V.N.CHANDRASEKARAN,VELLORE vs. ITO, VELLORE

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the Order dated

18.02.2016 of Commissioner of Income Tax (Appeals)-13, Chennai, in ITA

No.101/A-13/AY 2007-08 for the AY 2007-08.

2.0 Ground No.1 is general in nature which does not require any specific

adjudication.

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3.0 Ground No.2,3 and 4 are related to the assessment of capital gains

adopting the guideline value as per section 50C of the Income Tax Act (in

short ‘the Act’).During the previous year relevant to the A.Y. 2007-08,

the assessee sold the following properties . The sale value and the

guideline values are as under:

Sale Value adopted Market Value as Sl. Document No. & Date by the assessee per the Sale Deed No. (in Rs.) (in Rs.) 1 9439/2006 & 15.11.2006 15,07,500-00 21,75,000-00 2 720/2/2007 & 29.01.2007 316,200-00 325,200-00 3 717/2007 & 29.01.2007 297,600-00 302,600-00 4 719/2007 & 29.01.2007 204,600-00 214,600-00 5 718/2007 & 29.01.2007 204,600-00 214,600-00 6 2171/2007 & 05.03.2007 605,200-00 605,200-00 Total 31,35,700-00 38,38,200-00

The above properties were joint properties bearing Door No.27, 27/1

to 27/8 (New No.2, 2/1 to 2/8) Officers’ Line, Vellore, consisting of vacant

site, lodging house and the shops owned by the undivided family of

assessee’s father. Due to disputes in family the assessee filed a case

against other family members in the District Court, Vellore and

subsequently a compromise deal was settled among the family in the

Court. As per the decree of the Ld. District Court, Vellore, in IA

No.319/2003 dated 22.08.2004, the assessee and his brother Shri

Dhanasekharan has to share the property in the ratio of 60% & 40%.

Accordingly, the assessee sold the property and admitted the value of his

share at Rs.18,81,420/-(60% of 31,35,700-00) as per the sale deed. The

Assessing Officer (hereinafter referred to as ‘AO’) adopted the guideline

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value which was Rs.38,38,200/- and the assessee share of 60% worked

out to Rs.23,02,920/- and computed the capital gains after allowing the

indexed cost of acquisition.

3.1 The property sold vide document No.9439 relates to Door No.27/5 to

27/8 consisting of land and building for a consideration Rs.15,07,000/-

and stamp valuation authorities valued the property at Rs.21,75,000/-

with breakup of Rs.18,63,032/- for land and Rs.3,11,968/- for the

building. The assessee objected for adopting the guideline value since the

property was under occupation of the tenants for decades and the

assessee could not vacate the tenants and ultimately the property was

sold to sub-tenants. The assessing officer did not accept the objections

and computed the capital gains adopting the value as per section 50C.

3.2 During the appeal, Ld.CIT(A) directed the AO to refer the valuation

of property to the valuation cell u/s50C(2) of Income tax act. The A.O

referred the valuation of property to the valuation cell and the D.V.O

submitted the valuation report valuing the property at Rs.18,95,544/-

(Land at Rs.15,83,576/- and building at Rs.3,11,968/-) against the

guideline value of Rs.21,75,000/-. The assessee’s share of 60% worked

out to Rs.11,37,326/-. The Ld. CIT(A) directed the AO to compute the

capital gains adopting the FMV at Rs.18,95,544/- as per the DVO Report.

Aggrieved by the order the assessee is in appeal before us.

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3.3 During the of appeal, the Ld.AR submitted that the assessee has

obtained Valuation Report of the building in TS No.581, Block No.12,

Officers Line, Vellore Taluk, sold vide document No.9439/2006 consisting

of land and building and furnished before the AO during the remand

process. The AO and the Ld.CIT(A) adopted the value of the building as

valued by the Departmental Valuation Officer (DVO) instead of the fair

market value estimated by the Registered Valuer, Shri I.M. Govinda Rajan

from whom Valuation Report was submitted. According to the Registered

Valuer, the market value of the building was Rs.1,06,000/- against the

valuation of DVO Rs.3,11,960/-. There was a difference of Rs.2,05,960/-

which is agitated by the assessee in this appeal. According to the

Ld.Counsel, the property was in litigation and encumbered with lot of

problems, moreover the building is very old. According to the A.R. building

valuation made by the Registered at Rs.1,06,000/- is correct and the

same should be adopted for capital gains. On the other hand the Ld.D.R

relied on the lower authorities orders.

3.4 We heard the rival submissions and gone through the material

placed before us. We have also seen the Valuation Report issued by the

Registered Valuer. The property was sold on 15.11.2006 and in the Sale

Deed, the value of the building was adopted at Rs.3,94,568/- as stated by

the assessee. The same value was adopted by the Departmental Valuer

from Valuation Cell. The DVO has inspected the property and found all

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the structures were demolished. Therefore, he estimated the value as per

guideline value in Sale Deed. In the case of approved Registered Valuer

Mr.E.Govinda Rajan valued the property on the basis of the documents

and guideline value of State PWD and reducing the depreciation by

straight line method. According to the Registered Valuer, Ground Floor

was constructed in 1941 with ACC roof in 25 sq.mtrs. and on which

another floor was made in 1968 with RCC roof in 45 sq.mtrs. It appears

that there was a blatant mistake in the Registered Valuer Report since

RCC roof cannot made on ACC roof and the Registered Valuer has not

seen the building and only estimated the value as per PWD Rates without

inspecting the building therefore we are unable to accept the report of the

approved Valuer. The assessee and vendor have accepted the value of

the building at Rs.3,11,968/- as per the Sale Deed. The Sale Deed is

undisputed evidence to establish the correct amount of the valuation of

the building, since, both the parties have agreed for purchase and sale of

the building which was adopted by the Sub-Registrar for the purpose of

stamp valuation, we do not find any error in adopting the building value at

Rs.3,11,968/- against the claim of the assessee Rs.1,06,000/-and we up

hold the order of the ld.CIT(A).

3.5 The next objection of the assessee was valuation of the land. As per

section 50C(2) the valuation of the land was referred to the valuation cell

and the DVO valued the FMV of land at Rs.15,83,576/- considering all the

objections and evidences produced by the assessee. No other evidence

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furnished by the assessee to show that report submitted by the DVO is

erroneous or the FMV of the land is lesser than the valuation made by the

DVO. Accordingly, we hold that the Ld.CIT(A) has rightly directed the AO

to arrive the fair market value as valued by the Valuation Officer and the

orders of the Ld.CIT(A) is confirmed. Ground No.2 to 4 of appeal are

dismissed.

4.0 Ground Nos.5 to 8 are related to the disallowance of compensation

paid to his brother Mr.V.Dhanasekharan amounting to Rs.3,12,945/-. The

assessee and Mr.V.Danasekharan are brothers and the legal heirs of the

property.. The District Court Vellore by Court order dated 22.08.2004 has

settled the properties in the ratio of 60% & 40% in favour of the assessee

and his brother Mr.Dhanasekharan, subject to payment of Rs.10.00 lakhs

from the sale proceeds of the above property. The relevant part of the

judgment of court was cited by the A.R. in paper book page No.41 which

is extracted as under:

Page 32 Para 1: That the property described in schedule A hereunder (1st item of the suit property), that is the vacant site, lodging house and the shops Door No.27, 27/1 to 27/8 (New No.2, 2/1 to 218) Officers’ Line, Vellore is hereby allotted to the petitioner/plaintiff Mr. V.N. Chandrasekaran and the 2nd respondent / 2nd defendant Mr. V. N. Dhanasekaran in the ratio of 60% and 40% respectively and the same shall be sold immediately for a price not less than the prevailing market price and the sale proceeds shall be divided ,between Mr V. N. Chandrasekaran and Mr V. N. Dhanasekaran in the above said ratio of 60% and 40% respectively. Page 33 Para 4: That the house bearing door no.33 2nd East Main Road, Gandhi Nagar, Vellore 6, admeasuring about 8 grounds was already settled in favour of Mr.V.N. Chandrasekaran. Since the market value of the said house is more than the value of the house now allotted to Mr V.N.Dhanasekaran, Mr V.N.Chandrasekaran shall pay a sum of Rs. 10,00,000/- (Rupees Ten Lakhs only) to Mr V.N.Dhanasekaran towards the differential cost. The said amount shall be paid by Mr V.N.Chandrasekaran at the time of execution and registration of Sale Deed in respect of the A schedule mentioned property from out of his share of 60% of the sale proceeds.

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5.0 The court has directed that the land and property to be shared

between his brothers in the ratio of 60% & 40%. While fixing the share of

the assessee at 60% the court has directed the assessee to pay a sum of

Rs.10.00 lakhs out of sale proceeds to his brother Mr.V.N.Danasekharan

at the time of execution and registration of Sale Deed. Accordingly, the

assessee has made the payment of Rs.3,10,045/- from the sale proceeds

towards the compensation to his brother as per the Court Order and

claimed as deduction from the long term capital gains. The AO disallowed

the deduction claimed by the assessee stating that, as per the judgment

the compensation was only a differential cost of other properties allotted

between the assessee and his brother and hence the compensation paid to

his brother has no relation, other than time frame fixed by the Hon’ble

Court to confirm the payment.

6.0 Assessee went on appeal before the Ld.CIT(A) and did not succeed

before Ld.CIT(A). Therefore, the assessee filed appeal before this

Tribunal.

Appearing for the assessee the Ld.Counsel argued that the payment

is made as per the Court Order. The court has directed to make the

payment from the sale of the property mentioned in schedule ‘A’ (which is

sold by the assessee) and at the time of execution of Sale Deed and

Registration of the document. The relevant paragraphs of the compromise

deal in the District Court of Vellore is re-produced as under:

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“That the house bearing door No.33, 2nd East Main Road, Gandhi Nagar, Vellore.6, admeasuring about 8 grounds was already settled in favour of Mr.V.N.Chandrasekaran. Since the market value of the said house is more than the value of the house now allotted to Mr.V.N.Dhanasekaran, Mr.V.N..Chandranekaran shall pay a sum of Rs.10,00,000/— (Rupees Ten Lakhs only) to Mr.V.N.Dhanasekaran towards the differential cost. The said amount shall be paid by Mr VN.Chandrsekaran, at the time of execution and registration of Sale Deed in respect of the ‘A’ Schedule property from and out of his share of 60% of the sale proceeds. Vellore District, Vellore Taluk, Vellore Town, Revenue ward No.5, in Officers Line, measuring East to West 324 feet, on the northern side and 314 feet on the Southern side, North to South 88 feet on the Eastern side and 87 feet on the Western side, totaling 27, 912 Sq. feet of land and the non-residential premises constructed therein, bearing Door Nos.2, 2/1, 2/2, 2/3, 2/4, 2/5, 2/6, 2/7 and 2/8 (Old Door Nos.27, 27/1 to 27/8) with all fixtures, fittings, electrical service connections and water connections, etc., bounded on the East by Officers line, West by Sri Venkateswara Higher Secondary School backside, South by open Play Ground belonging to Voorhees Higher Secondary School and North by Sri Venkateswara Higher Secondary School (value Rs.25,00,000/-)”.

7.0 According to the Ld.AR, the amount paid to Mr.Danasekharan is

payment by overriding title which should be allowed as deduction. On the

other hand, the Ld.DR relied on the lower authorities orders.

8.0 We heard the rival submissions and perused the material placed

before us.

As per the order of the District Judge, Vellore, in IA No.319/03, the

Court has directed the assessee to make the payment of Rs.10.00 lakhs

from the sale proceeds of ‘A’ Schedule property at the time of execution

and registration of Sale Deed from and out of his share of 60% of the sale

proceeds. As per the Court Order, the properties were shared between

Mr.Chandrasekharan & Mr.Dhanasekharan @ 60% & 40% subject to

payment of Rs.10.00 lakhs by the assessee to his brother

Mr.V.Danasekharan. Since, the Court has directed to make the payment

from the ‘A’ schedule properties (mentioned in schedule ‘A’ i.e. the

property which was sold) the payment, due to Mr.Danasekharan required

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to be made as and when the property was sold failing which the assessee may be contempting the Court Order. Therefore, the payment made to Mr.Dhanasekharan from the sale proceeds required to be allowed as a deduction in the hands of the assessee. Accordingly, we hold that the payment made to Mr.Dhanasekharan amounting to Rs.3,10,945/- is allowable deduction and the addition made by the AO is deleted and the order of the Ld.CIT(A) is set aside. Ground Nos.5 to 8 of the assessee are allowed.

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

Order pronounced in the Open Court on 31st January, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (�ड.एस. सु�दर �संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, �दनांक/Dated: 31st January, 2017. tln

आदेश क� ��त�ल�प अ�े�षत/Copy to: 4. आयकर आयु�त/CIT 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 3. आयकर आयु�त (अपील)/CIT(A) 6. गाड� फाईल/GF