THE INCOME-TAX OFFICER, SRINAGAR vs. M/S. ALI SHAH, SRINAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI N.K. CHOUDHRY, JUDICIAL MEMBER

ITA No.537/ASR/2011 Assessment Year : 2006-07

Income Tax Officer, Vs. M/s Ali Shah, Ward-3(1), 3 Nigeen Road, Srinagar. Srinagar. PAN: AAFFA1339R (Appellants) (Respondents)

Assessee By : Shri Upender Bhat, CA Department By : Shri S.S. Negi

Date of Hearing : 22.02.2018 Date of Pronouncement : 22.02.2018

ORDER PER R.S. SYAL, VP: This appeal filed by the Revenue arises out of the order passed by the CIT(A) on 20.08.2011 in relation to the Assessment Year 2006-07.

ITA No.537/ASR/2011

computed and taxed certain amount as capital gain by invoking the

provisions of section 45(4) of the Income-tax Act, 1961 (hereinafter

called `the Act’). The Ld. CIT(A) allowed certain reliefs and the

Revenue approached the Tribunal. The appeal of the Revenue got

accepted by the Tribunal vide its order dated 11.07.2012. The assessee

went to the Hon'ble High Court. Vide its judgment dated 25.05.2017,

the Hon'ble High Court has remitted the matter of valuation of two

properties viz., Saidakadal Residential house and Gulmarg land/hut to

the Tribunal with certain directions, which we will advert to at the

appropriate stage. Ex consequenti, we are taking up the issue in

pursuance of the directions given by the Hon'ble High Court.

Officer charged long-term capital gain on transfer of the asset by

treating it as a distribution to its partners u/s 45(4) of the Act and

adopting the fair market value at Rs.1.30 lac and cost of acquisition as

on 01.04.1981 at Rs.18 lac. The assessee argued before the Ld. CIT(A)

ITA No.537/ASR/2011

that the fair market value of the land as on 1.4.1981 amounting to

Rs.6.40 lac was in addition to the fair market value of the building as on

1.4.1981 at Rs.18 lac. The Ld. CIT(A) got convinced with the

assessee’s submissions and, accordingly, indexed the fair market value

of Rs.24.40 lac (Rs.18.00 lac plus Rs.6.40 lac) as on 1.4.1981, being the

cost of acquisition, to Rs.1.21 crore. That is how, he computed capital

gain at Rs.8.43 lac from the transfer of this property. The Tribunal, vide

para 7.1 of its order noticed that value of Rs.18 lac was a combined

figure, consisting of both the land and building. It further observed that:

“the assessee had never objected to the value taken by the A.O. during

assessment proceedings even after show cause was given to the

assessee.” It went on to further observe that: “the assessee did not

exercise option for the fair market value as on 01.04.1981 or the cost of

residential house as on 01.04.1981 during the assessment proceedings in

spite of the fact option given vide show cause letter dated 26.12.2008.”

That is how, the Tribunal took the cost of acquisition at Rs.18 lac. The

assessee assailed this finding before the Hon'ble High Court, which

found the above findings contained in para 7.1 of the Tribunal order as 3

ITA No.537/ASR/2011

inconsistent, by noticing that the assessee had categorically said that it

had decided to exercise the option of the fair market value against the

book value. This is the reason which led the Hon'ble High Court to

remit the matter to the Tribunal with regard to this property.

record. At this juncture, we want to clarify that insofar as the

chargeability to tax by treating the transaction as covered u/s 45(4) of

the Act is concerned, the same has attained finality by the earlier order

of the Tribunal, which part has not been disturbed by the Hon’ble High

Court. There are two issues in so far as the determination of capital gain

on the transfer of the Saidakadal property is concerned.

CIT(A) at Rs.24.40 lac as against Rs.18 lac taken by the Assessing

Officer. The case of the assessee is that the fair market value of the

building as on 1.4.1981 at Rs.18 lac is exclusive of the fair market value

of the land at Rs.6.40 lac. As against this, we find the Assessing Officer

has taken a consolidated fair market value of the land and building as on

ITA No.537/ASR/2011

1.4.1981 at Rs.18 lac on the basis of some valuation report. On a

pertinent query, the Ld. AR could not draw our attention to the said

report of the Registered valuer for ascertaining if Rs.18 lac was only

towards the building or for both the land & building. Under these

circumstances, we remit the matter to the file of Assessing Officer for

examining the Registered valuer’s report and other connected material

for ascertaining if value of land is part of Rs.18 lac or it is independent.

In case it is found from such material that the value of building along

with land as on 01.04.1981 is Rs.18 lac, then, there is no need for

increasing Rs.6.40 lac towards the value of land as on 01.04.1981 and

vice versa.

land and building. There cannot be any dispute that once value as on

01.04.1981 is taken, such cost of acquisition needs to be indexed

upwards for computing the amount of long-term capital gain. We,

therefore, direct the Assessing Officer to firstly, consider the fair market

value of the land and building as on 01.04.1981 and, thereafter, apply

ITA No.537/ASR/2011

indexation for determining the total amount of capital gain from this

property. Needless to say, the assessee will be given an opportunity of

hearing in such proceedings.

Tribunal noted in para 3.3 of its order that no fair market value in respect

of Gulmarg hut was given and no valuation report regarding this

property was furnished by the assessee. It is discernible from the

assessment order that the said property was dismantled and a new

property was constructed over the piece of land. However, Mr. Aadil

Maqbool, a partner of the assessee firm appeared before the Assessing

Officer on 26.12.2008 and on further discussion with him, the value of

Gulmarg hut at the time of transfer was taken at Rs.5 lac. Thereafter, the

Tribunal noticed on the last page of its order that the construction of

hotel was being carried out. The Hon'ble High Court has referred to

para 7.1 of the Tribunal order in para 4 of its judgment and observed that

the finding recorded by the Tribunal about the assessee not objecting to

the value taken by the Assessing Officer was not correct. We find that

ITA No.537/ASR/2011

para 7.1 of the Tribunal order deals with the Saidakadal property and not

Gulmarg hut. Since the Hon'ble High Court has remitted the matter of

valuation of Gulmarg land/hut also to the Tribunal, in our considered

opinion, the ends of justice would meet adequately if the Assessing

Officer decides the question of computation of capital gain from the

transfer of Gulmarg land/hut u/s 45(4) of the Act afresh, after allowing a

reasonable opportunity of being heard to the assessee.

The order pronounced in the open court on 22.02.2018.

Sd/- Sd/-

[N.K. CHOUDHRY] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT Dated, 22nd February, 2018. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, AMRITSAR.