Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The above assessees, brothers, filed these appeals against the orders of the Commissioner of Income Tax (Appeals)-2, Coimbatore in 426/14-15 dated 30.03.2016 , respectively, for assessment year 2011-12.
Mr. M. Kumar and Mr. Harikrishna Premi, the assessees, brothers acquired 50% of right ownership , each, on a house property at Door no. 491 to 502, Raja Street, Coimbatore through a registered gift settlement deed executed by their grand mother M/s. Nagammalon 01st June, 2006. Before executing the gift deed in their favour, theirgrand mother had created a registered mortgage against that property on 20.02.2006 in favour of M/s.
United Bank of India for Rs. 45 lakhs for the purpose of securing repayments of all the amounts owning to the bank under advances made and to be made to M/s. P.K. Muthuswamy Jewels, a partnership firm where the assesses i.e., Mr. M. Kumar and Mr.Harikrishna Premi are partners . The assessees sold their property on 13th July, 2010 for a consideration at Rs. 1,41,50,000/-, whereas, the guideline value fixed for stamp duty purpose was at Rs 2,10,00,000/-. The assessees computed long term capital gain adopting the sale consideration u/s. 50C at Rs. 2,10,00,000/-. Since, the property was :-3-: & 2026/Chny/2016 acquired through gift settlement, they have treated the cost of acquisition as on 01.04.1981 at Rs. 22,20,932/-, claimed Rs. 45 lakhs towards registered mortgage loss from bank and Rs. 2,83,000/- towards commission and then arrived the LTCG. For determining the capital gains, the Assessing Officer referred the property to the joint sub-registrar, Coimbatore, to ascertain the guideline value as on 01.04.1981 and to the Valuation Officer for finding out the fair market value (FMV) of the property as on 01.04.1981. Based on them,the AO determined the capital gains adopting the guideline value certified by the joint sub-registrar, Coimbatore at Rs. 27.52 per sq.ft. as against Rs. 172 per sq.ft claimed by the assessees. Since, the assessees’ grandmother settled the property as on 01.06.2006, he adopted cost of inflation index applicable to the financial year 2006-07 . Based on the Valuation Officer’s report , he adopted the fair market value of the property as on 01.04.1981 at Rs. 5,93,000/-. On the assessee’s claim of mortgage loan at Rs. 45 lakhs, the AO held that this is not wholly and exclusively incurred in connection with transfer and hence did not allow the claim. Aggrieved, the assessees filed appeals before the CIT(A).
The CIT(A) found that there was not dispute on the fact that the original asset was acquired by the previous owner prior to 01.04.1981 and hence applying the ratio of the Hon’ble Bombay High Court in the case of CIT vs Manjula J Shah 249 CTR 270 (Bom), various tribunal benches and courts directed the AO to restore the index cost of acquisition as on 01.04.1981. On :-4-: & 2026/Chny/2016 the deduction claimed towards the re-payment of mortgage loan, the CIT(A) held, inter alia, that on account of mortgage loan, the assessee’s grand mother merely consented to offer the property as a security for the loan credit availed by the firm , wherein, the assessees i.e., brothers are partners and they have availed the loan and cleared it before selling the impugned property . Thus, the loan is availed by the firm and not by their grand mother. Therefore, the re-payment of loan availed by the firm does not add to the cost of acquisition of the property not it can be allowed as deduction as an expenditure incurred in connection with transfer of property. Since, the Valuation Officer determined the FMV of the property lower than the guideline value adopted by the registration authority, the assessee pleaded before the CIT(A) to adopt the FMV determined by the Valuation Officer. The CIT(A) held that the assesses themselves adopted the guideline value as sale consideration in the computation of capital gains as per provisions of section 50C. The assesses never claimed before the AO that the value adopted for stamp duty purposes exceeds the FMV as on the date of transfer and hence sub section 2 of section 50C do not apply. The value furnished by the Valuation Officer is not binding on the AO.
Aggrieved, the assesses filed these appeals, primarily challenging the value adopted for the cost of acquisition as on 01.04.1981 at Rs. 5,93,000/-, non-allowance of mortgage loan of Rs. 45 lakhs and pleaded to adopt the fair market value determined by the Valuation Officer as the sale
:-5-: & 2026/Chny/2016 consideration etc. Since the issues are interlinked, both appeals are heard together and are being dealt together.
The AR submitted that Smt. Nagammal, grandmother of the assessees, has taken loan of Rs. 45 lakhs by mortgaging the property vide mortgage deed dated 20.02.2006. But the property was gifted on 01.06.2006, after creation of the mortgage with its liability. In order to make the property encumbrance free, the assesses have paid Rs. 36 lakhs directly to the bank , out of the advance received towards the property, to clear the debt created by Nagammal. However, while computing the capital gains, the AO has not considered the liability of Rs. 45 lakhs. The CIT(A) also erred in dismissing the corresponding grounds. At the time of assessment proceedings, the AO was of the view that the cost of acquisition claimed by the assessee was on higher side and hence he made a referencetothe Valuation Officer to value the cost ofacquisition and fair market value as on 13.07.2010. The V O determined the cost of acquisition as on 01.4.1981 at Rs. 5,93,000/- and the FMV as on 13.7.2010 at Rs. 1,71,77,000/-.
However, the AO failed to adopt the fair market value determined by the Valuation Officer at Rs. 1,71,77,000/- but adopted the value as per section 50C at Rs. 2,10,00,000/-. The AO should have adopted the fair market value as determined by the Valuation Officer as per section 50C(2) . The AR submitted that for bank purposes a valuation report was obtained on the impugned property from Bharat Engineering Consultants dt 14.10.2005. They
:-6-: & 2026/Chny/2016 have arrived the FMV at Rs 96,19,000/- as on 14.10.2005 .In that the valuer has arrived the value of land at Rs.5,00,000 per sqft when the guideline vale is at Rs.9,13,453 per cent for various reasons including the irregular shape .
The VO has also taken note of the facts while arriving the FMV and hence the AR pleaded to adopt the FMV determined by the Valuation Officer as the sale consideration. Per contra, the DR submitted that the AO made reference to the VO u/s 55A, even if there is a registered valuer’s report , still the AO can make a reference u/s 55A and relied on the Mumbai bench decision reported in 37 taxmann. Com 40 (Mumbai Trib) in the case of Vijay P karnick V ITO, Ward-19 (2)(2) in (Mum) of 2011 dt 21.6.2013 and supported the orders of the AO/CIT(A).
We heard the rival submissions and gone through relevant material.
The fact remains that M/s. Nagammal ,grand mother of the assessees, had not taken any loan on the impugned property. She simply had created a registered mortgage against that property for the purpose of securing repayments of all the amounts owning to the bank under advances made and to be made to M/s. P.K. Muthuswamy Jewels, a partnership firm where the assesses ie Mr. M. Kumarand Mr. Harikrishna Premi are partners. Thus, these assessees have availed loan as partners and had to repay it as partners which they have done . Therefore, the re-payment of loan availed by the firm does not add to the cost of acquisition of the property not it can
:-7-: & 2026/Chny/2016 be allowed as deduction as an expenditure incurred in connection with transfer of property and hence we do not find any reason to interfere with the order of the CIT(A) in this regard. Corresponding grounds are dismissed.
With regard to the plea that AO should have adopted the fair market value as determined by the Valuation Officer as per section 50C(2) etc, it is a fact that the assessees have computed long term capital gains adopting the sale consideration u/s. 50C at Rs. 2,10,00,000/-, the value fixed for the purposes of stamp duty and they not disputed also. However, while computing the capital gains they have treated the cost of acquisition as on 01.04.1981 at Rs. 22,20,932/-. At the time of assessment proceedings, the AO was of the view that the cost of acquisition claimed by the assessee was on higher side and hence he made a reference u/s 55A to the Valuation Officer to value the cost of acquisition and fair market value as on 13.07.2010. The V O determined the cost of acquisition as on 01.4.1981 at Rs. 5,93,000/- and the FMV as on 13.7.2010 at Rs. 1,71,77,000/-. The AO adopted the FMV determined by the V O as on 01.4.1981 as the cost of acquisition, however, failed to adopt the fair market value determined by the Valuation Officer as on 13.07.2010 at Rs. 1,71,77,000/- but adopted the value fixed for the stamp duty purposes at Rs. 2,10,00,000/- u/s 50C. The report obtained from the VO either u/s 50C or u/s 55A binds the AO. In the decision in Vijay P. Karnikvs ITO Ward -19 (2)(2), 37 Taxmann.com 48
:-8-: & 2026/Chny/2016 (Mumbai-Trib) in (Mum) of 2011 dated 21.06.2013, the ITAT observed as under:
“ 7. We may also point out here that even if the reference made by the AO to the DVO was not in accordance with law or illegal the valuation report obtained in pursuance of such a reference will be relevant and admissible evidence which can be used by the revenue authorities in the income tax proceedings. This view is supported by the decision of Hon’ble Supreme Court in case of Pooran Mal vs Director of Inspection [1974] 93 ITR 505 in which it was held that even though the search and seizure had been conducted in contravention of the provisions of section 132 of the IT Act material obtained can be used by the Income Tax authorities. Thus even if the reference made by AO is considered not valid the valuation report can always be used in the income tax proceedings for the purposes of the Act. The same view has been taken by the decision of Tribunal in case of ChaturbhujVallabhdas HUF (supra) in which the Tribunal held that the valuation report having already been obtained by AO and used in the assessment proceedings, the issue of validity or illegality of the reference had become purely academic in view of the judgement of Hon’ble Supreme Court in case of Pooran Mal (Supra).”
Since, the valuation report furnished by the VO is partly used by the AO in respect of the FMV for the cost of acquisition alone and such valuation report being relevant and admissible evidence, as held supra, it can be used for determining the FMV as on 13.07.2010 and accordingly we direct the AO to adopt the fair market value determined by the Valuation Officeras on 13.07.2010 also for computing the capital gains. Corresponding grounds are partly allowed.
In the result, both the assessees appeals are partly allowed.
:-9-: & 2026/Chny/2016
Order pronounced on Thursday, the 12th day of April, 2018 at Chennai.