer of the asset. [6] True to the work ethos of the current Government, it was the first time that within four months of the Tax Simplification Committee being notified, not only the first report of the Committee was submitted, but the Government also walked the talk by ensuring that the several statutory amendments, based on recommendations of this report, were introduced in the Parliament. So far as Section 50 C is concerned, the Assessment Year.2013-14 Dharmendra B. Patel Finance Act 2016, with effect from 1st April 2017, inserted the following provisos to Section 50C: Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer: Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.” [6] This amendment was explained, in the Memorandum Explaining the Provisions of Finance Bill 2016 (http://indiabudget.nic.in/ub2016-17/memo/mem1.pdf), as follows: Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade. It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property. 30 These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years. [7] While the Government has thus recognized the genuine and intended hardship in the cases in which the date of agreement to sell is prior to the date of sale, and introduced welcome amendments to the statue to take the remedial measures, this brings no relief to the assessee before me as the amendment is introduced only with prospective effect from 1st April 2017. There cannot be any dispute that this amendment in the scheme of Section 50C has been made to remove an incongruity, resulting in undue hardship to the assessee, as is evident from the observation in Easwar Committee report to the effect that “The (then prevailing) provisions of section 50C do not provide any relief where the seller has entered into an agreement to sell the asset much before the actual date of transfer of the immovable property and the sale
Assessment Year.2013-14 Dharmendra B. Patel consideration has been fixed in such agreement” recognizing the incongruity that the date agreement of sell has been ignored in the statute even though it was crucial as it was at this point of time that the sale consideration is finalized. The incongruity in the statute was glaring and undue hardship not in dispute. Once it is not in dispute that a statutory amendment is being made to remove an undue hardship to the assessee or to remove an apparent incongruity, such an amendment has to be treated as effective from the date on which the law, containing such an undue hardship or incongruity, was introduced. In support of this proposition, I find support from Hon’ble Delhi High Court’s judgment in the case of CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 377 ITR 635 (Del)], wherein approving the reasoning adopted an order authored by me during my tenure at Agra bench [i..e Rajeev Kumar Agarwal Vs ACIT (2014) 149 ITD 363 (Agra)] which centred on the principle that when legislature is reasonable and compassionate enough to undo the undue hardship caused by the statute “such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically”. In this case, it was specifically observed, and it was this observation which was reproduced with approval by Their Lordships, as follows: “Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non-deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004.” [8]Their Lordships were pleased to hold that this reasoning and rationale of this decision “merits acceptance”. The same principle, when applied in the present context, leads to the conclusion that the present amendment, being an amendment to remove an apparent incongruity which resulted in undue hardships to the taxpayers, should be treated as retrospective in effect. Quite clearly therefore, even when the statute does not specifically state so, such amendments, in the light of the detailed discussions above, can only be treated as retrospective and effective from the date related statutory provisions was introduced. Viewed thus, the proviso to Section 50 C should also be treated as curative in nature and with retrospective effect from 1st April 2003, i.e. the date effective from which Section 50C was introduced. While the Government must be complimented for the unparalleled swiftness with which the Easwar Committee recommendations, as accepted by the Government, were implemented, I, as a judicial officer, would think this was still one step short of what ought to have been done inasmuch as the amendment, in tune with the judge made law, ought to have been effective from the date on which the related legal provisions
Assessment Year.2013-14 Dharmendra B. Patel were introduced. As I say so, in addition to the reasoning given earlier in this order, I may also refer to the observations of Hon’ble Supreme Court, the case of CIT Vs Alom Extrusion Ltd [(2009) 319 ITR 306 SC)], to the following effect: “Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988 (i.e. the date on which the related legal provision was introduced). Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364: (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law should be disallowed under s. 43B of the Act while computing the business income of the previous year? That was a case which related to asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. Etc. (supra). However, the assessee contended that even though the first proviso came to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Ltd. Etc. (supra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis- a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example— in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004,
Assessment Year.2013-14 Dharmendra B. Patel would get the benefit of deduction under s. 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. [9] So far as the amendment to Section 50C being retrospective in effect is concerned, there is no doubt about the legal position. I hold the provisos to Section 50C being effective from 1st April 2003. This is precisely what the learned counsel has prayed for. In his detailed written submissions, he has made out of a strong case for the amendment to Section 50C being treated as retrospective and with effect from 1st April 2003. The plea of the assessee is indeed well taken and deserves acceptance. What follows is this. The matter will now go back to the Assessing Officer. In case he finds that a registered agreement to sell, as claimed by the assessee, was actually executed on 29.6.2005 and the partial sale consideration was received through banking channels, the Assessing Officer, so far as computation of capital gains is concerned, will adopt stamp duty valuation, as on 29.6.2005, of the property sold as it existed at that point of time. In case the assessee is not content with this value being adopted under section 50C, he will be at liberty to seek the matter being referred to the DVO for valuation, again as on 29.6.2005, of the said property. As a corollary thereto, the subsequent developments in respect of the property sold (e.g. the conversion of use of land) are to be ignored. It is on this basis that the capital gains will be recomputed. With these directions, the matter stands restored to the file of the Assessing Officer for adjudication de novo, after giving an opportunity of hearing to the assessee and by way of a speaking order. I order so. [10] As I part with the matter, I may make one more observation. The amendment in Section 50C was brought in to provide relief to the assessee in a situation in which the stamp duty valuation of a property has risen between the date of execution of agreement to sell and execution of sale deed, as is the norm rather than exception, but the real estate market is now traversing through a difficult phase and there can be situations in which there is a fall in the stamp duty valuation rates with the passage of time. Such a situation has actually arisen in many places in the country, such as in Gurgaon(http://www.hindustantimes.com/gurgaon/for-the-first-time- circle-rates-reduced-in-gurgaon/storycjp6e72TeGS9H5jJIALAGP.html), New Delhi (http://www.delhismartcities.com/blogs/high-circle-rates-causing-slump- realty- reduce-delhi-government/), and even in Dehradun (Uttarakhand) (http://www.tribuneindia.com/news/uttarakhand/relief-to-property-buyers-as-circle- rates-cut- 50-pc/247805.html) and some other places. It is therefore possible that, at first sight, first proviso to Section 50C may seem to work to the disadvantage of the assessee in certain situation in the event of the word ‘may’ being construed as mandatory in application, but then one cannot be oblivious to the fact that this proviso states that “the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer (emphasis supplied)” making it clearly optional to the assessee, and that, in any event, what has been brought by the lawmakers as a measure of relief to the taxpayers cannot be construed as resulting in a higher tax burden on the taxpayers. Of course, assuming that my understanding of this statutory provision is in harmony with the legislative intention, insertion of words “at the option of the assessee” between “stamp valuation
Assessment Year.2013-14 Dharmendra B. Patel authority on the date of agreement may” and “be taken for the purposes of computing full value of consideration for such transfer”, in first provisio to Section 50C(1), could have made the legal provision even more unambiguous. [11] In the result, the appeal is allowed in the terms indicated above.”
We note that said decision of Dharmshibhai Sonani (supra) has been subsequently relied by the Coordinate Bench of Surat in the case of Ramubhai S.Ahir, in order dated 10.05.2019. Therefore, taking into account the facts and circumstances, as narrated above, we remit this issue back to the file of assessing officer. If the assessing officer finds that a registered agreement to sale, as claimed by the assessee was actually executed on 29.09.2010 and the partial sale consideration was received through banking channels, the assessing officer should adopt stamp duty valuation as on 29.09.2010 to compute capital gains.
So far Ground No.2 raised by the assessee is concerned, the working of addition of Rs.1,20,95,753/- on account of disallowance of cost of indexation claimed by the assesse is tabulated as under:
Particulars Amount in Rs Indexed Cost of acquisition as considered by 19,45,130/- the AO: Total Value as on 01.04.1981 (as per DVO’s valuation) Rs 5,08,750/- Total Indexed Cost of (Rs. 5,08,750*852/100)=Rs 43,34,550/- (assessee’s share 44.875% Rs. 19,45,130/-) (A) Indexed Cost as claimed by the assessee : 1,40,40,883/- (Rs 16,47,991*852/100) (B) Addition(A-B) 1,20,95,753/- Learned Counsel submitted that the land for comparable sale instance relied by the DVO in his report were of such land which were far from the assessee's land and the land of the assessee was in much better locational advantage having approach roads from the main road and even the DVO has accepted the said fact. The land is approachable by all the types of surface transport facilities and means
Assessment Year.2013-14 Dharmendra B. Patel of communication facilities. It is further submitted that having approach from the main road on the front side, the growth and potentiality of the assessee's land was quite high even in the year 1981. Therefore, the fair market value estimated at Rs. 825/- per square meter by the Government Approved Valuer was fair and reasonable and undisputable. The basis of valuation by Government Registered Valuer can be found in Para 8 and 9 of the Valuation Report in Paper Book Pg No. 53-55, relied upon, by the assessee.
The Ld Counsel submits that DVO in his Valuation Report, which is filed in the Paper book at Pg No 41 to 50, has furnished his reply to assessee's objection wherein the DVO accepts that the PUC ( assessee's land) is having better location advantage. Further, the reason stated by DVO to discredit the report of the Registered Valuer is that the rate adopted by the Registered Valuer @Rs. 825/- per sq Meter as on 01.04.1981 is on very much higher side. Thus, it can be seen that no satisfaction is recorded by the DVO or the Ld. AO for rejecting the report of the Registered Valuer and he has simply rejected the said report because the value is on higher side without pointing out any defect in the valuation report, which is bad-in-law. In this regard, Reliance is placed on the aecision of Hon'ble High Court of Karnataka in the case of M. Govindaraju vs. Income Tax Officer & AMR [(2015) 377 ITR 0243(Kam)3 wherein it was held as follows:
"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 1.04.1981 on the basis of sale deeds of some nearby properties registered for such price in the year 1981 and thus arrived at the figure. In our opinion, the same cannot be the proper mode of arriving at the Page | 19
Assessment Year.2013-14 Dharmendra B. Patel fair market value' of the property in question as on 01.04.1981, for the purpose of determining capital gains under the Act. Tribunal was not justified in arriving at the fair market value of the property in question as on 1.04.1981 without taking into consideration the material on record, including the valuation report filed by the assessee." We note that in the present case also, the Govt Registered Valuation report is simply brushed aside by DVO as well as AO without pointing out any cogent defects in the same.
The Ld. Counsel submitted before us that the provisions of Section 55 of the income Act, 1961 gives an option to the assessee to substitute the fair market value as on 01.04.1981 for cost of acquisition. Now section 2(22B) of the Income tax Act,1961 defines "Fair Market Value", in relation to a capital asset as "the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date"
In the present case, the DVO as well as the AO has compared some few sale instances which may be construed to be the "transaction value" at that time which is entirely different from the "fair market value" required as per law because fair market value is considered from factors like location, utility & frontage, future NA potential, surrounding development and prevailing market rate etc. which is not the transaction value. Further, it is submitted that in a well regulated market as present in 2021, the "fair market value" can be reasonably be near around "transaction value" in few sale instances because the market is now organized and buyer and the seller both are informed due to penetration of internet and social network and there is transparency because of laws like RERA etc. However this was not the scenario in 1981, when the stamp duty on immovable
Assessment Year.2013-14 Dharmendra B. Patel property and the income tax were very high, there was defined Jantri rates and there was operations of Urban Ceiling Act in force resulting into many malpractices due to unregulated market and in such scenario, the transaction value of the sale instances cannot be equated with fair market value and because of the same reason, the assessee had also appointed a Govt Registered Valuer who is well qualified to prepare valuation of agricultural land.
The ld Counsel relied on the judgment of the Coordinate Bench of ITAT, Surat, in the case of Shri Naranbhas Govindbhai Ahir vs. I.T.O. Ward-2(3)(6) Surat [I.T.A No. 379/SRT/2017(Surat Bench)], wherein it is stated that there was valuation report of P.K. Desai valuing the land at Rs.380/- per Sq Meter and the said value of Rs.380/- per sq meter was accepted by the Tribunal, despite of the DVO's value of Rs.64.30/- per sq. meter, which shows that the value determined by Registered valuer cannot be rejected solely because it seems high. In the said judgment, Tribunal also took cognizance of the method wherein the Government Registered Valuer had valued the land price by taking reverse method of calculation by taking decrease of around 10% per year.
This view is further supported by the decision of Ahmedabad Tribunal in the case of Shri Madhusudan P. Patel vs. ITO Ward-3 Gandhinagar dated 05.04.2013, in (A.Y. 2007-08) wherein the Co-ordinate Bench of Tribunal held in para 5.12, that the learned Registered Valuer has categorically stated in his report that the sale instances are not available for the relevant period and for the near about period very less as compared to market
Assessment Year.2013-14 Dharmendra B. Patel price and, therefore, he has not relied on the same. The method adopted by him is the fair market value of the land as on date reduced by 10% ( correction factor 0.909%) for each year worked out reversely till 01.04.1981, which amounts to Rs. 227.6 per sq. meter. The relevant findings of the Tribunal are reproduced herewith:
" Methodology for computation of price of Agriculture land as on 01.04.1981: In land acquisition processing of escalation about 10% per annum is allowed for arriving at future value. Hence by adopting current rate and apply this method in reverse by calculating a decrease 10%(.09089 correction factor) per year rate applicable for the year 01.04.1981 can be worked out. During 2006 according to sale deed Rs. 2500 comes to one Sq Meter and applying above method Rs. 226.70 per Sq. Mtr as on 01.04.1981 Form the above it is obvious that the Valuation Officer has only relied upon the instances of sale price prevalent in the neighborhood in the near about dates of 01.04.1981. No other factors were considered to determine the value of the asset as on 01.04.1981. While as the registered valuer has examined the following relevant facts, which is important to estimate the market value of the land. (i) The land has close proximity to Ahmedabad City and is within the limits of Ahmedabad Urban Development Authority. (ii) The area is a fast developing area surrounded by various housing societies. (iii) Amenities like roads, water supply, drainage and electricity etc were existing. (iv) The area was well connected with transport facilities.
13. Considering the facts and the circumstances of this case we are of the considered view that the valuation report of the registered valuer is quite reasonable and therefore decide the issue in the favour of the assessee. It is ordered accordingly"
The ld Counsel pointed out that if the method of valuation referred in the said decision cited (supra) is applied in the assessee`s case, wherein the sale deed is executed in F.Y. 2012-13 and according to the Sale Deed, the Sale price comes to Rs.12,836/- per Sq Meter and by calculating the decrease of 10% per year (0.9090) correcting factor, value Per Sq.Metre as on 1.4.1981 would come to Rs.
Assessment Year.2013-14 Dharmendra B. Patel 607.94 per sq metres. Thus, market Value of Land, as on 01.04.1981 would be Rs. 27,05,940/- ( Rs. 607.94/- * 4451 sq metres ) and share of the assessee being 44.87% comes to Rs 12,14,155/- and the indexed cost of acquisition shall be Rs. 1,03,44,600/-.
We note that Coordinate Bench of this Tribunal in the case of Tejas Dineshbhai Patel and others in & 260/SRT/2017 for A.Y. 2014- 15, order dated 06.02.2020 has delivered the decision on the identical facts, wherein the grounds of appeal for adjudication before the Tribunal were as follows: “Ground No.1 to 3 of appeal states the ld. CIT (A) has erred upholding long- term capital gain of Rs. 41,03,549 as against Loss of LTCG of Rs.1,36,590 shown and computed by the assessee in respect of three pieces of land sold which were located are R.S.N. 191 , Block No. 149 at Moje Pal of Surat, by accepting DVO report and taking FMV as on 01.04.1981 at Rs.60 per sq. meter ignoring the FMV of the assessee at Rs.600 per sq. meter as on 01.04.1981 duly supported by the Government Approved Registered Valuer report submitted by the assessee and non-admitting the comments on valuation as made by the Registered Valuer Shri B. H. Patel of the assessee terming it as additional evidence, which were in facts technical opinion of the government qualified Registered Valuer, based as well as comparable sale instances available and after applying there methods.” 21.The findings given by the Tribunal in the context of the above stated ground of appeal is as under:
“9. We have heard the rival submissions and perused the relevant material on record. We find that the observation of the CIT (A) that B.H. Patel valuation report is additional evidence under Rule 46A is not correct as the same was provided by the assessee to DVO of Department at the time of valuation being carried out by the DVO on which he had made his comments for not accepting same. Therefore, we are of the considered opinion that these were not additional evidence under Rule 46A, hence, the ld. CIT (A) ought to have given weightage of Registered Valuer report of B. H. Patel. We find that there are three methods of valuation of land first one relates to sale instances multiplied by 11.94 factors, which is based on Hon`ble Supreme Court and Hon`ble High Court judgements. Second method is to consider increase in agricultural land price per month one percent. Third method is based on reverse method per year reduction of 10% of Jantri rate/Circle rates. The Government Registered Valuer of the assessee has based his valuation report on the average out of these three method for valuation of land, which in our opinion is correct method to be considered,
Assessment Year.2013-14 Dharmendra B. Patel in the case, where no specific sale instances of relevant period are available. The DVO has considered at Rs.600 per sq. meter land price as on 01.04.1981 as against the average of three method at Rs.833 per sq. meter. Therefore, we are of the view that the Registered Valuer has quite considerate in taking rate at 600 per sq. meter as against Rs. 833 being average rate. This view is further supported by the decision of Ahmedabad Tribunal in the case of Shri Madhusudan P. Patel v. ITO Ward-3 Gandhinagar dated 05.04.2013 (supra) wherein the Co-ordinate Bench of Tribunal held considered the average of three method and has relied upon sale instances of sale price prevalent in the neighborhood in the near about dates of 01.04.1981 . No other factors to determine the value of assets as on 01.04.1981 while the Registered Valuer has examined the relevant factors, which is important to estimate the market value of the land. Considering these factors, we are of the considered opinion that the valuation report of B.H. Patel in the case of the assessee is quite reasonable and therefore, the issue is decide in favour of the assessee. Accordingly, the AO is directed to apply rate of Rs. 600 per sq. meter for calculation if long-term capital gain in the hands of the assessee. Accordingly, Ground No. 1 to 3 of appeal are allowed.”
22.Conclusion: We find that the dispute between the assessee and the assessing officer is the rate of Rs.825/- per square meter, as fair market value as on 01.04.1981, whereas the DVO has estimated the fair market value as on 01.04.1981 at the rate of 114.30 per square meter. We note that the DVO has himself stated in his report that the impugned land was situated at more appropriate location as compared to sale instances considered by him. We also agree with the Ld.Counsel that assessee’s land is situated in New City Light Area of Surat, which is costly area and prices of the land in the said area is very higher side. Therefore, considering the entirety of the facts and taking a holistic view the fair market value @ 607 per square meter should be adopted to meet the end of justice. Accordingly, the AO is directed to apply rate of Rs. 607 per sq. meter for calculation of indexed cost of acquisition for the purpose of computation of long-term capital gain in the hands of the assessee. Therefore, Ground No.2 raised by the assessee is partly allowed.
Assessment Year.2013-14 Dharmendra B. Patel 23. In the result, the appeal filed by the assessee is partly allowed. Order is pronounced on 30/06/2021 by placing result on Notice Board.