THE ACIT, CIRCLE-1(1),, VISAKHAPATNAM vs. A.VENKATA MONISH SAMARENDRA ROW, VISAKHAPATNAM

आदेश /O R D E R

Per Shri D.S.Sunder Singh, Accountant Member : These appeals are filed by the assessees against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)], Visakhapatnam in I.T.A.No.0058/2013-14/ITO W-1(1)/Vsp/2013-14 and 0057/2013- 14/ACIT, C-1(1) Vsp/2013-14 dated 20.09.2013 for the Assessment Year (A.Y.) 2010-11 and cross appeals filed by the revenue against the orders of the Ld.CIT(A) dated 20.09.2013 for the A.Y. 2010-11. For the sake of

3 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam convenience, these appeals are clubbed, heard together and a common order is being passed as under:

4 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam sq.yards @200 = 16,42,000 (Market value taken @200 per square yard as on 1.4.1981. Therefore indexed cost of acquisition (16,42,000 x 632/100) Long Term Capital Gains Rs.55,89,227/-

2.1. During the course of assessment proceedings, the Assessing Officer (AO) found that the co-owners have executed the sale deed for total sale consideration of Rs.4,79,00,000/-, whereas, the guideline value of the property, as per Stamp Valuation Authority (SRO)was at Rs.20,93,55,000/- and the co-owners have paid the stamp duty on the guideline value without any contest before Stamps and Registration Authorities or in the Court of Law. Therefore, the AO asked the assessee as to why the guide value as per the SRO should not be taken for taxing the capital gains as per section 50C of the Act. The assessee objected for adoption of SRO rate, hence, the matter was referred to the Departmental Valuation Officer (DVO) in order to ascertain the market value of the said property as per the provisions of section 50C(2) of the Act. The DVO furnished the valuation report valuing the property as on 30.07.2009 at Rs.6,28,06,500/-. The AO issued show cause notice to the assessee proposing to adopt the SRO value instead of Fair Market Value determined by the DVO for the purpose of

5 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam capital gains and the assessee objected for adoption of the SRO Value due to the disadvantages in selling the property. The AO rejected the objections raised by the assessee, since, the assessee did not dispute the guideline value before Stamps and Registration Authorities or in any Court of Law. Accordingly the AO has taken the SRO value of Rs.20,93,55,000/- for the purpose capital gains. The assessee being 1/3 share holder, the AO brought 1/3rd share of Rs.20,93,55,000/- amounting to Rs.6,97,85,000/- as full value sale consideration as provided u/s 50C of the Act and computed the long term capital gains at Rs.6,63,25,853/-.

6 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam

weaker sections at the main entrance side and irregular frontage and the lease hold rights are not the major factors influencing the cost of land and applicable to any other property, therefore, viewed that the value determined by the Valuation Officer is incorrect and erroneous to the extent of allowances given in respect of the above factors and accordingly directed the AO to give allowance to the extent of 65% from the base rate and arrive at the full value consideration for the purpose of computation of capital gains. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) in para No.5.3 to 5.4 which reads as under : “5.3. It is relevant to go into the valuation report, which has given the basis for arriving at the value as under : Rate Analysis based on Ground Reality of the Rs. Plot Base rate per one sq.yd = 25,000.00 Rate influencing factors 1. Location 10.00% 2550.00 Add or medium commercial location on the building side 2. Lease Hold -25.00% -6375.00 Reduction of rate due to registered lease hold rights of 50 years upto 30.06.2021 (on the lessor’s land vide regd. Lease deed dated 16.07.1971) 3. Impact of legal restrictions : -20.00% -5100.00 Reduction of rate due to endless legal complications arising out of continuous possession and enjoyment of the land consequent to compromise petition filed by the lessor and lessee under order 23-R-3 of CPC dated 25.03.2005 and subsequent

7 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam

award by Lok Adalat on the petition No.1279/2004 filed by the lessor and lessee vide award dated 25.03.2005. Then mutually applied for ULCA clearance vide their representation dated 30.09.2005 which was finally received and hence finally completing the sale on 30.07.2009 vide subject agreement in which the first payment of part consideration of Rs.20,00,000/- was paid on 06.08.2007 by three different cheque nos.267387, 267388 & 267386 to three different co-owners respectively 4.Encumbrance -20.00% -5100.00 Reduction of rate due to the presence of permanent nine storied RCC hotel building of 1,20,000 sq.feet of the lessee on the seller’s land with a remaining age of 51 years (1980 + 80 = 2060=2009) i.e. upto the year 2060 which has crippled the scope of reversal of lease & crippled the free marketability of the subject land.) 5. Co-owners -5.00% -1275.00 Reduction of rate due to three numbers of co-owners 6. Pollution -2.50% - 637.50 Reduction of rate due to the close proximity of port stack yard for coal dust, iron ore and other air polluting materials. 7. Availability of buyers -2.50% -637.50 Reduction of rate due to less availability of buyers for purchasing a bigger area of the land 8. Presence of weaker section at the main -2.50% -637.50 entrance side Reduction of rate due to the presence of weaker section houses on the other side of the road at the frontage 9. Irregular frontage -2.50% -637.50 Reduction due to short and irregular frontage Net adoptable rate after considering the 7650.00 per influencing factors sq.yd

8 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam

Fair market value as on 30.07.2009, 8210 sq.yds@7650 = 6,28,06,500/-.

“5.4 From the perusal of the valuation report it could be seen that the valuation officer has taken the value determined by the stamp duty authority, as the base rate of the property and from that allowances/deduction have been made for various factors, such as leasehold right etc. The appellant's only objection to the stamp duty value was that her property was not freehold and was encumbered on account of the lease transactions entered with the purchaser in 1971, and as a result of which the market value would be less. A perusal of the valuation report shows that allowance to the extent of 65% (refer items 2,3 & 4 of the table) has been given on account of encumbrance created by way of lease which can be considered justified in the facts of the case. The other factors (refer items 1,5,6,7,8 & 9 of table above) considered in the valuation report do not relate to encumbrance on account of leasehold right and are applicable to any property situate in that location or survey number and are not in any way unique or specific to the subject land. These factors (referred in items 1,5,6,7,8 & 9 of the report) are generally considered in fixing the market value for the purpose of stamp duty valuation. Therefore, apparently there is no justification for further allowance on account of these factors in the appellant's case. The value determined by the valuation officer is incorrect and erroneous to the extent that allowance was given in respect of these factors (items 1,5,6,7,8 & 9) and accordingly the value after excluding the allowance in respect of the factors mentioned in items 1,5,6,7,8 & g of table may be taken to reflect the fair market value of the property. Therefore the AO is directed to give allowance to the extent of 65% from the base rate to arrive at the full value of consideration and on that basis the capital gains may be recomputed.” 3.1. Subsequently, the Ld.CIT(A) also passed a Corrigendum dated 31.10.2013 modifying his order to give allowance to the factors referred to in items 2, 3 and 4 as under : “3. The factors referred in items 5,6,7,8 & 9 of the valuation report are found to be not justified, and those referred in items 2,3,&4 were considered to be justified for allowance. However, in the said order even factor referred in Sl.No.1 was wrongly taken as allowance though it is not, as evident from the valuation report. Only the factors referred in items 2,3,& 4 are to be considered for allowance while computing the full value of consideration as directed in the original order. Therefore, para 5.4. of the order may be read as under:-

9 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam

5.4 From the perusal of the valuation report it could be seen that the valuation officer has taken the value determined by the stamp duty authority, as the base rate of the property and from that allowances/deduction have been made for various factors, such as leasehold right etc. The appellant's only objection to the stamp duty value was that her property was not freehold and was encumbered on account of the lease transactions entered with the purchaser in 1971, and as a result of which the market value would be less. A perusal of the valuation report shows that allowance to the extent of 65% (refer items 2,3 & 4 of the table) has been given on account of encumbrance created by way of lease which can be considered justified in the facts of the case. The other factors (refer items 5,6,7,8 & 9 of table above) considered in the valuation report do not relate to encumbrance on account of leasehold right and are applicable to any property situate in that location or survey number and are not in any way unique or specific to the subject land. These factors are generally considered in fixing the market value for the purpose of stamp duty valuation. Therefore, apparently there is no justification for further allowance on account of these factors in the appellant's case. The value determined by the valuation officer is incorrect and erroneous to the extent that allowance was given in respect of these factors (items 5,6,7,8 & 9) and accordingly the value after excluding the allowance in respect of the factors mentioned in items 5,6,7,8 & 9 of table may be taken to reflect the fair market value of the property. Therefore the AO Is directed to give allowance in respect of factors referred in item 2,3 & 4 to arrive at the full value of consideration and on that basis the capital gains may be recomputed.” 4. Against the order of the Ld.CIT(A), the assessee as well as the department have filed cross appeals. Initially, the assessee’s appeals were decided by this Tribunal vide order in I.T.A. No.684/Viz/2013 and 685/Viz/2013 dated 07.03.2014. At the time of deciding the assessee’s appeals, neither the department nor the assessee brought to the notice of the ITAT regarding the pendency of departmental appeals. Therefore, the ITAT has decided the assessee’s appeal without considering the departmental appeal. Subsequently, the department has filed Miscellaneous Application and the ITAT has recalled it’s orders vide order

10 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam dated 16.07.2019 in M.A. No. 59/Viz/2017 and 60/Viz/2017 and fixed the cases for hearing.

4.1. During the appeal hearing, the Ld.DR submitted that the Ld.CIT(A) erred in revaluing the property giving allowances to the extent of 65% on the base rate fixed for computing the capital gains. The Ld.DR submitted that the base rate fixed by the DVO was Rs.25,000/- per sq.yd and went on allowing the deductions / allowances on the base rate for factors, such as location, lease hold right of lessees, impact of legal restrictions, encumbrances, building of hotel, co owners, pollution, availability of buyers, presence of weaker section at the main entrance and irregular frontage etc.. These are the factors which exist in every land transaction. Therefore, the Ld.DR argued that the Ld.CIT(A) ought not to have allowed the deductions or allowances for various factors. While deciding the appeal of the assessee, the Ld.CIT(A) has considered the DVO value and held that the valuation report is not binding on the CIT(A),hence, he should not have allowed further deductions or allowances from the base rate. Accordingly, the Ld.DR submitted that the Ld.CIT(A) has erred in allowing various deductions, hence requested to set aside the order of the Ld.CIT(A) and

11 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam restore the assessment order. The Ld.DR also submitted that in the facts and circumstances, the assessee’s appeal required to be dismissed.

12 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam proximate port, dockyard for coal dust and other polluting material. The area 8210 square yards is very bigger area, the assessee was not in a position to find a buyer for such large track of the land with all the existing problems. These were some of the reasons given by the assessee for fetching lesser rate. Apart from the above factors, such irregular frontage and the presence of weaker sections at the main entrance were also contributed for reduction in the market rent. The Ld.AR further submitted that above factors were brought to the notice of the AO and the AO has referred the valuation to the DVO, who has valued the FMV at Rs.6,28,06,500/- as per section 50C(2) of the Act. Once the AO being satisfied with objections raised by the assessee and referred the valuation of the property to the Valuation Officer, the value determined by the DVO is binding on the AO and the AO has to take the full value of consideration as determined by the DVO. Therefore, the Ld.AR argued that both Ld.CIT(A) and the AO have erred in not adopting the FMV determined by the DVO as full value of consideration. If the CIT(A) is not convinced with the valuation made by the DVO, the Ld.CIT(A) ought to have referred the valuation again to the DVO or examined the DVO and allowed the assessee to cross examine the DVO. Therefore, argued that what the AO cannot do, the Ld.CIT(A) also

13 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam not permitted to do, therefore, argued that the Ld.CIT(A) has traversed beyond his jurisdiction, hence requested to set aside the order of the Ld.CIT(A) and allow the appeal of the assessee. Advancing further, the Ld.AR argued that as per evidences placed before the lower authorities, the property was under litigation. Lessee has filed the suit in the Court of Law and both the parties have agreed to transfer the property before the Lok Adalat for a consideration of Rs.2,62,25,000/- and the advance was paid by the vendee and the agreement was entered for transfer of property dates back to 06.08.2007 and the assessee received the advance of Rs.6,66,668/- on 06.08.2007. Three cheques aggregating to Rs.20,00,000/- were drawn on Union Bank of India in favour of each vendors. Therefore, argued that the valuation of the DVO required to be made on 06.08.2007, but not on 31.07.2009 and requested to adopt the actual sale consideration of Rs.4,79,00,000/- as full value of sale consideration. Accordingly requested to set aside the order of the Ld.CIT(A) and delete the addition made by the AO.

14 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam Ward, Visakhapatnam to M/s Dolphin Hotels Ltd., vide sale deed dated 30.07.2009 for a sale consideration of Rs.4,79,00,000/-. The said property was under lease to Sunbeam Hotels Pvt. Ltd., through lease deed dated 16.07.1971 registered as Document No.4409 of 1971 at Sub Registrar Office, Visakhapatnam. The said Sunbeam Hotels Private Ltd. was converted into public limited company by name “Dolphins Hotels Limited” which is the purchaser of this property. Disputes arose between lessor and the lessee and both of them have approached the Principal Senior Civil Judge, Visakhapatnam and filed suit in O.S.No.1279 of 2004. Later both the parties have entered into compromise agreement dated 25.03.2005 and the vendors have agreed to sell the scheduled property to the purchaser for total consideration of Rs.2,62,35,000/- and agreed to complete the sale transaction before 31.03.2005 before the Lok Adalat. Due to Urban Land Ceiling Certificates or ULC problems, the assessee could not transfer the land to the purchaser till 31.03.2009 mean while the rates have gone up and both of them have agreed for total consideration of Rs.4,79,00,000/-. The purchaser initially paid the part of sale consideration of Rs.20,00,000/- to Smt. Indrani Jagga Row, Shri Ankitam Venkata Addep Jagga Row and Shri A.V.Monish Samerender Row @ Rs.6,66,667/- to each co-owner by

15 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam cheques drawn on Union Bank of India, Visakhapatnam branch on 06.08.2007. Subsequently, the assessee made the remaining payment of Rs.4,59,00,000/- to the vendors @ 1,53,00,000/- each by way of cheques drawn on Union Bank of India, Hyderabad dated 28.07.2008 and the vendors have registered the sale deed on 30.07.2009 and stamp duty value was fixed by SRO at Rs.20,93,55,000/-. As seen from the sale deed, the purchaser has made advance dates back to 06.08.2007 and the entire payment was paid to the assessee as on 28.07.2008 much prior to the date of sale deed. The AO did not accept the fair market value(FMV) determined by the DVO on the reason that the assessee has not contested the issue either before the Court of Law or before the registration authorities. Therefore, adopted the guideline value of SRO and computed the capital gains. On appeal, the Ld.CIT(A) also did not accept the fair market value determined by the DVO and directed the AO to give allowance to the extent of 65% from the base rate to arrive at the full value of consideration for the purpose of capital gains. As per the provisions of section 50C of the Act, once the assessee objects for adopting the guideline value of SRO, the AO is duty bound to refer the valuation to the DVO, even in a case, where the assessee has not

16 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam raised any dispute before Stamp Valuation Authorities. Once the reference is made to the DVO, the AO is bound to follow the fair market value determined by the valuation officer unless the value determined by the valuation officer exceeds the guideline value of SRO. In case, the fair market value determined by the valuation officer exceeded the 50C value, the AO is required to take the fair market value of SRO. In a nut shell, the AO is required to take the fair market value as per SRO value or the value determined by the valuation officer whichever is less for the purpose of computing the capital gains as per the provisions of the Act. The section did not give any exceptions or discretion to the AO to reject the valuation report when the value determined by the valuation officer does not exceed the fair market value as per SRO. The Ld.CIT(A) was also not given any powers to do what the AO is not permitted to do in section 50C of the Act. In the instant case, the assessee has explained the reasons and disadvantages for getting the lesser rate. The property in question was in litigation and both the parties have agreed to transfer the property at the cost of Rs.2,62,35,000/- before the Lok Adalat and both of them have agreed to complete the transaction before 31.03.2005. The purchaser has given advance for purchase of land and entered into an agreement on

17 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam 06.08.2007 and the entire sale consideration was paid by the purchaser on 28.07.2008. All these facts were not considered by the Ld.CIT(A) while disposing the appeal. Since the property in question was referred to valuation officer and the value assessed by the valuation officer is binding on the department, there is no reason to enhance the value assessed by the Valuation Officer when the Act does not permit the AO or the CIT(A) to do so. In case the CIT(A) is not convinced with the value determined by the DVO, as an extension of assessing authority, the Ld.CIT(A) ought to have referred the issue to the DVO again for reconsideration of the value. The valuation officer being expert, the Ld.CIT(A) is not allowed to tinker with the expert opinion without further reference to the DVO and in the process, the Ld.CIT(A) also has to give opportunity to the assessee to cross examine and to present his case before Departmental Valuation Officer along with the observations of the Ld.CIT(A). The entire process of examination, reexamination, reference was not conducted in the instant case. Therefore, there is no reason to not to accept the value determined by the valuation officer. Thus we are unable to sustain the order of the Ld.CIT(A) and hold that the assessing authority has no option except to accept the FMV determined by the DVO after making reference and proceed to compute

18 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam capital gains by following provisions of sub section 50C(3) of the I.T.Act. Except the general remarks neither the CIT(A) nor the AO has found the specific defaults in the valuation report. Accordingly, we direct the AO to compute the capital gains adopting the value determined by the DVO in place of guideline value of Stamps and Registration Authority.

19 I.T.A. No. 684 & 685/Viz/2013, 692/Viz/2013 and 693/Viz/2013, A.Y.2010-11 Smt.Ankitham Indrani Jagga Rao and Shri A.Venkata Monish Samarendra Row, Visakhapatnam

Order pronounced in the open court on 11th December, 2019.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नििधंक /Dated : 11.12.2019 L.Rama, SPS

आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:-

आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam