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Facts
The assessee, a Non-Resident Indian, appealed an assessment order concerning the sale of a house. The dispute centered on the correct computation of Long Term Capital Gain, specifically the adoption of the cost of land and construction.
Held
The Tribunal held that the Assessing Officer (AO) erred in adopting the circle rate for the land as on 01.04.2021, and that the assessee's adopted rate of Rs. 15,000/- per sq.yd. was a fair value. The Tribunal also directed the AO to adopt the covered area at 3302.51 sq.ft. and the cost of construction at Rs. 821/- per sq.ft.
Key Issues
The primary issue was the correct valuation of the land and construction cost as on 01.04.2001 for computing Long Term Capital Gains.
Sections Cited
143(3), 144C(13), 143(2), 48, 49, 55(2)(b)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
The assessee is in appeal before the Tribunal against the assessment order dated 24.06.2022 passed u/s 143(3) read with Section 144C(13) of the Income Tax Act by Circle-I, International Taxation, Chandigarh.
The assessee has taken eight grounds of appeal, however, his grievance revolves around a single issue, namely, A.Y.2018-19 2 as to how true Long Term Capital Gain required to be determined on sale of immovable house property bearing House No. 845 Sector 38-A, Chandigarh.
The brief facts of the case are that assessee is a Non- Resident Indian. He has filed his return of income on 19.07.2018 declaring therein an income of Rs.79,78,410/-. The case of the assessee was selected for scrutiny assessment and a notice u/s 143(2) was issued and served upon the assessee on 28.09.2019. A perusal of the record would reveal that a house bearing No. 845 Sector 38-A, Chandigarh was originally allotted to Smt. Joginder Kaur on 03.04.1987. The assessee got 100% share of this property from his mother on 24.06.2010. He has sold the property for a total consideration of Rs.3,88,00,000/- during the accounting year relevant to assessment year 2018-19. Thus, the dispute relates to correct computation of Long Term Capital Gain assessable in the hands of the assessee. At the time of hearing, ld. counsel for the assessee has tabulated certain details which exhibit the cost of land adopted by the assessee on the basis of Registered Valuer’s Report vis-à-vis determined by the DVO and adopted A.Y.2018-19 3 by the AO. Similarly, these details exhibit covered area noticed by the assessee on the basis of Registered Valuer’s Report, DVO’s report and as to how AO taken. The rate of construction adopted by all these concerns are also being tabulated in its details. They read as under :
Relevant Person making Area of Land Cost of Land per Sq. Covered Area Construction valuation (In Sq. Yards) Yard of Property (in Cost per (in Rs.) Sq. Feet) Sq.Feet(in Rs.) Assessee on the basis of 528.125 15000 3302.51 821 Registered Valuer's report DVO 528.125 7073 2981.44 339 Draft Assessment Order 528.125 3621 (based on 3302.51 350 Circle rate Final Assessment Order 528.125 3621 . 2000 350
A perusal of the above detail would indicate that total area of the land is 528.125 sq.yd. There was no dispute about this area, by the Registered valuer of the assessee as well as DVO and in the assessment order. The area of concern is the rate required to be applied as on 01.04.2001 for the purpose of determining the acquisition cost. The assessee has adopted the rate of Rs.15,000/- per sq.yd. on the basis of the Registered Valuer’s Report, DVO has given the rate at A.Y.2018-19 4 Rs.7073/- per sq.yd., however, AO has adopted the rate at Rs.3621/-. Similarly dispute relates to covered area as well as rate of construction required to be applied.
5. Before adverting to the facts and circumstances demonstrated before us, we would like to take note of complete order of the DRP wherein specific grievances of the assessee have not been resolved by the DRP. This order reads as under : Directions of the Dispute Resolution Panel u/s 144 of the Income Tax Act, 1961 1 .Background of the proceedings before DRP- The present proceedings arise with reference to the draft assessment order under section 144C of the Income Tax Act 1961 passed by Assistant Commissioner of Income Tax, International Taxation-Chandigarh. The assessee has filed grounds of objections under section 144C(2)(b) of the Income Tax 1961 on 28.10.2021 before Dispute Resolution Panel-1, Delhi, against the draft order no. ITBA/AST/F/144C/2021-22/1036004460(1) dated 29.09.2021 for AY 2018-19. The draft order u/s 144C of the Income Tax Act 1961 was forwarded to the assessee on 29.09.2021, in relation to the assessment order proposed to be passed by the Assessing officer u/s 144C of the Income Tax Act 1961. 1.1 The assessee has filed objections to the draft assessment order in Form 35A on 28.10.2021 which is the subject matter of consideration before the Panel. The Directions given by the Dispute Resolution Panel u/s 144C(5) of the Act, are for the guidance of the Assessing Officer in order to enable him to complete assessment order. Before issuing Directions, the Dispute Resolution Panel has considered the contentions of the Department (in the draft assessment order) as well as the objections and written and oral submissions made by the assessee before the Dispute Resolution Panel. 2. Profile of Assessee: The assessee filed his original return of income for the A.Y. 2018-19 on 19.07.2018 declaring therein an income of Rs.79,78,410/- comprising income A.Y.2018-19 5 under the heads -'Income from Capital Gain' & 'Income from Other Sources'. The assessee is an NRI. 3. Ground of objection:
1. 1. Ground of objection no. 1- regarding not allowing expenditure of Rs. 1940000/- The Ld. AO has erred in law and facts in not allowing expenditure of Rs. 19400001-wholly & exclusively in connection with the transfer as claimed in return of income at page-9 of lTR being deducted under the head "Deduction u/s 48(3).
2. Ground of objection no. 2- regarding FMV of land measuring 528,125 sq. yards as on 01.04.2001 adopted by the AO at Circle rate of Chandigarh as against prevalent FMV of Rs. 170001- per sq. Yard.
3. Ground of objection no. 3- regarding indexed cost of construction/improvement 4. Ground of objection no. 4- regarding not confronting the assessee of evidence/information collected during assessment proceedings.
4. DRP's directions: The Panel has carefully considered the paper-book filed on 28.10.2021, synopsis dated 04.03.2022 and the AO's draft order dated 29.09.2021. 4.1 Remand report proceeding: The assessee has submitted additional evidence which was considered and remanded to the office of the AO vide the DRP's letter dated 08.04.2022.The case was heard on 25.04.2022 without receiving the remand report from office of the AO. Further, vide letter dated 10.05.2022, the AO has requested to allow time to submit the remand report in the instant case upto 17.05.2022. The Panel takes a note of the huge time barring matters till 30.06.2022 pending with it and is of the view that it is not feasible to grant the extension as requested at this juncture. 4.2 The assessee has filed details including the particulars of comparable Sales instance in respect of H.No. 1523, Sec-32B, Chandigarh measuring 337.41 sq. yards, constructed area about 4984.20 sq. feet. The assessee submits that as such rate adopted by approved valuer in our case as on 01.04.2001 @ Rs. 15000/- per Sq. yard is much lesser than Fair Market Value of comparable sales instance in same sector which is Rs. 17006/- per Sq. yard. The assessee further submits- "Your kind attention is drawn to Valuation officer report dated 09.02.2022 at page-16 of paperbook-2, wherein it has valued the land @ Rs 70731-per sq. yard total Rs 3735428/- by referring to the instance at page-7 of Valuation report available at page-17 of paper-book-2 filed on 04.03.2022 wherein Valuation officer has taken into consideration land measuring 250 Sq. yards in Sec-38A, Chandigarh sold © Rs 43501- per Sq. yards. This is an unreal sale instance executed between 2 private persons at Collectorate to save stamp duty as well as stacking the unaccounted money and avoid capital gains." 4.3 Now coming to the AO's observation in this regard; part of the order is reproduced below:
ITA No.538/CHD/2022 A.Y.2018-19 6
“……………. (i) The valuation report furnished by the assessee (on the basis of which acquisition cost has been calculated) does not seem to be correct, the same is hereby rejected. (ii) The assessee was given multiple opportunities during the assessment proceedings requesting him to produce documentary evidence to substantiate his claims. The assessee has failed to produce any proof/evidence to substantiate his claims for cost of improvement & expenses. Further the counsel of the assessee has expressed his inability in producing various documents/ proof of expenditure of the property in question on the plea of the property being ancestral and bills/bank statements being very old. (iii) Hence the indexed cost of improvement of Rs.27,11,0001- and expenses of Rs.19,40,000/-claimed by the assessee are hereby disallowed. However, on the ground of natural justice, the cost of construction for covered area of3302.51 sq.ft. on the basis of circle rate i.e. Rs.350l- per sqft. is being allowed to the assessee. "
4.4 In view of above discussion, this is understood that the assessee did not file the requisite details and documents before the AO during the original assessment proceedings as the same is signified in the draft assessment order. Therefore, the AO is directed to consider and verify the factual submission made by the assessee and complete the assessment by passing a speaking and reasoned order.
Directions under section 144C of the Income Tax Act The Assessing Officer is directed to complete the assessment as per the above directions of the Dispute Resolution Panel. The Assessing Officer shall place a copy of these directions as annexure to the final order, to be read as a part of the order. While passing the final order, the Assessing Officer shall incorporate the reasons given by the Dispute Resolution Panel in respect of various objections, at appropriate places. The Grounds of Objections are decided as above.
(Rashmita Jha) (Dr Ajit Kumar Singh) (Sanjay Kumar Bharti) CIT(Dispute Resolution Pr. CIT(Dispute Resolution, CIT(Dispute Resolution Panel -1)-3, Panel -l)-2 Panel -l)-1 New Delhi New Delhi New Delhi
With the assistance of ld. Representative, we have gone through the record carefully. We find that Section 48 as well as Section 55 have a direct bearing on the controversy, A.Y.2018-19 7 therefore, we deem it appropriate to take note of the relevant part of these Sections, which read as under : 48. Mode of computation.— The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:— (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: x x x x Explanation.—For the purposes of this section,— (i) x x (ii) x x (iii) “indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 2001,] whichever is later; (iv) x x (v) x x 55. Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.— (1) For the purposes of [sections 48 and 49], (a) [ * * * * * ] (b) “cost of any improvement”,— (2) 1 [For the purposes of sections 48 and 49, “cost of acquisition” x x x (b) in relation to any other capital asset,—]
ITA No.538/CHD/2022 A.Y.2018-19 8
(i) where the capital asset became the property of the assessee before the 1st day of April, 2001, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the [1st day of April, 2001], at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 2001, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 2001, at the option of the assessee; Provided that in case of a capital asset referred to in sub-clauses (i)and (ii), being land or building or both, the fair market value of such asset on the 1st day of April,2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available of such asset……………”
A perusal of Section 48 would indicate that it contemplates that income chargeable under the head ‘Capital Gains’ shall be computed by deducting following amounts from the full value of consideration received or accruing as a result of transfer of the capital assets : a) Expenditure incurred wholly and exclusively in connection with such transfer; b) The cost of acquisition of the asset and the cost of any improvement thereto.
7.1 Sub-clause (3) of the Explanation appended to this Section would further contemplate that ‘Index Cost of Acquisition’ means an amount which bears to the cost of acquisition, the same proportion has Cost Inflation Index for A.Y.2018-19 9 the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the asset was held by the assessee or in the year beginning on the first day of April,2001, whichever is later. It means that if an asset was acquired by the assessee before 2001, then Cost of the Inflation Index was to be seen on the date of acquisition and adjustment in the cost of acquisition is to be made according to the inflation increased upto the year when sale was made. The provision contemplated first day of April,2001 as the base year. If some asset is being acquired prior to this year, then for the purpose of determination of cost and its indexation, the base year is 01.04.2001. For example, in this year asset was acquired by the mother of the assessee in 1987, therefore, in the hands of the assessee, the base year is to be adopted from 01.04.2001. The aspect of inflation from the alleged date of acquisition vis-à-vis upto the date of sale is to be taken into consideration for adjusting the Index Cost of acquisition.
7.2 The other aspect which is required to be kept in mind is Section 55(2)(b) of the Income Tax Act. As observed earlier, the dispute essentially pertains to the ascertainment of Fair Market Value of the house property as on 01.04.2001 so as to A.Y.2018-19 10 arrive at the cost of acquisition for the purpose of computing capital gain accruing as a result of transfer of such house. Section 55(2)(b) allows an option to the assessee to adopt the Fair Market Value of the house property as on 01.04.2001 as the cost of acquisition wherein such an asset becomes the property of the assessee or of the previous owner before first day of April,2001. There is no dispute that in principle, the assessee is entitled to seek the option as provided in Section 55(2)(b) of the Act. The dispute only relates to implication of the expression ‘Fair Market Value’ as appearing in the said proviso. The said expression postulates a price which a capital asset would ordinarily fetch if sold in the open market on the relevant day. Thus, it is well settled that concept of Fair Market Value envisages existence of a hypothetical seller and a hypothetical buyer in a hypothetical market. The assessee is entitled to replace the alleged cost of acquisition as on 01.04.2001 with the Fair Market Value of the property. There is no dispute qua above proposition of law between the parties. The dispute is regarding quantification of alleged Fair Market Value of the property as on 01.04.2001 on which benefit of indexation was to be granted to the assessee.
ITA No.538/CHD/2022 A.Y.2018-19 11
Adverting to the facts of present case, it would reveal that assessee has adopted the cost of land at Rs.15,000/- per sq.yd. whereas the DVO has adopted Rs.7073/- and AO has ultimately adopted the rate at Rs.3621/-. Firstly, we would deal with the rate adopted by the AO. The AO has adopted the circle rate at Rs.3621/- on the basis of amendment introduced by Finance Act, 2020 w.e.f. 01.04.2021. The Explanation has been appended by way of Finance Act, 2020 which provides that Fair Market Value is required to be adopted as on 01.04.2001 for the purpose of acquisition of asset would be equivalent to the Stamp Duty value prevailing at that point of time. This provision has been made applicable w.e.f. 2020-21 and therefore, circle rate as on 01.04.2021 is not required to be adopted in the present case. The AO has committed an error which has been approved by the DRP.
Now let us deal with the Valuation Report made by the DVO vis-à-vis Registered Valuer. Both the reports are available on the Paper Book and we have perused both of them. The DVO has made reference to a house which was sold during this period but it is a two kanal house in Sector 9-B of Chandigarh whereas assessee has relied upon a sale instance A.Y.2018-19 12 dated 21.03.1999 vide which House No. 1523 Sector 38-B was sold @ Rs.17000/- per sq.yd. The Sale Deed is of a nearby house. In other words, it relates to the vicinity of the assessee's property. Apart from the above, we find that assessee has placed different sale instance as Annexure-A with the Report. In all these sale instances, assessee has demonstrated that different houses were put on sale which were auctioned @ Rs.11326/- , Rs.11,168/- per sq.yd. but these houses are of a very far area of Sector 46-A. Sector 46-A is not a very prominent Sector in comparison to Sector 38-B. Thus, minor changes are required to be adopted. Considering all these rates vis-à-vis the rate of auction at Rs.17,000/-, the assessee has adopted Rs.15,000/-. Thus, the Registered Valuer of the assessee has took a fair value of the land relevant at particular time i.e. 01.04.2001. The AO has erred in adopting the rate at Rs.3621/- of the land.
We set aside the findings of the AO on this aspect and direct him to compute the Long Term Capital Gain by adopting cost of land at Rs.15,000/- per sq.yd. In other words, cost of acquisition is to be determined by applying rate of A.Y.2018-19 13 Rs.15,000/- per sq.yd. Thereafter, the indexation is to be granted to the assessee from 01.04.2001 till the date of sale.
The second part of the dispute is about covered area for the purpose of calculating cost of improvement/cost of construction. The Registered Valuer took covered area at 3302, DVO took at 2981 whereas in the draft assessment order, AO took it as 3302, however, in the final assessment, AO has taken it at 2000 sq.ft. It is not ascertainable as to how he has narrowed down it to 2000. We find that assessee has placed on record Site Plan sanctioned at the time of construction of the house. He has elaborately worked out as to how the covered area was 3302 sq.ft. Thus, we direct the AO to adopt the covered area at 3302.51 sq.ft. which was adopted by him in the draft assessment order also. There is no justification at the end of the DVO as to how he has reduced the area by 420 sq.ft.
11.1 The next area of dispute is rate of cost of construction adopted by the assessee as well as by the DVO. The assessee has adopted the rate according to the Valuer’s Report. The ld. DVO has adopted a lower rate on the ground that the vendee of the assessee Shri Jagdeep Chawla has totally demolished
ITA No.538/CHD/2022 A.Y.2018-19 14 the house and constructed a new one, therefore, it was not possible to ascertain exact nature of construction. It is pertinent to note that cost of construction was to be ascertained as on 01.04.2001 and not on the date of the sale, because an old house was existing. The Registered Valuer has adopted the rate on the basis of rates prevalent in the area. There is no specific defect pointed out in the rates adopted by the valuer. Accordingly, we direct the AO to adopt the cost of construction at Rs.821/- per sq.ft. In this way, we set aside both the orders of Revenue Authorities and direct the AO to compute the Long Term Capital Gain assessable in the hands of the assessee as under : a) The cost of land as on 01.04.2021 is to be adopted at Rs.15,000/- per sq.yd. Benefit of indexation is to be granted from that day. b) The land area is to be taken at 528.125 sq.yd. which otherwise is not in dispute. c) The constructed area of the property is to be taken at 3302 sq.ft. and cost of construction be applied at Rs.821/- per sq.ft. on this area for working out the A.Y.2018-19 15 cost of construction. After debiting above costs, Long Term Capital Gain be computed in the hands of the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced on 04.06.2025.