RAMESH MUNAIAH CHINTAKUNTA,HYDERABAD vs. DCIT, CIRCLE-3(1), HYDERABAD

Pursuant to the order that was passed under section 263 of the Act, learned Assessing Officer determined the capital gains in respect of the sale of land at Nellore at ₹ 19,45,270/- by taking the sale consideration at ₹ 33.88 lakhs and the cost of acquisition at ₹ 14,42,730/-; and the capital gains in respect of the property at Jubilee Hills at ₹ 85,78,937/- by taking the sale consideration at ₹ 10,18,50,000/- and indexed cost at ₹ 9,32,71,063/-. These two issues are the subject matter of this appeal before us. We shall deal with these two issues hereunder.

Assessee challenged these two additions before the learned CIT(A) by way of appeal and pleaded, insofar as the Long Term Capital Gains in respect of the property at Nellore, that the actual sale consideration was only ₹ 9 lakhs whereas the indexed cost of acquisition was ₹ 15,72,774/- and thereby resulting in the capital loss of ₹ 6,72,774/-, but the learned Assessing Officer wrongly considered the sale consideration at ₹ 33.88 lakhs by adopting the SRO value for computing the capital gains under section 50C of the Act. Assessee pleaded that no proper opportunity was granted to him to submit that there were certain locational disadvantages in respect of such land and the land does not fetch more than ₹ 9 lakhs. Further it was pleaded before the learned CIT(A) that under section 50C of the Act, once the assessee objects to the adoption of consideration as per the value adopted by the registration authorities for the purpose of stamp duty, the learned Assessing Officer is duty bound to refer the matter to the valuation officer for determining the correct value and the learned Assessing Officer did not follow this procedure. Assessee also placed reliance on certain case law like ACIT vs. Ashwin Joshi in /Hyd/ 2012 and Jayashree Kothari vs. ITO in /Hyd/ 2017 etc.

On this aspect learned CIT(A) found that in the ITR form, the assessee did not report the stamp value and since the assessee accepted the value fixed by the stamp valuation authority, without raising any objection before the learned Assessing Officer, Ld. AO rightly did not refer the property for the valuation by the DVO and on this premise, he dismissed the contentions of the assessee.

It is the contention of the assessee before us that the assessee worked out the capital gains in respect of the property at Nellore by taking the sale consideration at ₹ 9 lakhs, cost of acquisition at ₹ 15,72,774/-and capital asset ₹ 6,72,774/-, but the learned Assessing Officer, consequent upon the revision of the order, adopted the sale consideration at ₹ 33.88 lakhs in terms of section 50C of the Act and worked out the capital gains at ₹ 19,45,270/-. Learned AR submitted that in all fairness the authorities should have taken cognizance of the provisions under section 50C(2) of the Act and referred to the determination of the fair market value. He further submitted that it is incorrect on the part of the learned CIT(A) to state that the assessee accepted the value fixed by the stamp valuation authority and did not raise any objection before the learned Assessing Officer inasmuchas there is no column in the ITR to insist on to mention stamp duty value of asset and that the learned Assessing Officer did not give sufficient opportunity before applying section 50C of the Act market value adoption as per SRO value.

On a perusal of the impugned order, we find that in respect of the indexed cost of acquisition in respect of this property, assessee computed the same at ₹ 15,62,774/-, whereas the learned Assessing Officer adopted ₹ 14,42,730/- and the learned CIT(A) on a perusal of the LTCG calculation, found that the assessee treated ₹9,27,636/- as the cost of asset and indexed the same at ₹15,62,774/-, whereas the learned Assessing Officer considered the same at only ₹ 8,50,935/- as cost of asset and indexed the same at ₹ 14,42,730/- and in the interest of justice, the learned POCIT directed the learned Assessing Officer to verify the fact with reference to the document and to recompute the LTCG accordingly.

Insofar as the grievance of the assessee that no opportunity was given to the assessee in respect of the adoption of the SRO rate by the learned Assessing Officer is concerned, there is no dispute that the document bears the sale consideration at ₹ 9 lakhs, and consequent to the revisionary orders while adopting the SRO rate in respect of the property at ₹ 33.88 lakhs, the record does not reveal that any opportunity was granted to the assessee to put forth his case on this aspect. In this context the submission of the learned AR that there is no column in the ITR to insist on the mention of stamp duty value of the asset assumes importance. We, therefore, are of the considered opinion that in all fairness the determination of the fair market value should have been referred to the DVO to be decided after hearing the assessee and considering the material put forth by him. We accordingly set aside the findings of the learned CIT(A) on this aspect and restore the same to the file of the learned Assessing Officer to refer the determination of the fair market value of the asset at Nellore to the DVO to be decided after affording an opportunity to the assessee. Grounds are answered accordingly.

Now coming to the addition in respect of the capital gains relatable to the property in Jubilee Hills, Hyderabad, plea of the assessee before the learned CIT(A) was that the assessee obtained the loan from EDCO India Pvt Ltd., during the financial year 2007-08 for the purpose of this property, there was an outstanding amount of ₹ 8,28,59,000/- as on 1/4/2008, the assessee obtained the parties loan of about Rs.9.7 crores from India Bulls financial services Ltd to clear of this loan to EDCO India Pvt Ltd., and claimed the interest expense as cost of acquisition with due indexation. Assessee also pleaded that originally the said property was purchased for jointly by the assessee and his brother Mr CM Rajeesh, with 50% share each and the Tribunal in the case of his brother Rajeesh in /Hyd/ 2022 found as a matter of fact that the interest expense has nexus with the rising of loans from India Bulls finance private limited by mortgage of the same property for clearing the loan of the M/s EDCO India Pvt Ltd., and therefore, the same is allowable deduction in terms of section 48 of the Act as it is required to be reduced from the sale consideration received by the assessee, being one of the components of the cost of acquisition.

Learned CIT(A) brushed aside this contention of the assessee and going by the observations of the learned PCIT in the Revisionary order under section 263 of the Act observed that inasmuch such an order under section 263 was upheld by the Tribunal in and 368 /Hyd/ 2017 and in the absence of any details of bank account etc., the claim of interest disallowed by the learned Assessing Officer has to be upheld.

Learned AR submitted before us that in respect of the asset at Jubilee Hills, initially the loan was taken from EDCO India Pvt Ltd., and subsequently by obtaining another loan, by mortgaging the same property, from India Bulls finances Pvt. Ltd and therefore, the interest expense in that respect also form part of the cost of acquisition and eligible for indexation. For this purpose he placed reliance on the view taken by a coordinate Bench of this Tribunal in /Hyd/ 2022 in the case of the co-owner of the very same property, namely, Mr CM Rajeesh, wherein it was held in unequivocal terms that the interest paid to the India Bulls finances Pvt. Ltd has nexus with the acquisition of the property and therefore, such interest on the loan obtained for substituting the housing loan that was initially obtained from EDCO India Pvt Ltd., is qualified for deduction in terms of section 48 of the Act.

Learned DR vehemently relied upon the findings of the authorities below and justified that the subsequent loan obtained from the India Bulls finances Pvt. Ltd is a mortgage loan obtained on the property, but not for the acquisition of the said property and therefore, it is not qualified for deduction under section 48 of the Act.

On a careful consideration of the matter and perusal of the findings of the coordinate Bench in the case of the co-owner of the property, namely, Mr CM Rajeesh, brother of the assessee, who holds 50% of share in the property and who litigated on the very same issue before the Tribunal, we find that the coordinate Bench returned an unequivocal finding and held that since the interest paid in respect of the property at Jubilee Hills on the loan amount used by him for substituting the housing loan has a direct nexus with the acquisition of the property, the same is allowable deduction in terms of section 48 of the Act and it is required to be reduced from the sale consideration received by the assessee, being one of the components of the cost of acquisition. In view of this clear and unequivocal finding, we do not think it just and proper to revisit the same issue and the judicial discipline requires that due deference must be shown to the findings given by the coordinate benches. Respectfully following the same, we hold that the disallowance of this interest expense and also the consequential disallowance of the corresponding index of the cost of acquisition needs to be deleted. We accordingly direct the learned Assessing Officer to delete the same.