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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

Shri Hussain Ismail Dawoodani 161, Bara Imam Road, Null Bazar, Mumbai 400003 . Vs. The Asstt. Commissioner of Income Tax 15(2), Matru Mandir, Tardeo, Mumbai 40034 Mumbai.
September, 08th 2014
                     ,        ,  Û ,  
                 IN THE INCOME TAX APPELLATE TRIBUNAL
                      MUMBAI BENCHES "H", MUMBAI
         [^ .., Û                                  Û],  ,  ¢ 

                Before Shri I.P.Bansal, JM and Shri Rajendra, AM

                   ITA NO.2499/MUM/2013 (A.Y. 2007-08)

Shri Hussain Ismail Dawoodani             The Asstt. Commissioner of
161, Bara Imam Road,                  / Income Tax 15(2),
Null Bazar, Mumbai 400003 .               Matru Mandir, Tardeo,
                                      Vs.
PAN: AAHPD 7242E                          Mumbai 400034
                                          Mumbai.

      ( /Appellant)                                   (×/Respondent)
                   /Appellant by :                     Shri Chetan Karia
              ×    /Respondent by :                    Shri Pitamber Das
   /                                           /
Date of Hearing : 27.8.2014                 Date of Pronouncement :
                                            03/09/2014

                                     / O R D E R

PER I.P.BANSAL (JM) :

     This is an appeal filed by the assessee. It is directed against order passed by
Ld. CIT(A)-26 Mumbai dated 18/1/2013 for assessment year 2007-08. As grounds
of appeal filed by the assessee           alongwith form No.36 were lengthy and
argumentative the assessee has filed concise grounds which read as under:


     1. The learned Commissioner of Income Tax (Appeals) erred in upholding the action of
     the learned Assessing Officer in reopening assessment u/s.147 and the same is
     without jurisdiction and bad in law.

     2. The learned Commissioner of Income Tax (Appeals) erred in confirming action of the
     learned Assessing Officer in assessing capital gains from alleged transfer of land in the
     impugned assessment year and in holding that transfer of land had occurred in the
     impugned year.

     3. The learned Commissioner of Income Tax (Appeals) erred confirming adoption of sale
     consideration at Rs.9,33,36,352/-.
     4. The learned Commissioner of Income Tax (Appeals) erred in confirming action of the
     Assessing Officer in denying benefit of deduction u/s. 801B(1O).

     5. The learned Commissioner of Income Tax (Appeals) erred in directing adoption of
     value determined by DVO as cost of acquisition.
                                              2           I TA N O . 2 4 9 9 / M U M / 2 0 1 3 ( A . Y . 2 0 0 7 - 0 8 )


2.    Ld. AR did not press Ground No.1,2 & 4 and consequential relief relating to
those grounds, therefore, Ground No.1,2 & 4 are dismissed being not pressed.


3.    Apropos Ground No.3, the relevant facts are that the assessee was owner of a
piece of land at Kavsar Village, Thane bearing Survey No.199/4 and entered into a
development agreement of the said land on 14/11/2006 with M/s. Lalani Builders
and Developers. According to Development Agreement the assessee being owner of
the land was beneficiary of 35% of the developed carpet area and developer being
beneficiary of 65% of the       carpet area of the developed land.                     According to the
calculation made by the AO the assessee was beneficiary                      of 38,457.50 sq.fts to
which calculation the assessee has no grievance.             However, the grievance of the
assessee is with regard to valuation adopted by the AO of the said area which                                    has
been computed      @ Rs.2,427/- per sq. ft. and the sale                  consideration has been
determined at Rs.9,33,36,352/-. The basis of rate taken by the AO at Rs.2427/-
per sq.ft. is based upon clause 3(g) of the development agreement which read as
under:


      "(g) Against the aforesaid refundable deposit, the Developer shall be entitled to hold the
      approximate area of 2060 sq.ft. carpet area i.e. 3 Flats of 2 BHK admeasuring approx.
      689 sq.ft. each ( which is equivalent to the estimated sale price anticipated as per
      today's calculations i.e. @ Rs.2427/- per sq.ft. on carpet area) from the share of the
      Owner from the proposed new building/ or buildings to be constructed as an assurance
      of the refund, till the time the Owner refunds of the aforesaid deposit of a sum of
      Rs.50,00,000/- (Rupees Fifty Lakhs only). If for any reason the Owner failed or
      neglected or intimated to adjust the deposit towards the sale of the said portion and as
      shall not be in position to refund the aforesaid security deposit within a period
      prescribed in the clause [3(f)] hereinabove then, in that event, the Developer shall be
      entitled to recover the aforesaid amount of security deposit by way of disposing /selling
      the aforesaid approximate area of 2060 sq.ft. carpet area i.e. 3 Flats of 2 BHK
      admeasuring approx. 689 sq.ft. each from the share of the Owner in the proposed new
      building/or building to be constructed to any one in the manner as the Developers may
      deem fit, and the Owner shall have no claim of whatsoever nature in respect of such
      area or any part thereof only in the above mentioned eventuality."



3.1   The assessee received a sum of Rs.50.00 lacs from developer which was
treated as    refundable interest free security deposit as per para 3(e) of the
development agreement and in lieu of the said amount of Rs.50.00 lacs the assessee
was required to give approximate area of 2060 sq.ft. of three flats of two BHK in case
the said amount of Rs.50.00 lacs is not refunded by the assessee. Taking clue from
                                             3          I TA N O . 2 4 9 9 / M U M / 2 0 1 3 ( A . Y . 2 0 0 7 - 0 8 )





the aforementioned clause 3(g) of the development agreement the AO has valued the
area to be received by the assessee of 38457.50 sq.fts. at Rs.9,33,36,352/-.


3.2   After taking the said value the AO has reduced the cost of acquisition by
taking the value of land shown in the balance sheet of the assessee at Rs.2,67,096/-
and reducing the said amount from Rs.9,33,36,352/- net long term capital gain
assessable at 20% was computed at Rs.9,30,69,256/-.


3.3   The taxability of aforementioned amount as capital gain was agitated in the
appeal filed before Ld. CIT(A) alongwith other grounds. The assessee contested the
taxability of capital gain in the year under consideration and also the value taken by
the AO at Rs.9,33,36,352/- on the ground that the said value taken was wrong. It
was submitted that instead of the said value the value should have been taken at
Rs.3,45,87,500/- which was the value determined by Stamp Valuation Authority in
the development agreement.         This is evident from Ground No.4 taken by the
assessee before Ld. CIT(A). The ground which is reproduced at page-2 of the order of
Ld. CIT(A) states as under:
      "IV. Without prejudice to the above grounds, on the facts and circumstances of the case
      and in law the AO has erred in determining the impugned capital gain as
      Rs.9,66,35,052/- as against Rs.3,45,87,500/- determined by the stamp valuation
      authority."
3.4   Further, the assessee had produced additional evidence before Ld. CIT(A) with
a request to admit the same under rule 46A. Evidence was in the shape of valuation
report of the property by the Registered Valuer showing the value of the property as
on 1/4/1981 at Rs.50,08,320/-.         Ld. CIT(A) referred the same of the Valuation
Officer who valued the property at Rs. 21,89,000 as on 1/04/1981. The Ld. CIT(A)
has upheld the action of the AO in assessing the capital gain value by taking
consideration at Rs.9,33,36,352/- and he has given direction to AO to compute the
indexed cost on the basis of value determined by District Valuation Officer(DVO)
which was a sum of Rs.21,89,000/-.


3.5   Upon aforementioned facts, in ground No.3 the assessee is agitating to the
action of   Ld. CIT(A) in upholding the value of sale consideration being taken at
Rs.9,33,36,352/- and in ground No.5 the assessee is challenging the findings of Ld.
CIT(A) that value as on 1/4/1981 should be taken as determined by DVO.
                                              4         I TA N O . 2 4 9 9 / M U M / 2 0 1 3 ( A . Y . 2 0 0 7 - 0 8 )


4.    It was submitted by Ld. AR that a bare reading of clause 3(g) of the
development agreement will not suggest that sale consideration by the assessee
could be determined by taking the rate of carpet area being given to the assessee at
Rs.2427/- per sq.ft.      He submitted that the value of the              whole land               subject to
development agreement was determined by the Stamp Valuation Authority at a sum
of Rs.3,45,87,500/-. It was submitted by Ld. AR that the sale consideration upon
which capital gain could be computed cannot exceed the amount determined by
Stamp Valuation Authority. He submitted that it is not the intent of clause 3(g) of
the agreement to determine         value of sale consideration as by that clause the
developer had assured that either interest free money given to the assessee is
refunded back or       in case the interest free security of Rs.50.00 lacs is not refunded
by the assessee to the Developer then the developer would be entitled to get 2060
sq.fts. carpet area.     Thus it was pleaded by Ld. AR that the capital gain should be
computed on a sum of Rs.3,45,87,500/- in place of consideration taken by the AO at
Rs.9,33,36,352/-.


4.1    Arguing for Ground No.5, it was submitted by Ld. AR that as per decision of
Hon'ble Bombay High Court in the case of CIT vs. Puja Prints, 360 ITR 697 (Bom)
reference under section 55A could be made to the DVO only when the value adopted
by the assessee was less than fair market value.                   It was further held that
amendment to section 55A(a) was not retrospectively applicable as the amendment
was made effective only from 1/7/2012. Thus, it was submitted that reference to
by the CIT(A) to Valuation Officer was bad in law. It was pleaded by Ld.AR that the
valuation adopted by the assessee was not less than the fair market value, therefore,
reference under section 55A could not be made by Ld. CIT(A) to the DVO.


5.    On the other hand, it was submitted by Ld. DR that the value of sale
consideration has rightly been adopted by AO by taking clue from clause 3(g) of the
development agreement.        He submitted that Ld. CIT(A) has rightly confirmed the
action of AO. Thus he pleaded that the order by Ld. CIT(A) should be upheld.


5.1   So far as it relates to ground No.5, Ld. DR submitted that the value has been
determined by DVO and Ld. CIT(A) has given the reason for upholding the value
determined by the DVO. He submitted that the valuation done by DVO has been
                                                5          I TA N O . 2 4 9 9 / M U M / 2 0 1 3 ( A . Y . 2 0 0 7 - 0 8 )


given    preference by Ld. CIT(A) on the ground that it was based on comparable
cases. He submitted that as against that in the valuation submitted by the assessee
no comparables were taken into consideration.


6.      We have heard both the parties and their contentions have carefully been
considered. We have also carefully gone through the clause 3(g) of the development
agreement relying upon which AO has determined the sale consideration @
Rs.2427/- per sft. of the carpet area which was to be allotted to the assessee on
completion of the developed project and clause 3(g) has already been reproduced in
the above part of this order. It describes that against refundable deposit of Rs.50.00
lacs the developer will be entitled to hold approximate area of 2060 sq.ft. carpet area
i.e. three flats of 2 BHK admeasuring approximately 689 sq.fts. It has specifically
been written that this is equivalent to the estimated sale price anticipated as per
today's calculation i.e. @ Rs.2427 per sq.ft. on carpet area from the share of the
owner from the proposed new building/buildings to be constructed as an assurance
of the refund till the time owner refund the aforementioned deposit of a sum of
Rs.50.00 lacs. It has further mentioned that if for any reason the owner failed or
neglected or intimated adjust the deposit towards sale of the said portion and or
shall not be in a position to refund the aforesaid security deposit within a period
prescribed in the clause 3(f) which describe the period of completion of the intented
development then in that event the developer shall be entitled to recover the
aforesaid amount by way of disposing/selling the aforementioned area of 2060 sq.ft.
Thus, virtually this clause has ensured the right of the developer to receive                                      the
refund of interest free      security   and its purpose and intent is not to                                receive
equivalent constructed carpet area in lieu of a sum of Rs.50.00 lacs.                              Thus, such
determination between assessee and developer cannot be taken as a valid factor to
determine the fair market value as on the date on which the assessee had entered
into an agreement with the developer for transferring his ownership right in land.
In absence of any other relevant factor brought on record by the AO, it will be
incorrect and unjustified to determine the value of sale consideration simply on the
basis of clause 3(g).     It is also relevant       to mention here that though the value
determined by Stamp Valuation Authority would be helpful indicator to determine
the fair market value as on the date of development but the same also cannot be
taken as    what was to be received by the assessee was specific quantity of area of
                                          6         I TA N O . 2 4 9 9 / M U M / 2 0 1 3 ( A . Y . 2 0 0 7 - 0 8 )


developed property, the value of which will be different from the value of vacant
land. As per clause 18(a) the period of completion of project is mentioned as 48
months from the date of receipt of commencement certificate. The constructed area
to be received by the assessee is      in an undeveloped project which is yet to
commence. Therefore, the value which can be assessed as sale consideration in the
hands of the assessee should be akin to the value of similar property in an under-
developed project which was yet to commence and to be completed in 4 years from
the date of     commencement of the project as       mentioned in the development
agreement signed by the assessee. This factor was brought to the notice of both the
parties during the course of hearing of the appeal and both of them have agreed that
to determine the fair market value for the purpose of                   determining the sale
consideration assessable as capital gain in the above manner, the matter may be
restored back to the file of AO.     Therefore, we restore the issue raised by the
assessee in Ground No.3 to the file of AO with a direction to                          determine the
consideration on which the assessee is liable to pay capital gain as described in the
manner aforesaid after giving the assessee a reasonable opportunity of hearing and
placing all relevant material on record. After giving such opportunity the AO will re-
determine the    consideration upon which capital gain could be computed as per
provisions of law.   We direct accordingly and ground No.3 is considered to be
allowed for statistical purposes in the manner aforesaid.





6.1   Now coming to ground No.5, we have carefully gone through the decision of
Hon'ble Bombay High Court in the case of CIT vs. Puja Prints (supra).                        In the said
case in respect of assessment year 2006-07 the assessee had sold his property for a
consideration of Rs.2.00 crores. The indexed cost was computed at Rs.1.78 crores
on the basis of value of property taken at Rs.35.99 lacs as on 1/4/1981. The value
was taken by the assessee on the basis of valuation report obtained from Registered
Valuer. The AO referred the issue of valuation to DVO who valued the property at
Rs.6.68 lacs as on 1/4/1981 and indexed cost at Rs.33.20 lacs. Consequently, the
AO enhanced the capital gain of the assessee from Rs.11.20 lacs toRs.1.61 crores.
The order of AO was confirmed by Ld. CIT(A).      The Tribunal held that in view of
section 55A(a) it was not permissible for the AO to make a reference to DVO for the
purpose of valuation as the value of property declared by the assessee was more
than its fair market value.    Thus, the Tribunal accepted the contention of the
                                         7         I TA N O . 2 4 9 9 / M U M / 2 0 1 3 ( A . Y . 2 0 0 7 - 0 8 )


assessee that indexed cost should be taken as per value determined by a Registered
Valuer of the assessee. Such order of Tribunal was confirmed by their Lordships.
Their Lordships also rejected the contention of the Department that in view of
amendment to section 55A(a) the AO was authorized to refer the matter to the
valuation officer.   Respectfully following the aforementioned decision of Hon'ble
Bombay High Court in the case of CIT vs. Puja Prints (supra) we decide this issue in
favour of assessee and we hold that the indexed cost should be computed on the
basis of valuation done by the Registered Valuer of the assessee i.e. by taking the
cost of the property as on 1/4/1981 at a sum of Rs.50,08,320/-. Ground No.5 of
the assessee is allowed.


7.    In the result, appeal filed by the assessee is partly allowed in the manner
aforesaid.


      Order pronounced in the open court on this 3rd Sept. 2014.
                              03.09.2014    


               (Rajendra)                                    (I.P.Bansal)
   / ACCOUNTANT MEMBER                        Û  / JUDICIAL MEMBER
 Mumbai;  Dated : 03.Sept. 2014.
VM.
    /     Copy of the Order forwarded to :
1.    / The Appellant
2.   × / The Respondent.
3.    () / The CIT, Mumbai.
4.     / CIT(A)-13, Mumbai
5.    ,   ,  / DR,
     ITAT, Mumbai
6.   [  / Guard file.
                                                                         / BY ORDER,
             ×  //True Copy//


                                          /
                                          /  (Dy./Asstt. Registrar)
                                           , 
                                           ,   / ITAT, Mumbai

 
 
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