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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned cross appeals filed by the Revenue and Assessee, pertaining to Assessment Year (AY) 2015-16, are directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] in Appeal No. CIT(A),-3/10304/2017-18 dated 11.06.2019 which in turn arise out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 13.11.2017.
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana 2. The grounds of appeal raised by the Revenue are as follows: “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer at Rs.3,84,27,584/- u/s. 54B of the Act, without appreciating the fact that the assessee has failed to establish that at the land agricultural activities has been carried out by him or his parents at least for a period of two years immediately preceding the dates of transfer. 2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the submission of the assessee that the land transferred is an agricultural land and thereby assessee is eligible for deduction u/s 54B without appreciating the fact that the transfer of agricultural land is not a qualifying condition for claiming the deduction u/s 54B of the I.T. Act. 3. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) was justified in accepting the submission of the assessee that showing of agricultural income in the Return of Income by the other co-owner is sufficient to prove that the agricultural activities have been carried out by the assessee in the said land without any evidences, when the present assessee has not shown any agricultural income in any of his Return of Income. 4. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) was justified in accepting the claim of the assessee that the amount was deposited in Capital Gain Account, when the assessee failed to establish that the amount deposited in Capital Gain Account was utilized for the purchase of land being used for agricultural purpose, which is an essential condition for claiming deduction u/s. 54B of the Act. 5. On the facts and circumstances of the case and in Law, the Ld. CIT(A) ought to have upheld to have upheld the order of the A.O. It is, therefore, prayed that the order of the Ld. CIT(A), Surat may be set aside and that of the A.O. may be restored.”
The facts necessary for disposal of the appeals are stated in brief. Assessee before us is an individual and salaried employee of Surat Municipal Corporation and has shown income under the head income from salary, capital gains and income from other sources during the year under consideration. The assessee has filed his return of income for Assessment Year 2015-16 on 27.03.2016, declaring total income of Rs.4,59,620/-. The said return of income was processed u/s 143(1) of Act, accepting the income declared by the assessee. Later on, assessee`s case was selected for scrutiny and notice u/s 143(2) of the Act, was issued to the assessee on 21.09.2016. During the course of assessment proceedings, on perusal of details available on records, it was noticed by assessing officer that assessee has sold an immovable property of Rs.18,00,00,000/- on 05.01.2015 with another
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana co-owner Shri Amarsinh Dalaji wherein the assessee has 1/3rd share amounting to Rs.6,00,00,000/-. As per sale deed, this is a claimed agricultural land and situated at Block/Survey No. 1, village Aanjna, Sub District/Taluka Udhna, District Surat and area of the said land was 6070 Sq. Meters as per 7/12 of the land. However, the premium for non-agricultural conversion has been paid. Hence, assessing officer noted that land situated within the municipal limits of Surat, is a non- agricultural land assessable as a capital asset for the purposes of Income Tax Act.The assessing officer noted that assessee has shown sale consideration of Rs.6,00,00,000/- in computation of income while working of capital gains on the said sale of the land and claimed deduction of Rs.1,65,72,416/- for cost of acquisition with indexation, and Rs.3,84,27,584/- u/s 54B of the I.T. Act and Rs.50,00,000/- u/s 54EC of the I.T. Act. The assessee was asked to furnish working of capital gain alongwith all supporting evidence for deduction/exemption claimed under the head capital gains. In response to the notice u/s 142(1), the assessee has submitted only document/proof of deduction claimed of Rs.50,00,000/- u/s 54EC of the I.T. Act. Thus, assessing officer noticed that assessee is allowable only deduction of Rs.50,00,000/- claimed u/s 54EC of the I.T. Act, against sale consideration of Rs.6,00,00,000/- received on the sale of the above property. Therefore, assessing officer was of the view the remaining claim for deduction/exemption to the tune of Rs.5,50,00,000 (Rs.6,00,00,000 - Rs.50,00,0000) is not allowable from the sale consideration of the immovable property and required to be added to the total income of the assessee under head capital gain. Therefore, assessing officer issued a show cause notice dated 21.07.2017, to the assessee and asked the assessee to furnish explanation as to why deduction/exemption claimed of Rs.5,50,00,000/- should not be disallowed and added to the total income of the assessee.
However, assessee did not file reply to the assessing officer, therefore assessing officer proceeded to compute capital gain based on the material available on record. The assessing officer observed that assessee has sold an agriculture land of Rs.18,00,00,000/- having 1/3 share of Rs.6,00,00,000/- and sale consideration received on the sale of the property is taxable u/s 45 of the I.T. Act.
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana For the purpose of working of capital gain, the assessee has claimed acquisition cost of Rs.16,18,400/- for said property and also claimed of Rs.1,65,72,416/- indexed cost of acquisition as on 01.04.1981 against sale consideration of the property but the assessee has not furnished any evidence/proof on the basis of which cost of acquisition has been claimed. As per sale deed, the assessing officer noted that assessee has acquired the said property on 05.07.1983 by way of will. Thus, it appears that the said land is not self-acquired property of the assessee. Therefore, in the case of assessee, in absence of any evidence, the cost of acquisition of the said property will be worked out as per section 49(1)(ii) for working of capital gain. However, as per the description of purchase mentioned in the sale deed, the property was acquired for a sum of Rs.3,892/- by the original owner during 1977. Hence, as per clause (ii) of sub section 49(1), since the capital asset has become the property of the assessee— (i) under a gift or will, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. Therefore, the cost of acquisition of the property is taken as Rs.3,892/- during 1977. Indexation is given from 01.04.1981, hence, the indexed cost of acquisition works out to: 3892 X (1024/100) = 3892 X 10.24 = Rs. 39,854/- 1/3rd Share of Assessee : Rs. 13,285/-
Therefore, assessee's claim for indexed cost of acquisition amounting to Rs.1,65,72,416/- is rejected for want of evidence and proof, and a sum of Rs.13,285/- is allowed as per law.
Further, the assessee has claimed deduction of Rs.3,84,27,584/- u/s 54B of the I.T. Act against sale consideration of the property. The basic condition of section 54B is as under: "54B. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset "being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes. However, the assessing officer noted that assessee has converted the particular land into non-agricultural for purpose of residence on 23.12.1994. Such fact
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana emerges from the verification of the Page No. 11(39) of the relevant sale deed dated 05.01.2015.
Therefore, assessing officer noted that basic conditions enshrined in Section 54B of the Act are not fulfilled by the assessee, therefore the assessee is not eligible for deduction available u/s 54B of the Act.
Therefore, assessing officer rejected assessee's claim for deduction of Rs.3,84,27,584/- u/s 54B of the I.T. Act. Then after, assessing officer worked out the long term capital gain earned by the assessee as under: Rs.6,00,00,000 - Rs.13,285 = Rs.5,99,86,715 Upon giving the deduction u/s 54EC, capital gains (Rs.5,99,86,715 - Rs.50,00,000), Rs.5,49,86,715 was added to the total income of the assessee.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the Revenue is in further appeal before us.
The Ld. Departmental Representative (Ld. DR) for the Revenue submits that in land records, such as 7/12 extract and registered documents the land is shown as an agricultural land, however assessee has not furnished any document in support of any agricultural activity on that land for last two years, therefore, such land should not be treated as an agricultural land. Besides, the assessee has not fulfilled conditions of claiming deduction under section 54B of the Act. Therefore, the deduction claimed u/s.54B of Rs.3,84,27,584/- had been rightly rejected by assessing officer. Apart from this, Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
On the other hand, Learned Counsel for the assessee submits that land which was sold by assessee has been shown as agriculture land in the sale deed and the stamp duty had also been paid towards the agriculture land only. The co-
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana owner of the land has been regularly showing agriculture income in his return of income. Therefore, the Ld.CIT(A) has rightly directed the A.O. to allow the deduction claimed u/s 54B of the Act of Rs. 3,84,27,584/-. This way, Ld. Counsel for the assessee defended the order passed by the ld. CIT(A).
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that issue before us pertains to treatment of agriculture land as non-agriculture land, valuation of 01.01.1981 was not considered and Indexed cost of the same was not considered and making disallowance of deduction u/s. 54B without considering the claim of amount deposited in Capital Gain Account. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. The assessing officer noticed that assessee had sold an immovable property for Rs.18,00,00,000/- on 05.01.2015 along with another co- owner and the assessee had 1/3rd share amounting to Rs.6,00,00,000/- as per the sale deed. The assessing officer held that assessee had claimed deduction of income u/s 54B of Rs.3,84,27,584/-, deduction of Rs.1,65,72,416/- for cost of acquisition with indexation and Rs.50,00,000/- u/s 54EC of the Act. The assessing officer held that assessee had claimed acquisition cost of Rs.16,18,400/- for the said property and also claimed Rs.1,65,72,416/- indexed cost of acquisition as on 01.04.1981 but had not submitted any evidence, on the basis of which cost of acquisition had been claimed. The assessing officer held that as per the sale deed the property was acquired on 05.07.1983 by way of will and as per the description mentioned in the sale deed the property was acquired by Rs.3,892/- by original owner in 1977. Therefore, the assessing officer calculated the indexed cost of acquisition on this amount of Rs.3,892/- and allowed the indexation cost of Rs.13,285/-. The assessing officer held that the assessee had claimed deduction of Rs.3,84,27,384/- u/s 54B against the sales consideration of the property but the land was converted by the assessee into non-agriculture for purpose of residence
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana on 23.12.1994 and has not shown any agriculture income in the return of income of the previous year. The assessing officer disallowed the claim u/s 54B of Rs.3,84,27,584/- and after giving deduction u/s 54EC the long term capital gain (LTCG) was calculated at Rs.5,49,86,715/-. 9. We note that during the appellate proceedings the assessee submitted that assessing officer has not considered the land as agriculture land on the basis of reference made on page 11 of the sale deed about the payment of premium but has not considered the facts that in the sale deed it is clearly mentioned as agricultural land. It was contended that agriculture land was new condition agriculture land received under "Ganot Dhara" and it was only transferrable after it is converted to 'old condition land'. So, to convert the ‘new condition’ land to ‘old condition’ land, a premium is to be paid at the time of conversion but it continues to be an agriculture land. The stamp duty has been paid on the agriculture land as per the sale deed as the stamp duty valuation on non-agriculture land is higher and if the land would have been non-agriculture, the stamp valuation authority would have charged higher stamp valuation and would have mentioned it in the sale deed. It was submitted by assessee during appellate proceedings that assessee`s uncle, (the co-owner), who looks after the agriculture activity is regularly showing agriculture income in his return of income. The ld CIT(A) based on the facts, as stated above was of the opinion that contention of the assessee regarding the agriculture land is found to be correct as it is mentioned itself in the sale deed that it is an agriculture land and the stamp duty has been paid towards the agriculture land only. The perusal of the return of income of the co-owner Shri Amarsinh Dalaji Darbar shows that he regularly showing agriculture income in his return of income. Therefore, the contention of the Ld DR that it is not agriculture land and therefore, not eligible for deduction under section 54F of the Act, is erroneous. Hence, Ld CIT(A) has allowed the claim of the assessee under section 54B of the Act. We have gone through the findings of ld CIT(A) and noted that ld CIT(A) has passed speaking order considering both sides. The conclusions arrived at by the CIT(A) are, therefore,
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss the appeal filed by Revenue.
In the result, appeal filed by the Revenue is dismissed.
Now coming to the cross objections raised by the assessee. We note that ld CIT(A) did not allow cost of acquisition of Rs.1,65,72,416/- on the basis of government approved valuer report. Therefore, assessee is in cross objection before us. The grounds raised by the assessee in Cross Objection No. 17/SRT/2021 for AY.2015-16, are as follows: “1. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the action of assessing officer in confirming the addition of Rs.1,65,59,131/- to income from capital gain by taking indexed cost of acquisition on sale of land at Rs.13,285/- instead of Rs.1,65,72,416/-. The learned assessing officer & CIT(A) has erred by taking actual cost of acquisition as Rs.3,892/- acquired during the year 1977 instead of valuation of Rs.16,18,400/- as on 01.04.1981. 2. It is therefore prayed that addition made by the assessing officer and confirmed by CIT(A) may please be deleted. 3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 12. We have already narrated the assessee`s facts in para nos. 3 and 4 of thus order therefore we do not repeat the assessee`s facts for the sake of brevity. In cross objection, the solitary grievance of the assessee is that assessing officer did not take the fair market value as on 01.04.1981 to compute the indexed cost of acquisition. Therefore, first of all, we have to examine the legal requirements, about indexed cost of acquisition, in relation to those assets which were acquired before 01.04.1981. The Explanation (iii) of section 48 of the Act defines “indexed cost of acquisition” as follows: (iii)"indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later” 13. Since, the assessment year under consideration in assessee`s case is assessment year 2015-16, therefore, fair market value as on 01.04.1981 should be
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana considered by the assessing officer to compute the indexed cost of acquisition. Here in assessee`s case the assessing officer has taken cost of the asset of the year 1977, for the purpose of “indexed cost of acquisition” which is absolutely wrong and not tenable in law. Thus, on this legal issue, the action of the assessing officer is not justified and therefore, indexed cost of acquisition computed by him is not sustainable in the eye of law.
We note that assessee has submitted before us Registered Sale Agreement which is placed at paper book page no. 11 to 50. The assessee submitted Form 7/12 which is placed at paper book page no. 51 to 52. The assessee submitted Form 8-A which is placed at paper book page no. 53. The assessee submitted relevant Bank Statement of Capital Gain Account which is placed at paper book page nos. 54 to 55. The assessee submitted purchase deed of newly acquired land which is placed at paper book page nos. 56 to 148. The assessee submitted acknowledgement of return of income and computation of assessee’s co-owner Shri Amarsinh Dalaji, which is placed at paper book page nos. 149 to 151. The assessee submitted acknowledgment of return of income and computation for AY.2017-18, which is placed at paper book page nos.152 to 154. From these facts, it is abundantly clear that transaction done by the assessee is not bogus and, therefore, assessee is entitled to claim the indexed cost of acquisition as on 01.04.1981.
We note that Assessing Officer has disallowed the Indexed Cost of Acquisition of Rs. 1,65,72,416/- solely on the ground that assessee had acquired the land by way of will in 1983 and according to the Assessing Officer, the cost to the previous owner is deemed to be the Cost of Acquisition for the assessee and the valuation as on 01.04.1981 was not to be considered. The finding of the Assessing Officer is as follows: “As per sale deed, it appears that the assessee has acquired the said property on 05.07.1983 by way of will. Thus, it appears that the said land is not self-acquired property of the assessee. Therefore, in the case of assessee, in absence of any evidence, the cost of acquisition of the said property will be worked out as per Sec. 49(1)(ii) for working of capital gain. However, as per the description of purchase mentioned in the sale deed, the property was acquired for a sum of Rs. 3,892/- by the original owner
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana during 1977. Hence, as per cl. (ii) of sub section 49(1), since the capital asset has become the property of the assessee – (ii) under a gift or will: the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. Therefore, the cost of acquisition of the property is taken as Rs. 3,892/- during 1977. Indexation is given from 01.04.1981, hence, the indexed cost of acquisition works out to: 3892 X (1024/100) = 3892 X 10.24 = Rs 39,854/- 1/3rd Share of Assessee = Rs. 13,285 Therefore, assessee's claim for indexed cost of acquisition amounting to Rs. 1,65,72,416/- is rejected for want of evidence and proof, and a sum of Rs. 13,285/- is allowed as per law.” 16. We note that above finding of the Assessing Officer is totally misplaced and against the provisions of law because Ld. AO has considered section 49(1)(ii) of the Act, however, he has failed to consider the provisions of section 55(2)(b)(ii) of the Act also. The operative provisions of Sec. 55(2)(b)(ii) are stated as below: “For the purpose of Sec. 48 and 49, Cost of acquisition in relation to any other Capital Asset (ii)where the capital asset became the property of the assessee by any of the modes specified in Sec. 49(1) and the capital asset became the property of the previous owner before 01.04.1981, means the cost of the capital asset to the previous owner or the Fair Market Value of the asset on 01.04.1981, at the option of the assessee.” 17. Thus, the law is clear on this front that Fair Market Value as on 01.04.1981 is applicable to the assessee. We note that ld CIT(A) has not pointed out any defect in the valuation report but has affirmed the position taken by the Assessing Officer without referring to the provisions of section 55(2)(b)(ii) of the Act. The CIT(A) is also the fact finding authority and he has not rejected the valuation report on merits. For this reliance is placed on decision of the Honorable High Court of Karnataka in the case of N. Govindraju vs. ITO & ANR (2015) 93 CCH 0314 (Kar-HC) wherein it was held that – “Assessee had provided the reasons for determining Rs.225/- per sq. ft. as the fair market value of the property by producing the relevant material, including valuation report of a registered valuer, which all have been ignored while arriving at the price of Rs.84/- per sq. ft. The Assessing Officer assessed the value of the property as on 1.4.1981 on the basis of sale deeds of some nearby properties registered for such price in the year 1981 and thus, arrived at that figure. In our opinion, the same cannot be the proper mode of arriving at the 'fair market value' of the property in question as on 1.4.1981, for the purpose of determining 'Capital gains' under the Act.”
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana 18. We note that provisions section 55(2)(b) refers to Fair Market Value and not transaction value as both are different terminologies and the Govt. registered valuer is the subject matter expert in regard to valuation of immovable property and approved by the government and hence the same should be followed. More so, the Ld. CIT(A) has not pointed out any defect in the same and the stand of the Assessing Officer on law point has already been discussed by us in above para stating that assessing officer failed to consider the fair market value of the property as on 01.04.21981, hence not sustainable in law. For that reliance can be placed on the judgment of of Honorable Bombay High Court in the case of CIT-12 vs. Manjula J. Shah [2011] 16.taxmann.com 42 (Bombay) dated 11.10.2011 wherein the catch note reads as under: “Whether when legislature by introducing deeming fiction seeks to tax gains arising on transfer of a capital asset acquired under a gift or will and, capital gain under section 48 has to be computed by applying deemed fiction, it can not be said that fiction contained in Explanation 1(i)(b) to section 2(42A) can not be applied in determining indexed cost of acquisition under section 48 - Held, yes - Whether therefore, while computing capital gains arising on transfer of a capital asset acquired by assessee under a gift or will, indexed cost of acquisition has to be computed with reference to year in which previous owner first held asset and not year in which assessee became owner of asset - Held, yes [In favour of assessee]” 19. We have gone through the valuation report of the Registered Valuer and noted that total land area of 6070 Sq.Meter was valued at Rs. 800/- per Sq.Meter, therefore, as per valuation report, the cost of acquisition as on 01.04.1981 comes at Rs.48,56,000/- ( 6070 sq.meter x Rs.800). We note that said property is situated within 3 Kilometer from Surat Railway station. The assessee relied on the judgment of this Coordinate Bench in the case of Dharmendra B. Patel, in ITA No.55/SRT/2018, for assessment year 2013-14, order dated 30.06.2021, wherein the Tribunal noted that land was situated in New City Light Area of Surat, which is costly area, therefore Tribunal has directed the assessing officer to take fair market value of land as on 01.04.1981 at the rate of Rs. 607/- per square meter.
In assessee`s case, under consideration, the land is situated within 3 Kilometer from Surat Railway station, which is more costly area as compared to land situated in New City Light Area of Surat, therefore considering these facts, we are of the view that it would be fair if Rs. 600/- per square meter value should be
ITA 410/SRT/2019 & CO.17/SRT/2021/AY.2015-16 Jaysinh Gulabsinh Bodana adopted. Therefore, considering the assessee`s facts and situation of land, we direct the assessing officer to compute indexed cost of acquisition, by taking fair market value at the rate of Rs.600/- per sq. meter as on 01.04.1981, for the purpose of computation of indexed cost of acquisition. Hence, assessee`s cross objection is partly allowed in above terms.
In the result, the appeal filed by the Revenue (ITA No. 410/SRT/2019) is dismissed and the Cross Objection filed by Assessee (Co. No. 17/SRT/2021) is partly allowed.
Registry is directed to place one copy of this order in all appeals folder / case files.
Order is pronounced in the open court on 15/07/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date:15/07/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat