G.SHANMUGANATHAN,CHENNAI vs. ITO, CHENNAI

आदेश / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA No.1130/Mds/2015 :- 2 -:

ITA No.1130/Mds/2015 :- 3 -: long term capital gains �1,35,36,709/- as against �Nil declared by the assessee, and brought to tax. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).

The Commissioner of Income Tax (Appeals) observed that 4. the assessee owned the property prior to the period from 1981. As on 01.04.1981, the property consisted of land and ground floor building (1100 sq.ft). During the financial year 1993-94, the assessee claimed to have put up a first floor of 800 sq.ft. The building of ground floor (1100sq.ft) and the first floor (800 sq.ft) was in existence as on the date of entering into the joint development agreement with the builder. Only on the subsequent dates, i.e. after entering into the joint development agreement and also after getting the necessary approvals, the existing buildings were demolished. The original sanction plans and the demolition certificates clearly prove these facts.

The first claim of the assessee was that the FMV of the land as on 01.04.1981 is �125/- per sq.ft as against �10/- per sq.ft adopted by the Assessing Officer. The Chennai Bench of the Tribunal in the case of ACIT vs. Best and Crompton Engineering Ltd. (2013) (60 SOT 53)

(Chennai) has held that the FMV of the land in the area of Ambattur Industrial Estate, as on 01.04.1981, could be �50/- per sq.ft. The Amnbattur Industrial area is less developed compared to Anna Nagar (west), where the assessee’s property was located. Hence, the FMV of ITA No.1130/Mds/2015 :- 4 -: the assessee’s property (land portion only) will not be below �50/-per sq.ft. as on 01.04.1981. It was not out of context to mention here that the GLR of land value in Anna Nagar West during the year 2007 is �1,425/- per sq.ft., as against the GLR of �536/- per sq.ft. in Ambattur Industrial Estate during 2007. This fact also indicates that the land values of Anna Nagar west are higher than those of Ambattur Industrial area. Therefore, in the absence of any other details or evidences, the FMV of the assessee's land (land portion only) as on 01.04.1981, could safely be adopted at �50/-per sq.ft. Therefore, the Assessing Officer was directed to adopt the FMV of the land at �.50/-per sq.ft, as on 01.04.1981, as against Rs.125/- per sq.ft. claimed by the assessee or �10/- per sq.ft. adopted by the Assessing Officer in his order.

The next claim of the assessee was the cost of the 4.1 old building while computing the capital gains. From the perusal of the records and the Assessing Officer's order, and the other details filed by the assessee, it was clear that the existence of buildings on the land sold was not under doubt. As mentioned earlier, as on the date of entering into the joint development agreement, the property consisted a ITA No.1130/Mds/2015 :- 5 -: building of ground floor (1100 sq.ft.) and first floor (800 sq.ft.). Only thereafter, the old building was demolished in order to facilitate the construction of the new building. In fact, the assessee obtained building demolition approvals only after date of joint development agreement, evidencing the existence of buildings on the property under consideration. Thus, the buildings were demolished only after the date of date of joint development agreement, but before commencing the construction of the new flats, as per the directions of the builder. Thus, the demolition of the buildings formed part and parcel of the sale negotiations and consideration. The demolition was only to facilitate the construction of the new flats. In order to get a better deal (value) the assessee was foregoing the existing building by demolishing. Therefore, the loss of the building (on account of its demolition) together with the cost of demolition, if any, forms the expenses / cost to the assessee against the sale consideration received. In commercial principles and practice any expenditure, compensation, loss etc., by way of payment, surrender, forgoing, demolition etc, in relation to any transaction are to be regarded as the expenses allowable against the income derived from the said

ITA No.1130/Mds/2015 :- 6 -: transaction. For example, if tenants or illegal occupants in a property are vacated in order to facilitate the sale of a property, the compensation so paid to the tenants / occupants will be allowable expenditure as it was incurred to make the property free from encumbrances. Similarly, if a standing structure on the land was to be demolished to facilitate the sale, the cost of the building together with the cost of demolition, are to be allowed as deductions against the sale consideration. Therefore, the cost of the house demolished was to be allowed as an expenditure (cost) against the sale consideration, along with the cost of the land, as the buildings are intrinsically linked to the land and the demolition of the said buildings was only to facilitate the transfer of the property. The above fact, coupled with the building demolition approvals, clearly proved that there were residential buildings on the land. Further, as mentioned above, even if the buildings on the land are demolished in order to facilitate the transfer of the land, the cost of the buildings is to be allowed as part and parcel of the cost of the property, along with the indexation, as per the law.

ITA No.1130/Mds/2015 :- 7 -:

4.2 As per the assessee, the ground floor of 1100sq.ft. was in existence as on 01.04.1981. First floor of 800 sq.ft. was put up in 1993-94. The assessee adopted the FMV of the ground building @ Rs.500/- per sq. ft. (FMV as on 01.04.1981) and first floor @ Rs.620 /- per sq.ft. In addition, the assessee also claimed improvements to the building in 1997-98 for Rs.3,75,000/-. However, the assessee has not produced any evidences / details in respect of the improvements. In the absence of any details, the assessee's claim of cost of improvements of Rs.3,75,000/- was rejected. Regarding the cost of building, the assessee's claim of cost of construction of ground floor @ Rs.500/- per sq.ft. (FMV as on 01.04.1981) and first floor @ Rs.620/- per sq.ft. are exorbitantly high. Even as late as 1995, the cost of construction in Metros has not touched the figure of �500/-per sq.ft. The assessee has not furnished any details of the cost of the constructions claimed to have been incurred by him during the financial years prior to 01.04.1981 or during 1993-94. Nor the assessee was able to file any details or method of arriving at the FMV of the building (ground floor) at �5,50,000/- as on 01.04.1981. Hence, the assessee's claims

ITA No.1130/Mds/2015 :- 8 -: of cost of construction of ground and first floors @ �500/- and �.620/- per sq. ft. in 1981 and 1993-94 are allowable. Further, he considered the PWD rates in the state of Tamil Nadu are as under:

Financial year Nature of PWD rate sq.meter buildings per Ground I floor & above floor 1981-82 Residential �1,010 �925/- – Framed 1993-94 -do- �3,285/- �3,015/- 4.3 Accordingly, the PWD rates, the cost of construction (or FMV) as on 01.04.1981 it was �1,010/-per sq.mt (or Rs.93.50 per sq.ft) for ground floor, while in 1993-94 it was �279.17 per sq.ft. for the first floor. Therefore, the Assessing Officer was directed to adopt the value of the ground floor of 1100 sq.ft. at �93.50 per sq.ft. and the first floor of 800 sq.ft. at �279.17 per sq. ft. Thus, the Commissioner of Income Tax (Appeals) directed the Assessing Officer to allow the necessary deduction, by considering the same as part of the cost of acquisition, in addition to the FMV of the land determined above. He also ITA No.1130/Mds/2015 :- 9 -: directed the Assessing Officer to allow the indexation on the FMV of land and ground floor from 01.04.1981 and on the first floor from 1993-94 which worked out at �26,94,722/-.

Against this, the assessee is in appeal before us.

We have heard both the parties and perused the material on 5. record. In this case the assessee claimed fair market value of the impugned property at �125/- per sq.ft as against which the Assessing Officer considered the same at �10/- per sq.ft. However, the Commissioner of Income Tax (Appeals) adopted the same at �50/- per sq.ft on the basis of the property situated at Ambattur Industrial Estate. In our opinion, the comparison of property at Ambattur Industrial Estate with Anna Nagar (west), is not appropriate. Hence, we are inclined to remit the issue back to the file of the Assessing Officer to bring on record the fair market value of the property situated at the vicinity of impugned property and then decide the Fair Market Value of the impugned property. Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration.

The next issue is with regard to valuation of building. The 6. contention of the assessee’s counsel is that the Commissioner of Income Tax (Appeals) valued the building at �93/- per sq ft. on the ITA No.1130/Mds/2015 :- 10 -: basis of PWD rates and he had not considered the extra rates towards water supply, sanitary and electrification. In our opinion, usually the value of PWD rates is higher than the local rates and the assessee cannot have any grievance on this issue, we do not find any infirmity in the order of the Commissioner of Income Tax (Appeals) in this issue and hence the same is confirmed.

In the result, the appeal of the assessee in ITA 7. No.1130/Mds/2015 is partly allowed for statistical purposes.

Order pronounced on Friday, the 28th day of August, 2015, at Chennai.