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Raosaheb Babasaheb Mangire Versus Income Tax Officer Ward -2 (3) Solapur

Applicability of provisions of section 50C - valuation as determined by the Valuation Officer - computation of capital gains - Held that:- Before us ld.A.R. has submitted that certain material developments had taken place like bequeathing assessee’s share in land in favour of Dilip Sopal, City Survey Officer passing the order by replacing the name of assessee with that of Dilip Sopal, assessee obtaining stay against the inclusion of name of Dilip Sopal in place of assessee and Dilip Sopal subseq .....

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195/PUN/2014 - Dated:- 13-1-2017 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Appellant by : Shri Pramod Shingte Respondent by : Shri P.L. Kureel ORDER Per Anil Chaturvedi, AM This appeal filed by the assessee is emanating out of the order of Commissioner of Income Tax (A) - III, Pune dt.28.11.2013 for the assessment year 2008-09. 2. The relevant facts as culled out from the material on record are as under :- 2.1 Assessee is an individual who electronically filed his return of income fo .....

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der of the AO, assessee carried the matter before ld. CIT(A), who vide order dt.28.11.2013 (in appeal No.Pn/CIT(A)-III/ITO Wd-2(3)/Sol/545/2010-11/561) dismissed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), assessee is now in appeal before us and has raised the following grounds : 1. On the facts and in the circumstances of the case and in law, the lower authorities have erred in adopting the value of net consideration at ₹ 2,52,70,000/- as against the actual sale cons .....

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d in the circumstances of the case and in law, the Learned Assessing Officer erred in invoking the provisions of the Sec.50C of the Income Tax Act, 1961, the subsequent events in the transaction clearly reflects that appellant s right in the land got vitiated and ultimately said right is given up by your appellant therefore the amount received is merely a capital receipt and therefore not covered by relevant provisions of the Act. Your appellant prays for setting aside the matter for fresh verif .....

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id not seriously object to the admission of additional ground. Considering the aforesaid, the additional ground raised by assessee is admitted. 4. During the course of assessment proceedings, AO noticed that assessee had along with Smt.Jaidevi Mallikarjun Warad had sold property situated at CTS No.1157 and 1158, Sadasiv Peth, Pune admeasuring 878.77 sq.mtrs and 3572.08 sq.mtrs to U.K. Enterprises for a consideration of ₹ 1,50,00,000/-. AO noted that the property originally belonged to Smt. .....

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ivided and the demarcation of the individual share of each owner by metes and bounds was not practically possible. During the year, as agreed upon between UK Enterprises, Raosheb Mangire and Smt. Jaidevi Mallikarjun Warad, the property was sold for a consideration of ₹ 1,50,00,000/- (i.e., ₹ 75,00,000/- each) plus one plot each in the housing scheme at B Building, Kakade City, Higane, Karve Nagar, Pune at ₹ 10,34,700/- including stamp duty and registration expenses. Thus accord .....

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e AO taking into consideration the valuation as determined by the Valuation Officer, determined the taxable Capital Gains at ₹ 1,71,37,431/-. (The value was subsequently corrected to ₹ 1,70,26,176/- vide order passed u/s 154 of the Act.) Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A), who dismissed the appeal of the assessee by holding as under : 5. The crux of the issue to be decided in this appeal is the applicability of sec. 50C and the resultant valua .....

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in George Henderson & Co. 66 ITR 622 and CIT vs Smt. Nilofer I. Singh (2009) 176 Taxman 252, section 50C has created an exception to this legal position. It is noteworthy that section 50C of the Income tax Act, was brought into the statute w.e.f. 1.4.2003. The provisions of this section have been explained in Board s Circular No. 8/2002 dated 27.8.2002, as follows : 37. Computation of capital gains in real estate transactions 37.1 The Finance Act, 2002 has inserted a new section 50C in the I .....

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e consideration, and capital gains shall be computed accordingly under section 48 of the Income- tax Act. 5.1. From the above circular and from the unambiguous language of the provisions of sec. 50C, it is clear that where the consideration declared to be received or accruing from the transfer of the land is less than the stamp duty value (as is the fact in this case) the stamp duty value shall be deemed to be the full value of consideration, and capital gains are mandatorily to be computed adop .....

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is not discriminatory or violative of article 14 of Constitution of India. The transaction under consideration was admittedly undertaken in the previous year 2007-08, relevant to A.Y. 2008-09, which is well after the provisions of section 50C came into force. I have therefore, no hesitation in holding that the Assessing Officer has correctly invoked the provisions of section 50C in the present case. 5.2. Having held that section 50C is applicable, what remains to be seen is whether the provisio .....

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set to the DVO, the Courts have held that where assessee disputes the stamp duty valuation, the Assessing Officer has to necessarily refer the matter to the DVO. These include Pune ITAT decision in KK Nag Ltd vs Addl.CIT 52 SOT 381, Mumbai ITAT decisions in the cases of Mrs. Nandita Khosla vs ITO 46 SOT 90 (Mum) and Ajmal Fragrances and Fashions (P) Ltd. vs ACIT 34 SOT 57 (Mum), and Bangalore ITAT decision in Smt. T.V. Nagasena vs ITO 53 SOT 166 (Bang). Further, in the recent decision dated 22.0 .....

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Assessing Officer adopting the market value, under section 50C(2), the Assessing Officer ought to have referred the valuation of the capital asset to the Valuation Officer, whereas the authorities below referred to section 50C(1) alone without adverting to section 50C(2). [Para 5] A reading of the order of the Assessing Officer shows that having found such an objection, the Assessing Officer committed serious error in not adverting to section 50C(2). The error proceeded throughout before every .....

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ssing Officer s action in referring the matter to the DVO u/s 50C(2) particularly in the background that the appellant objected to the stamp duty valuation during assessment proceedings. Having held so, the question that arises is that once the DVO has arrived at a particular valuation, whether the Assessing Officer is bound to accept that valuation or is obliged to adopt the value said to be received as per the sale deed. In this regard, it is seen that the Bombay High Court in the case of CIT .....

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has to act in conformity with the valuation of the capital asset worked out therein. When these provisions are looked into, it follows that such valuation officer is an independent & distinct statutory forum for resolving the controversy regarding determination of the market value of the property with all necessary powers; Its order or report is made binding on the Assessing Officer and, thus, he enjoys equivalent status. 5.4. Therefore, in view of the decision of the jurisdictional High Cou .....

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s on 21.04.2007 as well as the fair market value as on 01.04.1981in order to arrive at the indexed cost of acquisition under the proviso to sec. 48(ii). The DVO issued notice to the appellant to submit certain relevant documents by 15.11.2010, which has been compiled with by the appellant. Subsequently, the property was inspected by the DVO in the presence of appellant and his Chartered Accountant. The preliminary valuation report was forwarded to the appellant by the DVO vide letter dated 06.12 .....

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e been discussed and considered while evaluating the market value of the property as on the date of sale. Further, the DVO has also discussed, in great detail, why the sale instance relied upon by the appellant s registered valuer is not acceptable. In view of the same, it is held that sufficient opportunity was given by the DVO to the appellant in raising his objection to the preliminary report and each and every objection has been addressed by the DVO. Ground no. 1 fails. 6. The second ground .....

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n Officer in view of the obligation cast upon the appellate authorities by virtue of the proviso of sec. 24(5) of the Wealth Tax Act, 1957 r.w.s. 50C(2) of the IT Act. Accordingly, the learned DVO, Solapur Shri E.P. Dhane was requested to be present and was duly heard on the various objections raised by the appellant on 19.11.2013. The first objection is that the comparable sale instances relied upon by the DVO are not of the tenanted properties but they are freehold and under self- occupation o .....

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tioned in the year 1939, wherein it was assigned to Shri Krishnaji Date, and following his death in the year 1980, the names of all his legal heirs namely three sons and five daughters were mutated in the property register. Thereafter, there was an oral settlement between the various members of the family, which was reduced to writing on 08.07.1984. Although, the sale deed mentions that the building admeasuring 2060 sq.ft. is in the peaceful possession of the vendors, it is very apparent that on .....

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ased by Shri Jaywant Jagade from one Shri Ramchandra Maruti Shelke in 1985 and two-storey building along with car park was constructed thereon. The names of his legal heirs were registered on the property card after his death on 07.12.1996. Although the sale deed does not specifically mention the fact that the building is tenanted, the DVO Shri Dhane has asserted that his Junior Engineer has specifically requisitioned and been provided, the sale instances of tenanted properties only from the O/o .....

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1957 and this property was given as the share of Smt. Ramkunwar Chandak. Property at Survey no. 138B was given to Smt. Ayodhyabai Lahoti. However, Smt. Ayodhyabai Lahoti s name remained to be removed from the property card, which dispute is still pending at the time of signing the development agreement. Therefore, it is seen from the registered sale deed itself that the property is disputed property and was jointly held by 08 co-owners, who have together sold/transferred the property to the dev .....

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corporation charges/taxes out of the rent so collected, he decided to hand over the property to M/s J.J. Construction for development. The sale deed clearly mentioned that M/s J.J. Construction was to settle compensation payable to the tenants. Therefore, it can be seen that the appellant s objection that none of these properties are comparable sale instances since these are not tenanted properties, is not borne out from the record. In each of these sale instances the developer has entered into .....

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rposes. Therefore, it is seen from the above discussion that all the comparable sale instances relied upon by the DVO are disputed properties or they have tenants, whom the builder has undertaken to clear and vacate before developing the land. It is Shri Dhane s contention that normally only a couple of comparable sale instances are considered in deriving the market value of the land but in the present case, since more than two sale instances were available, he has taken into account all four sa .....

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itions. 6.2. It has also been contended by way of second objection that the DVO has not given detailed working as to how he has arrived at the land value of ₹ 22,710/- per sq.m. The DVO s valuation report clearly mentions that the same has been arrived at by comparable sale instances method. During the course of appellate proceedings, Shri Dhane explained that the land rate has been adjusted for suitable inflation/time factor to arrive at the fair market value of the property as on 21.04.2 .....

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100 Add for time gap of 3 9050 years & 2 months at 50% TOTAL 27150 Add for location at 15% 4072.5 TOTAL 31222.5 Sale Instance No. 4 Rate 15126 Add for time gap of 3 years & 9 months at 43% 6504.18 TOTAL 21630.2 Add for location at 15% 3244.53 TOTAL 24874.7 Average Rate 30277.8 Less for size, undivided share & - litigations/disputes with tenants and tenancy encumbrances etc at 25% 7569.45 22708.3 SAY ₹ 22710 6.3. The above working made by the DVO, Solapur shows that the average .....

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The appellant had relied upon the sale instance of a flat admeasuring 867 sq.ft. at Sadashiv Peth which was sold on 12.02.2001, as per which the valuer has worked out the land rate at 1661 per sq.ft. The appellant has taken the gross rate at ₹ 2820 per sq.ft. (as per sale deed), reduced cost of structure at ₹ 600/- and builders profit at 20% at ₹ 565/- to arrive at the land rate of ₹ 1661 per sq.ft. Thereafter, the appellant s valuer has deducted 50% for tenants to arrive .....

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ed by you is of flat, which is not at all comparable. Further the regd. valuer has deducted the cost of construction and builders profit randomly without supporting documentary evidences. Moreover the builder charges on saleable area which is 25% to 30% more than the actual built up area. Thus the built up area excluding common circulating area, balcony area and terrace area etc. it works out to 70% of salable area. In city area the permissible FSI is 2 or more Considering FSI = 2, the land area .....

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ants in total is 7500 sqft. And adopted 50% rate on the total area which is random and unacceptable. As such the valuers report cannot be relied upon. As regards value of the structures, it is not included in the fair market value, as the prudent buyer will demolish the old structure while redeveloping the property, as it has substantial balance potential. In view of the above the fair market value worked out, based on sale instances with similar conditions is just and fair. 6.5. The third objec .....

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not taken the cost of the old and depreciated structure in the fair market value for the reason that normally the developer or prudent buyer would demolish the old structure at the time of development of the property, which would add to the value and potential of the property. Therefore, this objection of the appellant is also not correct. 6.6. The fourth objection is that the appellant s property is located at Sadashiv Peth, whereas the comparable sale instances cited by the DVO are at Narayape .....

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ion should be considered and that situated far away should be ignored, while determining the fair market value of the property. However, in the appellant s case, it is seen that Narayanpeth and Sadashiv Peth are located on opposite sides of Laxmi road in Pune Central area and Sadashiv Peth is considered a far more prime location than Narayanpeth. In fact, the valuation report of the DVO specifically refers to the fact that the location of the flat cited for comparable sale instance is far inferi .....

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bruary 2001, which in fact predates the sale instances of the years 2003 and 2004 taken into consideration by the DVO. 6.7 The fifth and the final objection is that the sale instances that have been relied upon by the DVO are very small portions of land admeasuring between 100 to 500 sq.m., whereas in the appellant s case the land involved is more than 4450 sq.m. in total, which is about 9 to 44 times the size of the land relied upon. This objection is also not acceptable since firstly, the appe .....

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appellant is relying upon the Bombay High Court order in the case of State of Maharashtra & others vs Nanabhai Rathod & others( AIR 1989 BOMBAY 9) which decided a case of compulsory acquisition of land located within the municipal limits of Gondia by the state government of Maharashtra. In the facts of the case, since the land was undeveloped, located in an inaccessible area and the soil was unsuitable for construction, the High Court held that the development method had to be adopted fo .....

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t of the total land acquired is normally taken as a reasonable deduction for the space required for roads., but the cost of development may range from 20 to 33 per cent spending on the nature of the land, its situation and the stage of development., etc. in the circumstances of the present to make a deduction it would be only proper to make a deduction of 25 per cent from the value of the land as development costs. On the contrary, the appellant s plot is located in a developed area within the h .....

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ts relating to co- ownership, tenancy encumbrances, size and location of land. The comparative sale instances are also those relating to tenanted and disputed properties. It is also noted that the Karnataka High Court in V.C. Ramachandran vs CWT reported in 126 ITR 157, disagreed with the proposition that the principle applicable for the interpretation of taxing statute namely that if two opinions/interpretations were available, the one which is favourable to the assessee should be adopted and h .....

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lowed to add, amend, alter or delete any ground of appeal at the time of appellate proceedings. No such option has been exercised by the appellant during the appellate proceedings. Therefore, it is clear that this ground of appeal is academic in nature and no decision is required in respect of this ground of appeal. For the statistical purpose, this should be taken to be dismissed ground of appeal. Aggrieved by the order of ld. CIT(A), the assessee is now in appeal before us. 5. Before us, ld. A .....

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er the passing of order in the case of co-owner and that those events go to the root of the matter and have the bearing on the issue in appeal. He therefore submitted that the issue will need to be re-looked in the light of those events. The subsequent events as per ld.A.R. are that assessee along with co-owner Jaidevi Mallikarjun Warad had entered into a sale deed on 21.04.2007 with U.K. Enterprises for sale of their respective share on as is where is basis . On 12.04.2007 another legal heir, M .....

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Director, City Survey, Pune on 23.08.2008 and the Appellate Authority vide order dated 10.09.2008 has granted the stay. He further submitted that assessee had given Power of Attorney dt.19.10.2012 to U.K. Enterprises for representing the matter in appeal on behalf of the assessee. He further submitted that USK Ventures (erstwhile U.K. Enterprises) has given to assessee surety and bond dt.19.10.2012 for not claiming any sale proceeds, cost etc in respect of sale deed dt.21.04.2007. He further sub .....

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