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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’, SMC
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the CIT(A)-Mysore dated 28/6/2018 for asst. year 2008-09.
2 Briefly stated, the facts of the case are as under:-
2 2.1 The assessee individual derives income from interest, agriculture and capital gains. For asst. year 2008-09, the assesee filed his return of income on 29/10/2008 declaring total income of Rs.1,05,530/-; loss from capital gains on sale of shade trees amounting to Rs.3,24,688/- and agricultural income of Rs.13,11,359/-. The case was selected for scrutiny and the assessment was completed u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) vide order dated 21/12/2010 accepting the returned income.
2.2 The CIT, Mysore initiated proceedings u/s 263 of the Act by issue of show cause notice dated 16/11/2012 as he was of the view that the order of assessment dated 21/12/2010 for asst. year 2008-09 was erroneous and prejudicial to the interests of revenue. According to the CIT, Mysore the Assessing Officer (‘AO’) had accepted the long term capital loss (‘LTCL’) on sale of shade trees as computed by the assessee without examining the adoption of the cost of acquisition; being the fair market value (‘FMV’) of Silver Oak trees as on 1/4/1981 properly. The assessee had taken 20% of the sale value of Silver Oak trees as the FMV on 1/4/1981 and claimed the indexed cost of acquisition, which was allowed. According to the CIT, the estimate of 20% of the sale value as cost of acquisition was on 1/4/1981 was not substantiated by any evidence. After considering the assessee’s objections in response to the show cause notice in revision proceedings, the CIT passed on order u/s 263 of the Act dated 27/3/2013 in which he directed the AO to re-compute the capital gains
3 on sale of shade trees by adopting the FMV of Silver Oak trees as on 1/4/1981 on the basis of market rates obtained form Chief Conservator of Forests. In coming to this view, the CIT based his reasoning on the ratio of the judgment of the Hon’ble Karnataka High Court in the case of Tata Coffee Ltd., in & 1092 of 2006 dated 24/9/2012. The order passed by CIT, Mysore u/s 263 of the Act dated 27/3/2013 for asst. year 2008-09 attained finality as no appeal was filed by the assessee.
2.3 After the CIT, Mysore passed the order u/s 263 of the Act dated 27/3/2013 for asst. year 2008-09, the AO took up the assessment proceedings, in the course of which he obtained the report of the Chief Conservator of Forest, Madikeri with regard to the EMU of Silver Oak trees sold by the assessee. The AO held that the FMV of Silver Oak trees was Rs.10.20 per cubic foot on the basis of the letter of the Chief Conservator of Forests, Madikeri dated 18/12/2013; and on this basis, computed the long term capital gains (‘LTCG’) thereof at Rs.10,06,241/- as against the loss of Rs.3,24,688/- declared by the assessee.
2.4 Aggrieved by the order of assessment u/s 143(3) r.w.s 263 of the Act dated 30/1/2014 for asst. year 2008-09, the assessee preferred an appeal before the CIT(A), Mysore, which was dismissed vide the impugned order dated 28/6/2018.
4 3. The assessee, being aggrieved by the order of the CIT(A), Mysore dated 30/1/2014 for asst. year 2008-09 has preferred this appeal, wherein he has raised the following grounds:-
“1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
The learned CIT[A] is not justified in upholding the computation of capital gains on the sale of Silver Oak trees at Rs.10,06,241/- in the order passed consequent to the directions contained in the order of the learned CIT u/s. 263 of the Act dated 27/03/2013 by adopting the cost of acquisition of Silver Oak trees being the Fair Market Value [FMV] as on 01/04/1981 at Rs.10.20 per cubic meter based on an erroneous and incorrect understanding of the information provided by the Chief Conservator of Forest, Madikeri vide letter dated 18/12/2013 under the facts and in the circumstances of the appellant's case.
The learned CIT[A] ought to have appreciated that the Chief Conservator of Forest, Madikeri in the letter dated 18/12/2013 had clearly stated that the FMV of Silver Oak trees on 01/04/1981 was not 5 available and thereafter, had set out the seigniorage rate published by the Forest department as per the Notification dated 12/02/1981 as Rs. 10.20 per cubic meter, which seigniorage rate published by the Forest Department was only the extent of royalty required to be paid to the Forest Department for removal of forest produce that cannot be regarded as the FMV of the Silver Oak trees as on 01 /04/1981 under the facts and in the circumstances of the appellant's case.
4. Without prejudice to the above, the learned CIT[A] ought to have appreciated that the ACIT, Circle-1, Hassan, in the case of the appellant's brother had held that the seigniorage rates published by the Forest Department is not be regarded as the FMV as on 01 /04/1981 in proceedings consequent to similar directions passed by the CIT, Mysore in the order u/s.263 of the Act in that case and ultimately, the ACIT had adopted the FMV of the Silver Oak trees at 13.39% of the sate proceeds as against 20% of the sale proceeds adopted by the appellant in his computation under the facts and in the circumstances of the appellant's case.
6 5. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234-A and 234-B of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
Ground Nos: 1 and 6, being general in nature and not urged before me, no adjudication is called for thereon.
Ground No:5 – Charge of interest u/s 234A and 234B of the 5. Act 5.1 In these grounds, the assessee denies himself liable to be charged interest u/s 234A and 234B of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This principle has been upheld by the Hon’ble Apex Court in the case of Anjum H Ghaswala in (252 ITR 1) (SC) and I,
7 therefore, uphold the action of the AO in charging the said interest u/s 234A and 234B of the Act. The AO is however, directed to re- compute the interest chargeable u/s 234A and 234B of the Act, if any, while giving effect to this order.
Grounds Nos. 2 to 4 – Capital Gains on Sale of Silver Oak Trees 6.1 The only issue for consideration and adjudication in this appeal in grounds 2 to 4 (Supra) relate to the computation of capital gains on sale of Silver Oak trees. The AO computed the LTCG on sale thereof at Rs.10,06,241/- and this has been upheld by the CIT(A). The only reason for the variation is on account of the FMV of Silver Oak trees as on 1/4/1981 being taken at Rs.10.20/- per cubic foot by the AO.
6.2 According to the ld AR for the assessee, the assessee had adopted 20% of the sale price on the basis of several orders of the ITAT in which the F.M.V was decided on the basis of certain percentage of sale price that varies from 30% to 70%. It was further submitted that the AO has erroneously understood the seigniorage rate of Rs.10.20% per cubic feet as the F.M.V of Silver Oak trees as on 1/4/1981. It was contended that the FMV of Silver Oak trees taken at 20% of the sale price did not require any interference. It was also argued that in the alternative, the F.M.V could be determined on the basis of the seigniorage rates by considering the seigniorage rates of 8 1/4/1981 and the revision thereof w.e.f 14/1/2008. It was contended that the seigniorage of 1/4/1981 was 13% of seigniorage rate of 14/1/2008 and, therefore, the market value of Silver Oak trees could also be about 13% of the rates fetched in the year 2008 when they were sold. In this regard the ld AR cited and placed reliance on the order of assessment passed by ACIT, Circle-1, Hassan in the case of CIT Vs. C.T Ramapuram for asst. year 2008-09 u/s 143(3) r.w.s 263 of the Act vide order dated 16/3/2015.
6.3 Per contra, the ld DR for revenue placed strong reliance on the orders of the authorities below.
6.4.1 I have heard the rival contentions and perused and carefully considered the submissions put forth and the other material on record. I find from the appraisal of the facts on record that the CIT, Mysore in the order u/s 263 of the Act dated 27/3/2013 had directed the AO to compute the capital gains on sale of Silver Oak trees after obtaining the FMV thereof from the Chief Conservator of Forests. In this regard, the AO has written to the Chief Conservator of Forests, Madikeri in order to obtain the FMV of Silver Oak trees as on 1/4/1981. A perusal of the letter dated 18/12/2013 written by the Chief Conservator of Forests, Madikeri (copy placed at p ages 16/17 of paper book) shows that the market value of Silver Oak trees for the year 1980-81 was not known or available. It has been stated by the 9 Chief Conservator of Forests, Madikeri in his letter dated 18/12/2013 at para 1 and 2 thereof as under:-
“1. In the year 1980.-81, the market rate of Silver Oak is not known. Even if the market rates for the said year are to be ascertained from local people they are likely to without reliable documents and thus untenable. 2. In the year 1980-81, there was hardly any sale of silver oak done by the forest department as there were no mature captive plantations. Even if some sale had taken place, their details are not available.”
6.4.2 From the above portion of the letter of the conservator of Forests, Madikeri extracted above, it is evident that no FMV of Silver Oak trees was available with the Forest Department for the year 1980- 81 and clearly, the view taken by the AO that the FMV of the Silver Oak trees as on 1/4/19891 was Rs.10.20 per cubic foot is erroneous. In fact, in the very same letter dated 18/12/2013, at para 3 thereof, the Chief Conservator of Forests, Madikeri has stated that the seigniorage rate of Silver Oak trees could be taken from Entry No.118 of Schedule to Rule 83 of the Karnataka Forest Rules, 1969 read with the notification number GSR 50 dated 19/2/1981. (copy enclosed at page 20 to 37 of paper book). A perusal of the said notification shows that sl. No.118 refers to “other kind of jungle wood timber (not specified above)”. Therefore, what was reported by the Chief
10 Conservator of Forests, Madikeri was not the FMV of Silver Oak trees as held by the AO.
6.4.3 Seigniorage rates is the royalty payable by consumers and purchasers for collection and removal of forest produce from the forest on licence OR permits at the rates fixed by the Government. Therefore, the seigniorage rates cannot be the market rate per se; but it is possible to derive the market rate based on the said rates as the seigniorage rates and market rates would have a correlation with each other. In other words, a raise in the seigniorage rates would have a corresponding raise in the market rates of timber as well. It is seen from the notification dated 14/1/2008 (copy placed at page 40 of paper book) that the seigniorage rate for Silver Oak (Vellangi) is Rs.4,000/- per CMT. No separate entry for Silver Oak in these in the Notification dated 19/2/1981; but a similar species called ‘Vellangi” is valued at Rs.520 per CMT. Thus the seigniorage rate of 1/4/1981 can be expressed at 13% of the seigniorage rate on 14/1/2008, based on the above rates (Rs.520/by Rs.4000/-) and, therefore, the FMC of Silver Oak trees as on 1/4/1981 could also be derived and computed along the same lines. In fact in the order of assessment passed u/s 143(3) r.w.s 263 of the Act vide order dated 16/2/2015 for asst. year 2008-09 in the case of C.T Ramapuram, the ACIT, Circle-1, Hassan has followed the above approach and determined the FMV of Silver Oak trees as on 1/4/1981a at 13.39% of the sale price. However, it is seen that the ACIT, Circle-1, Hassan has worked out the FMV of 11 Silver Oak trees on the basis of the average price of 14 different species of trees.
6.4.4 Taking into consideration the facts and circumstances of the case on hand and the view taken by the Department in the order of assessment in the case of C.T Ramapuram for asst. year 2008-09, on the basis of similar directions CIT, Mysore u/s 263 of the Act, it would be incongruous to hold the FMV of Silver Oak trees as on 1/4/1981 was Rs.10.20 per cubic foot for the purpose of computing capital gains in the hands of this assessee. In this view of the matter, I set aside the AO’s erroneous computation of capital gain on sale of Silver Oak trees and direct the AO to adopt the cost of acquisition of Silver Oak trees; being the FMV as on 1/4/1981, at 13% of the sale value thereof of Rs.14,55,860/- shown by the assessee and, thereafter, compute the capital gains after allowing the benefit of indexation as per section 48 of the Act. It is accordingly ordered. Consequently, grounds 2 to 4 raised by the assessee are partly allowed.
In the result, the assessee’s appeal for asst. year 2008-09 is partly allowed. Order pronounced in the open court on 7th November, 2018.