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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI G. MANJUNATHA, HON’BLE & SHRI ANIKESH BANERJEE
आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-2, Coimbatore, dated 28.09.2017 and pertains to assessment year 2013-14.
The assessee has raised the following grounds of appeal:
The order of the Commissioner of Income Tax (Appeals) is bad in law, opposed to the facts and circumstances of the case and suffers from revenue bias.
2. The Commissioner (Appeals) erred in deciding both issues: (i) adoption of the FMV as on 01.04.1981 in determining Long Term Capital Gain on sale of land and (ii) deduction u/s.54F of actual expenditure incurred on improvement of residential building against the appellant and dismissing the appeal. 3. The Commissioner (Appeals) erred in upholding the assessing officer's action in adopting the FMV as on 01.04.1981 of 9.37 acres of land as Rs.1,04,93,894/- (at
:: 2 :: the rate of Rs.11,19,946/- per acre) as per the Registered Valuer's Report as against Rs.1,59,38,350/- (at the rate of Rs.18,17,884/- / Rs.16,36,096/- per acre) representing the FMV as on 01.04.1981 as per order u/s 55A of the Income Tax Act read with section 16A(5) of the Wealth Tax Act passed by the Departmental Valuation Officer on a reference made by the assessing officer u/s.55A of the Act to the Valuation Officer.
4. The Commissioner (Appeals) grossly erred in holding that "the reference to the DVO is strictly not in terms of section 55A and therefore not valid" when the language of section 55A(a) is specific, clear and unambiguous and leaves no doubt as regards the correctness / validity of the reference in the present case.
The Commissioner (Appeals) failed to notice that in a detailed letter dt.02.08.2017 in reply to the assessing officer's letter, the Valuation Officer has explained and justified his method of valuation emphasizing that the valuation done by him is an independent and unbiased valuation based on the facts.
The appellant submits and urges that the authorities below have gone wrong in disregarding the Valuation Officer's order (labeling it as invalid) just because it is unsuited to the requirements of the revenue, in clear violation of the mandate of 16A(6) of the Wealth Tax Act.
The Commissioner (Appeals) erred in not following the judgments / order cited before him regarding the binding nature of the Valuation Officer's order in the context of a reference u/s.55A of the Act.
(i) CWT vs. Dr.H.Rahman [(1991) 189 ITR 307 (All)] (ii) CIT vs. Dr.lndra Swaroop Bhatnagar [(2012) 349 ITR 210 (All)] (iii) Daulatram vs. ITO [(1990) 181 ITR 119 (AP)] (iv) Jarnail Singh vs. ITO [(2009) 121 TTJ (ASR) 101]
8. The appellant submits that the reasons stated by the Commissioner (Appeals) in Paras 4.2 to 4.6 of the Appellate Order for preferring the Registered Valuer's estimate of FMV to the Valuation Officer's are flawed; while relying on the Valuation Officer's clarificatory letter dt.02.08.2017 addressed to the assessing officer and the submissions contained in the appellant's letter dt.21.09.2017 to the Commissioner (Appeals) the appellant craves leave to make further oral and written submissions to the Hon'ble Tribunal in support of the Valuation Officer's order at the time of hearing of the appeal.
9. The appellant further craves leave to refer to the Valuation Reports, Written Submissions to the Commissioner (Appeals), correspondence and all other relevant material at the time of hearing before the Hon'ble Tribunal.
10. The Commissioner (Appeals) erred in sustaining the action of the assessing officer in restricting the allowable deduction u/s.54F of the Act to Rs.1,40,01,800/- against Rs.1,56,12,239/- being the actual cost of improvement of the appellant's residential house, in computing the Long Term Capital Gain.
11. The Commissioner (Appeals) failed to see that in support of the cost of improvement claimed (Rs.1,56,12,238/-) the appellant had submitted Bills and Vouchers and in the light of the evidence made available the entire amount ought to have been allowed.
For these and other grounds that may be urged at the time of hearing the appellant prays that the Hon'ble Tribunal be pleased to allow the appeal and render justice. 3. The brief facts of the case are that the assessee has filed its return of income for the assessment year 2013-14 declaring total income of Rs.2,31,56,711/-, which consists of income from capital gains and income from other sources. The case was taken up for scrutiny. During the course of assessment proceedings, it was noticed that the assessee along with his mother and grandmother, has sold an immovable property located at Sy.Nos.446 & 447 in Vilankurichi Village, Coimbatore, for a sale consideration of Rs.40 Crs. The assessee has computed long term capital gains derived from sale of property by taking into account his share of consideration for transfer of property. The assessee has claimed indexed cost of acquisition by taking into account Fair Market Value (in short “FMV") of the property as on 01.04.1981, because the property was inherited by the assessee from his grandmother by Will dated 29.01.1988.
Subsequently, the grandmother of the assessee has executed the settlement deed dated 05.06.2012 and bequeathed her right and interest in the property in favour of her daughter and grandson. During the course of assessment proceedings, the AO on the basis of evidences filed by the assessee noticed that since the assessee became owner of the property by virtue of Will executed by his grandmother, called upon the assessee to justify the computation of long term capital gains by adopting his share of sale proceeds received from the property. In response to the notice, the assessee has filed revised statement of total income and admitted long term capital gains of Rs.30,90,90,003/- after claiming indexed cost of acquisition of Rs.8,94,59,997/- by adopting the FMV of the land as on 01.04.1981 at Rs.11,19,946/- per acre. The assessee has justified the FMV of the land as on 01.04.1981 by a Valuation Report dated 21.11.2015 obtained from the Registered Valuer.
During the course of assessment proceedings, in order to verify the correctness of FMV of land adopted by the assessee, the AO has referred the matter to the District Valuation Officer (in short “DVO"). The DVO has determined the FMV of the property as on 01.04.1981 at Rs.18,17,884/- as against FMV determined by the Registered Valuer at Rs.11,19,946/-.
The AO after considering the value adopted by the assessee, as per the Registered Valuer’s Report and also taken note of the DVO’s Report, opined that the value adopted by the assessee on the basis of Registered Valuer’s Report is correct market value of the property and thus, rejected the value determined by the DVO and has adopted FMV as claimed by the assessee on the basis of Registered Valuer’s Report at Rs.11,19,946/- and computed long term capital gains. As regards exemption claimed u/s.54F of the Income Tax Act, 1961 (in short “the Act"), the AO after considering the various evidences filed by the assessee, including purchase cost of land, has allowed exemption of Rs.1,40,01,800/- out of total exemption claimed by the assessee at Rs.1,56,12,239/- by holding that the assessee could not file necessary evidences to justify various expenses incurred for the property and thus, allowed the benefit as per the Registered Valuer’s Report, which has determined the valuation of the property at Rs.1,40,01,800/-.
5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee contended that the AO having referred to the matter to the DVO for determining the FMV of the property as on 01.04.1981, has erred in not adopting the valuation of the property determined by the DVO without appreciating the fact that as per the provisions of Sec.55A of the Act r.w.s.16A of the Wealth Tax Act, 1957, the AO is required to adopt the value determined by the DVO. The Ld.AR further referring to the Valuation Report of the Registered Valuer and the Valuation Report of the DVO submitted that both authorities have considered the valuation of the property on the basis of Rent Capitalization Method based on lease agreement entered into by the State Government of Tamil Nadu with M/s.Jenny’s Residency Pvt. Ltd., in the year 1994 and as per the lease agreement, lease rent has been fixed @ 3% on lands which are used for agricultural purpose and @7% for other purposes.
The Registered Valuer has considered the location of the land and its intended to use, has taken average of 3% & 7% and has taken 5% for Rent Capitalization Method to arrive at valuation of Rs.11,19,946/-. On the other hand, the DVO is also gone on ‘Rent Capitalization Method’, but has taken the lease rent of 3% by taking a note of the nature of the land. Except lease rent, other parameters considered by both authorities are same.
Therefore, he submitted that when the DVO has considered 3% lease rent for Rent Capitalization Method by taking a note of nature of land, the AO ought to have adopted the value determined by the DVO.
6. He further submitted that as regards exemption claimed u/s.54F of the Act for re-investment of sale consideration in purchase of residential property, the assessee has filed all evidences to justify the amount invested for purchase of property, whereas, the AO has taken value as per the Registered Valuer’s Report without appreciating the fact that the assessee has made investment of Rs.1,56,12,239/-, which includes cost of improvement. Therefore, argued that the AO may be directed to allow the deduction as claimed by the assessee.
7. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that the Ld.CIT(A) has discussed the issue at length in light of various facts brought out by the AO and arguments of the assessee and held that once the assessee himself has adopted a particular value to replace FMV of the land as on 01.04.1981, then there is no error in the reasons given by the AO to adopt the value as claimed by the assessee, more particularly, when such valuation is supported by the Registered Valuer’s Report. The Ld.DR further submitted that there is no dispute with regard to the fact that both authorities have valued the property on the basis of Rent Capitalization Method, in the absence of any sale instances at the relevant point of time, however, the only difference between two Reports is that the Registered Valuer has taken 5% lease rent for Rent Capitalization Method, whereas, the DVO has considered lowest lease rent of 3%, which was fixed for agricultural land only on the basis of land records which shows that the nature of land is agriculture. Otherwise, there is no difference in the method adopted by both authorities. Therefore, the Ld.CIT(A) rightly held that when the assessee himself has adopted a particular value which is supported by Valuation Report, then there is no reason for the assessee to ask for replacement of DVO’s valuation, because it is more beneficial to the assessee. As regards, exemption claimed u/s.54F of the Act, the Ld.DR submitted that when the assessee has failed to produce necessary evidences for cost of improvement. The AO has rightly adopted the valuation of the property as per the Registered Valuer’s Report. Therefore, there is no error in the reasons given by the AO and the Ld.CIT(A) to reject the arguments of the assessee and thus, their orders should be upheld.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee himself has adopted FMV of the property as on 01.04.1981 at Rs.11,19,946/- and such valuation was supported by Registered Valuer’s Report. The Registered Valuer has arrived at FMV of the property on the basis of ‘Rent Capitalization Method’, on the basis of single instance of lease agreement between M/s.Tamil Nadu Corporation for Development of Women Ltd., Madras, and M/s.Jenny’s Residency Pvt. Ltd., for leasing out the land adjacent to the land sold by the assessee, for the purpose of construction of Country Club. The said lease agreement was entered into in the year 1994. As per the said lease agreement, the lease rent was fixed at Rs.7,63,000/- for land of 6.05 acres.
Therefore, based on the lease rental value, the Registered Valuer has arrived at 5% of lease rent (3% for agricultural purpose and 7% for other purposes) and capitalized the lease rent to arrive at FMV of the land at Rs.29,00,661/- as on 01.04.1994. As the value, so arrived, was for the year 1994. To arrive at value as on 01.04.1981, the Registered Valuer has followed reverse method by using cost inflation indexes and has arrived at FMV of Rs.11,19,946/-. The AO disputed the FMV adopted by the assessee and has referred the valuation of the property as on 01.04.1981 to the DVO. The DVO followed very same method of Rent Capitalization Method to arrive at FMV of the land as on 01.04.1981 at Rs.18,17,884/-. The DVO while arriving at above valuation has adopted minimum rate prescribed for lease rentals, which is applicable to agricultural purpose of 3% and has determined the value at Rs.18,17,884/-. Except this, there is no difference between the method followed by both the Valuers for determining FMV of the land. The Registered Valuer has given own reasons for considering the average of 3% to 7%, whereas, the DVO has considered only the Revenue records to adopt minimum rate of 3% as applicable to agricultural purpose.
Since, the lease rent between M/s.Tamil Nadu Corporation for Development of Women Ltd., Madras, and M/s.Jenny’s Residency Pvt. Ltd., is for commercial exploitation of land, it is obvious, once adjacent land is used for commercial exploitation, then adjacent lands including the land surrounded by the land will have commercial impact. Therefore, those lands cannot be considered purely as agricultural lands. To this extent, we do not agree with the lease rental value considered by the DVO to determine the FMV of the land as on 01.04.1981.
Be that as it may. The question before us is not correctness of the valuation adopted by the Registered Valuer and the DVO. But, the real question before us is, whether the AO can replace the DVO’s value in place of Registered Valuer’s valuation, when assessee himself has considered the FMV on the basis of Registered Valuer’s Report? Admittedly, the provisions of Sec.55A of the Act r.w.s.16A of the Wealth Tax Act, 1957, make it mandatory for the AO to adopt valuation of any property determined by the DVO. However, the question is, whether the AO can enhance the cost of acquisition computed by the assessee by adopting FMV on the basis of DVO’s Report? No doubt, if assessee claims to have certain value for any land, if the value adopted by the assessee is different from the value determined by the DVO, then for the purpose of determination of full value of consideration, the AO should adopt valuation arrived at by the DVO.
However, when it comes to cost of acquisition, when the assessee has adopted a particular value, which has supported by the Registered Valuer’s Report, and further, if value is lesser than the value determined by the DVO, then the AO cannot adopt the value arrived at by the DVO to give higher deduction towards cost of acquisition while computing capital gains from transfer of property. Since, assessee himself has adopted a particular value and said value was supported by the Registered Valuer’s Report and further, the Registered Valuer was also followed a method which was followed by the DVO, then, it cannot be said that cost of acquisition computed by the assessee is not correct. In our considered view, the reasons given by the AO and the Ld.CIT(A) to reject the arguments of the assessee for replacing higher valuation of FMV as on 01.04.1981, appears to be reasonable and does not called for any interference. Hence, we reject the arguments of the assessee and inclined to uphold the findings of the Ld.CIT(A) to adopt FMV of the land as on 01.04.1981, as considered by the assessee.
Coming back to exemption claimed u/s.54F of the Act. The assessee claimed exemption u/s.54F of the Act for re-investment for purchase of new house property at Rs.1,56,12,239/- including cost of improvement. The assessee has furnished Registered Valuer’s Report, as per which, the cost of improvement was estimated at Rs.1,40,01,800/-. The assessee claimed that it has justified cost of improvement with necessary evidences, whereas, the AO was of the opinion that the assessee could not justify cost of improvement to the property with necessary evidences and thus, has adopted valuation determined by the Registered Valuer. We find that once the AO has accepted the fact that the assessee has invested for purchase of another residential house property and filed certain evidences to prove that it has incurred a particular amount, then, the AO cannot disallow the part of amount merely on the ground that the assessee could not justify expenses with evidences. Further, the AO allowed the benefit u/s.54F of the Act as per Valuation Report, which determined the value of the property at Rs.1,40,01,800/-, whereas the assessee claims to have incurred actual expenditure of Rs.1,56,12,239/-. The facts are contradictory. Therefore, we are of the considered view that this issue needs further verification from the AO. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in light of arguments of the Ld.AR and evidences produced by the assessee in support of cost of improvement.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on the 16th day of March, 2022, in Chennai.