TMI Blog2014 (3) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... .1279/2004 and the Award of the Lok Adalat passed on 25th day of March, 2005 as a reason for executing the sale deed. The purchase consideration was fixed at ₹ 4,79,00,000 in place of ₹ 2,62,35,000 as awarded by the Lok Adalat. This figure of consideration as arrived at between the parties after long legal battles and negotiations. Under these circumstances, we are of the considered opinion that the figure mentioned in the sale deed is the fair market value on the facts and circumstances of the case. The report given by the DVO is nothing but an opinion, which when weighed against the actual fact of consideration paid for the purchase of the property, cannot be accepted on the fair market value of the property. It is a case where the facts have to be weighed against the opinions. Neither the AO nor the CIT(A) have based on themselves on any evidences or comparable documents or logical reasoning to come to a conclusion that the negotiated value of the property in question between the parties is not the fair market value of the property. Coming the base rate analysis given by the DVO in his report, we are unable to find logic in such analysis The land rates by sq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition i.e. market value as on 01.04.1981 and indexation thereon, they declared long term capital gains at ₹ 55,89,227 each. The Assessing Officer verified the sale consideration with registered sale deed and noted that the total sale consideration recorded in the documents was ₹ 4,79,00,000 and whereas the stamp valuation authority determined the value at ₹ 20,93,50,000. The assessee was asked as to why the fair market value of the property as determined by the stamp duty authority at ₹ 20,93,50,000 should not be adopted as full value of consideration by invoking the provisions of section 50C of the Income-tax Act, 1961. The assessee submitted that the fair market value adopted by the stamp valuation authority was not acceptable due to various factors, which he explained by way of a letter dated 30.03.2013. The Assessing Officer referred the matter to the Departmental Valuation Officer (hereinafter referred to as the `DVO ) to ascertain the fair market value of the property in terms of section 50C(2). The DVO vide his report dated 27.03.2013, estimated the fair market value of the property as on 30.07.2009 at ₹ 6,28,06,500. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lat Award on 25 ' March, 2005, based on a compromise petition between the parties. d) Our communication in Sept.2005 to the urban land Ceiling (ULC) authorities seeking permission for sale of property. e) Hotel structure in the premises having commenced in the year 1980 with plinth area of around 130000SFT including all utilities. f) Payments received in the year 2007 in token of advance by way of cheques drawn in our names by the vendee company, which have been encashed. In fact, we have-furnished our objections before DVO on 28th March 2013 for considering the actual value of sale consideration received in respect of a property explaining the circumstances under which the transaction of sale has been completed. The transaction of sale in this case is completely unique by itself with all the issues such as unexpired lease, Award issued by another Statutory body i.e. Lok Adalat, possession and enjoyment with the lessee and our commitment injure year 2005 itself which cannot be compared with any other freehold property or vacant land by any interpretation. A copy of our objections submitted to learned DVO is enclosed for your kind perusal. I further submit that my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to departmental valuation, the assessing authority shall adopt the value determined by DVO being the authority on valuation. While mentioning law upheld in the case of Dr H Rahman as to interpretation of section 50C, the Hon'ble court observed that A reading of the sub-section shows that wealth tax officer has no option but to proceed to complete the assessment in conformity with the assessment of the valuation officer in so far as the valuation of the asset in question is concerned. This is also a view taken by a Division bench of the court in the case of MC Kaunnah Vrs Union of India (118 ITR414(AII). The facts of the case are squarely applicable to our transaction, which may kindly be considered. Similar view was considered in the case of N Meenakshi Vrs AcIT 326 ITR 229 (Madras). The value determined by DVO at ₹ 6,28,06,500 is higher by ₹ 1,49,06,500 when compared to actual receipt of sale consideration of ₹ 4,79,00,000 for the entire property, which is nothing but a notional and imaginary value resulting into an additional income by way of capital gain, which had neither accrued nor received by me. With regard to mistake crept in considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same he held that items 2, 3 and 4 of the table in the valuation report given in the ld.CIT(A) s order on account of encumbrance created on the property by way of lease decrease in the fair value of the property is justified, in the facts of the case and whereas on the other factors referred in item nos. 1, 5, 6, 7, 8 and 9 on the table do not relate to encumbrance on account of leasehold rights and are applicable to the property situated in the location or survey number and are not in any way unique or specific to the subjected land. He held that the DVO is incorrect and in giving discount on these factors. He gave directions to the AO to give allowance to the extent of 65% from the base rate and then to arrive at the full value of consideration and on that basis to compute the capital gains. Thereafter the CIT(A) Visakhapatnam passed a corrigendum to his order dated 29.02.2013, on 31st October, 2013, wherein he modified para 5.4. He directed the AO to exclude the allowance in respect of the factors mentioned in 5, 6, 7, 8 and 9 of the table and recompute the capital gains. 5. Aggrieved, the assessee is in appeal before us. 5.1 The learned Counsel for the assessee, Sri G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Assessing Officer and whereas on the other hand, went into the details of the valuation report and expressed certain opinion on the same, which is bad in law. He submitted that the report of the DVO is binding on the Assessing Officer and the CIT(A) is not an expert to tinker with the report of the DVO, and if at all, he could refer back to the DVO, if he has certain reservations on the same. He argued that the CIT(A) cannot substitute his opinion as to the fair market value, for the opinion of the DVO. (g) That the offer of the assessee before the A.O. that he would be willing to accept DVO s value, has not been accepted by the A.O. and hence the assessee is no more bound by it and that notional income cannot be taxed even on a surrender. 5.2 He relied on the following case laws. (i) Siva Parvathi Ors. V. ITO (2013) 81 DTR (Hyd) (Trib) 173 (ii) K.Satya Srinivas K.Anupam ITA Nos.556 557/V/2008 Order dated 27.06.2013 (iii) Sri Pattabhiram Commercial Syndicate ITA No.243/V/2011 Order dated 13.12.2013. (iv) S.Venkat Reddy ITA No.501/V/2013 order dated 24.10.2013. 5.3 The learned Departmental Representative, Smt.Komali Krishnan, Addl.CIT, on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted the value received by the vendors as the fair market value in the given circumstances instead of drawing your own conclusion without any prudent basis or method and in comparison with other free hold properties. * You should also have properly and fairly examined the documents produced before your goodselves explaining the complete circumstances under the influence of which the sale of property had taken place in the year 2004-05 itself. * You should have compared the transaction of sale with any other encumbered property with all the restrictions and stipulations our property possess at the time of sale offer given to the vendee in the year 2004-05. * Your approach to compare with freehold properties and then discounting the value also impacts the value of the encumbered property with special stipulations all around virtually not leaving any scope for the vendors even to seek reference from any other intending buyer. * You should have fairly examined the following legal documents which have severely taken away our rights to explore free market value as in the case of any other property; a. Registered lease deed in July,1971 for a period of fifty years expirin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the sale deed once the ULC permission is obtained. * The learned District Valuation officer should also have appreciated that the Award issued by Lok Adalat is a direction which is mandatorily binding on both the parties in terms of value and sale transaction without any deviation and can not be dispensed with in any manner. The Award is legally enforceable against each other in the event of failure by any one of the parties to compromise. * The learned District Valuation officer also should have appreciated that the property under sale is surrounded by COAL YARD with lot of coal dust around 365 days causing lot of inconvenience and pollution to the esteemed customers which is a significant factor affecting the value of the property directly. * The teamed District Valuation officer also should have noticed that the location of the property is in old town and the entrance of the premises on south side is surrounded by low income group housing which also impacts the value of the property by higher percentage than what is envisaged in the estimations made. * The learned District Valuation officer should have appreciated that the powers vested under section 55A of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The property is under a long term lease of 50 years with the Defendant, of which 16 years still to be completed as on date. The Defendants, considering the long unexpired period of lease for about 16 years, instead of protracting the litigation over the matter, approached the plaintiff and straightaway offered to acquire the property. After detailed negotiations and discussions and in view of the family arrangement and financial commitments of the Plaintiffs and on the advise of their relatives and experts, both the parties have mutually settled their dispute and entered into this compromise on the terms and conditions appearing herein below: 01. The Plaintiffs agreed to sell the property described in the schedule hereunder to the Defendant for a Total consideration of ₹ 2,62,35,000/- (Rupees Two Crores Sixty Two Lakhs Thirty Five Thousands only) and the Defendant has agreed and accepted for the same. 02. That in pursuance of the above offer and acceptance, it is further agreed that the consideration shall be paid as per the schedule given hereunder: (a) ₹ 82,35,000/- on the date of registration of Sale Deed, which shall be completed on or before 31s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o them under law. 6.4 We also extract the Award by the Lok Adalat, Visakhapatnam, dated 25th March, 2005, as follows:- AWARD 1. That the plaintiffs be and hereby agreed to sell the property described in the schedule attached herewith to the defendant for a total consideration of ₹ 2,62,35,000/- (Rupees Two Crore Sixty two lakh thirty five thousand only) and the defendant has agreed and accepted for the same. 2. that is hereby further agreed that the above consideration shall be paid as per the schedule given hereunder:- (a) ₹ 82,35,000/- (Rupees eighty two lakh thirty five thousand only) shall be paid on the date of registration of Sale Deed, which shall be completed on or before 31st day of May 2005 from the date of this compromise; (b) The balance of ₹ 1,80,00,000/- divided into three half yearly installments of ₹ 60,00,000/- (Rupees sixty lakhs only) each, and it shall be paid as follows:- (i) That the first installment of ₹ 60,00,000/- (Rupees sixty lakhs only) at the end of six months from the date of Registration. (ii) Second installment of ₹ 60,00,000/- (Rupees sixty lakhs only) at the end of six months from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and depressing factors, which resulted in the depressing the fair market value of the property. The learned CIT(A) has recognized that the lease hold rights is a depressing factor and directed that 25% be reduced from the fair market value determined by the SRO on this count. Similarly, he held that further 20% has to be deducted towards impact on legal obstructions. He directed deduction of 20% on account of encumbrances. These findings of the learned CIT(A) are not disputed by the Assessing Officer before us. Thus, the issue boils down as to whether (a) the actual sale consideration as recorded in the sale deed is to be taken or, (b) the valuation given by the DVO is to be taken or, (c) the fair market value as determined by the CIT(A) has to be taken, as full value of consideration for the purpose of computation of capital gain tax. The revenue accepts that the valuation of the S.R.O. is not the fair market value of this property. 6.7 In our view, the actual value for which the property has been sold, as evidenced by the registered sale deed, has to be taken as full value of consideration for the following reasons. (a) The learned CIT(A) cannot substitute his opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be given to this factor in determining the fair market value as on the date of sale. Admittedly, the compromise decree could not be executed because of the delay in obtaining ULC permission. The assessee had no other alternate but to execute the sale deed in view of the award given by the Lok Adalat. The sale deed executed refers to the civil litigation filed before the Principal Senior Civil Judge of Visakhapatnam vide O.S.No.1279/2004 and the Award of the Lok Adalat passed on 25th day of March, 2005 as a reason for executing the sale deed. The purchase consideration was fixed at ₹ 4,79,00,000 in place of ₹ 2,62,35,000 as awarded by the Lok Adalat. This figure of consideration as arrived at between the parties after long legal battles and negotiations. Under these circumstances, we are of the considered opinion that the figure mentioned in the sale deed is the fair market value on the facts and circumstances of the case. The report given by the DVO is nothing but an opinion, which when weighed against the actual fact of consideration paid for the purchase of the property, cannot be accepted on the fair market value of the property. It is a case where the facts hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 250000 701500 36291 Average Rate of Sale instances (1 to 6a) per Sq. yd. = 10149 Government stamp duty rate per sq.yd. = 25500 Adoptable base rate per Sq.yd. = 25500 6.10 The land rates by sq.yards various between ₹ 1602 and ₹ 36,291. Such a variation demonstrates that the valuation report by the DVO is not correct and has to be seen as not given the appropriate fair market value. 6.11 Coming to the decisions cited, we find that the Visakhapatnam Bench of the Tribunal in the case of Siva Parvathi Ors. v. ITO (supra), held as follows:- Both the parties to the sale deed have confirmed that they have entered into a sale agreement in August, 2001, i.e., the submission of the vendors that the sale agreement was misplaced was also confirmed by the buyer of the property by way of an affidavit executed by its managing director. The parties could have entered into a sale agreement is supported by the fact that the vendors have received part-payment of the total consideration way back in August, 2001 it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d section. The provisions of s. 50C cannot be applied to the sale agreement as the said section was not available in the statute book at the time the transaction was initially entered into. Even otherwise, there is no suppression of actual consideration. Consequently, since the final registration of the sale is only in fulfilment of the contractual obligation, the logical conclusion is that the provisions which do not apply at the time of entering into the transaction initially would not also apply at the time the transaction is completed.-K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC), CIT Vs. Nirmal Textiles (1996) 136 CTR (Guj) 148 : (1997) 224 ITR 378 (Guj), Neville De Noranha vs. Asst.CIT (2008) 1-15 TTJ (Kol) 390 : (2008) 5 DTR (Kol)(Trib) 389 and CIT.vs. Laxman.Singh (1985) 49 CTR (Raj) 50 : (1986) 159 ITR 983 (Raj) relied on. (Paras 8.8 8.10 ) Conclusion : Sec. 50C cannot be applied to the sale agreement entered into before introduction of said section i.e., before 1st April, 2003 especially when delay in registration of sale deed is sufficiently explained and there is no suppression of actual consideration. 6.12 In the case of K.Satya ..... X X X X Extracts X X X X X X X X Extracts X X X X
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