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2016 (7) TMI 1003 - ITAT MUMBAI

2016 (7) TMI 1003 - ITAT MUMBAI - TMI - Computation of long term capital gain on sale of inherited property - Held that:- Un-paid and outstanding liabilities such as outstanding municipal taxes , transfer, registration and mutation charges and costs with respect to the said property ‘Roshan Villa’ in favour of the assessee and co-owners , with which the property was saddled with on the date of sale on 16-01-2009, and which the buyer agreed to assume and discharge the same as his liabilities afte .....

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erty and agrees to discharge loan against the said property directly after acquisition . Then, the full value of the consideration of the property will be ₹ 100 lacs being ₹ 60 lacs paid by the buyer to the seller and ₹ 40 lacs will be added being loan outstanding against the said property which the buyer agreed to discharge directly to the lender and not ₹ 60 lacs which the buyer agrees to pay to the seller as sale consideration as ₹ 40 lacs is an additional burden .....

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acquisition of land and building/structure which in the instant case is not disputed by the AO as per assessee’s valuer report and such other deductions/reliefs which the assessee is legally entitled to under the provisions of the Act on merits such as Section 54EC of the Act as claimed by the assessee , which shall be granted by the AO on merits after examination of the relevant claims/relief’s. Thus, we set aside the orders of the learned CIT(A) and restore the issue back to the file of the A .....

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he assessee on solitary issue of computation of long term capital gains on sale of inherited property ‘Roshan Villa’. - Decided in favour of assessee for statistical purposes. - I .T.A. No.3442/Mum/2013 - Dated:- 13-7-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Hiten Vasant For The Assessee : Shri Mohd Javed,CIT DR ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 3442/Mum/2013, is directed ag .....

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al filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- (1) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in taxing Long Term Capital Gains of ₹ 16,44,413/- computed without claiming indexation @ 20% as against 10% as provided in proviso to sec. 112 of the LT. Act and directing the Assessing Officer to allow indexation of .....

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ion officer and without deducting the cost of acquisition and thereby upholding the Protective Assessment made by the Assessing Officer failing to appreciate that such a course of action is not backed by any of the provisions of the law. 2.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in failing to appreciate that the capital gains arises only after cost of acquisition is deducted from sale consideration. 2.2 On the facts a .....

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ed Commissioner of Income Tax (Appeals) erred in failing to appreciate that the provisions of Sec.50C as it stood before its amendment by Finance (No.2) Act, 2009 is operational only in a case where the agreement for transfer has been registered. 2.4 On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in failing to appreciate that the amended provisions of sec. 50C is operational only with effect from 1.10.2009 and hence not applica .....

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ax (Appeals) erred in not granting set off for long term capital loss of ₹ 40,138/- (on redemption of Mutual Fund) and short term capital loss of ₹ 210/- on sale of shares claimed in the return of income without assigning any reason for the same. This ground of appeal is taken notwithstanding the fact that a rectification application has been filed before the CIT (Appeals). 3. The assessee has also raised the following additional grounds vide letter dated 3rd September, 2014. a. On t .....

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ircumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in failing to appreciate that, for the purpose of arriving at the full value of consideration, the valuation as given by the "stamp valuation authority", i. e. ₹ 26,83,044/- has to be adopted. 3. Withdrawal of Grounds We have to further state that we would like to withdraw the following grounds of appeal since the Assessing officer has given relief on the below mentioned grounds in his .....

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t term loss of ₹ 210/- on sale of shares - as claimed in the return of income. 4. The brief facts of the case are that assessee is a partner in M/s Dadar Motor Works and M/s Dadar Auto Spares. During the year the assessee has declared income from share, interest and remuneration from these partnership firms. The assessee has also disclosed income from house property, capital gains on sale of shares and sale of inherited property, dividend from shares and mutual funds. 5. At the outset, the .....

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earned counsel for the assessee that the said additional grounds raised before the Tribunal are legal grounds which are very important for adjudication of the instant appeal and also does not require investigation into fresh facts and all the facts are available on record from the orders of the authorities below and prayed that the said additional grounds of appeal may be admitted being legal grounds of appeal . The learned DR objected to the admission of the said additional grounds of appeal at .....

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ue is with respect to the computation of long term capital gain on sale of inherited property viz. Roshan Villa at ₹ 15,74,215/-. During the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, the A.O. noticed that the assessee has sold one property Roshan Villa at Matheran which belonged to the late mother of the assessee. After the death of assessee s mother i.e. on 3rd October, 2005 the property was inherited by the assessee as well as his brothers and sist .....

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tted that since no formal registered document has been executed, the provisions of section 50C of the Act are not attracted to this transaction. The assessee was show-caused as to why the said property may not be valued as per market rate and the difference amount be added to income and taxed u/s 50C of the Act. In reply thereof, the assessee submitted that since no agreement has been executed on stamp paper and the property has not been registered, the provisions of section 50C of the Act are n .....

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plicable to the transaction of sale of inherited property carried on by the assessee in the instant case whereby property Roshan Villa was sold on 16-01-2009 i.e. prior to 1-10-2009. The A.O. observed that the decision of the Tribunal is distinguishable as in that case the Tribunal has decided the case based on the fact that the asset was transferred to the person who was its supplier against huge debts whereas in the present case the property has been sold for a consideration. The assessee has .....

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rently on a lower rate because the property is a huge villa situated in Hill station of Matheran admeasuring 7800 sq. ft. constructed on a plot of 3439.8 sq. ft. and the same has been sold for a paltry sum of ₹ 25 lacs. The AO observed that the assessee has deliberately sold the property on a piece of paper to avoid applicability of Section 50C of the Act. The assessee has already taken the sale consideration and physically handed over the property to the purchaser and thus as per the AO a .....

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ng the afore-stated instructions of CBDT and applicability of the section, made the addition on protective basis in the year under consideration and held that in the year of registration of the property, the assessment made in the instant assessment year will be considered. The A.O. referred the matter to stamp duty valuing authority to ascertain stamp duty value of Roshan Villa on relevant date of sale and made the addition based upon the value as submitted by stamp valuing authority on the bas .....

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e said registered valuer valued the land at ₹ 80 per square meters and the building at ₹ 100 per square feet as on 01-04-1981 was also considered by the AO. The stamp valuing authorities valued the land @ ₹ 780 per square meters on the basis of ready reckoner rates in the relevant period of sale which was considered by AO for computing full value of consideration of land , while for computing full value of consideration of Building/structure on the land, the AO adopted the valu .....

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/- per sq. mtr x 3439.8 sq mtrs) Value of building as per Regd. Valuer (Rs. 100/- base price in 1981 x cost inflation index) i.e. 582/100 = ₹ 582 per sq. ft. x 7800 sq. ft. ₹ 45,39,600/- Total value of the property as on the date of sale For the purpose of section 50C ₹ 72,22,644/- 8. Aggrieved by the assessment order dated 05-12-2011 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal before the learned CIT(A) and submitted that the assessee had inherited .....

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) . The agreement was neither executed on paper nor registered with the Registrar. The possession of the property was handed over to the purchaser during the relevant previous year. Since there was part performance of the contract, the transaction was considered as transfer of the property and the capital gains on such transfer was inadvertently declared at ₹ 8,33,333/- (i.e. the assessee s share of sale consideration) in the return of income filed with the Revenue, while during the assess .....

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by taking recourse to Section 50C of the Act whereby the AO calculated the land value at ₹ 26,83,044/-, and value of the superstructure at ₹ 45,39,600/- based on the value as on 1st April, 1981 as per the assessee valuer s report and adjusted with cost inflation index to arrive at the total value of the property as on date of transfer at ₹ 72,22,644/- which was considered as full value of the sale consideration for arriving at the capital gains by invoking the provisions of se .....

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- . The AO enhanced the valuation by appreciating the building value which was constructed prior to 1937, while building always depreciates. It was stated by the assessee before the learned CIT(A) that the A.O. erred in appreciating the various facts such as purchaser was to pay unpaid municipal taxes for more than 10 years , the purchaser will get the property transferred in the name of legal heirs of mother of the assessee at his own cost, the purchaser will also pay premium for transfer of th .....

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the capital gains even if the value as adopted by the AO is accepted because the AO has computed difference between the full value of consideration of ₹ 72,22,644 less the actual sale consideration of ₹ 25,00,000/- as long term capital gain which is distributed between the three co-owners of the property. The learned CIT(A) rejected the contention of the assessee and observed that the A.O. has made the addition on protective basis. The assessee sold the property for sale consideratio .....

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y the appellate order dated 06-02-2013 of the learned CIT(A), the assessee is in further appeal before the Tribunal. 10. The ld. Counsel for the assessee submitted that the property, Roshan Villa was owned by the assessee s mother which was purchased on 29th December, 1937. The mother of the assessee expired on 3rd October, 2005 and after her death, the property was inherited by the assessee as well as his brothers and sisters as co-owners. The property was sold on 16th January, 2009, however, n .....

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id property was not registered. The assessee has given the valuation as per the Government approved valuer to work out the cost of acquisition as on 1-4- 1981. Addition has been made by taking the value of land as per the stamp duty officer and the building has been valued as on 1-4-1981 and then indexation was applied to determine full value of consideration which is not permissible under the Act. It is further submitted that no deduction has been given for the cost of the building while indexe .....

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learned counsel for the assessee relied upon CBDT circular no. 05/2010 dated 03-06-2010 being explanatory notes to the provisions of the Finance(No. 2 ) Act ,2009 , which stipulates as under : 23. Provisions for deemed valuation in certain cases of transfer 23.1 The existing provisions of section 50C provide that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority o .....

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o preventing the leakage of revenue, section 50C is amended, so as to provide that where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both is less than the value adopted or assessed or assessable by an authority of State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration received or accruing as a result .....

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on protective basis and no substantive addition has been made. 12. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has sold the property namely Roshan Villa , which is situated at Matheran. The said property was owned by the assessee s mother since 1937. The property consist of land and an building/ structure thereon. The mother of the assessee expired on 03-10-2005 and the property devolved on the assessee and his br .....

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the sellers i.e. the assessee and other co-owners while no document for sale of the said property has been registered in favour of the buyer by the assessee and the co-owners. The property was also saddled with unpaid and outstanding liabilities on the date of sale i.e. 16-01-2009 such as municipal taxes for more than 10 years , non-transfer and mutation in the name of legal heirs i.e the assessee and other co-owners after death of their mother on 03-10-2005 etc. . The buyer has assumed and agr .....

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ties have expressed in-ability to value the building/structure because the sale of the property was not registered. The A.O. determined the land value on the basis of valuation submitted by stamp duty valuing authorities , while for valuing the building/structure thereon , the AO applied the value of the building as on 1-4-1981 as declared by the registered valuer of the assessee and then multiplied the same with cost inflation index which in our considered view is not the correct method of valu .....

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operties which are registered where the value is assessed by the stamp duty valuation authorities, while in the instant case the property Roshan Villa is sold under an unregistered document. However, later on Section 50C of the Act was amended by Finance Act , 2009 w.e.f 1-10-2009 whereby the word assessable is added to Section 50C(2) of the Act and explanation 2 to Section 50C(2) was inserted by Finance Act, 2009 w.e.f. 1-10-2009 . Section 50C of the Act as amended by Finance Act , 2009 is repr .....

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or assessed [or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1), where- (a) the assessee claims before any Assessing Officer that the value adopted or assessed 20a[or assessable] by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or .....

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on (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifica-tions, 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 1].-For the purposes of this section, Valuation Officer shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). [Explanation 2.-For the purposes .....

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uthority referred to in subsection (1), the value so adopted or assessed [or assessable] by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.] The CBDT circular no. 05/2010 dated 03-06-2010 being explanatory notes to the provisions of the Finance(No. 2 ) Act ,2009 , which stipulates as under: 23. Provisions for deemed valuation in certain cases of transfer 23.1 The existing provisions of section 50C provide that where the consi .....

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oes not include transactions which are not registered with stamp duty valuation authority, and executed through agreement to sell or power of attorney. 23.2 With a view to preventing the leakage of revenue, section 50C is amended, so as to provide that where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both is less than the value adopted or assessed or assessable by an authority of State Government for the purpose of payment of stam .....

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elation to transactions undertaken on or after such date. Thus, with effect from 1-10-2009, even if the property is not registered , the same was brought within the ambit of provisions of Section 50C of the Act. The AO could not adopt the stamp duty value as determined by stamp duty valuation authorities as Section 50C of the Act is not applicable in the instant case as the property is not registered and the sale undertook prior to 1-10- 2009 i.e. on 16-01-2009 . The above view is supported by d .....

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ntroducing the said amendment, only the transfers of properties where the value adopted or assessed by the stamp valuation authority were subjected to Section 50C application. However after introduction of the words "or assessable" after the words "adopted or assessed", such transfers where the value assessable by the stamp valuation authority are also brought into the ambit of Section 50C. Thus such introduction of new set of class of transfer would certainly have the prospe .....

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re under the provisions of the Act for computing long term capital gains. It is now the admitted position that the property was saddled with several liabilities such as the municipal taxes were not paid for 10 years, the property was not transferred, registered and mutated in the name of assessee and other co-owners after death of their mother etc. . The property was sold by the assessee and co-owners on as is where basis for total consideration of ₹ 25 lacs whereby the buyer agreed to ass .....

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n 16-01-2009, and which the buyer agreed to assume and discharge the same as his liabilities after acquisition of property Roshan Villa needs to be added to the sale consideration value of ₹ 25,00,000/- to arrive at full value of consideration to determine long term capital gains arising from the sale of the property. We would like to give an example to explain the same say for example , one property is worth ₹ 100 lacs and there is a loan outstanding of ₹ 40 lacs against the s .....

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