M/S PYNE PROPERTIES PVT LTD,KOLKATA vs. I.T.O WD - 5(2),KOLKATA, KOLKATA

The only objection in this appeal filed by the Assessee before the Hon'ble Tribunal is against the computation of Capital Gain on the sale of its immovable property. The facts leading to the grounds taken in this appeal are that during the Asstt. Year 2008-09 the Assessee company submitted its Return showing rental income from House Property, Dividend and Long Term Capital Gain. The Long Term Capital Gain arose on the sale of its immovable property located at 618 B.T.Road, Kolkata-700115. The Property consisted of a two Storeyed dilapidated ITA No. 1791/Kol/13 M/s. Pyne Properties P.Ltd. 2

On the sale of this property, the Assessee disclosed a Long Term Capital Gain of Rs.36,12,137. At the assessment stage the A.O. however held that the property sold by the Assessee was a depreciable asset and consequently after applying the provisions of Sec. 50 of I.T.Act, he computed Short Term Capital Gain of Rs.3,94,10,577 on the sale of the property as per details given below:-

The Assessee filed an appeal before the CIT(A) and claimed that a major portion of the property consisted of land on which no depreciation was admissible. Further submitted that it was not carrying on any business and had only rental income. Consequently, no depreciation was admissible even on the building. It also explained that although as per its Balance Sheet, Depreciation was shown to have been allowed, but the same was computed and deducted by the Auditors as per the Companies Act but no depreciation was either claimed or allowed in its Income Tax assessments. The Assessee contended that the A.O. was therefore not justified in computing Short Term capital gain in terms of Sec.50 of the .Act.

From Para-7 of the appellate order it appears that the CIT(A) forwarded a copy of the Written Submission filed by the Assessee before him to the A.O. for a remand report. He also directed the A.O. to refer the valuation of the assessee's land as on 01.04.1981 to the Valuation Cell. By a letter dated 14.01.20l3 the A.O. requested the District Valuation Officer to submit a Valuation Report showing valuation of the Assessee's land as on 01.04.1981 and a copy of such letter is filed in the Paper Book. The Valuation Officer submitted a Valuation Report dated 07.03.20l3 to the A.O. with a copy to the Assessee showing the value of the Assessee's land as on 01.04.1981 at Rs.55,32,474/-, which is available in the Paper Book.

Thereafter, the assessee filed a Written Submission dated 20.03.20l3 before the CIT(A) in which he agreed to accept the valuation of the Assessee's ITA No. 1791/Kol/13 M/s. Pyne Properties P.Ltd. 4

The CIT(A) has accepted the total capital gain on the sale of the property at Rs.89,43,205 as computed above as against Rs.36,12,137 as returned by the Assessee and held that 95% of this Capital Gain i.e. Rs.68,19,615 should be treated as related to the sale of its land and the same should be assessed as Long Term Capital Gain. The balance 5% of the total capital gain of Rs.89,43,205 was treated by him as related to the sale of the building and therefore Short Term capital gain.

In Ground No.1 the Assessee has objected to the order of CIT(A) in enhancing the capital gain on the sale of the Assessee's immovable property to Rs.89,43,205 as against Rs.36,12,137 returned by it. Supporting Ground No.1(a), the Assessee has claimed that the A.O. erred in referring the valuation of the Assessee's property as on 01.04.1981 to the DVO in terms of Sec.55A(a) of the Act. In Ground No.1(b) it has objected to the observation of the CIT(A) in Paras 21 & 23 of impugned order that the Assessee has accepted the valuation of its property as per the report of the DVO. In Ground No. l (c), the Assessee has contended that the CIT(A) was not justified in computing its capital gain on the sale of its property taking its value as on 01.04.1981 at Rs.55,32,474 as per the Valuation Report of the D.V.O. The ld. DR contends that the submissions by the assessee that the CIT(A) has no power in respect of reference to the DVO is not correct. Since all these grounds are connected, and, therefore, heard together with the consent of both the parties.

Prior to its amendment by the Finance Act 2012 w.e.f 01.07.2012, Sec.55A(a) of the Act authorized the A.O. to refer the valuation of a capital asset to a Valuation Officer in a case where the value of the asset is claimed by the Assessee in accordance with the estimate made by a Registered Valuer only when he was of the opinion that the value so claimed was less than its fair market value.

This provision requires that the following two conditions must be satisfied before the valuation of a capital asset could be referred to the Valuation Cell.

If the A.O. has not formed an opinion as stated above, his reference to the Valuation Cell would not be valid as held by the Hon'ble Calcutta High Court in the case of CIT vs Umedbhai International Pvt. Ltd. reported in 330-ITR-506. Secondly prior to amendment of S.55A(a) w.e.f. 01.07.2012 a reference to the Valuation Cell by the AO was possible only when in his opinion the value shown by the Assessee was less than the Fair market value. If this condition is not satisfied, the reference to the Valuation Cell would also be invalid as held by the Hon'ble Calcutta High Court and Hon’ble Gujarat High Court. In the Case of CIT vs Smt. Mina Deogun reported in 375 ITR 586 (Cal), Registered Valuer valued the Assessee's share of property as on 01.04.1981 at Rs.18,40,244. The AO in exercise of his power u/s. 55A referred the matter to the Departmental Valuer who valued the Assessee's share of the property as on 01.04.1981 at Rs.11,65,570. The competence of the AO to refer the matter to the Departmental Valuer u/s 55A was challenged and the Tribunal held that the reference made u/s 55A was incompetent and therefore the valuation provided by the Assessee on the basis of the report of the Registered Valuer valuing the share of the Assessee at a sum of Rs.18,40,244/- was accepted by the Tribunal which was challenged by the Department before the Hon’ble High Court. The Hon'ble Calcutta High Court held that when the valuation made by the Registered Valuer was on the higher side, there was no occasion for the AO to refer the matter to the Valuation Officer u/s 55A In the case of Hiaben Jayantilal Shah vs ITO reported in 310 ITR 31, a similar view was taken by the Hon'ble Gujarat High Court.

In the instant case, before referring the valuation of land to the Valuation Cell the A.O had not formed an opinion that the value of the Assessee's land was ITA No. 1791/Kol/13 M/s. Pyne Properties P.Ltd. 7

That we are conscious of the fact that the Assessee accepted the valuation of the Valuation Officer at the first appellate stage cannot be the basis to sustain the order of the AO for the reasons that there could be no estoppel against Statute. In the above circumstances, we hold and direct the A.O. to accept the total Long Term Capital Gain of the assessee at Rs.36,12,137/- as returned by it instead of Rs.89,43,205/- as taken by the CIT(A).

In Ground No.2 the Assessee has submitted that the CIT(A) erred in directing the A.O to assess Long Term Capital Gain of Rs.68,19,615/- on the sale of its land and Short Term Capital Gain of Rs.21,23,590/- on the sale of its building. Supporting Ground No.2(a) it has claimed that both the A.O and the CIT(A) erred in rejecting the Assessee's contention that as no depreciation was allowed on its building in the course of its Income tax assessments, Sec.50 of the Act had no application in this case and consequently no Short Term capital gain could be assessed on the sale of its building. In Ground No.2(b) the Assessee has contended that even after admitting in Para-22 of his appellate order that no data regarding grant of depreciation on the Assessee's building was available in its assessment record, the CIT(A) erred in directing the A.O to assess Short Term ITA No. 1791/Kol/13 M/s. Pyne Properties P.Ltd. 8

As discussed above, the CIT(A) accepted the total capital gain on the sale of land and building at Rs.68,19,615. He thereafter held that the 95% of the Capital Gain related to the sale of land and 5% to the sale of building. Although at several places in the Appellate order he has observed that there is no evidence of allowing depreciation on the building, he still directed that on the sale of the building Sec.50 of the Act should be applied and the Capital Gain arising on the sale of the building should be treated as Short Term Capital Gain.

It is submitted that on receipt of the assessment order in which the A.O treated the entire capital gain as Short Term in terms of the provisions of Sec. 50 of the Act, the Assessee submitted a letter dated 29.07.2011 requesting him to furnish copies of computation of its total income filed along with its Returns and also copies of its assessment orders showing grant of depreciation on the property sold by it. A copy of such letter was received by the AO on 01.08.2011 has been placed on the Paper Book. The AO had not issued a reply to this letter. When the A.R. of the Assessee contacted him, he informally reported that no such assessment order could be traced by him. He however refused to send a reply to this effect.

In Para-17 of the order of the CIT(A), he has observed as follows:

In Para-18 of the order of CIT(A) has also observed that the Assessee was showing only income from House Property and it might have been a depreciable asset long back but since Asstt.Year 2001-02 at least, it has ceased to be a depreciable asset. In Para-21 of the Appellate order the CIT(A) has also held that the A.O was not justified in treating the land and building as depreciable asset in terms of Sec.50 of the Act, since no depreciation was claimed by the Assessee under the Act or allowed by the Department on this asset since the year 2001- 02.

In view of the repeated observations of the CIT(A) in his Appellate order that neither the Assessee claimed any depreciation on the House Property nor it was allowed by the Department, he was not justified in holding that the Capital Gain arising on the sale of the House Property should be treated as Short Term in terms of Sec. 50 of the Act. We therefore direct that the direction of the CIT(A) to assess Short Term capital gain of Rs.21,23,590/- in the hands of the Assessee

In the result, the appeal of the assessee is allowed