TMI Blog2016 (1) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... lso - Decided partly in favour of assessee Disallowance of expenditure on purchase of monitors and batteries - revenue v/s capital expenditure - Held that:- The assessee company has not been able to bring on record any further evidence/documents or explanation before us to substantiate its contentions that these expenditure w.r.t. purchase of monitors and batteriesare revenue in nature to controvert the findings of the CIT(A). In our opinion, these expenditure are capital expenditure incurred by the assessee company and has rightly been disallowed by the A.O and sustained by the CIT(A) - Decided against assessee Adhoc disallowance of 5% out of provision for expenses - Held that:- The AO shall consider the claim of the assessee company for both the years i.e. assessment year 2005-06 and 2006-07 with respect to the assessment records and books of accounts maintained by the assessee company to ensure that no prejudice is caused to the assessee company due to double addition of the same amount leading to double taxation and at the same time the AO shall also protect the interest of revenue after verifying the claim of ₹ 4,64,58,410/- towards provision for expenses debited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R For the Petitioner : Shri Tarandeep Singh For the Respondent : Shri Samuel Darse (D.R) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER : These two appeals being cross appeals, filed by the assessee company and the Revenue are directed against the order dated 26-05-2009 passed by the Commissioner of Income Tax(Appeals) -VI, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2005-06. Assessee Company s Appeal- ITA No.4441/Mum/2009 2. Ground No. 1 to 1.5 of the assessee company appeal relates to the sustenance of disallowance of expenses of ₹ 42,02,922/- made by the assessing officer (Hereinafter called the AO ) u/s 14A of the Income Tax Act, 1961(Hereinafter called the Act ) read with Rule 8D of Income Tax Rules, 1962 instead of disallowance of ₹ 4,65,332/- made suo-moto by the assessee company. 3. The assessee company case was selected for scrutiny by the Revenue for framing assessment u/s 143(3) read with Section 143(2) of the Act. The assessee company made investments in stocks and shares and mutual funds. As per the AO , Dividend income and long term capital gain from these investments is exempt from income tax . Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO in the assessment order to 5% of dividend income while the CIT(A) reduced the disallowance to 2% of dividend income which was accepted by Revenue and no appeal has been filed before the Tribunal. The assessee company submitted that for the assessment year 2005-06, it has received dividend of ₹ 2,32,66,616/- from the investment made in Mutual Funds units and the said dividend income is claimed exempt . The assessee company has suo moto disallowed 2% of dividend income and disallowance comes to ₹ 4,65,332/- which was made in return of income filed with Revenue u/s 14A of the Act for administrative expenses. The assessee company submitted that the actual administrative expenses being even lower than this amount for which calculation were submitted which are reproduced by the CIT(A) in page 29-31 of the CIT(A) order and which as the assessee company comes to ₹ 77,955/- towards administrative expenses while for interest the assessee company submitted that it has incurred interest expenditure of ₹ 9.05 lacs on the cash credit facilities which facilities are utilized for meeting working capital requirements and hence no allocation of such interest expenses to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance to be made u/s 14A of the Act of reasonable amount as per directions of Hon ble Bombay High Court in Godrej and Boyce Manufacturing Company Limited(supra). As pointed out by the assessee company, the assessee company has already made disallowance of its own of an amount of ₹ 4,65,332/- being disallowance @2% of dividend income of ₹ 2,32,66,616/- received by the assessee company which basis of disallowance has been accepted by the Revenue in the preceding assessment years. The A.O. is accordingly directed to consider this aspect also while computing the reasonable disallowance to be made u/s 14A of the Act. Ground No. 1 to 1.5 is accordingly treated as partly allowed. 8. Ground No. 2 relates to non adjudication of ground no 12 to 14 raised before the CIT(A) in the memo of appeal filed before the CIT(A), by the CIT(A) in the appellate order dated 26.05.2009 . It is stated before us by the Ld. Counsel of the assessee company that the above ground has become infructous as the CIT(A) has already passed orders dated 30.03.2010 u/s 154 of the Act by the CIT(A) amending the appellate order dated 26.05.2009. The assessee company submitted that its grievance is du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Del.) ( SB).While the CIT(A) held that ₹ 78,700/- are capital expenditure being spent on batteries and replacement of monitors and not allowable as Revenue expenditure as claimed by the assessee company in the return of income filed with the Revenue. 11.Aggrieved by the decision of the CIT(A) with regard to holding of ₹ 78,700/- being spent on monitors and batteries as capital expenditure, the assessee company is in appeal before us. 12. The assessee company submitted that the CIT(A) was not correct in treating the amount of ₹ 78,700/-as capital expenditure. 13. The ld. D.R., on the other hand, supported the order of the CIT(A). 14. We have heard the rival parties and perused the material on record. The assessee company has not been able to bring on record any further evidence/documents or explanation before us to substantiate its contentions that these expenditure w.r.t. purchase of monitors and batteries aggregating to ₹ 78,700/-are revenue in nature to controvert the findings of the CIT(A). In our opinion, these expenditure of ₹ 78,700/- are capital expenditure incurred by the assessee company and has rightly been disallowed by the A.O a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company failed to substantiate the basis on which these estimated provisions were made and the addition was confirmed by the CIT(A). 16. Aggrieved the assessee company is in appeal before us and the assessee company reiterated its submissions as advanced before the authorities below while the ld DR relied upon the orders of the authorities below. 17. We have considered the rival contention and perused the material on record. The assessee company has made provisions of expenses during the year of ₹ 4,64,58,410/- which are reversed by the assessee company on the first day of the next year. The assessee company has not submitted details and an adhoc disallowance of 5% of ₹ 4,64,58,410/- is made by the AO and confirmed by the CIT(A). No details about the basis of claiming such expenses are also submitted. In our opinion , the interest of justice will be best served if the matter is restored to the file of AO and the assessee company be directed to produce necessary evidences to substantiate its contentions. The assessee company counsel has stated before us that similar addition in the made in the subsequent year i.e. assessment year 2006-07 which has led to double ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing officer be restored. 20. The assessee company sold its office building and land on which office building was constructed located at Prabhadevi, Mumbai for a gross composite aggregate consideration of ₹ 62 crores whereby no bifurcations are mentioned separately in the sale agreement of said property dated 15th March 2005 w.r.t. the land , building and accessories namely lifts, AC s installations etc. . The assessee company bifurcated the gross composite aggregate consideration of ₹ 62 crores for computing Long Term and Short Term Capital Gain as under: a) Land Rs.43.56 Crores b) Building Rs.18.18 Crores c) Accessories such as Lift, AC's etc installed in the Building ₹ 0.26 Crores ₹ 62.00 Crores The bifurcation of the gross composite aggregate consideration of ₹ 62 crores received by the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer has not followed the method of valuation as mentioned in stamp duty ready reference reckoner 2004 and has not adopted the cost of construction and depreciation rates given therein. The ready reckoner has mentioned cost of construction at ₹ 6500/- per square meter whereas the valuer has adopted the cost of construction at ₹ 16,953/- per square meters. g) The rate of depreciation for a 32 years old building should be taken at 40%. h) The adjustment for carpet area and build up area does not appear to have been done as mentioned in the ready reckoner by the registered valuer. The AO observed that the registered valuer has determined the value of land separately and valued the land at the rate of ₹ 2666 per sq. feet and to it was added builder profit@20% and determine the final value at rate of ₹ 3199 per square feet or ₹ 34,436/- per square meters. The assessee company has apportioned the composite aggregate consideration of ₹ 62 crores on the basis of value of land and building determined by the registered valuer in the valuation report. The AO observed that the reference rate of two buildings adopted by the registered va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation rates for the building as per rates provided in the ready reckoner. It was also held by AO that cost of construction in 1981 as provided in ready reckoner is ₹ 80 per square feet whereas the valuer has adopted the cost of construction of ₹ 250 per square feet. Thirdly, the AO held that value of office property in sub zone 3A(zone of the assessee company ) as per stamp duty ready reckoner for the year 1981 is ₹ 880/- per sq. feet whereas the rate of residential premises in subzone 10 ( zone of ASAVARI ) is ₹ 480 per square feet and the two properties are not comparable. The valuer has adopted at rate of ₹ 550/- per square feet for ASAVARI property and multiplied by 1.5 and applied to the office property of the assessee as reference rate which is highly improper as per the AO. The AO also referred to the ready reckoner published by Architect Publishing Corporation of India(APCI) for market value of property as on 01/04/1981 whereby it has held that the rates adopted by the Collector of Stamps , Mumbai appeared to be fairly reasonable and which can be adopted with suitable modifications for valuing the property in Mumbai as on 01/04/1981 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DV (in Rs.) Indexed Cost = 480/100 (In Rs.) Cost of transfer in proportion to allocated considerati on (In Rs.) Capital Gains (In Rs.) Land Long Term 262836812 13815664 66315187 4560623 191961003 Building Short Term 354602813 30604666 6152903 317845244 Lifts and AC's considered in deprecia tion chart Short Term 2560375 44426 2515949 Total 62000000 10757952 21. Aggrieved by the orders of the AO, the assessee company filed first appeal with the CIT(A) . The assessee company submitted before the CIT(A) that the assessee company sold its Prabhadevi office on 15th March 2005 which consisted free hold land together with the office building at Prabhadevi for com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.20,41,26,000/- Less: Depreciation on main building = 116086X 630 ₹ 7,31,34,180/- Rs.13,09,91,820/- 3. Rs.12,81,58,944/- Total Rs.56,86,38,040/- The sale consideration being ₹ 62 crore, the assessee company submitted that the excess of ₹ 5,13,63,960/- received as sale consideration by the assessee company over fair market value and the Builder profit of ₹ 12,81,58,944/- was proportionately apportioned by the assessee company to land and building in the ratio of value of land and building determined by the registered valuer and the value arrived is as under: Land ₹ 43,56,21,000/- Building Rs.18,18,18,625/- Lifts ₹ 16,86,314/- AC Installation ₹ 8,74,061/- Total Rs.62,00,00,000/- The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 29,02,150/- Rs.2,62,75,430/- 3. Builders Profit @20% Rs.1,70,64,642/- Total Rs.8,26,77,140/- The assessee company allocated the builder profit proportionately to the value of the land which then work out the value of land as on 01/04/1981 at ₹ 4,95,67,929/-. The AO rejected both the valuation report given by the registered valuer for the reasons cited in the assessment orders which are detailed in the preceding para s and are not repeated for the sake of brevity. The assessee company submitted before the CIT(A) that the report of the registered valuer is rejected without making statutory reference to the departmental valuation officer(DVO) and instead the valuations are estimated by the AO himself who is not a technical expert and the bifurcation of the land and building were disturbed by the AO. The assessee company submitted that Section 55A of the Act stipulate that it is mandatory on the part of the AO to refer to DVO for valuation of the property if the AO does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the book titled Indian Valuers Directory and Reference book incorporating market value of property in Mumbai as on 01st April 1981 by Mr Santosh Kumar Mr. Sunit Gupta is misconceived as the AO has not appreciated the same : Above rates are adopted for valuing the property for collecting the stamp duty amount by the state government. Hence in our opinion the same values could be reasonably relied upon with suitable modifications for valuing the property in Mumbai as on 01/04/1981 for capital gain tax purpose. In order to work out capital gain tax, on sale of property acquired before 01/04/1981 , assessee has an option to take the purchase value of that immovable property or value as on 01/04/1981. This value is accepted as acquisition cost and indexing is allowed on this value for working out capital gain tax. If the assessee opts for the purchase value, there is no problem, but in case he prefers the valuation as on 01/04/1981 , which is normally the case, then he has to get a report from the Government Registered Valuer. On the basis of Government Registered Valuer s report he works out the tax amount and pays the capital gains tax. Registered valuers can a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s land and building both and not vacant plot of land. The assessee company also submitted before the authorities below that NOC from the office of the Additional Collector CA, ULC, Brihanmumbai wherein the ULC had declared that the entire land pertaining to the property is non vacant land . The assessee company also submitted that the AO erred while valuing the property in 2004 as the AO has adopted the building residual technique and for valuing the same property in 1981, the AO has adopted the value of land by taking ready reckoner rates of 1981 whereby the rate adopted is ₹ 280 psf while the same also is based on FSI of 1.33 while the FSI is 2.35 and the rate will then also comes to ₹ 494.73 psf. The assessee company submitted that the correct basis of valuation should be land residual technique method for assigning value to land and building seperately. The assessee company also rebutted the allegations as contained in the assessment order w.r.t. valuation of November 2004 as under: 1. Reference used in valuation report are 4 to 5 years old The assessee company submitted that the same are admissible in valuation as well as evidence. Reliance placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed for determining the FMV as on 01/04/1981- The assessee company submitted that valuer has followed the method of valuation mentioned in the valuation book. 3. The valuation book provide the rate of land as on 01/04/1981 duly factored for FSI- The assessee company submitted that it is not correct as the valuation book provides rate of land considering FSI at 1.33 while the assessee company has utilized FSI of 2.35. This need to be done to arrive at correct FMV as on 01/04/1981. The AO itself applied FSI of 2.35 for computing FMV on the date of transfer. 4. The valuer has considered the land area equal to the constructed area- The assessee company submitted that constructed area is plot of area multiplied by the FSI utilized. The area of the plot of the land is 5484.22 square yards and FSI utilized is 2.35 and hence constructed area is 12898.50 square yards or 116086.52 sq feet. 5. The rate mentioned by the assessee company in letter dated 19.08.2008 was not correct- the assessee company submitted that no adequate opportunity was given to the assessee company to explain the same. 6. The correct depreciation rate as provided in the valuation book is not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Building (balancing figure) Rs.13,660 Total Rs.71,000 Based on the rates prescribed in the ready reckoner, the FMV value of the property comes to ₹ 32,54,51,930/- as under : Land (Rs.57,340 X 4583.83 sq meters) Rs.26,28,36,812/- Building(balancing figure) ₹ 6,26,15,118/- Value of the Property (Rs 71000 X 4583.83 sq mtrs) ₹ 32,54,51,930/- The assessee company having received ₹ 61,74,39,625/- as sales consideration (Rs.62,00,000/- less ₹ 25,60,375/- for accessories like AC installation , lifts etc) towards land and building. Since the sale consideration was higher then the FMV of the property of ₹ 32,54,51,930/- based on ready reckoner rates, the sales consideration between the land and building should be segregated as under as per method adopted by the AO : Land (Rs.617439625 X ₹ 262836812/Rs.325451930) Rs.49,86,47,719/- Building(balancing figure) Rs.11,87,91,906/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the values adopted by the assessee company in the return of income filed with the revenue are as under: Land Rs.43,56,21,000/- Building Rs.18,18,18,625/- Lifts ₹ 16,86,314/- AC installations ₹ 8,74,061/- Total Rs.62,00,00,000/- The CIT(A) also held that the AO erred in rejecting the comparables considered by the valuer in the valuation report of the registered valuer without bringing on record any fresh comparables to substantiate its case. The CIT(A) held that the sufficient details about comparables are given in the valuation report and suitable adjustments were made for making them comparable with the assessee property. The CIT(A) also observed that the selling price of the property is based on the negotiation between the buyer and seller and the need of the parties. The CIT(A) also held that reliance of the AO on Section 50C of the Act is also without merit as the sale consideration of ₹ 62 crore stand accepted by the AO and Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Gains while the Building sold will be subject to short term capital gains to be computed u/s 50 of the Act as the assessee company availed the depreciation on said building , the main dispute between the revenue and the assessee company is w.r.t. bifurcation of the composite aggregate consideration of ₹ 62 crores into assigning mainly value s of land and building separately for computing long term capital gain on sale of land and short term capital gain u/s 50 of the Act w.r.t. Building. The Ld. DR submitted that the AO has rightly computed the bifurcations of the value of land and building for the purposes of determining the capital gains chargeable to tax. The Ld. DR also submitted that the AO has rightly rejected the value as bifurcated between land and building as per registered valuer report submitted by the assessee company and the AO has rightly differentiated the same to compute value of land and building for the purposes of computing capital gains both short term and long term as per assessment order dated 22.08.2008 instead of referring to the valuation officer(DVO). 24. The Ld. Counsel of the assessee company reiterated its submissions before us as made bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue as full value of consideration as per the Act. The said composite aggregate consideration of ₹ 62 crores for sale of the property in the sale deed dated 15th March 2005 consisted the sale consideration for land, office building constructed on the land and thirdly accessories such as lifts, AC s installations etc. without assigning any specific values to these above-stated three components included in the sale consideration. The dispute has arisen about the allocation/ bifurcation of the sale proceed mainly between the land and Building. The Ld. Counsel submitted that this property is owned by the assessee company for a very long period of time i.e. even prior to 01/04/1981 which is not disputed by the Revenue . The gain arising on the sale of land in question shall be chargeable to tax as Long Term Capital Gain after availing cost inflation index while the gains arising on the sale of building being part of block of asset on which depreciation is availed by the assessee company shall be chargeable to tax as short term capital gain without availing cost inflation index as per provisions of Section 50 of the Act, hence the need for allocation and bifurcation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing] Officer may refer the valuation of the capital asset to a Valuation Officer -- (a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the [Assessing] Officer is of opinion that the value so claimed [is at variance with its fair market value]; (b) in any other case, if the [Assessing] Officer is of opinion -- (i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and subsections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept the findings in para 1.9 page 21 whereby the CIT(A) held that the in the case of Sharbati Devi Jhalani (supra) and Raj Paul Oswal(supra) , the Hon ble Courts have restored the matter to the AO for fresh adjudication in accordance with law. The ld. Counsel stated before us that in both the above cases the reference to the DVO by the AO was held to be mandatory in case the AO dispute the valuation submitted by the taxpayer based on the registered valuer report.He stated that the courts have quashed the proceedings by holding that reference to the DVO in such case is mandatory. He also stated that Section 16A of Wealth Tax Act,1957 and Section 55A of the Income Tax Act,1961 are similar and the word may used in both the sections has to be read as shall as reference to the DVO by the AO being mandatory in the circumstances so mentioned in the said Sections as held by the several courts vide decisions cited above. The Ld. Counsel submitted that the AO has adopted stamp duty value i.e. ready reckoner rates announced by Government of Maharashtra as the value for land and the residual value is assigned to the building which is not correct as the same is giving absurd results. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 62 crores as per sale agreement dated 15th March 2005 . The said office property is stated to be consisting of land admeasuring 5484.22 square yards together with office Building thereon with aggregate built up area of 12898.50 square yards whereby the building constructed is on plot area of 3224 square yards(approx.) consisting of ground floor and three upper floors (total built up area 116086.52 square feet) and the open plot area is 2260 square yards situated at 414, Veer Savarkar Marg, Prabhadevi, Mumbai for a composite aggregate consideration of ₹ 62 crores for which the assessee company has placed on record the sale agreement dated 15th March, 2005 for transfer of this property which is placed at page 1-15 of paper book. The assessee company has obtained two valuation reports both dated 11.11.2004 issued by a government approved registered valuer Dr. Roshan H.Namavati, , valuing this entire office property as on 08-11-2004 and 01-04-1981 and the valuation reports are also placed by the assessee company in the paper book at page 16-29.These afore-stated documents i.e. sale agreement and two valuation reports are also stated to be placed before the authorities be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting and measuring the property in question and based on the actual comparable sale transactions entered into in the vicinity of the property under consideration with suitable modifications as also the ready reckoner rates for stamp duty purposes announced by the Government of Maharashtra for the area where the property is located. We have observed that in the valuation report , the afore-stated government approved registered valuer has mentioned various factors in the report including the rate as per stamp duty ready reckoner for Mumbai. The registered valuer has adopted land residual technique while valuing the property. The value using land residual technique assigned by the registered valuer to the land and building separately as on 08th November 2004 vide his valuation report dated 11th November 2004 are as under: Land Component ₹ 30,94,85,276/- Building ₹ 13,09,91,820/- Builder's Profit ₹ 12,81,58,944/- Total ₹ 56,86,38,040/- We have observed that the assessee company submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs.56,86,38,040/- The sale consideration being ₹ 62 crore, the assessee company has proportionately apportioned excess of ₹ 5,13,63,960/- received as sale consideration over fair market value computed by the registered valuer in the valuation report as on 08-11- 2004 and the Builder profit of ₹ 12,81,58,944/- was proportionately apportioned by the assessee company to land and building in the ratio of value of land and building determined by the registered valuer and the value arrived is as under: Land ₹ 43,56,21,000/- Building Rs.18,18,18,625/- Lifts ₹ 16,86,314/- AC Installation ₹ 8,74,061/- Total Rs.62,00,00,000/- The AO rejected the references adopted by the valuer as being not appropriate and reliable due to following reasons: a) References are 4 to 5 years old. b) Reference properties are very small in size as compared to the property of the assessee. c) There are wid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AC s . Thus, the AO has adopted the building residual technique while the registered valuer adopted the land residual technique. We have observed that the assessee company duly rebutted the allegations as contained in the assessment order w.r.t. valuation of November 2004 are as under: 1. Reference used in valuation report are 4 to 5 years old The assessee company submitted that the same are admissible in valuation as well as evidence. Reliance placed by the assessee company on Collector of Raigarh s case A.1964 MP 196 and Gundappa s case 1996 A IHC 502. 2. Reference properties in valuation report are small in size- the assessee company submitted that quantity allowance of 10% is given by the valuer while computing FMV. 3. Wide variations in the square feet rates of the two reference properties-The assessee company submitted that rates are based on the negotiations between buyers and seller and need of the both. The registered valuer has averaged the same along with the ready reckoner rate for 2004 to eliminate possibility of error in the valuation. 4. It is not known whether both the reference properties are in the same subzone of BMC as that of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortionment of the fair market value was done as under by the registered valuer : Base Rate Rs.735/- Less Builder Profit@20% Rs.147/- Cost of Construction Rs.250/- Rs.397/- Value of Land Rs.338/- psf Based on the above, the registered valuer worked out the Fair Market value with depreciation as under: 1. Land Component 116086 sqft area X ₹ 338 Rs.3,93,37,068/- 2. Construction: a)Building=116086X250 Rs.2,90,21,500/- b)Accessories-depreciated cost ₹ 1,56,080/- Rs.2,91,77,580/- Less: Depreciation on main building = 116086X 25 ₹ 29,02,150/- Rs.2,62,75,430/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO due to following reasons held that the valuation report as submitted by the assessee is not acceptable: a) Reference to ASAVARI building is not applicable in this case. b) The assessee has not followed the method of valuation mentioned in the stamp duty ready reckoner for 01/04/1981. c) The stamp duty ready reckoner provides the rate of developed land as on 01/04/1981 duly factored for FSI. d) The valuation method adopted by the valuer has considered the land area equal to constructed area. e) The rate mentioned by the asssessee in its 19/08/2008 letter is not correct. We have observed that the assessee company also submitted that the reliance placed by the AO on the book titled Indian Valuers Directory and Reference book incorporating market value of property in Mumbai as on 01st April 1981 by Mr Santosh Kumar Mr. Sunit Gupta is misconceived as the AO has not appreciated the same : Above rates are adopted for valuing the property for collecting the stamp duty amount by the state government. Hence in our opinion the same values could be reasonably relied upon with suitable modifications for valuing the property in Mumbai as on 01/04/19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property as rates in the valuation book are not final and binding and these comparables are not doubted by the AO. (e) That the ld author has stated that the income tax department should have no objection if the valuation report is prepared based on rates given in the valuation book and that the valuation report is prepared on the basis of the rates given in the valuation book. We have observed that the assessee company also submitted that the AO erred in adopting the rate of ₹ 280 psf of vacant land for computing the FMV as on 01/04/1981 from ready reckoner rates published by Government for zone 3-A which is not applicable to the property transferred by the assessee company as the property transferred is land and building both and not vacant plot of land. We have observed that the assessee company also submitted before the authorities below that NOC from the office of the Additional Collector CA, ULC, Brihanmumbai wherein the ULC had declared that the entire land pertaining to the property is non vacant land . We have observed that the assessee company also submitted that the AO erred as while valuing the property in 2004 has adopted the building residual t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The cost of construction of the building as per valuation book is ₹ 80 per square feet as on 01/04/1981 while the valuation report , the cost of construction is ₹ 250 per square feet- The assessee company submitted that the cost of construction depends upon the quality of construction and if higher value is adopted by the assessee company as compared to ready reckoner rate , then the AO should have no objection as the value of building will be higher. We have observed that the AO rejected both the valuation report given by the government approved registered valuer for the reasons cited in the assessment orders which are detailed in the preceding para s and are not repeated for the sake of brevity. We have observed that the assessee company submitted that the report of the registered valuer is rejected without making statutory reference to the departmental valuation officer(DVO) and instead the valuations are estimated by the AO himself who is not a technical expert and the bifurcation of the land and building were disturbed by the AO. We have observed that the assessee company submitted that Section 55A of the Act stipulate that it is mandatory on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave observed that the assessee company submitted that its case does not fall within above parameters as laid down by the author as above to be covered under building residual technique method as adopted by the AO and the Revenue also has not brought on record any justification to support how the building residual technique is the most appropriate method for bifurcating the values between land and building. We have observed that the AO has not brought on record any cogent material/ evidences such as sales comparables in the vicinity etc. to establish and substantiate that the value assigned by the AO to land and building separately is to be accepted but merely ready reckoner rates for developed land is adopted to assign value to land and then the balance is treated as the value assigned to the Building for valuing as on date of sale in March 2005 while the AO has adopted the ready reckoner rates for vacant land while valuing the land as on 01/04/1981. Thus, no cogent material has been brought on record by the AO such as sales comparables in the vicinity etc. to demolish the valuation report of the said government approved registered valuer while the valuation reports submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established fact that the ready reckoner rate announced by the Government for stamp duty purposes cannot be considered as full value of consideration received/receivable by taxpayer as required to compute the capital gains as per the Act except as provided u/s 50C of the Act whereby the consideration received/receivable by the taxpayer is less than the stamp duty rates adopted by the government , then in that case the stamp duty rates shall be deemed to be full value of consideration received/ receivable by the taxpayer for computing capital gains which is not the case here as the sale consideration of ₹ 62 crores received by the assessee company has been accepted by the Revenue rather the dispute is as to how to bifurcate the sale consideration between the land and building separately to compute capital gains as per the Act and Section 50C of the Act does not provide how to bifurcate the sale consideration between the land and building to compute capital gains as per the Act. . The method of valuation of land and building seperately adopted by AO of building residual technique is not giving appropriate results in this peculiar case keeping in view the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er square meters and the depreciation for a 32 year old building should be taken @40%. Accordingly the cost of construction after depreciation works to ₹ 3900 per square meters. Considering this, the CIT(A) held that the value of land would be as under: Value of the Property as per the Ready Reckoner(Rs per sq. meters) Rs.71,000 Less: Builder's Profit @20%(per sq meters) Rs.14,200 Rs.56,800 Less: Cost of Construction(per square meters) Rs.3,900 Value of land Rs.52,900 On allocating builder profit in the ratio of principal values of land and building , the value of land and building per square meters would be as under: Value of Land including Builder profit(per sq mtrs) Rs.66,125 Value of Building including builder profit(per sq mtrs) ₹ 4,875 Total Rs71,000 Therefore, the AO should have se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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