TMI Blog2011 (8) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... ation method. decided in favour of Assessee. but allowed for statistical purpose. Assessement u/s 143(3) against provision of Section 153. - Held that:- Assessee could not substantiate as to how the assessment framed was contrary u/s 153. decided against Assessee. Addition regarding rent. - held that:- it is not considered assessee's contention in respect of vacancy of the house property. set aside to AO with direction to give opportunity of being heard to Assessee. - IT Appeal No. 2256 (Delhi) of 2008 - - - Dated:- 30-8-2011 - RAJPAL YADAV, K.D. RANJAN, JJ. V.K. Sabharwal for the Appellant. B. Kishore for the Respondent. ORDER K. D. Ranjan, Accountant Member. This appeal by the Revenue and the cross objection by the assessee for assessment year 2004-05 arise out of the order of the ld. CIT (Appeals)-XXVI, New Delhi. These appeals were heard together and for the sake of convenience, are disposed of, by this consolidated order. 2. The ground of appeal raised by the Revenue in I.T.A. No. 2256 (Del) of 2008, reads as under:- "The ld. CIT (Appeals) has erred on facts and in law by not accepting the valuation made by the DVO in respect of sale of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer obtained comments of the assessee. The assessee raised preliminary objection that the ld. DVO had not valued property as per normal practice in the real estate business. The assessee has purchased these apartments complete with all fittings etc. The valuation of the property could not be done by calculating the cost of each item like sanitary fittings, kitchen fittings, electric fittings and wood-work etc. The assessee had not made any addition or alteration in the apartment under reference. Any change made by the tenant according to which her/his requirement could not be part of the investment made by the assessee. The area of the flat at B-28, Lajpat Nagar was about 1200 sq. ft. and according to the DVO the cost per sq. ft. would come to Rs. 4,800/- per sq. ft. as against actual cost of Rs. 1,000/- per sq. ft. The property was situated in rehabilitation colony and the contractor made construction of the building. The quality of material used by the contractor and self-made building has no comparison. It was also submitted that the value of the rented properties or occupied properties could not be compared with vacant plot purchased in auction or otherwise. A vacant propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was rejected. As regards interest free securities, the assessee's contention was based on lease agreement entered into by the assessee with UTI Securities wherein interest free securities of Rs. 1,35,000/- had been provided being three months security of the rent of Rs. 45,000/-. The DVO while arriving at the figure of interest free security at Rs. 3,90,000/-, he had taken six months security on the rent of Rs. 65,000/- paid by M/s. Bharti Cellular. The AO noted that the assumption of the DVO for a period of six months was not based on any documentary evidence. He, therefore, took the interest free security at Rs. 1,97,500/- being three months' rental paid by M/s. Bharti Cellular Ltd. As regards the rate of interest, the AO adopted the rate at 12 per cent as against 15 per cent taken by the DVO. On the basis of the above, the AO computed annual rent of the properties at Rs. 11,93,400/- from which he deducted Municipal Tax of Rs. 18,355/-. He estimated the valuation of the property on rent capitalization method at Rs. 1,46,88,062/-. The Assessing Officer from the estimated value of the property determined at Rs. 1,46,88,062/- reduced the sale consideration of Rs. 57,58,400/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital gains from sale of residential house was exempt if invested in the purchase of a residential house under section 54 of the Act. The approved valuer had estimated the value of the three properties at Rs. 23,10,000/- vide report dated 2/07/2003. The Assessing Officer without pointing out any defect, deficiencies or objections in the assessee's valuer report referred the matter to the Departmental Valuation Officer under section 142A of the Income-tax Act in order to find out the market value. It was submitted that provisions of section 142A were applicable in the circumstances that the assessee had made investment and such investment was unexplained. There was no material evidence to establish that the assessee had made investment over and above that was recorded in the sale deed. In the absence of any such evidence, no addition could be made under section 69 of the Act. 9. It was also submitted that the valuation report was not binding on the Assessing Officer. There was nothing to indicate any unaccounted amount was invested in purchase of the properties. The assessee relied on the decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable with that of premises B-9, NDSE Housing Society. It was also submitted that the DVO has not given any comparable sale instance for valuing the property at such excessive amount. The valuation officer has wrongly taken super built up area of shop at 1155 sq. ft. as against 770 sq. ft. The ld. CIT(A) after considering the decision of Hon'ble Supreme Court in the case of K. P. Verghese v. ITO [1981] 131 ITR 597/7 Taxman 13 and ITAT decision in the case of Sanjay Chawla v. ITO [2004] 89 ITD 586 (Delhi) held that there was no evidence against the assessee, which has been brought on record to show that the value of the property purchased had to be rejected. He accordingly directed the Assessing Officer to adopt the purchase price as shown by the assessee. 11. Before us, the ld. AR of the assessee submitted that for the purpose of determining the capital gains, the full value of consideration has to be taken as per provisions of section 50C of the Act. There was nothing on record to suggest that the assessee had received any amount more than what was recorded in the sale deed. Therefore, the addition made in respect of capital gains is not justified. He placed reliance on the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has estimated the full value of consideration at Rs. 14,40,000/-. The assessee has not challenged the estimation of sale consideration by the ld. CIT (A) at Rs. 14,40,000/- before this Tribunal. Further, there is no material on record to suggest that the assessee had received any amount other than what is recorded in the sale deed. However, for the purpose of computation of capital gains under section 48 of the Income-tax Act, 1961 the assessee will be eligible to deduct from the full value of consideration the expenditure incurred wholly and exclusively in connection with the transfer of the asset and index cost of acquisition and index cost of any improvement to the property. The Legislature had used the expression 'full value of consideration' and not expression 'fair market value of the asset'. Section 50C of the Act provides the meaning of full value of consideration in certain cases. As per section 50C(1) where the consideration received or accruing as a result of transfer by an assessee of a capital asset being land or building or both, is less than the value adopted or assessed or assessable by any authority of State Govt. [Stamp Valuation Authority] for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amp valuation. In case the value of flat, as per circle rate, was higher than the sale price mentioned in the sale deed, which has been enhanced to Rs. 14,40,000/- by CIT(A). The AO will adopt the value of flat as per circle rates and determine the capital gains accordingly. The AO will also keep in mind the request of assessee, if any, made u/s. 50C(2) for determination of full value of consideration. 15.1 Now coming to the investment made by the assessee in three shops at N-5, NDSE-I, New Delhi. The DVO has estimated the fair market value of the assets at Rs. 1,46,88,062/-. The ld. CIT (Appeals) has deleted the addition based on the valuation report on the ground that the AO has not brought any material on record apart from DVO's report to show that there was any undisclosed investment in the property purchased by the assessee. He has also observed that for making an addition the assessee must be shown to have received or paid more than what is recorded or disclosed by him as the consideration. 15.2 Before us the ld. AR of the assessee submitted that provisions of section 142A of the Act are not applicable on the ground that Amendment to section 142A has been made by Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded section 142A by inserting words 'or fair market value of any property referred to in sub-section (2) of section 56' with effect from 1/07/2010. Under section 56(2) incomes specified in clauses (i) to (vii) shall be changeable to income-tax under the head 'Income from other sources'. As per sub-clause (b) of clause (vii) of section 56(2) where an immovable property exceeding the stamp duty value of which exceeds Rs 50,000/- is received by a person on or after 1/10/2009 from a person other than mentioned in second proviso without consideration the stamp duty value of such property will be assessed as income under the head 'income from other sources' in the case of recipient. Proviso to clause (vii) of section 56(2) provides that where the stamp duty value of property as referred to in sub-clause (b) is disputed by the assessee on the ground mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of the property to a valuation officer and the provisions of section 50C and section 155(15) shall as far as may apply in relation to stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend the tax net to such transactions in kind the intent is not to tax the transactions entered into in the normal course of business of trade, the profits of which are taxable under specific head of income. It is, therefore, proposed to amend the definition of 'property' so as to provide that section 56(2)(vii) will have application to the 'property' which is in the nature of a capital asset of the recipient and, therefore, would not apply to stock-in-trade, raw-material and consumable stores of any business of such recipient; (c) In several cases of immovable property transactions there is a time-gap between the booking of a property and the receipt of such property on registration which results in a taxable differential. It is, therefore, proposed to amend clause (vii) of section 56(2) so as to provide that it would apply only if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property. These amendments are proposed to take effect retrospectively from 1st October, 2009 and will accordingly apply in relation to assessment year 2010-11 and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as full value of investment. The Legislature has provided for a reference to the valuation officer in section 142A of the Act in a case where assessee makes investment falling under sections 69/69A/69B of the Act. In the case of assessee the investment of Rs. 24,00,000/-in three commercial properties has been made. The assessee had made investment in purchase of shops located in one of the costliest area of Delhi. The assessee had received gross annual rent in respect of shop Nos. 11 and 12 at the rate of Rs. 65,000/- per month totalling to Rs. 7,80,000/-. The rent for shop No. 12-A was received at the rate of Rs. 32,500/- per month and the annual rent will be at Rs. 3,90,000. The total gross annual rent from these properties was determined at Rs. 11,70,000/-. Thus minimum annual return from these properties was 11,70,000/- which cannot be fetched from properties valuing at Rs. 24,00,000/-. The receipt of extraordinary high returns from these properties suggests that value of the impugned properties should be much higher than the value shown by the assessee in sale deeds. As per wealth valuation of properties is made by taking annual return @ 8 to 10% of the value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mating the vale of investments is also an approved method recognized in law and prescribed in Wealth-tax Act which is also applicable for valuation of property covered by section 69/69A/69B of IT Act, 1961. During the course hearing ld. AR of the assessee had not denied/objected the applicability of capitalization method of valuation of the property. Hence it is held that DVO was justified to value the investments in properties by adopting rent capitalization method. 17. Now coming to the valuation of the property by adopting rent capitalization method, the ld. DVO has estimated the value of property by multiplying factor of 12 .5 as per Rule 3 of Schedule III with net maintainable rent which is defined in Rule 4 of Schedule III. The assessee had received gross annual rent in respect of shop Nos. 11 and 12 at the rate of Rs. 65,000/- per month totaling to Rs. 7,80,000/-. The rent for shop No. 12-A was received at the rate of Rs. 32,500/- per month and the annual rent taken by the DVO is at Rs. 3,90,000/-. The Assessing Officer has taken into account the notional interest on advance of Rs. 1,95,000/- received by applying the rate of 12 per cent at Rs. 23,400/-. The total gross ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is rejected. 19. The next ground of cross objection for consideration relates to confirming the addition of Rs. 36,000/- made by the Assessing Officer and upheld by the ld. CIT (Appeals). The facts stated in brief are that the Assessing Officer has taken the rent of the property B-28, Lajpat Nagar at Rs. 36,000/-. The premises were vacated by the tenant at the end of May, 2003, as per notice dated 26th April, 2003 placed at page 19. Thereafter the premises were in self-occupation of the assessee. The said property was sold vide agreement dated 1st August, 2003. The AO while making assessment under section 143(3) of the Income-tax Act, 1961 made addition of Rs. 36,000/- on assumption that the property continued to be on rent from June and July, 2003 without enquiry or bringing any material on record. The assessee was receiving rent since the beginning by cheque and there was no such deposit in the assessee's bank account to indicate the receipt of rent for the months of June and July, 2003 as per bank statement, as such, addition of Rs. 36,000/- was unjustified. The ld. CIT (Appeals) called for the comments of the AO in respect of submissions made by the assessee. It was s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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