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Income Tax Appellate Tribunal, “C’’ BENCH : BANGALORE
Before: SHRI B.R BASKARAN & SMT. BEENA PILLAI
O R D E R Per B.R. Baskaran, Accountant Member
The assessee has filed this appeal challenging the order dated 30-01-2019 passed by Ld CIT(A)-4, Bengaluru and it relates to the assessment year 2007-08. Though the assessee has raised several grounds, all of them are directed against a single issue, viz., the determination of fair market value as on 01-04-1981 of the industrial land sold by the assessee.
The assessee herein is a partnership firm. The land sold by the assessee is an industrial land having an extent of 2 acres and 2 guntas. This is third round of proceeding. In the first round, the Tribunal noticed that the land was acquired by the assessee-firm from one of its partners by way of his capital introduction. The concerned partner’s capital account was credited on 01-04-1981 with an amount of Rs.2,70,975/- towards the value of land brought in by him into the partnership firm as his capital contribution. During the year under consideration, the above said land was sold by the assessee and while computing the long term capital gain on sale of above said land, the assessee adopted ‘fair market value as on 1.4.1981’ as Rs.30.00 lakhs. The AO rejected the same and he adopted the value of Rs.2,70,975/- as shown in the books of accounts, as the partnership firm has valued the land at Rs.2,70,975/- as on 1.4.1981, when the partner introduced the land into partnership firm as his capital contribution. When the dispute reached the ITAT, the Tribunal took the view that the value of Rs.2,70,975/- adopted for book purposes is only a notional value and hence, the same cannot be taken as Fair Market Value as on 1.4.1981 for the purpose of computation of capital gain. Accordingly, the Tribunal restored the issue to the file of the AO. In the second round, the AO adopted the very same value of Rs.2,70,975/- as on 1.4.1981 and accordingly computed long term capital gains. In the second round, the Tribunal observed that the AO has not followed the direction given by it in the first round. Accordingly, the issue was restored again to the file of the AO.
In the third round of proceedings, the AO called for details of “fair market value” from various sub-registrar office located around the impugned land. The AO noticed that the impugned land was located in 7th mile, 4th furlong, Kanakapura Main Road, Khata No.1004/832/1015/1, Sy No.46/2A1B, which fell in the jurisdiction of Doddkalasandra Village. The extent of land was 2 acres and 3 guntas and the same was converted into industrial land from the status of agricultural land. The sub-registrars reported that the “guide line rates” fixed by Government of Karnataka was available only from 1989 onwards in respect of converted lands. The value of converted land per acre in Dodakallasandra Village for FY 1989-90 was Rs.21,500/-. By adopting the cost inflation index prescribed by the CBDT, the AO made back ward calculation and arrived at the value as on 1.4.1981 at Rs.12,500/- per acre. Accordingly, the AO determined the fair market value of the impugned land at Rs.25,625/-. Before the AO, the assessee had placed its reliance on the Valuation report obtained from Government approved valuer. The AO rejected the same by citing following reasons:-
“11. The Valuation Report submitted by the assessee is not acceptable on four "counts. Firstly, it is seen from the above that the Valuation was done with references to Residential sites and not Industrial land. Though assessee claims that as per Form no. 22, the valuation certificate was applied for Industrial Converted land of Banashankari Area in the year 1982-83, the Data provided by the Sub Registrar is of the residential sites. The difference of measurement of an open Area and residential sites Is indicated by Acre and sft respectively and the Sub Registrar has provided as per Sg.ft. Secondly, the comparable references made by the Valuer is not the same as the property is situated in Doddakalasandra Village which is away from the City limits whereas, the valuation is adopted with reference to Banashankari 2nd Stage, which is within the city limits. Thirdly, the Valuer in Part II of the Report has stated that enquiries were carried out with a number of old real estate agents to know the prevailing market rate. This office has also learnt upon discreet enquiry with a lot of old real estate agents, that Rs. 33 per sqft was not accurate. Since there is a difference of opinion, there is reasonable doubt that the estimate cannot be undisputed. The assesee in his submission had stated that no specific enquiries has been made to the Valuer and that no site visit has been carried out by this Office. However, the assesseee was extended every opportunity possible to substantiate, providing copies obtained from the Sub Registrar's and to justify their claim. Besides, the onus lies on the assessee to proof that the Valuer from whom the Valuation was done is authentic and that his valuation is beyond doubt. These contention is just to hoodwink the Department into justifying that proper opportunity was not provided. If the assessee so wished to prove that the Valuer is genuine, it is his right to produce the Valuer and explain to the Assessing Officer, the authenticity of his Valuation. The Office has never debarred the assessee from exercising his rights to produce the Valuer. No request has been receive in this regard from the assessee. Fourthly, when the Sub Registrars themselves stated that the converted value for such lands were not available in their records and assessee himself had said that there were not many Industrially Converted Lands in that area, how the Valuer got an estimate at Rs. 30 per sqft is doubtful. In that case, why did the assessee enter an amount of Rs. 2,70,975/- as the book value and not Rs. 30 Lakhs. It is to be noted that the Asset was introduced into the books of accounts of the assessee through its partner's capital account. Hence due to the above reasons, the value adopted by the assessee at Rs. 30 lakhs is found to be doubtful hence incorrect.”
The Ld CIT(A) confirmed the order passed by the AO and hence the assessee has filed this appeal before the Tribunal.
The Ld A.R submitted that the assessee has obtained a valuation report from a Government Approved valuer, who has determined the fair market value of the land by citing certain sale instances and also by making due enquiries from land brokers. She further submitted that the AO has taken support of report obtained from Sub-registrar officer and most of them pertained to agricultural land and residential plots. She further submitted that the land sold by the assessee is an industrial land and hence the AO was not justified in adopting the rates pertaining to agricultural land and plots. Further, the Ld A.R submitted that the guideline value fixed for the purpose of collection of stamp duty cannot be considered as “Fair Market Value” and in support of this contention, the Ld A.R placed her reliance on the following case law and also on other case laws placed in the paper book filed by the assessee:- (a) Jawajee Nagnatham vs. Revenue Divisional Officer (1994)(4 SCC 595) (b) CIT vs. Dr D D Mundra (ITA No.2931/2005 dated 6.4.2010)(Kar)
The Ld A.R further submitted that the AO has mentioned that he has also made local enquiries, but the results of such enquiries were not confronted with the assessee, thus violating the principles of natural justice.
On the contrary, the Ld D.R submitted that the sale instances referred by the Approved valuer pertains to residential plots located in a developed area within the municipal limits, i.e., Banasankari 2nd Stage. However, impugned land is an industrial land and the same is located outside municipal limits, far away from the residential plots referred by the Valuer. Hence the AO has taken the view that the rates available for residential plots (smaller size) located in a developed area cannot form the basis for valuing an industrial land (bigger size). Hence the AO has rightly rejected the valuation report furnished by the assessee. The Ld D.R further submitted that the Sub-registrar rates reasonably indicate the fair market value and hence the same was adopted by the AO. Accordingly he contended that the order passed by Ld CIT(A) does not call for any interference.
We heard rival contentions and perused the record. The assessee has wholly placed its reliance on the valuation report given by the Approved Valuer and the same is placed at pages 140 to 143 of the paper book. A perusal of the same would show that the Valuer has referred to eight sale instances and all of them pertain to sale of “housing plots” admeasuring 1750 sq.ft. to 2400 sq.ft.. The Valuer has further stated that the above mentioned 8 residential plots are located within a distance of 2.5 kms from the industrial land sold by the assessee. Based on the sale value mentioned in the conveyance deed of the eight plots, the Valuer has arrived at the fair market value as on 1.4.1981 at Rs.33.19 per Sq.ft. Accordingly, he has valued the impugned land at Rs.30.00 lakhs as on 1.4.1981.
There should not be any dispute that the value of a residential plot located in a well-developed area, that too located within municipal limits, would command higher rate than an industrial land located outside the municipal limits in an under developed area. As rightly pointed out by the AO, the residential plots are generally quoted at the rate per Sq.ft., while the agricultural land/industrial land would be quoted at the rate per acre. Further it is a general rule that the bigger the size of plots, lower the price it could fetch. This rule is applicable even to residential plots located in a well-developed area. When the questions relate to agricultural lands/industrial lands, the rates are quoted for “per acre” and the same would be far lesser than the rates quoted for residential plots. Hence we agree with the view taken by the AO that the sale instances of residential plot cannot be taken as the basis for valuing the impugned industrial land. In fact, the assessee is strongly opposing the Sub-registrar rates adopted by the AO, whereas it appears that the sale instances of residential plots adopted by the Valuer are also related to the rates prescribed by the sub-registrar. Hence we agree with the reasoning given by the AO for rejecting the valuer’s report and the same has been extracted by us in the earlier paragraphs.
We have noticed that the AO has adopted the sub-registrar rates available for the year 1989 and has back worked the same in order to arrive at the fair market value as on 1.4.1981 by adopting cost inflation index prescribed by the CBDT. In the case of Jawajee Naganathan (supra) and Dr D D Mundra (supra), Hon'ble Apex Court and Hon'ble Karnataka High Court respectively has specifically held that the sub-registrar rates cannot be considered as fair market value. Hence the approach of the AO cannot also be sustained on this count alone. Since it was stated that the impugned land was located about 2.50 Kms away from the city limits, the scope of development should also influence the market rates. In any case, it is an admitted fact that even the sub-registrar rates were not available for the year 1981.
We notice that the AO had adopted the fair market value of the impugned land as on 1.4.1981 at Rs.2,70,975/- in the first and second round of proceedings. As noticed earlier, the above said amount was the value credited to the capital account of the partner who introduced the impugned land into the firm. The above said value was held to be a Notional value by the Tribunal and it was also held by the Tribunal that the same cannot be considered as Fair market value as on 1.4.1981. However, in the third round, the AO has determined the fair market value of impugned industrial land at Rs.25,625/-, which was much lower than the value of Rs.2,70,975/-. We have held that the valuation report furnished by the assessee was rightly rejected by the AO and at the same time, we have also held that the fair market value as on 1.4.1981 determined by the AO on the basis of sub-registrar rates was also not correct.
There should not be any dispute that the industrial land located outside municipal limits, far away from the developed areas would certainly command lower rate. Further the market rate of a plot/land is dependent upon various factors. For example, we have noticed earlier that, even between the plots/land having same characteristics, the bigger plot/land would command low rates than the smaller plot/land. Further the size of the plot/land, location, access to main road, availability of other amenities etc. would also determine the market rates. The Ld A.R contended before us that the sale instances cited by the Valuer are within 2.50 kms and hence the same can also be adopted. However, the assessee has not brought on record any other characteristics or positive factors related to the land which would enable it to command higher rates. Hence the so called shorter distance alone could not be a factor that should influence a probable buyer to pay the same rates as are available to a residential plot located in a developed area.
We have noticed that both the parties could bring on recoed any comparable sale instances of similarly placed land. Hence, we have no other option, but to estimate the probable fair market value of the land as on 1.4.1981 on the basis of available material. The valuer has adopted the rate of Rs.33.19 per sq.ft. on the basis of sale instances of developed housing sites located within the municipal limits. Further, the impugned land is located within 2.50 kms of municipal limits. In our view, these factors could be taken as a guidance, in the facts and circumstances of the case, particularly in the absence of any other sale instances for land of identical nature. There should not be any dispute that an industrial land would command higher rate than an agricultural land. Hence, on a conspectus of the matter, we are of the view that this controversy may be put to rest by adopting the fair market value of impugned land at 1/3rd value of rate determined by the approved valuer, i.e., at Rs.11/- per sq.ft. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to determine the fair market value of impugned land by adopting the rate of Rs.11/- per sq.ft. We order accordingly.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 6th November, 2019.