COMMISSIONER OF INCOME TAX- 1 JAIPUR vs. SHRI RAVI SANCHETI

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ITA/183/2016HC RajasthanRJHC02082172201616 January 20185 pages
AI SummaryRemanded

What did the High Court hold?

The High Court, after hearing both parties, was of the opinion that the matter required remittance back to the Tribunal for reconsideration, a course of action agreed upon by both parties. Consequently, the Court quashed and set aside the order of the Tribunal. The matter was remitted back to the Tribunal to decide the appeal afresh, taking into consideration the grounds raised in the appeal memo. The Court explicitly stated that no opinion was being expressed on the merits of the case, as doing so would prejudice either party. No further amendment to the appeal memo would be allowed. The appeal was allowed in terms of the remand.

What were the facts?

The appeal by the Commissioner of Income Tax-I (Revenue) challenges an order of the Income Tax Appellate Tribunal (ITAT) which modified the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer (AO). The ITAT had previously remanded the matter to the AO for calculation of Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) in accordance with its directions. The assessee, Shri Ravi Sancheti, provided floor-wise DLC rates from the Sub-Registrar's office, which the AO accepted. The CIT(A) had enhanced the LTCG and STCG, a move the ITAT found unjustified, stating the AO's calculation based on DLC rates should not have been disturbed. The dispute centers on the valuation of land and shops for capital gains computation.

What were the issues?

1. Whether the Tribunal was legally justified in assessing Long Term Capital Gain of Rs. 1,05,13,600/- and allowing deduction under Section 54 thereon as against Rs. 31,48,870/- assessed by CIT (A) and Short Term Capital Loss of Rs. 15,64,763/- as against Short Term Capital Gain of Rs. 56,19,787/-, without any application of mind in complete ignorance of the report of Sub-Registrar and provisions of Section 50C of the Act? (Question of law and mixed fact and law, turning on Section 50C). Assessee's contentions: The assessee relied on floor-wise DLC rates from the Sub-Registrar's office, accepted by the AO, for calculating capital gains. The CIT(A) erred in enhancing these gains. The Sub-Registrar is the prescribed authority under Section 50C for determining floor-wise DLC rates, and there was no justification for the AO to enhance values based on these rates. The ITAT's specific directions were not properly followed by the CIT(A). Revenue's contentions: The Revenue contended that the Tribunal traveled beyond the scope of the appeal and framed two questions. The Revenue sought to justify the order of the CIT(A) by highlighting the AO's method of applying DLC rates to the proportionate value of land and the assessee's method of applying a profit rate of 8% on construction activity, both of which were questioned.

Which sections of the Income-tax Act were involved?

Section 50C,Section 54

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 183 / 2016 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur Raj ----Appellant Versus Shri Ravi Sancheti 176, Haldiyon Ka Rasta, Johri Bazar, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 16/01/2018 1. By way of this appeal, the appellant has challenged the order and judgment of the Tribunal whereby the Tribunal has allowed the appeal modifying the order of the CIT (A) as well as AO. 2. Counsel for appellant has contended that the Tribunal has really traveled beyond the scope of the appeal and framed two questions. 3. However, while considering the matter the Tribunal has observed as under: 2.6 We have heard the rival contentions and perused the material available on record. This is the second round of proceedings as ITAT Jaipur order dated 24.06.2011 decided the main issue in favour of the assessee and for limited purpose of calculation of LTCG & STCG in accordance with such terms, the matter was remanded to the Ld. AO. Assessee was produced the floor wise DLC

(2 of 5) [ITA-183/2016] rates from Sub Registrar office, which are accepted by AO. Under section 50C of the Act, Sub Registrar is the prescribed authority to determine floorwise DLC rates. In our view there is no justification on the part of AO to enhance the values adopted on the basis of DLC rates. The allocable cost worked out for respective LTCG and STCG has been accepted by the Ld. CIT(A) as well. In the given facts and circumstances we are of the view that ld. CIT(A) erred in enhancing the LTCG and STCG as computed by the AO which was based on DLC valuation. Besides there appears no justification in disturbing the AO's in this behalf and the specific directions of the ITAT have not been properly followed. Thus the order of ld. CIT(A) in this behalf cannot be upheld. When the law prescribes the Sub Registrar as prescribed authority for determination floor wise DLC rates u/s 50C we see no justification in interfering with the same. 4. However, counsel for respondent has tried to justify the order of CIT (A) by reading paras which are as under: “ In compliance with the Hon’ble ITAT’s order, the AO has passed the impugned order u/s 143(3). While calculating the capital gains the AO has applied DLC rates of the area on the proportionate value of the land included in the sale consideration. This was done by the AO on the ground that in the sale deeds of the shops, only full value of consideration was mentioned and the bifurcation of the amount pertaining to land and building was not mentioned separately. The

AO,

accordingly,

calculated

the proportionate long term capital gain at Rs. 21,20,866/- and short term capital gain on shops at Rs. 43,84,270/- as against Rs. 87,77,700/- and Rs. 3,42,061/- respectively calculated by the appellant. The contention of the appellant is that the method adopted by the AO did not reflect the correct value of land and the building constructed on it. In a multi storey building the value of the ground floor is generally higher . Since, the office of the Sub-Registrar deals with the issue of property rates, the appellant was asked to furnish the basis of valuation adopted by the Sub-Registrar. The report of the Sub- Registrar, as approved by the DIG (Registration & Stamps) on 03/08/2006, regarding determination of the market rate of the building was furnished by the appellant on 16/01/2014.

(3 of 5) [ITA-183/2016] The Dlc rates worked out by the Stamp Authorities are as under: 1. Commercial Rate : 3718/sq.ft. 2. Semi-Commercial Rate : 2479/sq.ft. The Floorwise DLC rates as have been prescribed in the Sub-Registrar’s report is as below: 1. Ground Floor (Commercial): a. Value of Land : 80% of the total DLC rate i.e. 3718 = 2975/- per sq ft b. Cost of Construction : 400/- per sq ft c. Common : 33/- per sq ft facility value Ground Floor Rate : 3410/- per sq ft (Rounded off) 2. First Floor (Semi-Commercial) a. Value of Land : 70% of the total DLC rate i.e. 2479 = 1735/- per sq ft b. Cost of Construction : 400/- per sq ft c. Common : 33/- per sq ft facility value First Floor Rate : 2170/- per sq ft (Rounded off) 3. Second Floor (Semi-Commercial) a. Value of Land : 60% of the total DLC rate i.e. 2479 = 1487/- per sq ft b. Cost of Construction : 400/- per sq ft c. Common : 33/- per sq ft facility value Second Floor Rate : 1920/- per sq ft (Rounded off) 4. Third Floor (Semi-Commercial) a. Value of Land : 50% of the total DLC rate i.e. 2479 = 1240/- per sq ft b. Cost of Construction : 400/- per sq ft c. Common : 33/- per sq ft facility value First Floor Rate : 1675/- per sq ft (Rounded off)”

8.

I have considered submissions of the appellant, report of the AO, rejoinder filed by the appellant and have also gone through the assessment order. The basic issue in this case,

(4 of 5) [ITA-183/2016] as mentioned above, is how to bifurcate the capital gains between the long term capital gains on the bale of land and short iterm capital gains on sale of shops. It is seen that the AO has adopted the value of land in a uniform manner. This is not correct as far as a multistory building is concerned. Similarly the appellant has adopted the method of applying ne profit rate of 8% on construction activity and on that basis he has worked out the long term and short term capital gain on sale of land and building respectively. However, this method also does not reflect the correct value of the land and the shops as this rate of 8% is adopted for determining income on presumptive basis in certain cases. The appellant has also relied on the valuation adopted by the Registering Authority. It would, therefore, be more appropriate to adopt the methodology used by the Sub-Registrar office which determines the value of a property for stamp duty purposes and which has been made statutorily admissible u/s 50C.

5.

This Court while admitting the appeal on 07.10.2016, framed following substantial question of law: “1. Whether the Tribunal was legally justified in assessing Long Term Capital Gain of Rs.1,05,13,600/- and allowing deduction under Section 54 thereon as against Rs.31,48,870/- assessed by CIT (A) and Short Term Capital Loss of Rs.15,64,763/- as against Short Term Capital Gain of Rs.56,19,787/-, without any application of mind in complete ignorance of the report of Sub-Registrar and provisions of Section 50C of the Act?” 6. We have heard counsel for the parties. 7. After hearing both the sides, we are of the opinion that the matter is required to be remitted back to the Tribunal for reconsideration which has been agreed by both the parties. Since we remitting matter back to the Tribunal we are not expressing any opinion on merits as it will affect either side.

(5 of 5) [ITA-183/2016] 8. In view of consensus between the parties, the order of the Tribunal is quashed and set aside. The matter is remitted back to the Tribunal which will decide the same afresh after taking into consideration the grounds raised in the appeal memo. It is made clear that no further amendment will be allowed in the appeal memo. 8. The appeal stands allowed.

(VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Chauhan/56

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