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2016 (1) TMI 644 - ITAT MUMBAI

2016 (1) TMI 644 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- Rule 8D of Income Tax Rules, 1962 is applicable only prospectively i.e. from assessment year 2008-09, hence, disallowance u/s 14A of the Act for the years prior to assessment year 2008-09 has to be made on reasonable basis once the AO having regards to the accounts of the assessee is not satisfied with the correctness of the claim of the assesssee company. We, therefore, restore this issue to the file of the A.O. with a di .....

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preceding assessment years. The A.O. is accordingly directed to consider this aspect also - 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 .....

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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 to the Profit and Loss Account during the assessment year 2005-06 and claimed as revenue expenditure vis--vis the actual expenditure incurred by the assessee company against this provision for expen .....

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R> Long term capital gain on transfer of land and short term capital gain on transfer of building and accessories - Held that:- The working adopted by the AO to bifurcate the values of land and building cannot be accepted in view the peculiar facts and circumstances of the case and the working adopted by the assessee company based on the valuation report submitted by the government approved registered valuer using land residual technique and which is also supported by the comparable sales in th .....

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ng by the assessee company based on the valuation report of government approved registered valuer by following land residual technique method. Hence, we direct that the values as assigned by the assessee company in valuing land and building separately both on the date of sale as also on 01/04/1981 based on the valuation report(s) dated 11.11.2004 of government approved registered valuer using land residual technique method be accepted in this particular case keeping in view facts and circumstanc .....

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ome 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-mo .....

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direct and indirect expense incurred and attributable to such investments are to be disallowed. The assessee company was asked by the AO to quantify such disallowance in accordance with CBDT circular . The assessee company submitted that the CBDT circular is not applicable to the assessment year under consideration . The assessee company submitted computation of expenses attributable to investment activities as per CBDT circular. The amount of expenses quantified by the assessee company amountin .....

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on 14A of the Act are not retrospective by relying on following decisions : a. Wimco Seedlings Limited v. DCIT 107 ITD 267(Del.)(TM) b. TCI Finance Limited v. ACIT (2008-TIOL-213-ITAT-Hyd.) c) Impulse (India) Private Limited v. ACIT (2008) 22 SOT 368(Del.) The CIT(A) following decision in Daga Capital Management Private Limited reported in 117 ITD 169(Del.)(SB) held that provisions of sub section (2) and (3) of Section14A of the Act read with Rule 8D of Income Tax Rules, 1962 are retrospective. .....

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the assessee company that investment were not made of the borrowed funds. It was also submitted that for assessment year 2004-05, the assessee suo-moto disallowed administrative expenses @2% of dividend income which was increased by the 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 .....

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mitted 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 towards disallowance u/s 14A of the Act can be made. The CIT(A) reje .....

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appeal before the Tribunal. 5. Before us, the assessee company submitted that the issue relating to the applicability of Rule 8D of Income Tax Rules, 1962 has been decided by the Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. DCIT (2010) 328 ITR 81 (Bom.) wherein it was held by Hon ble Bombay High Court that Rule 8D of Income Tax Rules, 1962 is applicable only prospectively i.e. from assessment year 2008-09. As held by the Hon ble jurisdictional High Court, the disall .....

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ule 8D of Income Tax Rules, 1962 read with Section 14A of the Act. 6. The ld. D.R., on the other hand, supported the orders of authorities below. 7. We have heard the arguments of both the sides and also perused the relevant material available on record. We find that the Hon ble jurisdictional High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (supra) held that Rule 8D of Income Tax Rules, 1962 is applicable only prospectively i.e. from assessment year 2008-09, hence, disallowance u/s 14A .....

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d 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 trea .....

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its grievance is duly redressed by the afore-stated orders dated 30.03.2010 passed u/s 154 of the Act by the CIT(A) and this ground may be dismissed as infructous. The Ld. DR relied upon the orders of the authorities below. We have considered the rival contentions and perused the material on record and we hold that the ground no 2 has become infructous as per statement of the Ld. Counsel of the assessee company as the CIT(A) has already granted relief to the assessee company vide orders dated 30 .....

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rn of income filed with the Revenue whereas the same are capital expenditure in nature. The details of such expenditure claimed by the assessee company have been given by the A.O. in his assessment order dated 22.08.2008 u/s 143(3) read with Section 142(2A) of the Act on page 17 to 18. The A.O. disallowed the said expenditure by treating the same as capital expenditure after allowing depreciation which came to ₹ 3,57,948/-. On appeal before the CIT(A) against the additions made by the AO i .....

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see company by Hon ble Delhi High Court in the case of GE Capital Services Limited 164 Taxmann 46(Del.) and with respect to expenditure incurred on the upgradation of software , the issue is decided in favour of the assessee company by decision of Hon ble Delhi High Court in the case of K & Co. reported in 181 CTR 378(Del.) and Delhi Special Bench in the case of Amway India Enterprises reported in 111 ITD 112(Del.) ( SB).While the CIT(A) held that ₹ 78,700/- are capital expenditure bei .....

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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 ₹ 78,70 .....

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visions for expenses at the year end which are reversed on the first day of next financial year. The assessee company was asked to explain the details of the provisions of expenses of ₹ 4,64,58,410/- created on 31/03/2005 and actual expenditure incurred by the assessee company against the afore-stated provisions. The assessee company has not deducted TDS on these provisions as in the opinion of the assessee company TDS is not applicable to provisions because payees are not identified and a .....

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nd is not in accordance with the mercantile system of accounting. Since the assessee company was not able to furnish the complete information , the AO disallowed 5% of the provision for the expenses of ₹ 4,64,58,410/ debited in the books of accounts on 31st March 2005 i.e. ₹ 23,22,920/- while framing the assessment order dated 22.08.2008 u/s 143(3) of the Act read with Section 142(2A) of the Act . Aggrieved by the assessment order passed by the AO, the assessee company filed first ap .....

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ee 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 .....

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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 addition. 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 .....

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ng in accordance with the principles of natural justice and the assessee company shall be allowed to produce relevant evidence in its defense to justify and substantiate its claim of provision for expenses of ₹ 4,64,58,410/- debited to the Profit and Loss Account and claimed as revenue expenditure in the return of income filed with Revenue. This ground of the assessee is accordingly allowed for statistical purposes. 18. In the result, the appeal filed by the assessee company is partly allo .....

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ing of ₹ 25,60,375/- towards other accessories. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the Assessing Officer to accept the valuation of land and building shown by the assessee in valuation report of the Registered Valuer disregarding Fair Market Value of land as on 01.04.1981 at ₹ 1,38,15,664/- as per Ready Reckoner. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the formula of land cost plus .....

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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 t .....

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ed at ₹ 13,09,91,820/- and the builders profit at ₹ 12,81,58,944/- using land residual technique method. It was observed by the AO that in preparing the valuation report the aforestated government appoved registered valuer has mentioned various factors in the report including the rate for 2004 as per stamp duty ready reckoner for Mumbai. It was observed by the AO that the ready reckoner rate adopted is for G ward subzone 17/121 on page 77 of ready reckoner which is ₹ 71,000/- p .....

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erence by the registered valuer have not been mentioned so it cannot be said that both the references are from the same sub-zone of Mumbai and have the same valuations at least as per stamp duty ready reckoner so that they can be considered as comparable and used as references. 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 pr .....

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opted 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 .....

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reference rate of two buildings adopted by the registered valuer are not appropriate and reliable references. Further , the value of land on the date of transfer determined by the valuer does not match with the value of land as given in the stamp duty ready reckoner for the year 2004 for plot of the assessee which in developed land in sub-zone 17/121 of 2004 stamp duty ready reckoner is ₹ 24,400/- per square meter. The AO referred to Section 50C of the Act and stated that the full value o .....

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tion received by the assessee company for transfer of the land and hence the value of land computed after considering FSI of 2.35 used on the land computed value of land at ₹ 26,28,36,812/- and balance consideration of ₹ 35,46,02,813/- was adopted for consideration for building and rest ₹ 25,60,375/- was considered for accessories like lift and AC s .Thus, the AO used the building residual technique method to assign separate values to land and building while the assessee used t .....

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valuer adopted reference of flat no 8B in building ASAVARI in a nearby locality which falls under subzone 17/118 of stamp duty ready reckoner which has lower valuation rate while the plot of the assessee company falls under sub-zone 17/121 as per stamp duty ready reckoner and hence in the opinion of the AO reference is not proper reference to determine the value of property as on 01/04/1981. The AO also held that the valuer has not adopted the correct depreciation rates for the building as per r .....

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8377; 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 St .....

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value of land transferred as on 01/04/1981 is ₹ 1,38,15,664/-. The assessee company submitted before the AO that the value of vacant land in the 1981 ready reckoner is not applicable to its case rather the value of the property along with land is applicable as the land was not vacant land as on 01/04/1981. The assessee company submitted that value of property as mentioned in the ready reckoner is ₹ 1000/- psf whereas the valuer has adopted the rate of ₹ 735/- psf. The AO observ .....

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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. The AO held that the stamp duty ready reckoner rates as on 01/04/1981 for the plot of the assessee company should be used for determinat .....

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nsfer 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 .....

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s on 08th November 2004 as under: Land Component Rs.30,94,85,276/- Building Rs.13,09,91,820/- Builder's Profit Rs.12,81,58,944/- Total Rs.56,86,38,040/- The assessee company submitted that the basis for valuation by the registered valuer is the sale of two office properties in the vicinity (one admeasuring 1916 sq feet sold in May 2000 @ ₹ 7481 per square feet (psf) and another admeasuring 462 sq. feet in December 2001 @ ₹ 4329 psf both located at Prabhadevi,Mumbai ) and the read .....

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registered valuer worked out the Fair Market value with depreciation in his valuation report dated 11.11.2004 valuing the property as on 08th November 2004 as under: 1. Land Component 116086 sqft area X ₹ 2666 Rs.30,94,85,276/- 2. Construction: a) Building = 116086X1750 Rs.20,31,50,500/- b) Accessories-depreciated cost ₹ 9,75,000/- 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/- T .....

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377; 16,86,314/- AC Installation ₹ 8,74,061/- Total Rs.62,00,00,000/- The assessee company submitted that for purpose of computation of capital gains chargeable to tax u/s 45 of the Act , the assessee company also got the said property valued as on 1st April 1981 from the same government approved registered valuer Dr. Roshan H Namavati vide valuation report dated 11th November 2004 as under: Land Component Rs.3,93,37,068/- Building Rs.2,62,75,430/- Builder's Profit Rs.1,70,64,642/- Tot .....

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commercial premises for the year 1981 which was ₹ 720/- per square feet . The value so arrived at by averaging the three rates was ₹ 735/- psf after allowing quantity allowance of 10%. The apportionment of the fair market value was done by the registered valuer as under : Base Rate Rs.735/- psf Less Builder Profit@20% Rs.147/- Cost of Construction Rs.250/- Rs.397/- psf Value of Land Rs.338/- psft Based on the above, the registered valuer worked out the Fair Market value with depreci .....

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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 technica .....

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d. The assesssee company relied upon the decision of Hon ble Himachal Pradesh High Court in Raghunath Singh Thakur reported in 304 ITR 268(HP). The assessee company submitted that the registered valuer Dr. Roshan H. Namavati being one of the most renowned registered valuer in Mumbai had been commended by Hon ble Supreme Court in the case of Sumangalam Coop. Housing Society Limited 2007Jt(1) SC 211. The assessee company submitted before the CIT(A) that the assessee company has adopted land residu .....

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echnique adopted by the AO, the value of building comes to ₹ 35,46,02,813/- with the built up area of 116086.52 sft i.e. ₹ 3050 psft while ready reckoner rate of RCC Cost of building is ₹ 6500 per square meters which comes to ₹ 603.86 psf which is absurd. The assessee company referred to book of author Kahn - Cases - Schirmmel 1963 Ed. P 149 whereby it is written that the building residual technique can be adopted when : The building residual technique is a means of deter .....

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thod as adopted by the AO . The assessee company also submitted before the CIT(A) 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 co .....

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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 adopt above values subject to valuation factors mentioned in this book along with their judgment and observations to arrive at just and fair value for capital gain purpose. The rate quoted will diffe .....

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and sub-registrar of Assurance, Mumbai for valuation purpose for all documents executed during the year 1981 for determining the stamp duty. Accordingly, Income Tax Department should have no objection if the valuation report is prepared on the basis of rates and guidelines illustrated in this chapter. (emphasis supplied) Thus, the assessee company submitted that : (a) That the ld author submitted that fair market value of the property to be computed as on 01/04/1981 based on the Government regi .....

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re 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. 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 r .....

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O 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 assig .....

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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 referen .....

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s compared to ready reckoner rate , then the AO should have no objection as the value of building will be higher . 6. The rate of depreciation should be 40% for 32 year old building- The assessee company submitted that valuer has adopted depreciation at 90% of 40% i.e. 36 year keeping in view the quality of construction was better. 7. There is requirement of adjustment for carpet area and built up area- The assessee company submitted that the adjustment is required when the property is valued on .....

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on 01/04/1981 at ₹ 550 per square feet and the rate of office premises in this area would be 50% more i.e. ₹ 825 per square feet. 2. The method of valuation mentioned in the valuation book has not been followed 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 .....

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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 adopted by the registered valuer- The assessee company submitted that the registered valuer has adopted the r .....

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higher. The CIT(A) considered the submissions of the assessee company and the material produced before him . The CIT(A) rejected the contentions of the assessee company that in case the AO did not agree with the report of registered valuer relied upon by the assessee , then non referral of the matter by the AO to DVO will invalidate the additions made by the AO. The CIT(A) held that judgment of Hon ble Himachal Pradesh High Court in the case of Raghunath Singh Thakur reported in 304 ITR 268(HP) .....

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8, it is observed that the AO has not inspected the property before assuming the task of valuation and hence the valuation adopted by the AO cannot be upheld. The CIT(A) also held that land residual technique is the correct method of valuation which should be adopted in the case of the assessee company. The CIT(A) also held that the rate of vacant developed land of ₹ 24,400 per square meters adopted by the AO also lack merit because FSI utilized by the assessee company of 2.35 is not facto .....

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,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 .....

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premises) as per ready reckoner of 2004 is to be computed as under: (Value of land + cost of construction ) X 1.2 Further at para 3 page 4 of the assessment order , the AO has admitted that the value of the property (land and building together) as per ready reckoner rate is ₹ 71,000 per square meters. Further at the end of page 5 of the assessment order, the AO has stated that the cost of construction as per the ready reckoner rate is ₹ 6500 per square meters and the depreciation fo .....

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lues 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 ₹ 71,000 Therefore, the AO should have segregated the sale consideration between land and building as under: Land (Rs.617439625 X ₹ 66125/Rs.71000) Rs.57,50,45,003/- Building (Rs.61,74,39,625 X ₹ 4875/Rs.71000) Rs.4,23,94,622/- Sales Consideration .....

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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 50C .....

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that the AO erred in adopting the rate of ₹ 280 per square feet which is for the land falling under the category Vacant Land while the NOC issued 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 and there is no surplus vacant land in the property. The CIT(A) held that correct method considering the facts of the assessee s company case will be land residual technique as ado .....

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comparable. Thus, the CIT(A) allowed the appeal of the assessee company and directed vide orders dated 26th May 2009 the AO to compute the value of the property at Prabhadevi sold by the assessee company as on 01/04/1981 and in the year 2004 as per the valuation reports of the registered valuer furnished by the assessee company by using the land residual technique method. 22.Aggrieved by the orders of the CIT(A) dated 26th May 2009, the Revenue is in appeal before us. 23. The Ld. DR relied upon .....

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he 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 .....

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Counsel of the assessee company reiterated its submissions before us as made before the authorities below. The Ld Counsel of the assessee company made statement before us that the assessee company sold the office property 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 (tot .....

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ns., PH.D., F.I.I.A, F.I.E, F.I.S.,Mumbai, who is a government approved registered valuer , valuing this entire property as on 08-11-2004 and 01-04-1981 are also placed by the assessee company in the paper book at page 16-29. The ld. Counsel with a view to establish high credentials of Dr. Roshan H. Namavati referred to the Hon ble Supreme Court judgment in the case of Sumangalam Coop. Housing Society Ltd. v. Suo Motu , High Court of Gujarat and Ors. In civil appeal no 3986 of 2004 with CA. Nos. .....

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uation. The Ld. Counsel of the assessee company also submitted that above documents consisting of sale agreement dated 15th March 2005 and both the valuation reports dated 11.11.2004 were duly submitted before the AO and the CIT(A) during the relevant proceedings before them. The Ld. Counsel of the assessee company submitted that the afore-stated property was sold for a composite aggregate consideration of ₹ 62 crores which is not in dispute as the sale consideration received by the assess .....

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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 depreciatio .....

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wing the benefit of cost inflation index . The Ld. Counsel relied upon the decision of the Tribunal in the case of Statesman Limited reported in 114 ITD 595(Kol.) to support the proposition that the bifurcation of the values between the land and building is to be done to compute capital gain chargeable to tax under the Act . The Ld. Counsel submitted that the assessee company relied upon the technical expert Dr Roshan H Namavati who is an government approved registered valuer who has submitted t .....

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this property submitted by the assessee company on his whims and fancies and the AO has not even inspected the property in question. The Ld. Counsel of the assessee company submitted that if the AO is not accepting the values assigned / bifurcated by the assessee company which is based on valuation report of government approved registered valuer, the only option left with the AO was to refer the matter to the DVO who is an technical expert in this field for valuation of the said property as per .....

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rew our attention to the provisions of Section 55A of the Act which reads as under: [55A. Reference to valuation 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 th .....

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eference 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 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the [Assessing] Officer under sub-section (1) of section 16A of that Act. Explanation .....

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2005-06 under appeal ) as in this instant case the assesee company has duly relied upon the estimates made in the government approved registered valuer report to determine the bifurcation of the composite aggregate consideration of ₹ 62 crores mainly into land and building separately both on the date of sale i.e. 15th March 2005 and also on 01/04/1981. The ld counsel of the assessee company relied upon the decisions of the Tribunal- Agra Benches in Shri Pyare Mohan Mathur, HUF v. ITO repor .....

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pared by the government approved registered valuer and relied upon by the taxpayer. The Ld. Counsel submitted that on this short ground only the valuation adopted and assigned by the AO to the land and building separately as on the date of sale on 15th March 2005 and 01st April 1981 cannot be relied on and the ld. CIT(A) has rightly set aside the respective valuations adopted by the AO and directed the AO to adopt the respective values assigned for land and building separately by the assessee co .....

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y 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 circumstance .....

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s the value for office premises consisting of both land and building is ₹ 71000 per square meters as per ready reckoner rates for 2004. Similarly, it was submitted by the ld Counsel that AO adopted ready reckoner rate of ₹ 280 per square feet for vacant land as on 1-4-1981 is also not correct as the land is not vacant as per certificates from the authorities submitted by the assessee company. The ld. Counsel submitted that the AO has not brought on record any cogent material/evidence .....

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valuation for land and building adopted by the AO should not be accepted rather the values as estimated by the government approved registered valuer should be accepted. The Ld. Counsel showed us the values as computed by the assessee company based on the report of government approved registered valuer as well the values adopted by the AO which are detailed by us in the preceding para s and are not repeated for the sake of brevity. 25.We have considered the rival contentions and perused material .....

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ad , within in the Registration District of Mumbai and assessed by the Assessor and Collector under Ward No G/South 2663, 1284 Street Nos. 128A, 108,109,76- 107A , situated at 414, Veer Savarkar Marg, Prabhadevi, Mumbai for composite aggregate consideration of ₹ 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 squ .....

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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 below during relevant proceedings. The afo .....

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onsideration for above three components being ₹ 62 crores without assigning any specific values to these three components. The dispute has arisen about the allocation/ bifurcation of the sale proceed mainly between the land and Building. It is also stated before us that this office 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 Revenue and hence there arises a need to value the land as on 01/04/1981 to determi .....

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bifurcation of composite aggregate consideration of ₹ 62 crores received on sale of this property between the three components of land, Building and accessories like lifts, AC s etc has arisen as well to value the said property as on 01/04/1981 for the purposes of computing the capital gains on sale of land and these separate values assigned to land and building are mainly a matter of dispute between the assessee company and the Revenue. The assessee company relied upon the technical expe .....

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rty 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 val .....

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s the actual comparable sale of two office properties in the vicinity (one admeasuring 1916 sq feet sold in May 2000 @ ₹ 7481 psf and another admeasuring 462 sq. feet in December 2001 @ ₹ 4329 psf both located at Prabhadevi ) and the ready reckoner rate for office for the year 2004 for G Ward sub-zone 17/121 which was ₹ 71000/- per square meter i.e. ₹ 6596 psf. The value so arrived at by averaging the three rates was ₹ 5520 psf after allowing quantity allowance of 1 .....

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520/- psf Less Builder Profit@20% Rs.1104/- Cost of Construction Rs.1750/- Rs.2854/- psf Value of Land Rs.2666/- psft Based on the above, the said registered valuer worked out the Fair Market value with depreciation as on 08-11-2004 in his valuation report as under: 1. Land Component 116086 sqft area X ₹ 2666 Rs.30,94,85,276/- 2. Construction: a)Building=116086X1750 Rs.20,31,50,500/- b)Accessories-depreciated cost ₹ 9,75,000/- Rs.20,41,26,000/- Less: Depreciation on main building = 1 .....

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ding 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 assess .....

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struction 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 reference rate o .....

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ed that the full value of consideration for the land transferred can be determined on the basis of valuation of the land as per stamp valuation authority for the purposes of Section 48 of the Act to compute capital gain as per the Act and in the instant case, the stamp duty rate of land is ₹ 24,400/- per square meter in sub-zone 17/121 which can be adopted .Thus, the AO adopted the 2004 stamp duty ready reckoner rate of the fully developed land as the correct value of the land to determine .....

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d 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 valuatio .....

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h the reference properties are in the same subzone of BMC as that of the assessee company property- The assessee company submitted that all the properties are in G ward of BMC. 5. The cost of construction of the building as per ready reference is ₹ 6500 per square meter while the valuation report , the cost of construction is ₹ 16953 per sq meters- The assessee company submitted that the cost of construction depends upon the quality of construction and if higher value is adopted by t .....

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property is valued on carpet area basis . The valuer has valued the property based on built up area and hence no adjustment is required. We have observed that for purpose of computation of capital gains chargeable to tax u/s 45 of the Act , the assessee company also got the said property valued as on 1st April 1981 from the same government approved registered valuer Dr. Roshan H Namavati vide valuation report dated 11th November 2004 as under: Land Component Rs.3,93,37,068/- Building Rs.2,62,75, .....

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located at Veer Savarkar Marg, Mahim,Mumbai and the ready reckoner rate for commercial premises for the year 1981 which was ₹ 720/- per square feet . The value so arrived at by averaging the three rates was ₹ 735/- psf after allowing quantity allowance of 10%. The apportionment 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, .....

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of the land which then work out the value of land as on 01/04/1981 at ₹ 4,95,67,929/-. We have observed that the AO also held that the registered valuer has not adopted the correct 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 .....

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s per the AO. We have observed that 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 for capital gain tax purposes. The rate of ₹ 280 per square feet for the value of the land .....

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the property along with land is applicable as the land is not vacant land as on 01/04.1981. We have observed that the 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 fa .....

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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/ .....

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t to valuation factors mentioned in this book along with their judgment and observations to arrive at just and fair value for capital gain purpose. The rate quoted will differ from structure to structure depending upon the services available,location and amenities provided. Hence from the judgment valuers should accordingly modify the rates while preparing valuation report. The rates should not be considered final and binding which may vary depending on various factors. However these rates give .....

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have observed that the assessee company submitted that : (a) That the ld author submitted that fair market value of the property to be computed as on 01/04/1981 based on the Government registered valuer report as on 01/04/1981 which has been done by the assessee company. (b) The assessee company submitted that the ld author has observed that the rates given in the valuation book could be reasonably relied with suitable modification as per judgment of registered valuer. (c) That the rates given .....

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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 authoriti .....

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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. We have observed that the assessee company submitted that the correct basis of valuation should be land residual technique. We have observed that the assessee company also rebutted the allegations as contained in the assessment order w.r.t. valuation of the property as on 01/04/1981 are as under: 1. The reference to ASAVARI building is not comparable- The assessee compan .....

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ation 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 co .....

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ation rate as provided in the valuation book is not adopted by the registered valuer- The assessee company submitted that the registered valuer has adopted the rate based on quality of construction. 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 .....

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istered 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 part of the AO to refer to the DVO for valuation of the property if the AO does not agree with the report of registe .....

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most renowned registered valuer in Mumbai had been commended by Hon ble Supreme Court in the case of Sumangalam Coop. Housing Society Limited 2007Jt(1) SC 211. We have observed that the assessee company submitted that the assessee company has adopted land residual technique for the purpose of valuing the property while the AO has adopted the building residual technique for valuing the property on the date of sale and adopted ready reckoner rates for vacant land as on 01-04-1981. We have observed .....

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with the built up area of 116086.52 sft i.e. ₹ 3050 psft while ready reckoner rate of RCC Cost of building is ₹ 6500 per square meters which comes to ₹ 603.86 psf which is absurd. The assessee company referred to book of author Kahn - Cases - Schirmmel 1963 Ed. P 149 whereby it is written that the building residual technique can be adopted when : The building residual technique is a means of determining building values under the following conditions: 1. The value of the land c .....

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ght 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 .....

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ady reckoner rates announced for stamp duty purposes by Government of Maharashtra in 2004 as well 1981 but is also based on the sales comparables in the vicinity for valuing at both the dates with suitable modifications. It is also stated that AO has not even inspected and measured the property before embarking on the huge exercise of determining the values of the land and building separately . The AO also failed to cross examine the government approved registered valuer to demolish the valuatio .....

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;.. ….. …… 15……………….The valuation done by Dr. Roshan H. Namavati demolishes the basis of the conclusion by the High Court regarding undervaluation. The AO also failed to refer the matter to DVO for obtaining his valuation report to ascertain the fair market value as per mandate of Section 55A of the Act as the AO has challenged the fair market value adopted by the assessee company based on the estimate in the valuation report prepare .....

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te. The method of valuation based on building residual technique as adopted by the AO in this peculiar case based on facts and circumstances of the case is erroneous as the AO adopted the value of land based on ready reckoner rate announced by the Government of Maharashtra for developed land in 2004 and thereafter the residual value was considered as the value of the building . It is well established fact that the ready reckoner rate announced by the Government for stamp duty purposes cannot be .....

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f ₹ 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 .....

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residual technique can be adopted when : The building residual technique is a means of determining building values under the following conditions: 1. The value of the land can readily be estimated by sales or by use of the hypothetical - building land residual technique. 2. The building is an improper improvement. 3. The building is in late or middle life, with obvious deficiencies due to deterioration or obsolescence. We have observed that the assessee company submitted that its case does not f .....

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o arrive at conclusion that the land residual technique method adopted by the assessee company is most appropriate to the facts and circumstances of the case and is producing the results which are more accurate. The CIT(A) even demonstrated that even by following the building residual method as followed by the AO , if it is properly and correctly followed by the AO will lead to no prejudice to the revenue by following the method of valuation adopted by the assessee company based on the valuation .....

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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 value .....

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9,625/- 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 Revenue has also not brought on record any cogent material / evidences to demolish both the valuation report s dated 11.11.2004 submitted by the government approved registered valuer such as comparable sales in the vicinity etc. and .....

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