G.Shanmuganathan, CHENNAI V. ITO, CHENNAI

ITA 1130/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95961 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: MAMMEN MATHEWS; J C JACOB RETD
• Keywords: Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! , ' #$ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1130/MDS/2015 / ASSESSMENT YEAR : 2010-2011 SHRI. G. SHANMUGANATHAN FLAT NO.2A, PLOT NO.385, NEW NO.38, W BLOCK, EAST MAINROAD, ANNA NAGAR WESTERN EXTENSION, CHENNAI 600 101. VS. THE INCOME TAX OFFICER, CITY WARD XIV(2), CHENNAI 600 034. [PAN BFYPS 5201K] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. J.C. JACOB, RETD. DCIT AND SHRI MAMMEN MATHEWS, C.A /RESPONDENT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. / DATE OF HEARING : 21-07-2015 / DATE OF PRONOUNCEMENT : 28-08-2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-7, CHENNA I, DATED 17.03.2015 FOR THE ASSESSMENT YEAR 2010-2011. ITA NO.1130/MDS/2015 :- 2 -: 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO D ETERMINING THE FAIR MARKET VALUE AS ON 01.04.1981 WITH REFEREN CE TO RESIDENTIAL PROPERTY AT CHENNAI. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE OWNED A RESIDENTIAL PROPERTY IN CHENNAI. DURING THE PREVIOU S YEAR, RELEVANT TO THE PRESENT ASSESSMENT YEAR 2010-2011, THE ASSESSEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT WITH M/S. SABARI CONSTR UCTION AND HOUSING P. LTD., WHEREIN THE ASSESSEE GETS 50% FO T HE CONSTGRUCTED AREA AND A CASH COMPONENT OF F77,00,000/-. AS 50% O F HIS SHARE OF THE BUILT-UP AREA, THE ASSESSEE GOT THREE FLATS. TH E ASSESSEE IN ITS RETURN OF INCOME CLAIMED THE VALUE OF THE THREE FLA TS AS EXEMPT U/S.54 OF THE ACT. IN ADDITION, THE ASSESSEE ALSO TOOK THE VALUE OF LAND (FMV) AS ON 01.04.1981 AT F125/- PER SQ.FT. AND THE VALUE OF THE BUILDING @500/- PER SQ.FT. ACCORDINGLY, THE ASSESSE E DECLARED NIL CAPIAL GAINS IN HIS RETURN. HOWEVER, THE ASSESSING OFFICE R DID NOT ACCEPT THE ASSESSEES CONTENTIONS. THE ASSESSING OFFICER ADOP TED THE FMV OF THE LAND AT F10/- PER SQ.FT AS ON 01.07.1981, BEING THE GLR. THE ASSESSING OFFICER HAD NOT CONSIDERED THE VALUE OF T HE OLD BUILDING AS IT WAS DEMOLISHED BEFORE GOING FOR NEW CONSTRUCTION. FURTHER, THE ASSESSING OFFICER CONSIDERED THE THREE NEW FLATS RE CEIVED AS THREE RESIDENTIAL HOUSES AND ALLOWED THE DEDUCTION U/S.54 WITH RESPECT TO ONE FLAT ONLY. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE TAXABLE ITA NO.1130/MDS/2015 :- 3 -: LONG TERM CAPITAL GAINS F1,35,36,709/- AS AGAINST F NIL DECLARED BY THE ASSESSEE, AND BROUGHT TO TAX. AGGRIEVED, THE ASSES SEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS). 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THE ASSESSEE OWNED THE PROPERTY PRIOR TO THE PERIOD FROM 1981. AS ON 01.04.1981, THE PROPERTY CONSISTED OF LAND AND GROU ND FLOOR BUILDING (1100 SQ.FT). DURING THE FINANCIAL YEAR 1993-94, TH E ASSESSEE CLAIMED TO HAVE PUT UP A FIRST FLOOR OF 800 SQ.FT. THE BU ILDING OF GROUND FLOOR (1100SQ.FT) AND THE FIRST FLOOR (800 SQ.FT) WAS IN EXISTENCE AS ON THE DATE OF ENTERING INTO THE JOINT DEVELOPMENT AGREEME NT WITH THE BUILDER. ONLY ON THE SUBSEQUENT DATES, I.E. AFTER ENTERING INTO THE JOINT DEVELOPMENT AGREEMENT AND ALSO AFTER GETTING THE NE CESSARY APPROVALS, THE EXISTING BUILDINGS WERE DEMOLISHED. THE ORIGINAL SANCTION PLANS AND THE DEMOLITION CERTIFICATES CLEA RLY PROVE THESE FACTS. THE FIRST CLAIM OF THE ASSESSEE WAS THAT THE FMV O F THE LAND AS ON 01.04.1981 IS F125/- PER SQ.FT AS AGAINST F10/- PER SQ.FT ADOPTED BY THE ASSESSING OFFICER. THE CHENNAI BENCH OF THE TR IBUNAL IN THE CASE OF ACIT VS. BEST AND CROMPTON ENGINEERING LTD. (2013) (60 SOT 53) (CHENNAI) HAS HELD THAT THE FMV OF THE LAND IN THE AREA OF A MBATTUR INDUSTRIAL ESTATE, AS ON 01.04.1981, COULD BE F50/- PER SQ.FT. THE AMNBATTUR INDUSTRIAL AREA IS LESS DEVELOPED COMPARE D TO ANNA NAGAR (WEST), WHERE THE ASSESSEES PROPERTY WAS LOCATED. HENCE, THE FMV OF ITA NO.1130/MDS/2015 :- 4 -: THE ASSESSEES PROPERTY (LAND PORTION ONLY) WILL NOT BE BELOW F50/-PER SQ.FT. AS ON 01.04.1981. IT WAS NOT OUT OF CONTEXT TO MENTION HERE THAT THE GLR OF LAND VALUE IN ANNA NAGAR WEST DURING THE YEAR 2007 IS F1,425/- PER SQ.FT., AS AGAINST THE GLR OF F536/- PER SQ.FT. IN AMBATTUR INDUSTRIAL ESTATE DURING 2007. THIS FAC T ALSO INDICATES THAT THE LAND VALUES OF ANNA NAGAR WEST A RE HIGHER THAN THOSE OF AMBATTUR INDUSTRIAL AREA. THER EFORE, IN THE ABSENCE OF ANY OTHER DETAILS OR EVIDENCES, THE FMV OF THE ASSESSEE'S LAND (LAND PORTION ONLY) AS ON 01.04 .1981, COULD SAFELY BE ADOPTED AT F50/-PER SQ.FT. THEREFORE, THE ASSESSING OFFICER WAS DIRECTED TO AD OPT THE FMV OF THE LAND AT F.50/-PER SQ.FT, AS ON 01.04.198 1, AS AGAINST RS.125/- PER SQ.FT. CLAIMED BY THE ASSESSEE OR F10/- PER SQ.FT. ADOPTED BY THE ASSESSING OFFICER IN HIS ORDER. 4.1 THE NEXT CLAIM OF THE ASSESSEE WAS THE COST OF THE OLD BUILDING WHILE COMPUTING THE CAPITAL GAINS. FRO M THE PERUSAL OF THE RECORDS AND THE ASSESSING OFFICER'S ORDER, AND THE OTHER DETAILS FILED BY THE ASSESSEE, IT WAS CLE AR THAT THE EXISTENCE OF BUILDINGS ON THE LAND SOLD WAS NOT UND ER DOUBT. AS MENTIONED EARLIER, AS ON THE DATE OF ENTERING IN TO THE JOINT DEVELOPMENT AGREEMENT, THE PROPERTY CONSISTED A ITA NO.1130/MDS/2015 :- 5 -: BUILDING OF GROUND FLOOR (1100 SQ.FT.) AND FIRST F LOOR (800 SQ.FT.). ONLY THEREAFTER, THE OLD BUILDING WAS DEMOLISHED IN ORDER TO FACILITATE THE CONSTRUCTION OF THE NEW BUILDING. IN FACT, THE ASSESSEE OBTAINED BUILDING D EMOLITION APPROVALS ONLY AFTER DATE OF JOINT DEVELOPMENT AGR EEMENT, EVIDENCING THE EXISTENCE OF BUILDINGS ON THE PROPER TY UNDER CONSIDERATION . THUS, THE BUILDINGS WERE DEMOLISHED ONLY AFTER THE DATE OF DATE OF JOINT DEVELOPMENT AGREEME NT, BUT BEFORE COMMENCING THE CONSTRUCTION OF THE NEW FLATS , AS PER THE DIRECTIONS OF THE BUILDER. THUS, THE DEMOLITION OF THE BUILDINGS FORMED PART AND PARCEL OF THE SALE NEGOTI ATIONS AND CONSIDERATION. THE DEMOLITION WAS ONLY TO FACIL ITATE THE CONSTRUCTION OF THE NEW FLATS. IN ORDER TO GET A BE TTER DEAL (VALUE) THE ASSESSEE WAS FOREGOING THE EXISTING BUI LDING BY DEMOLISHING. THEREFORE, THE LOSS OF THE BUILDING (O N ACCOUNT OF ITS DEMOLITION) TOGETHER WITH THE COST OF DEMOLI TION, IF ANY, FORMS THE EXPENSES / COST TO THE ASSESSEE AGAI NST THE SALE CONSIDERATION RECEIVED. IN COMMERCIAL PRINCIPL ES AND PRACTICE ANY EXPENDITURE, COMPENSATION, LOSS ETC., BY WAY OF PAYMENT, SURRENDER, FORGOING, DEMOLITION ETC, IN RELATION TO ANY TRANSACTION ARE TO BE REGARDED AS THE EXPENS ES ALLOWABLE AGAINST THE INCOME DERIVED FROM THE SAID ITA NO.1130/MDS/2015 :- 6 -: TRANSACTION. FOR EXAMPLE, IF TENANTS OR ILLEGAL OCC UPANTS IN A PROPERTY ARE VACATED IN ORDER TO FACILITATE THE SAL E OF A PROPERTY, THE COMPENSATION SO PAID TO THE TENANTS / OCCUPANTS WILL BE ALLOWABLE EXPENDITURE AS IT WAS I NCURRED TO MAKE THE PROPERTY FREE FROM ENCUMBRANCES. SIMIL ARLY, IF A STANDING STRUCTURE ON THE LAND WAS TO BE DEMOLISH ED TO FACILITATE THE SALE, THE COST OF THE BUILDING TOGET HER WITH THE COST OF DEMOLITION, ARE TO BE ALLOWED AS DEDUCTIONS AGAINST THE SALE CONSIDERATION. THEREFORE, THE COST OF THE HOUSE DEMOLISHED WAS TO BE ALLOWED AS AN EXPENDITURE (COS T) AGAINST THE SALE CONSIDERATION, ALONG WITH THE COST OF THE LAND, AS THE BUILDINGS ARE INTRINSICALLY LINKED TO THE LAND AND THE DEMOLITION OF THE SAID BUILDINGS WAS ONLY TO FA CILITATE THE TRANSFER OF THE PROPERTY. THE ABOVE FACT, COUP LED WITH THE BUILDING DEMOLITION APPROVALS, CLEARLY PROVED T HAT THERE WERE RESIDENTIAL BUILDINGS ON THE LAND. FURTHER, AS MENTIONED ABOVE, EVEN IF THE BUILDINGS ON THE LAND ARE DEMOLISHED IN ORDER TO FACILITATE THE TRANSFER OF T HE LAND, THE COST OF THE BUILDINGS IS TO BE ALLOWED AS PART AND PARCEL OF THE COST OF THE PROPERTY, ALONG WITH THE INDEXATION , AS PER THE LAW . ITA NO.1130/MDS/2015 :- 7 -: 4.2 AS PER THE ASSESSEE, THE GROUND FLOOR OF 1100SQ.FT. WAS IN EXISTENCE AS ON 01.04.1981. FIRST FLOOR OF 8 00 SQ.FT. WAS PUT UP IN 1993-94. THE ASSESSEE ADOPTED THE FMV OF THE GROUND BUILDING @ RS.500/- PER SQ. FT. (FMV AS ON 01.04.1981) AND FIRST FLOOR @ RS.620 /- PER SQ.FT. IN ADDITION, THE ASSESSEE ALSO CLAIMED IMPROVEMENTS TO THE BUILDING IN 1997-98 FOR RS.3,75,000/-. HOWEVER, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCES / DETAILS I N RESPECT OF THE IMPROVEMENTS. IN THE ABSENCE OF ANY DETAILS, THE ASSESSEE'S CLAIM OF COST OF IMPROVEMENTS OF RS.3,75,000/- WAS REJECTED. REGARDING THE COST OF BUILDING, THE ASSESSEE'S CLAIM OF COST OF CONSTRUCT ION OF GROUND FLOOR @ RS.500/- PER SQ.FT. (FMV AS ON 01.04.1981) AND FIRST FLOOR @ RS.620/- PER SQ.FT. ARE EXORBITANTLY HIGH. EVEN AS LATE AS 1995, THE COST OF CONSTRUCTION IN M ETROS HAS NOT TOUCHED THE FIGURE OF F500/-PER SQ.FT. THE ASS ESSEE HAS NOT FURNISHED ANY DETAILS OF THE COST OF THE CONSTRUCTIONS CLAIMED TO HAVE BEEN INCURRED BY HIM DURING THE FINANCIAL YEARS PRIOR TO 01.04.1981 OR DURING 1 993-94. NOR THE ASSESSEE WAS ABLE TO FILE ANY DETAILS OR ME THOD OF ARRIVING AT THE FMV OF THE BUILDING (GROUND FLOOR) AT F5,50,000/- AS ON 01.04.1981. HENCE, THE ASSESSEE'S CLAIMS ITA NO.1130/MDS/2015 :- 8 -: OF COST OF CONSTRUCTION OF GROUND AND FIRST FLOORS @ F500/- AND F.620/- PER SQ. FT. IN 1981 AND 1993-94 ARE ALLOWABLE. FURTHER, HE CONSIDERED THE PWD RATES IN THE STATE OF TAMIL NADU ARE AS UNDER: FINANCIAL YEAR NATURE OF BUILDINGS PWD RATE PER SQ.METER GROUND FLOOR I FLOOR & ABOVE 1981-82 RESIDENTIAL FRAMED F1,010 F925/- 1993-94 -DO- F3,285/- F3,015/- 4.3 ACCORDINGLY, THE PWD RATES, THE COST OF CONSTRU CTION (OR FMV) AS ON 01.04.1981 IT WAS F1,010/-PER SQ.MT (OR RS.93.50 PER SQ.FT) FOR GROUND FLOOR, WHILE IN 1993 -94 IT WAS F279.17 PER SQ.FT. FOR THE FIRST FLOOR. THEREFORE, THE ASSESSING OFFICER WAS DIRECTED TO ADOPT THE VALUE O F THE GROUND FLOOR OF 1100 SQ.FT. AT F93.50 PER SQ.FT. AN D THE FIRST FLOOR OF 800 SQ.FT. AT F279.17 PER SQ. FT. THUS, TH E COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO ALLOW THE NECESSARY DEDUCTION, BY CONSIDERING THE SAME AS PART OF THE COST OF ACQUISI TION, IN ADDITION TO THE FMV OF THE LAND DETERMINED ABOVE. H E ALSO ITA NO.1130/MDS/2015 :- 9 -: DIRECTED THE ASSESSING OFFICER TO ALLOW THE INDEXAT ION ON THE FMV OF LAND AND GROUND FLOOR FROM 01.04.1981 AND ON THE FIRST FLOOR FROM 1993-94 WHICH WORKED OUT AT F26,94 ,722/-. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE THE ASSESSEE CLAIMED FAIR MARK ET VALUE OF THE IMPUGNED PROPERTY AT F125/- PER SQ.FT AS AGAINST WH ICH THE ASSESSING OFFICER CONSIDERED THE SAME AT F10/- PER SQ.FT. HO WEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) ADOPTED THE SA ME AT F50/- PER SQ.FT ON THE BASIS OF THE PROPERTY SITUATED AT AMB ATTUR INDUSTRIAL ESTATE. IN OUR OPINION, THE COMPARISON OF PROPERTY AT AMBATTUR INDUSTRIAL ESTATE WITH ANNA NAGAR (WEST), IS NOT AP PROPRIATE. HENCE, WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO BRING ON RECORD THE FAIR MARKET VALUE O F THE PROPERTY SITUATED AT THE VICINITY OF IMPUGNED PROPERTY AND T HEN DECIDE THE FAIR MARKET VALUE OF THE IMPUGNED PROPERTY. ACCORDINGLY , THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 6. THE NEXT ISSUE IS WITH REGARD TO VALUATION OF BUILD ING. THE CONTENTION OF THE ASSESSEES COUNSEL IS THAT THE C OMMISSIONER OF INCOME TAX (APPEALS) VALUED THE BUILDING AT F93/- P ER SQ FT. ON THE ITA NO.1130/MDS/2015 :- 10 -: BASIS OF PWD RATES AND HE HAD NOT CONSIDERED THE EX TRA RATES TOWARDS WATER SUPPLY, SANITARY AND ELECTRIFICATION. IN OUR OPINION, USUALLY THE VALUE OF PWD RATES IS HIGHER THAN THE LOCAL RATES A ND THE ASSESSEE CANNOT HAVE ANY GRIEVANCE ON THIS ISSUE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) IN THIS ISSUE AND HENCE THE SAME IS CONFIRMED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1130/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 28TH DAY OF AUGUST , 2015, AT CHENNAI. SD/- SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ) (CHANDRA POOJARI) ' / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:28.08.2015 KV %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF