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Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI
Before: SHRII.C. SUDHIR & SHRI PRASHANT MAHARISHI
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCHES, NEW DELHI (CIRCUIT BENCH AT MEERUT) BEFORE : SHRII.C. SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 2023/Del./2014 Asstt. Year: 2009-10 Income-tax Officer, vs. Bhavyesh Gupta – HUF, Ward 1(1), Meerut. F-152, Shastri Nagar, Meerut. [PAN: AACHB7688D] C.O. No. 04/Del./2015 (inITA No. 2023/Del./2014) Asstt. Year: 2009-10 Bhavyesh Gupta – HUF, vs. Income-tax Officer, F-152, Shastri Nagar, Ward 1(1), Meerut. Meerut. (Appellant) (Respondent) Revenue by : Sh. Sheodan Singh Bhadoria, Sr. DR Assessee by : Sh. Rajeev Ahuja, Sh. Vishal Jain, CA Date of hearing : 14.12.2015 Date of pronouncement : 22.12.2015 ORDER Per Prashant Maharishi, Accountant Member: 01. Captioned appeal by the Revenue and cross objection by the assessee are directed against the order of CIT(A), Meerut dated 08.01.2014 for the assessment year 2009-10 on the following grounds :
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Grounds raised by Revenue: “1. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in directing the A.O. to adopt the cost of acquisition of land on 1/4/81 @ Rs 1000/- p.s.m. ignoring the fact that the assessee failed to get the property inspected by the AVO, Department Valuation Cell, to whom the case had been referred to by the AO for ascertaining the fair market value of property as on 1/4/81. 2. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax, Meerut, has erred in facts in directing the A.O. to adopt the fair market value as on 1/4/81 as cost of construction ignoring the fact that the construction had been materialized in 1946 but the cost of construction has been arrived at rates prevailing in 1981 whereas these rates should have adopted to work out the cost of construction in 1946 and year wise depreciation should have been applied subsequently to work out the value as on 1/4/81. 3. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals), Meerut has erred in allowing the cost of improvement in 1992, as claimed by the assessee, ignoring the fact that no evidence had been furnished by the assessee to substantiate the cost of improvement claimed by him.”
Grounds raised by assessee: “1. That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) erred in directing the Ld. AO to adopt the cost of land as on 01/04/1981 @ Rs 1000/- p.s.m. as against Rs.2,000/- p.s.m. as adopted and returned in the return of income by the respondent based upon the report of valuation obtained by the respondent. The same is unwarranted and uncalled for and deserves to be substituted accordingly. 2
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That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in not allowing the claim of deduction of the assessee u/s. 54 as claimed the return of income and upholding the order of the ld. AO for restricting the deduction u/s. 54F for an amount of Rs.19,43,622/- wherein the Ld AO has considered the cost of new assets at Rs.23,10,000/- as against Rs.28,10,000/- as claimed by respondent in the return of income. The same is unwarranted and uncalled for and the order of Ld. AO deserves to be set aside.”
The brief facts of the case are that during the year, the assessee has sold a commercial cum residential property comprising of land and constructed area on 23.07.2008 for Rs 55 lakhs which was purchased prior to 01.04.1981. As the property was purchased prior to 01.04.1981, the fair market value of the land was taken at Rs.2000/- per sq. meter which was indexed respectively and deduction as cost of acquisition was claimed of Rs.8,22,482/- on account of land. Further, construction of ground and first floor of the property done in 1946 was also valued as on 01.04.1981 at Rs.3,36,707/- which was respectively indexed as Rs.19,59,635/-. Therefore, the cost of acquisition of the land and the building as at 01.04.1981 as per index value was taken to be Rs.27,82,117/-. For this assessee submitted the valuation report of registered Valuer. Assessee submitted that it has also constructed approximately 760 Sq. feet in December, 1992 and the same was
ITANo.2023/Del/2014 & CO 04/Del./2015 4 ITO V Bhagyesh Gupta A Y 2009-10 also claimed as cost of improvementat Rs 1,90,000/- duly indexed at Rs.4,95,875/-. Therefore, the long-term capital gain of Rs.22,22,008/- was worked out. From this, deduction u/s. 54F was claimed for purchase of newresidential house at Meerut. The cost of house purchased along with the stamp duty, registration etc. was also claimed at Rs.23,10,000/-. The assessee also stated that it has done some extra construction work in that property of Rs.5,00,000/- and therefore, assessee claimed Rs 28,10,000/- as cost of new assets and claimed deduction u/s. 54F of the Act out of total long-term capital gain of Rs.22,22,008/-.
During the course of assessment proceedings, the AO did not agree on fair market value of land admeasuring 70.660 square meters as on 01.04.1981 at Rs.2000/- per sq. meter. AO referred the matter to the Asstt. Valuation Officer on 16.12.2011. However, the assessee has expressed his inability for inspection of the property as it has been sold by him, valuation report from the AVO could not be obtained. Therefore, the AO adopted the circle rate of 535/- per sq. meter as on 01.04.1981 which was substituted for rate of land determined by the registered valuer at Rs 2000/- per sq. meter. Matter was carried before the CIT(A) who in turn held that the rate of property as on 01.04.1981 should not be taken as Rs.2000/- per sq. meter as claimed by the 4
ITANo.2023/Del/2014 & CO 04/Del./2015 5 ITO V Bhagyesh Gupta A Y 2009-10 registered valuer nor at Rs.535/- being the circle rate taken by the AO, but substituted it for Rs 1000/- per sq. meter. Against this, the revenue is in appeal before us challenging the action of the CIT (A) for adopting rate atRs.1000 per sq. meter as fair market value against circle rate of Rs.535/- taken by the AO. Concurrently, the assessee has also filed cross-objection before us contesting that the CIT(A) has erred in determining the rate of Rs 1000/- per sq. meter as on 1.4.1981 instead of Rs.2000/- per sq. meter, which is based upon the report of the valuer obtained by the assessee.
Before us, the ld. DR has contended that the rate of Rs.535/- taken by the AO after obtaining explanation from the valuer about not adopting the circle rate. It was also submitted that circle rate is most demonstrative of fair market value of the property and therefore, the fair market value of the property as on 01.04.1981 may be taken at Rs.535/- per sq. meter.
Before us, the ld. AR submitted that the valuation report submitted by the assessee shows fair market value of the property valuing FMVof land as on 01.04.1981 at Rs.2000/- per sq. meter. There is no basis given by the CIT (A) in rejecting this claim though the claim of the assessee was supported by an opinion of expert. Therefore, it was submitted that the fair market value of the 5
ITANo.2023/Del/2014 & CO 04/Del./2015 6 ITO V Bhagyesh Gupta A Y 2009-10 land as on 01.04.1981 may be taken at Rs.2000/- per sq. meter. Regarding the circle rate adopted by the AO, it was contended that the assessee’s property is commercial cum residential property and in the valuation report, an expert has given his opinion and justification for not adopting circle rates bur rates higher than that which remains uncontroverted, therefore, in absence of anything contrary, the registered valuer’ s report should be accepted.
We have carefully considered the rival submissions. For the purpose of computation of capital gain arising on transfer of the property which was acquired prior to 01.04.1981, the assessee has been given an option u/s. 55 (2) (b) (i) to adopt actual cost of acquisition or fair market value of the property as at 01.04.1981 at the option of the assessee. On exercising its option, the assessee has taken valuation report of a registered valuer who has submitted his report dated 10.04.2007 wherein based on market survey and local enquiries, the value of the land is adopted at Rs.2000/- per sq. meter including premium value. For determining this value, he has given reason that this land is situated at the prime location of the town which just opposite the Bachcha Park and there is a huge premium of the land there. Therefore, according to him as per the market survey and local enquiries, the prevailing land value in the year 1981 was Rs.2000/- per sq. meter and therefore, the 6
ITANo.2023/Del/2014 & CO 04/Del./2015 7 ITO V Bhagyesh Gupta A Y 2009-10 assessee has claimed the fair market value of the land as on 01.04.1981. During assessment proceedings, the AO communicated with the valuer on this aspect and on 09.03.2011, the valuer replied to the Income-tax Officer stating that though the circle rate prescribed by the government is Rs.535/- per sq. meter in 1981, however, the circle rates did not differentiate between the commercial and residential property and the valuer also presumed that the rates of commercial property are higher than the rates of residential properties. He further stated that building sold is a corner plot on the prime and posh location in the town and is facing a park on a wide road junction, main market as well as schools, colleges etc. are also situated on the same road and therefore, the value of the property has been arrived at higher than the circle rate. After receiving this communication, theAO did not given any cogent reason for rejection of the valuation report, but adopted the circle rate prevailing as on 01.04.1981 as the fair market value of theland. The valuation report is an opinion of an expert and when a clarification is sought from an expert, which was replied to and after that without finding any infirmity in the reply, the opinion of an expert cannot be rejected. It is also an accepted position of law that for the purpose of determination of fair market value as on 01.04.1981, there is no requirement of adopting the circle rate which are meant for levy of stamp duty on transfer of property. Further, substitution of 7
ITANo.2023/Del/2014 & CO 04/Del./2015 8 ITO V Bhagyesh Gupta A Y 2009-10 its own value by the CIT (A) without any basis also cannot be accepted. Therefore, according to us, the assessee is entitled to deduction of cost of acquisition of land based on valuation report of the registered valuer who valued the land as at 01.04.1981 adopting rate at Rs.2000/- per sq. meterafter replying to the queries of AO who could not find any infirmity in his response. Therefore, reversing the finding of CIT(A) on this, we hold that the fair market value of the land as at 01.04.1981 be taken at Rs.2000/- per sq. meter as per the valuation report. Therefore, ground No. 1 of appeal of the Revenue is dismissed and ground No. 1 of the cross-objection of theassessee is allowed.
Ground No. 2 raised by revenue is against the direction of CIT(A) to adopt the fair market value as on 01.04.1981 as cost of construction ignoring the fact that construction has been carried out in 1946 but the cost of construction is arrived at the rate prevailing in 1981. The impugned property sold has construction of 760.30 sq. feet at ground floor and 414.47 sq. ft. at first floor. The fair market value of the building as on 01.04.1981 was taken by the assessee as per registered valuer’s report. The rates determined by the registered valuer are Rs 300/- per sq. ft. for ground floor and Rs 250/- per sq. ft. for the first floor. The AO was of the view that as the construction of this property has been carried out in 1946, the same should have been taken as 8
ITANo.2023/Del/2014 & CO 04/Del./2015 9 ITO V Bhagyesh Gupta A Y 2009-10 the cost of acquisition and year-wise depreciation should have been deducted from that value to arrive at the fair market value of the cost of construction as at 01.04.1981. According to the AO, the valuation so done would have been substantially lower than the valuation adopted by the registered valuer and therefore, against the valuation of Rs.3,36,707/- taken by the registered valuer, the AO has adopted 1/3 of the same i.e. Rs.1,12,236/- as the fair market value of the cost of construction. The CIT (A) did not agree with the finding of the AO, but directed to adopt the cost of construction as determined by the registered valuer. Therefore, the Revenue is in appeal before us.
Before us, the ld. DR submitted that the cost of property constructed in 1946 is much lower than the valuation determined by the registered valuer and therefore, he supported the order of the Assessing Officer.
The ld. AR relied on the order of CIT (A).
We have carefully considered the rival contentions on this ground. The rates of cost of construction adopted by the assessee are determined by the registered valuer as per the valuation report for both the floors of the property. The reasoning given by the AO that the cost of construction should 9
ITANo.2023/Del/2014 & CO 04/Del./2015 10 ITO V Bhagyesh Gupta A Y 2009-10 have been taken as per rates prevailing in 1946 and after that depreciated up to 1-4-1981 cannot be accepted in view of express provision of law contained in section 55 (2) (b), wherein an option is given to the assessee where the capital asset is acquired prior to 1st day of April, 1981 to adopt the cost of acquisition of the asset at fair market value of the asset prevailing as on 01.04.1981 or the actual cost of the asset. For determining the fair market value of the asset, the assessee has obtained the valuation of the valuer who is an expert and further on cost of construction, the registered valuer has given detailed reply to the Assessing Officer justifying the rates taken by him. In valuation report also the expert is aware about the construction done by assessee in 1946 and he is also aware about the purposes for which valuation report has been made and duties cast up on him while performing his functions. AO did not find any infirmity in the report of the valuer and his response to AO onqueries. Therefore,without rejecting the valuation report and without having any corroborative evidence or material, AO has taken 1/3rd of the value determined in report as the cost of construction of the property as on 01.04.1981. In absence of any infirmity in the valuation report, we confirm the order of CIT (A) in adopting the cost of construction of the property as determined by the Valuer as at 01.04.1981. In the result, ground No. 2 of the appeal of the Revenue is dismissed. 10
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The third ground of appeal of the Revenue is against the order of CIT (A) in allowing the cost of improvement in 1992 ignoring the fact that no evidence has been furnished by the assessee to substantiate the cost of improvement claimed by him. The assessee has shown that it has made certain improvement in 1992 in the property at Rs.1, 90,000/- claimed ascost of improvement of the property. Before the AO, no evidence was furnished by the assessee. On appeal before the CIT (A) he allowed the claim of the assessee on the basis of report of the registered valuer. Against this, the revenue is in appeal before us.
The ld. DR submitted that there is no evidence about any improvement done by the assessee in the capital asset after 1-4-1981. He submitted that in absence of evidence of incurring such cost‘cost of improvement’ cannot be granted to the assessee asdeduction merely based on valuation report.
The ld. AR of the assessee submitted that the assessee has done some construction work in 1992 in the property and the same has been valued by the valuer at Rs.1,90,000/- and therefore, the same is claimed as cost of improvement. 11
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We have carefully considered the rival contentions. The cost of improvement can be granted to the assessee as deduction only in accordance with the provisions of section 55(1) (b) (2) (ii) of the Act which provides that all expenditure incurred of a capital nature in making any addition or alteration into the capital asset by the assessee shall be considered as cost of improvement of the asset and then it shall be granted as deduction in accordance with section 48(ii) of the Act. Before us, the assessee has not produced any evidence of capital expenditure incurred by the assessee after 01.04.1981. As the cost of improvement is stated to have been done in 1992, but not before 01.04.1981, therefore valuation report submitted by the assessee is of no help and assessee is required to prove cost of improvement with evidence of incurring of capital expenditure. Therefore, we reverse the finding of the CIT (A) in granting deduction of cost of improvement supposedly carried out by the assessee in 1992 of Rs.1,90,000/- without any evidence of incurring such expenditure but based merely on valuation report. In the result, the ground No. 3 of the appeal of Revenue is allowed.
ITANo.2023/Del/2014 & CO 04/Del./2015 13 ITO V Bhagyesh Gupta A Y 2009-10 15. This leads us to ground No. 2 of the cross objection of the assessee which is against the order of CIT (A) in not considering the cost of new asset at Rs.28,10,000/-.
Before us, the ld. AR submitted that admittedly, the cost of acquisition of the new asset is Rs.28, 10,000/- consisting of the of Rs 23, 10,000/- ascost of construction, stamp duty and registration etc.and a further sumof Rs.5,00,000/- paid by the assessee to M/s. Shrishti Developers Pvt. Ltd for additional work in the form of construction of a room, toilet, dressing room and stairs on first floor of the building and further, one room on second floor. The certificate from M/s. Shrishti Developers Pvt. Ltd. for extra construction in the house along with consideration was also submitted. However, the CIT (A) and the Assessing Officer did not grant this sum of Rs 5, 00,000/- as deduction u/s. 54F of the Act. Therefore, the assessee is in cross objection before us.
The ld. AR of the appellant submitted that according to provisions of section 54F, the assessee is entitled to deduction of the cost of new asset and therefore, there is no reason that this deduction can be denied to the assessee. He further submitted that the case law cited by the CIT (A) does not apply to 13
ITANo.2023/Del/2014 & CO 04/Del./2015 14 ITO V Bhagyesh Gupta A Y 2009-10 the facts of the case as it is not an investment in the plot of land. It was further submitted that the payment of Rs.5 lacs is already made and it falls within the time limit prescribed u/s. 54F of the Act. It was also submitted that hedoes not press the claim of the assessee so far as it relates to deduction u/s 54 or section54F of the Income tax act and therefore his request was to decide on the limited aspect of allowability of Rs 5,00,000/- as the cost of new assets as per section 54F of The income Tax act.
The ld. DR relied on the orders of the AO and CIT (A).
We have carefully considered the rival submissions. The deduction u/s 54 was claimed by the assessee in return of income but CIT (A) allowed the claim u/s 54 of the act against which assessee has taken objection in CO which is now not pressed. Revenue has not objected against the order of CIT (A) in granting deduction u/s 54 F instead of section 54 under which deduction was claimed in return of income therefore we dismiss that part of ground no 2 of CO and restrict ourselves to the aspect of claim of deduction of Rs 5,00,000/- as the cost of new assets u/s 54F of the Income tax Act. . As per letter dated 25.08.2008, Shrishti Promoters Pvt. Ltd. has carried out the construction of approximately 900 sq. ft in the house No. 60, YashodaKunj, Mawana Road at 14
ITANo.2023/Del/2014 & CO 04/Del./2015 15 ITO V Bhagyesh Gupta A Y 2009-10 Meerut and the cost of such additional work is Rs.5,00,000/-. According to the provisions of section 54F, the assessee is entitled to claim deduction of cost of new asset. The amount invested for addition, alteration in the property is admittedly made during the time limits prescribed u/s. 54F (1) and therefore as there is addition of substantial construction in the house property purchased by the assessee it makes the new property more habitable and therefore same is the cost of the new property eligible for deduction u/s 54F of the Act. Therefore, we reverse the order of CIT (A) in not granting the assessee deduction u/s. 54F on account of addition and alteration done of Rs.5,00,000/- as cost of the new asset. In the result, ground No. 2 of the cross objection of the assessee is partly allowed.
In the result, the appeal of the Revenue and CO of the assessee is partly allowed. Order pronounced in the open court on 22.12.2015. -Sd/- -Sd/- (I.C. SUDHIR) (PRASHANT MAHARISHI) Judicial Member Accountant Member Dated:22.12.2015 *aks/- Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT (A) 15
ITANo.2023/Del/2014 & CO 04/Del./2015 16 ITO V Bhagyesh Gupta A Y 2009-10 (5) Departmental Representative (6) Guard File By order Assistant. Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi