TMI Blog2010 (9) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... ate determined by the SubRegistrar for the purpose of stamp duty for computing capital gains on the basis of proviso to s.50C of the Act; (iii) the CIT(A) erred in rejecting the claim of exemption u/s 54 of the Act of investment of capital gains in two residential properties. 3. The issue, in brief, is that the assessee, an individual, furnished his return of income admitting income of ₹ 1.68 crores being receipts from salary, house property, STCG, LTCG, Other Sources etc. The records do not indicate whether the return of income was processed either u/s 143(1) or 143(3) of the Act. This very fact has also been highlighted by the CIT(A) in his impugned order which is under challenge. 4. The AO had resorted to issue a notice u/s 148 of the Act on 17.3.2008 on the basis of examination of records, it was noticed that the assessee had not disclosed his true income chargeable to tax etc., Though, the assessee in his communication dt.31.3.08 required the AO to treat his return of income furnished originally as the return of income furnished in compliance to the said notice and simultaneously sought for the reasons recorded for the issuance of notice u/s 148 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act dated: 24.12.2008, had observed thus: 4. The objections filed by the assessee s representative are considered. In view of the assessee s objections, the matter has been referred to the District Valuation Officer ..Chennai through this office letter dated 25.11.2008 seeking the fair market value of the property sold as required under subsection 2 of section 50C of the I.T.Act 1961 ..However, the valuation report is yet to be received and the same is awaited. The likely date of the receipt of the valuation report as regard the fair market value from the DVO is uncertain as on date. But, the assessment proceedings are bound to be completed on or before 31.12.2008. Therefore, the fair market value for the purpose of assessment is to be adopted on the basis of the guidance value as prescribed the Stamp Valuation Authorities. The guidance value of the property sold has been reported at ₹ 4,62,56,000/- by the ACIT, C-IV(1) Chennai through his letter dt:6.12.2007 The guidance value so reported at ₹ 4,62,56,000/- is adopted subject to valuation report, as an abundant pre-cautionary measure in the interest of revenue. 5. Aggrieved, the assessee took up the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kelvinator of India Ltd. 320 ITR 561 (SC) (d) Prashant S.Joshi v. ITO 324 ITR 154 ( Bom) (e) CIT v. Smt.Paramjit Kaur (2009) 311 ITR 38 (P H) (ii) the AO does not have any valid basis for fixing the guidance value of the property at ₹ 4,62,56,000/- to arrive at a conclusion that income assessable to tax had escaped assessment, that he had not mentioned particulars or the basis of this valuation either in the Note recording the reasons for re-opening assessment nor in the order under dispute which again was indicative that no enquiry was made by the AO before recording satisfaction; (iii) The CIT(A) had relied on the ruling of the SC in the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd [291 ITR 500 (SC)] which was primarily to consider the proposition that an order u/s 143(1)(a) cannot be treated as an assessment so as to bar jurisdiction either for a regular assessment or reassessment where the conditions therefor were otherwise satisfied. This decision had absolutely no relevance to the facts on hand (iv) In the absence of any material on record or rational belief, due to the fact that the reasons remained undisclosed or that the reason was no manif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Allana Cold Storage Ltd. v. ITO 287 ITR 1 (Bom) (b) Vidyasagar v. ITO Another 305 ITR 124 (P H) (c) K.S.Suresh v. DCIT (2005) 279 ITR 61 (Mad) - the CIT(A)had merely relied on the remand report for sustaining jurisdiction and had failed to discharge his responsibility to consider the omission of the AO to pass a speaking order on the objections raised by the assessee; - the assessment was bound by limitation and the reasoning of the AO had no basis as he had ample time at his disposal to disposed off the assessee s objection; - relies on in the case of Karnataka Golf Association v. DDIT (2005) 275 ITR 297 (Kar) On merits: (viii) the AO was not justified in adopting the guidance value for the purpose of determining the CG in terms of s.50C. The basis of adopting the guidance value had not been made known to the assessee during the proceedings. As there was no information that the assessee had received any amount over and above the consideration specified in the sale deed, s.147 had no application K.P.Verghese v. ITO 131 ITR 597 (SC) - ruled that in such a situation sale consideration as mentioned in the sale deed had to be adopted; - valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property sold at Chennai was ₹ 4,62,56,000/- which was informed by his counterpart at Chennai. However, the assessee had admitted the sale consideration of only ₹ 2,68,89,375/- as per the sale deed executed which got registered on 9.10.2002 before the Sub-Registrar, Periamet, Chennai wherein the land value has been fixed at ₹ 2560/Cent/sft and building value was fixed at ₹ 39.43 lakhs [P 47 of PB] and on the basis of which extra stamp duty of ₹ 18.28 lakhs was levied and duly collected by the Stamp duty Authority [Source: P 90 of PB AR]. This very fact has not been disputed by the assessee. 7.2. The reasoning of the AO for the issuance of notice u/s 148 of the Act was hotly contested by the assessee through his A.R. The assessing officer did acknowledge the objections filed by the assessee s representative which has also been taken due cognizance and observed, in brief, in the impugned order that In view of the assessee s objections, the matter has been referred to the District Valuation Officer through this office letter dated 25.11.2008 seeking the fair market value of the property sold as required under sub-section 2 of section 50C of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that the finding of the jurisdictional High Court cited supra relied on by the assessee is distinguishable and not applicable to the facts of the issue on hand. 7.6. We have also attentively perused yet another finding of the jurisdictional Hon ble High Court in ITA Nos: 21 22 of 2008 dated: 3.4.2008 in the case of CIT v. B.N.Keshav [on which the assessee had placed strong reliance] wherein the Hon ble Court dealt with primarily the issuance of notice u/s 148 of the Act. After due perusal of the said notice, the Hon ble Court observed thus 8. Critical examination of the said notice shows that most of the relevant places have been left blank. Nothing has been mentioned in the notice which would have conveyed the necessary information to the assessee to have acted pursuant to the said notice. Requirement of sending notice under section 148 of the Act is that before making assessment, reassessment or recomputation under section 147, the assessing officer shall serve on the assessee a notice requiring him to furnish within such period as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500) wherein the Hon ble Court, after analyzing the issue in depth, was pleased to observe thus The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty is ₹ 1869. The DVO has fixed the land rate of ₹ 2220/sft without disclosing the basis for such determination. This appears to be excessive. Hence, the value as declared by the assessee may kindly be considered as fair market value. Assessee s submission in respect of building: The DVO has mentioned that he has inspected the property on 9.9.2009. He has failed to mention that the old building no longer exists; and that a new building has been constructed by the purchaser. The DVO has broken up the estimated building cost under various heads and has arrived at a value of ₹ 3184102. The valuation report is silent as to how he has arrived at this figure without the building being available for inspection. The salvage value of the building has been determined by the DVO at ₹ 7,00,000. The age of the building was 60 years as is evident from the records. We understand that as per valuation guidelines, if the age of the building is over 50 years, only a nominal salvage value, of say 2.5% is to be adopted. In this context, the salvage value of 22% adopted by the DVO is excessive. It is requested that the value of building adopted by the DVO be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he guidance value had not been made known to the assessee during the proceedings. As there was no information that the assessee had received any amount over and above the consideration specified in the sale deed, s.147 had no application K.P.Verghese v. ITO 131 ITR 597 (SC) - ruled that in such a situation sale consideration as mentioned in the sale deed had to be adopted; - valuation prescribed by any State agency for the purpose of stamp duty would not ipso facto be a substitute for the actual consideration in the absence of any admissible additional evidence CIT v. Chandani Bhochar 323 ITR 510 ( P H); (ii) The CIT(A) had overlooked the fact that the DVO had adopted the value of land at 2220/sft whereas the value did not exceed ₹ 1542/sft based on seven sale instances in the area the documentary evidences furnished before the CIT(A) had been ignored; (iii) The proceeds of sale of residential property was invested in two residential houses wherein the AO had denied the deduction u/s 54 on the second house citing the finding of the Hon ble Tribunal in ITA No: 530/Bang/2007 dt.30.4.2008 in the case of Rajalakshmi - relies on the jurisdictional H.C in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Saxena v. ITO reported in 305 ITR (AT) 62 wherein, the Hon ble Bench, after duly analyzing the intention of the Legislature in introducing section 50C of the Act, was pleased to observe thus Where the assessee does not object to the valuation made by the stamp valuation authority, then that valuation would be adopted and where he objects and, accordingly, the Assessing Officer makes a reference to the Departmental Valuation Officer, if the valuation by the Departmental Valuation Officer is higher than the value adopted by the stamp valuation authority, then according to sub-section (3), the valuation as done by the stamp valuation authority will be adopted as the sale consideration. The expression shall used in the section cannot be considered as may . Where section 50C is invoked, there is no scope for any discretion and the assessing officer is duty bound to adopt the valuation made by the stamp valuation authority, if it is higher than the sale consideration shown by the assessee. However, sub-section (3) does provide some latitude. Where the valuation made by the Departmental officer is higher, then the valuation by the stamp valuation authority will be adopted for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this figure without the subject building was in non-existence is anybody s guess? (iii) According to the assessee, the DVO had determined the salvage value at ₹ 7 lakhs. - Yet again, the pointed question being posed is How did the DVO manage to determine the salvage value at ₹ 7 lakhs without the subject property was in existence? (iv) The assessee in his [through his A.R] submission averred that the subject building was more than 60 years old and that if the age of the building was more than 50 years, only a nominal salvage value was to be adopted, and it was fervently submitted that ₹ 80000/- being salvage value worked out would meet the end of justice. 8.5. We have duly perused the copy of the letter of the assessee dated: 26.9.2009 addressed to the DVO wherein, inter alia, it was asserted that - I have already submitted to you nearly 7 comparative sale instances of transactions that have been taken place during the relevant period and even though the properties were sold at rates ranging from ₹ 1358/- per sq. ft to ₹ 1542/- per sq. ft the District Revenue Officer (Stamps), Chennai-1 has adopted rate of ₹ 1850/- per sq. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DVO s proposal to adopt the value of land cost at ₹ 2220/sft, we find that the assessee had cited almost seven sale instances which took place in the vicinity around the relevant period, the details of which, for better appreciation of facts, are listed out as under: Sl.No Property address Document No. Date of registration Rate adopted by the SVA 01 13th Avenue, Road Harrington 1807/13.9.2002 ₹ 1850/sft 02 13th Avenue, Road Harrington 711/28.3.2003 ₹ 1850/sft 03 13th Avenue, Road Harrington 710/28.3.2003 ₹ 1850/sft 04 13th Avenue, Road Harrington 680/27.3.2003 ₹ 1850/sft 05 13th Avenue, Road Harrington 671/27.3.2003 ₹ 1850/sft 06 13th Avenue, Road Harrington 682/27.3.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taking into account all these facts and the circumstances of the issue as deliberated upon in the fore-going paragraphs, also (i) the sale instances in the vicinity during the relevant period put forth by the assessee; (ii) that the subject property being a corner plot, the assessee had worked out the sale price of the subject property at ₹ 1869/sft; and (iii) that the DVO had fixed the land rate at ₹ 2220/sft [without assigning any basis or comparison/citing any sale instances in the vicinity at the relevant period for adopting such FMV], we are of the considered view that the value of land cost at ₹ 1869/sft would meet the end of justice which works out to 14341 sft x 1869 = ₹ 2,68,03,329/-. Further, the DVO had arrived at the anticipated salvage value of the building on dismantled materials at ₹ 7 lakhs as against ₹ 80000/- claimed by the assessee during the year 2009 whereas the subject property was sold away some time in 2002 which was subsequently demolished and a new building came up. Considering the elapse of time, the DVO had failed to give a working to arrive at a salvage value of ₹ 7 lakhs and the pleading of the assessee, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se should be understood in a sense that building should be of residential in nature and a should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building. When a Hindu undivided family's residential house is sold, the capital gain should be invested for the purchase of only one residential house is an incorrect proposition. After all, the Hindu undivided family property is held by the members as joint tenants. The members keeping in view the future needs in event of separation, purchase more than one residential building, it cannot be said that the benefit of exemption is to be denied under section 54(1) of the Income-tax Act. On facts, it is shown by the assessee that the apartments are situat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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