BHARAT J PATEL,MUMBAI vs. ITO 9(3)(2), MUMBAI

The only issue contested by assessee is against the order of CIT(A) confirming the action of the AO in ignoring the cost of construction for constructing the 4th Floor for the purpose of computation of capital gains. For this assessee argued that the he is interesting in adjudicating the following ground No. 2: -

Briefly stated fact are that Jashbhai Maganbhai Patel (HUF) was in possession of various immovable properties being land and building situated at various places in Dindoshi Village of Borivali Taluka of Bombay Suburban District. Shri Jashbhai Maganbhai Patel died on 30.01.1985 and accordingly, due to difference in the family members, JM Patel (HUF) was partitioned in a premise suit bearing No. 954 of 1998 and the suit decree was accorded by the consent terms filed by the parties on 23-03-1999. According to the above judgement and order of the Hon’ble High Court, the immovable property awarded to the assessee incudes immovable properties being land and building situated at village Dindoshi, Dindoshi Village of Borivali Taluka of Bombay Suburban District bearing CTS No’s from 51/5 to 51/14, 59/A (part) and 58. This property No. 58 was awarded with a structure of ground floor plus upper three floor known as ‘C’ Wing of Pravasi Industrial Estate, Vishweshwar Nagar Road, off. Aarey Road, Goregaon (E), Mumbai-400 063. The assessee became the absolute owner of the above stated property by virtue of consent decree awarded by Hon’ble Bombay High Court in suit No. 954 of 1998. The assessee sold this property for a sale consideration of ₹ 48.59 lakhs as against the value determined by Stamp Valuation Authority at ₹ 66,23,540/-. The AO required the assessee to explain as to why the provisions of second 50C of the Act be not adopted for computing long term capital gains. The assessee consented for adoption of stamp duty valuation for substituting the consideration amounting to ₹ 66,23,540/- as against a sum of ₹ 48.59 lacs. The assessee claimed that it has constructed 4th floor in the year 2000-01 and the cost of construction in the year 2000-01 was ₹ 18.18 lacs i.e. the cost of improvement. The assessee claimed that the same should be allowed to the assessee as cost of acquisition for the purpose of computation of capital gains. But the AO has not allowed the cost of acquisition on construction of forth floor i.e. construction of Gala No. C-54 of the C wing, the AO took the value as on 01.04.2002 at ₹ 1,05,468/- and computed the long term capital gains at ₹ 37,13,631/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) confirmed the action of the AO and matter was travelled to ITAT in first round. The Tribunal restore the issue to the file of the CIT(A). In term of the above order of the ITAT, the CIT(A) again affirm the action of the AO vide para 5 as under: -

I have heard the rival contentions and gone through the facts and circumstances of the case. I find from the facts of the case that this property became the property of the assessee by virtue of consent decree passed by Hon’ble Bombay High Court in suit No. 954/1998 passed on 23.03.1999. As per the agreement of sale dated 22.03.2006 this property i.e. 4th floor of C Wing was constructed by the assessee and the relevant clause 7 and 8 of the agreement reads as under: -

The learned Counsel for the assessee before me stated that the assessee spent an amount of ₹ 18.18 lakhs for constructing 4th Floor and unit No. 54 during the year 1999-200 and he referred to the confirmation letter from society dated 02.02.2010 stating that the assessee was the owner of industrial gala No. C-64 on which 4th floor of this gala was constructed by Shri Bharat J Patel, the assessee. The learned Counsel for the assessee drew our attention to the return of income filed for AY 2000-01 along with balance sheet as on 31.03.2000, wherein an additional cost of construction for 4th floor at C-54 is declared at 18.18 lakhs apart from inherited cost of the property at ₹ 1,05,468/-. The learned Counsel for the assessee stated that this cost is carried forward for all along till AY 2006-07 at the time of the sale of the property. The learned Counsel for the assessee also drew our attention to the addendum to memorandum of sale dated 22.03.2006, which is enclosed at page 83 of assessee’s paper book that the assessee has spent of ₹ 18.35 lakhs for constructing this gala No. 54 on 4th floor of said Pravasi Industrial Estate. The relevant addendum to agreement dated 22.03.2006 reads as under : -

In view of the above, the learned Counsel for the assessee stated that the AO should have allowed the cost of construction while computing the long term capital gain. When these facts were confronted to the learned Sr. Departmental Representative, he only relied on the assessment order.

I have heard the rival contentions and gone through the facts and circumstances of the case. I find that the only dispute contested before me is whether the cost of production spent by assessee in construction of 4th floors at ₹ 18.18 lacs in construction of the above gala and this should be allowed as cost of construction from the year 1990-00 relevant to AY 2000-01. In view of the above facts discussed, I direct the AO to allow the cost of construction of ₹ 18.18 lacs because the assessee has ample evidence to demonstrate that he has incurred this cost for construction of this 4th Floor of Gala 54 of C Wing of Pravasi Industrial estate during the year 1999-2000. The AO will compute the long term capital gain accordingly. The appeal of the assessee is partly allowed.

In the result, the appeal of assessee is partly allowed.