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Income Tax Appellate Tribunal, DELHI BENCH F: DELHI
Before: SHRI CHANDRA MOHAN GARG & SHRI GIRISH AGRAWAL
O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
These five appeals filed by the separate assessees are against the respective order of learned Commissioner of Income-tax(Appeals), Delhi – in Appeal Nos. 10449/2018-19, 10442/2018-19, 10446/2018-19, 10444/2018-19 and 10448/2018-19, dated 28.07.2022 against their respective assessment orders under Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 20.05.2021 passed by ACIT, Central Circle-30, Delhi for the common assessment year 2019-20.
Common issue is involved in all the five appeals on account of Long Term Capital Gain on sale of property which was a joint property of the five members who are the five appellants in these five appeals.
Accordingly, all the five appeals are disposed of by way of this consolidated order for the sake of convenience. We will take facts of the case and observations and findings of the authorities below from one of the appeals in the case of Shri Jagannath in to adjudicate upon these five appeals. Our observations and findings in this appeal shall apply mutatis mutandis to all the other four appeals.
Grounds of appeal taken by the assessee in the case of Shri Jagannath (supra) are reproduced as under:
1. That on the facts and circumstances of the case and the provisions of the law, the ld. CIT(A) has failed to appreciate that the assessment order passed u/s 143(3) is illegal, bad in law and without jurisdiction.
2. That on the facts and circumstances of the case and the provisions of the law, the ld. CIT(A) has failed to appreciate that the approval by the Addl. CIT u/s 153D is illegal, bad in law and without application of mind and consequently the assessment order passed requires to be quashed.
3. That on the facts and circumstances of the case and the provisions of the law, the ld. CIT(A) has failed to appreciate that the assessment order being passed in violation of the principle of natural justice and without giving adequate time and opportunity to the assessee to represent its case and to file its replies and clarification, is bad in the eye of law and liable to be quashed.
4. That on the facts and circumstances of the case and the provisions of the law, the ld. CIT(A) has erred in sustaining the addition of Rs.20,24,002/- on account of Long Term Capital Gain on the sale of property.
5. That on the facts and circumstances of the case and the provisions of the law, the ld. CIT(A) has failed to appreciate that the various observations and findings of the learned Assessing Officer in the impugned assessment order is denied being vitiated in law.
6. That on the facts and circumstances of the case and the provisions of the law, the ld. CIT(A) has failed to appreciate that the learned Assessing Officer has erred in forming an incorrect opinion without confronting the same and in using the same adversely without providing the reasonable opportunity of defending, which inaction of the AO makes the assessment proceedings and consequential assessment order as null and void.
7. That on the facts and circumstances of the case the ld. CIT(A) has failed to appreciate that the learned Assessing Officer has erred in initiating the proceedings u/s 1AAB(1A) of the Income Tax Act, 1961.
8. That the interest charged u/s. 234A, 234B and 234C is illegal and without prejudice it is excessive.
At the outset, learned counsel submitted that he is pressing only on ground no.4, stated above. All other grounds relating to legal issue are not pressed. Accordingly, ground nos. 1 to 3 and 5 to 9 are dismissed as not pressed.
Brief facts of the case are that assessee filed his return of income on 31.12.2019, reporting total income of Rs.99,30,470 which included income from salary, house property, capital gain and other sources. In the year under consideration, assessee had sold joint property at A-2/36 Rajouri Garden, New Delhi for a sales consideration of Rs.7,20,00,000.
The said property was jointly owned by Shri Ramesh Chand, Shri Rajeev Kumar, Shri Anil Kumar and Shri Sumit Dang along with Shri Jagannath. All the five aforesaid co-owners are in appeal before the Tribunal.
5.1 Learned Assessing Officer called for explanation and details in respect of his share of capital gain earned by the assessee on the sale of this property. Assessee had furnished purchase deed, sale deed and other documentary evidences relating to cost of construction incurred by the assessee to substantiate his claim. Learned Assessing Officer noted from the purchase deed that property was purchased for Rs.3,18,00,000 which included cost of construction of Rs.43,51,000. According to the assessee, the old structure was demolished and a new building was constructed over a period of four years from assessment years 2011-12 to 2014-15. Out of the four floors constructed in the said property, two floors were sold for Rs.7.20 crores.
5.2 Assessee furnished the computation of Long Term Capital Gain on the sale of two floors of the said property which is reproduced as under:
Sales Price (Sales 7,20,00,000 Please see page made on 18.02.2019) no.6,7 and 8 of assessment order.
Less: Indexed Cost Please see page no. Cost of Land 1,59,00,000 2,66,58,683 4 to 13 of the paper (12.11.2010) book.
Cost of Construction: Indexed Cost For complete details FY 2010-11 36,53,781 61,26,100 of the documents FY 2011-12 1,06,73,487 1,62,42,264 filed before the ld. FY 2012-13 53,65,282 75,11,396 AO see page no.4 to FY 2013-14 15,92,001 20,26,184 16 and 23 to 73 of the paper book. Total Cost of Acquisition 5,85,64,627 Net Long Term Capital 1,34,64,627 Gain Assessee’s share being 26,87,075/- 1’5th of capital gain 5.3 Learned Assessing Officer worked out the cost of construction on the basis of construction value of the building determined by the stamp duty valuing authority which was arrived on the basis of notified rates of construction by the Government considering age factor as recorded in the registered sale deed. The cost of construction in this respect was recorded at a value of Rs.1,48,42,800 from which learned Assessing Officer reduced the cost of building (old structure) determined at the time of purchase at Rs.43,51,000 and thus arrived at a net value of cost of construction at Rs.1,04,91,800. Learned Assessing Officer, thus, recomputed the Long Term Capital Gain by taking into consideration the net value of cost of construction and made the addition of Rs.25,86,991 at 1/5th share in the total Long Term Capital Gain for the same. The said computation is reproduced as under:
Sales Price (Sales made on 7,20,00,000 18.02.2019)
Less: Indexed Cost Cost of Land 1,59,00,000 2,65,58,683 (12.11.2019)
Cost of Construction Indexed Cost FY 2010-11 29,66,599 49,54,220 FY 2011-12 29,66,599 45,09,230 FY 2012-13 29,66,599 41,53,938 FY 2013-14 15,92,001 20,26,184 Total Cost of Acquisition 4,23,01,556 Net Long Term Capital 2,96,98,444 Gain.
Assessee’s Share being 59,39,688/- 1/5th of capital gain.
5.4 Assessee went in appeal before the learned Commissioner of Income-Tax(Appeals) before whom assessee contended that old structure of the property purchased by him was demolished and a new building was constructed. Therefore, reduction of cost of construction of the old structure from the cost of construction valued in the registered sale deed by the stamp duty authority was not justified. It was also submitted that cost of construction adopted by the stamp duty authority is a depreciated value which has been arrived at on the date of sale whereas for the purpose of computation of Long Term Capital Gain, it should relate to the period when this property was constructed, which would be on a higher side since the property was constructed during the period from assessment years 2011-12 to 2014-15.
5.5 Considering the submissions made by the assessee, learned Commissioner of Income-Tax(Appeals) took the cost of construction at Rs.1,48,42,800 and agreed not to reduce the cost of the old structure which was demolished, as was reduced by the learned Assessing Officer.
However, learned Commissioner of Income-Tax(Appeals) did not agree to do the reverse calculation for taking the cost of construction for the period in which the property was constructed. Based on the findings of the learned Commissioner of Income-Tax(Appeals), the Long Term Capital Gain was recomputed by which the additions sustained came to Rs.20,24,002. The said computation is reproduced as under:
Shares Price (Sales made on 18.02.2019) 7,20,00,000 Less: Indexed Cost Cost of Land 1,59,00,000 2,66,58,683 (12.11.2010)
Cost of Construction: Indexed Cost FY 2010-11 37,10,700 62,21,533 FY 2011-12 37,10,700 56,46,717 FY 2012-13 37,10,700 51,94,980 FY 2013-14 37,10,700 47,22,709 Total Cost of Acquisition 484,44,622 Net Long Term Capital Gain 2,35,55,378 Assessee’s share being 1/5th of capital 47,11,076/- gain 5.6 Aggrieved, assessee is in appeal before the Tribunal.
Before us, learned counsel reiterated the above stated facts and contentions taken before the authorities below which are not repeated for the sake of brevity. The solitary issue on the merits of the case is in respect of allowing the deduction for indexed cost of construction (improvement) of the property to arrive at taxable component of Long Term Capital Gain. The sole grievance canvassed by the learned counsel before us is to allow the cost of construction to be recalibrated by considering the age factor since building depreciates year on year basis and the value assigned towards cost of construction by the learned Commissioner of Income-Tax(Appeals) is based on value adopted by the stamp duty authority on the date of sale. For the purpose of recalibration, learned counsel proposed that as per normal practice, value of building depreciates minimum @ 10% per year. Thus, according to him, if depreciation rate of 10% per year is factored in, the index cost of construction will come to Rs.3,78,93,593.
Per contra, learned CIT DR placed reliance on the order of learned Commissioner of Income-Tax(Appeals) who has given justifiable relief of not reducing the cost of construction relating to old structure. According to him, computation of Long Term Capital Gain arrived at by the learned Commissioner of Income-Tax(Appeals) ought to be sustained.
We have heard the rival contentions and perused the material on record. Present case is a case on estimation of cost of construction which needs to be allowed as a deduction after indexation for the purpose of computing Long Term Capital Gain on the sale of two floors of the property under consideration. It is important to note that bills and vouchers in respect of cost of construction actually incurred by the assessee over the period of four years from assessment years 2011-12 to 2014-15 are not available with completeness. Owing to incompleteness of the records, learned Commissioner of Income-Tax(Appeals) has taken into account the stamp duty value adopted for the cost of construction
11 2099,2097, 2100 & 2101/Del/2022 Sumit Dang, Ramesh Chand, Anil Kumar, Rajeev Kumar & Jagannath, Delhi- AY: 2019-20 which in fact has been arrived at by taking into account the age factor.
Importantly, this value of cost of construction arrived at by the stamp duty authority is on the date of sale of the impugned property. However, to compute the Long Term Capital Gain, the cost of construction has to relate to the period when construction was done. We do find force in the contention of the learned counsel to consider the age factor for arriving at the cost of construction. Accordingly, taking the holistic approach to the facts of the case, we find it proper to jack-up (increase) the cost of construction of Rs.31,01,700 adopted by learned Commissioner of Income-Tax(Appeals) in each of the four years from assessment years 2011-12 to 2014-15 by 20% so as to take care of the easing factor of the building which is subjected to the depreciation. We, thus, direct the learned Assessing Officer to recompute the Long Term Capital Gain in terms of our observations aforesaid. Accordingly, ground no.4 taken by the assessee is allowed for statistical purposes.
The other four appeals which are by the four co-owners of the same aforesaid property are also allowed for statistical purposes in terms of our observations and findings as stated above in ITA No.2101/Del/2022.
In the result, all the five appeals of the respective assessees are allowed for statistical purposes.
Order is pronounced in the open court on 13.10.2023.