GHATKOPAR JAIMANGAL CO OP HSG SOC. LTD,MUMBAI vs. ITO 22(1)(2), NAVI MUMBAI

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ITA 671/MUM/2017Status: DisposedITAT Mumbai20 September 2017AY 2011-125 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s determination of the fair market value as on 1.4.1981. It allowed deduction for expenses related to drafting the sale agreement but disallowed tax consultation fees. The claim for treating losses as part of the cost of the flat was rejected. The deduction under Section 54EC was allowed.

What were the facts?

The assessee society sold a flat and claimed long-term capital gains, including deductions for the fair market value as of 1.4.1981, professional fees, and a loss from a former promoter. The assessee also claimed a deduction under Section 54EC.

What were the issues?

The key issues were the determination of the fair market value of the flat as of 1.4.1981, the allowability of expenses incurred in connection with the transfer, and the eligibility for deduction under Section 54EC.

Which sections of the Income-tax Act were involved?

Section 54EC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

Before: Shri B.R. Baskaran (AM)

For Appellant: Shri Bharat Dalal
For Respondent: Shri Ram Tiwari
Hearing: 20.9.2017Pronounced: 20.9.2017

The appeal filed by the assessee is directed against the order dated 04- 11-2016 passed by Ld CIT(A)-25, Mumbai and it relates to the assessment year 2011-12. The issues urged by the assessee relates to the computation of long term capital gain on sale of a flat and deduction claimed u/s 54EC of the Act.

2.

I heard the parties and perused the record. The assessee society purchased four plots of freehold land in 1970 in Garodia Nagar, Ghatkopar east, Mumbai. The chief promoter and secretary of the society named Shri V. Srinivasan purchased a flat for a sum of Rs. 38,000/-. Subsequently, consequent to the enquiry conducted on him for losses implicated on the society, the assessee herein became entitled to recover a sum of Rs.2,98,000/- from him. Consequent thereto, the assessee took possession of the flat of Shri V. Srinivasan in 1974. After due process of law and also on consent terms, it became the owner of the said flat also. The assessee sold the said flat on 30- 12-2010. The assessee invested a sum of Rs. 36.10 lakhs on 23.3.2011 and further invested a sum of Rs.33.99 lakhs on 9.6.2011 in bonds eligible for deduction u/s 54EC of the Act. While computing capital gain, the assessee

2 Ghatkopar Jaimangal Co-opt. Housing Society Ltd. (a) deducted the market value as on 1.4.1981 at Rs.2,03,000/- (b) deducted professional fee aggregating to Rs.50,000/- as expenses incurred in connection with transfer of flat. (c) treated loss of Rs.2,98,000/- caused by Shri V.Srinivasan and loss of interest to the society amounting to Rs.4,49,971/-, both aggregating to Rs.7,47,971/- as part of cost of flat and accordingly sought deduction. (d) claimed deduction u/s 54EC of the Act to the extent of Rs.70,00,000/-

3.

The AO took fair market value as on 1.4.1981 at Rs.53,200/- by increasing the cost of flat of Rs.38,000/- by adopting capital gain index. The AO allowed deduction for expenses to the tune of Rs. 20,000/-. He allowed deduction u/s 54EC of the Act to the extent of Rs. 50,00,000/-, being the cap prescribed in the first proviso to sec. 54EC of the Act.

4.

The Ld CIT(A) took the market value as on 1.4.1981 at Rs.1,71,000/- on the basis of sale instance of a sale that took place on 23.11.1983. He confirmed the order of AO in restricting the deduction u/s 54EC of the Act at Rs.50.00 lakhs and also confirmed the order of the AO in restricting the deduction for expenses to Rs.20,000/-. Aggrieved, the assessee has filed this appeal before the Tribunal.

5.

The first issue relates to the determination of Fair Market Value as on 1.4.1981. The Ld A.R submitted that the assessee had obtained a valuation report from a registered valuer, who had estimated the fair market value as on 1.4.1981 of the flat at Rs.3,33,000/. The Ld A.R submitted that the assessee had submitted the same before the AO before the finalisation of the assessment order, but the AO did not consider the same. The Ld CIT(A) took the view that there is no evidence to show that the valuation report was submitted to the AO and further rejected the same on the reasoning that the assessee has furnished the same as additional evidence without moving a petition. The Ld A.R submitted that the assessee had adopted the Fair market value as on 1.4.1981 at Rs.2,03,000/-, which is much lower than the registered valuer’s report of Rs.3,33,000/-.

3 Ghatkopar Jaimangal Co-opt. Housing Society Ltd.

6.

I heard Ld D.R, who supported the order passed by Ld CIT(A). I have gone through the copy of valuation report furnished before the Tribunal. I notice that the registered valuer has adopted a rate of Rs.360/- per sq.ft., and accordingly arrived at a value of rs.3,33,000/-. He has also qualified his report by stating in para 4 of his report that there are no comparable instances of sales in the area and accordingly determined the value on the basis of personal enquiries. However he has not described the details of enquiries, which renders the valuation report a bald one. Accordingly I am of the view that the valuation report furnished by the assessee may not come to its help for the reasons discussed above.

7.

I notice that the Ld CIT(A) has determined the value of Rs.1,71,000/- on the basis of sale instance of a flat located in the same society that took place on 23.11.1983. In fact, the above said sale agreement was furnished by the assessee before the AO. Even though sale instance is subsequent to the valuation date of 1.4.1981, yet the Ld CIT(A) has adopted the same without discounting the same. Since the sale instance is a better evidence and in the absence of any other material, I am of the view that the Ld CIT(A) was justified in adopting the fair market value as on 1.4.1981 at Rs.1,71,000/-. Accordingly I uphold his order passed on this issue.

8.

The next issue urged by the assessee relates to the deduction of professional fee of Rs.10,000/- paid to M/s B.R Dalal & Co for tax consultation and Rs.20,000/- paid to Shri A.G. Pandit for drafting agreement for sale and transfer of shares of the flat.

9.

The Ld A.R contended that these expenses have been incurred in connection with the transfer of flat and hence they should be allowed. On the contrary, the Ld D.R submitted that these expenses are not related to sale.

10.

I notice that the assessee has paid Rs.10,000/- to M/s B.R Dalal & Co for available tax consultation. The same, in my view, cannot be considered as 4 Ghatkopar Jaimangal Co-opt. Housing Society Ltd. expenses incurred in connection with transfer of flat as the flat can be transferred without taking advice also. In any case, the tax advice shall be useful post transfer only. Accordingly I confirm the order of Ld CIT(A) on this issue.

11.

In respect of Rs.20,000/- for drafting sale agreement and transfer of shares, I am of the view that the same should be considered as expenses incurred in connection with the transfer, since the agreement is required for effecting transfer and the transfer cannot be considered as complete unless the shares were also transferred. Accordingly I reverse the order of Ld CIT(A) on this issue and direct the AO to allow the deduction of Rs.20,000/- paid for drafting sale agreement and transfer of shares.

12.

The assessee has also claimed the loss of Rs.2,98,000/- and interest loss of Rs.4,49,971/- should be treated as cost of flat. First of all, the fair market value as on 1.4.1981 has been substituted as cost of flat and hence the same would subsume all the costs. Secondly, I am of the view that both the items cannot be related to the cost of purchase, as they are independent transactions. Accordingly I confirm the orders of tax authorities on this issue.

13.

The last issue relates to the deduction claimed u/s 54EC of the Act. The claim of the assessee is allowable as per the decision rendered by Hon’ble Madras High Court in the case of CIT Vs. C. Jaichander & another (TCA No.419 & 533 of 2014). Accordingly I set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction of Rs.70.00 lakhs u/s 54EC of the Act.

14.

In the result, the appeal of the assessee is partly allowed. Order has been pronounced in the Court on 20.9.2017.

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