Pydi Venkata Ramana, Visakhapatnam V. The Income Tax Officer, Ward-2(3), , Visakhapatnam

ITA 218/VIZ/2020

AI Insights

The case involves two appeals by assessees Pydi Venkata Ramana and Pydi Giridhar Babu against the orders of the Commissioner of Income Tax (Appeals)-1, Visakhapatnam, which confirmed the additions made by the Income Tax Officer under section 50C of the Income Tax Act, 1961. The assessees contested the valuation of their properties, which were sold during the assessment year 2012-13, arguing that the fair market value determined by the District Valuation Officer (DVO) did not consider the properties' status under the Urban Land (Ceiling and Regulation) Act, 1976. The Tribunal, after considering the submissions and the precedent set by the Supreme Court in the case of S.N. Wadiyar, allowed the appeals, directing the Income Tax Officer to re-compute the capital gains based on the actual sale consideration received.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135742 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-03-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 04-11-2020
• Other Referred Cases: S.N. Wadiyar (Dead) through LR vs. Commissioner of Wealth Tax [2015] 378 ITR 0009 (SC)
• Laws Referred To: Income Tax Act, Urban Land (Ceiling and Regulation) Act, 1976
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Fair market value
• Section: 10; 50C; 48

Judgement Text

आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.218/Viz/2020 (Ǔनधा[रणवष[/ Assessment Year :2012-13) Pydi Venkata Ramana, Visakhapatnam. PAN: AFFPR 9971 D Vs. Income Tax Officer, Ward-2(3), Visakhapatnam. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) आयकरअपीलसं./ I.T.A. No. 219/Viz/2020 (Ǔनधा[रणवष[/ Assessment Year : 2012-13) Pydi Giridhar Babu, Visakhapatnam. PAN: AKYPP 6502 A Vs. Income Tax Officer, Ward-4(2), Visakhapatnam. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸकȧओरसे/ Assessees by : Sri I. Kama Sastry, AR Ĥ×याथȸकȧओरसे/ Revenue by : Sri ON Hari Prasada Rao, Sr. AR सुनवाईकȧतारȣख/ Date of Hearing : 20/03/2023 घोषणाकȧतारȣख/Date of Pronouncement : 01/06/2023 O R D E R 2 PER S. BALAKRISHNAN, Accountant Member : The captioned two appeals are filed by the assessees (Pydi Venkata Ramana and Pydi Giridhar Babu) against the orders of the Ld. Commissioner of Income Tax (Appeals)-1, Visakhapatnam [Ld. CIT (A)] in ITA No.10206/2018-19/CIT(A)-1/VSP/2020-21 (ITA No. 218/Viz/2020) and ITA No. 10080/2019-20/CIT(A)- 1/VSP/2020-21 (ITA No. 219/Viz/2020), dated 14/09/2020 for the AY 2012-13. Since the issues involved in both these appeals are identical, for the sake of convenience, these appeals are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paragraphs. 2. Considering the similarity of the issues involved in these two appeals, we shall take up ITA No. 218/Viz/2020 as a lead appeal. ITA No.218/Viz/2020 (AY: 2012-13) ( Pydi Venkata Ramana) 3. Briefly stated the facts of the case are that the assessee being an individual filed his return of income for the AY 2012-13 admitting total income of Rs.9,69,932/-. The case was selected 3 for scrutiny under CASS and the assessment was completed U/s. 143(3) of the Act assessing the total income of Rs. 6,51,81,350/-. On verification of the return of income, the Ld. AO noticed that the assessee has sold an immovable property along with two others namely Smt. Pydi Varahlamma and Mr. Pydi Giridhar Babu as per the details given below: Sl No Sale Deed No. & Year Date of Registration before SRO Value as per sale deed executed (Rs.) SRO, Dwarakanagar Stamp Duty Value(Rs.) 1. 1826/2011 07/07/2011 30,00,000 48,08,000 2. 1789/2011 28/06/2011 1,25,00,000 6,90,34,000 3. 1788/2011 28/06/2011 2,50,00,000 12,68,08,000 4. 1827/2011 07/07/2011 10,00,000 22,14,000 4,15,00,000 20,28,64,000 The Ld. AO observed that there is a difference in valuation of the property as mentioned in the sale deeds and the market value adopted by the Registering Authority for the purpose of stamp duty and therefore, the Ld. AO invoked the provisions of section 50C of the Act and thereby computed the capital gains by adopting the market value as on the date of transfer as the full value of consideration received. The Ld. AO also observed that the assessee has agreed to the addition on account of Long Term Capital Gains as computed by him. However, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the 4 addition made by the Ld. AO. Aggrieved by the order of the Ld. CIT (A), the assessee contested in the first round of appeal before the Tribunal. The Hon’ble ITAT, Visakhapatnam vide its order dated 06/10/2017 remitted the matter back to the file of the Ld. AO to consider the additional evidence submitted by the assessee on the litigations claimed and decide the issue afresh in the light of the additional evidences and also by taking the help of the DVO, if necessary. Following the directions of the ITAT, the Ld. AO referred the matter to the District Valuation Officer (DVO). The Ld. DVO submitted its preliminary valuation report dated 19/12/2018 determining the Fair Market Value (FMV) of the property at Rs. 12,23,30,000/- as on the date of transfer and accordingly the assessee’s share in the consideration worked out to Rs.4,07,77,000/-. The assessee filed its objections vide letter dated 28/12/2018 on the FMV determined by the Ld. DVO in his preliminary report. The Ld. AO observed that the District Valuation Officer in his preliminary report has dealt with all the objections raised by the assessee and therefore, treated the FMV as determined by the Ld. DVO in his preliminary report and accordingly determined the deemed sale consideration U/s. 50C of the Act at Rs. 4,07,77,000/- being the assessee’s share of the property as long term capital gains and computed the tax 5 thereon. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). During the appellate proceedings, the Ld. CIT(A) received the final report of theDVO dated 22/11/2019 on 6/3/2020 wherein theDVO has determined the value of the property at Rs. 6,11,65,000/- and the share of the assessee at Rs. 2,03,88,330/-. The Ld. CIT (A) considering the final valuation report of the Ld. DVO allowed the appeal of the assessee and directed the Ld AO to re-compute capital gains considering the assessee share of Rs 2,03,88,330/-. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 4. Originally, the assessee has raised Four Grounds in his appeal however, later revised to one ground of appeal which is extracted herein below for reference: “In the f acts and circumstances of the case and as per l aw the Ld. CIT (A) is not justified in adopting the fair market v al ue of the property sol d under section 50C as dete rmined by the DVO as full val ue of consideration for the purpose of section 48 instead of the fai r market v al ue determined as per the provisions of the Urban Land Ceil ing and Regul ation Act, 1976, or the amount de termined as per rent capital ization method by the DVO in contiguous properties simil arl y pl ace d or the amou nt of actu al consideration received by the assessee as per the registered s al e deed whichever is higher as cl aimed by the assessee before the Assessing Officer and al so the Co mmissioner of Income Tax (Appeal s).” 6 5. The Ld. AR argued that the assessee has entered into 99 years lease of the impugned property and still there is an unexpired lease period of 52 years as on the date of sale of property. The Ld. AR also referred to the proceedings under the Urban Land (Ceiling and Regulation) Act, 1976 for the impugned property. Further, the Ld. AR submitted the letter from the Tahsildar, Visakhapatnam confirming the taking of possession of 12,656.22 sq meters under the Urban Land (Ceiling and Regulation) Act, 1976. The Ld. AR further submitted that the Revenue accepted the computation with respect to the adjacent property wherein the other property was also taken under Urban Land (Ceiling and Regulation) Act, 1976 which was also sold to the vendees. The Ld. AR therefore pleaded that similar treatment may be given to the assessee in the instant case. The Ld. AR relied on the case of S.N. Wadiyar (Dead) through LR vs. Commissioner of Wealth Tax [2015] 378 ITR 0009 (SC). The Ld. AR further submitted that on the basis of reference made by the ITO, Ward-4(2), Visakhapatnam for similarly placed properties contiguous to the properties sold by the assessee, the Ld. DVO has accepted the sale value as per the registered sale deeds. The Ld. AR further submitted that similar facts existed in the case of the assessee and therefore the sale consideration received by the 7 assessee as per the sale deed is to be treated as fair market value of the property, which is a subject matter for proceedings under Urban Land (Ceiling and Regulation) Act, 1976. Per contra, the Ld. DR submitted that in the case of the property referred by the Ld. AR which is adjacent to the similarly placed property contiguous to the property sold by the assessee, the lease deed was cancelled by a clause in the sale deed itself. However, the Ld. DR submitted that in the instant case, firstly the lease deed was cancelled and then the sale deed was executed. The Ld. DR therefore pleaded that at the time of sale of the impugned property it has become a free hold land and not a lease hold land. The Ld. DR supported the order of the Ld. CIT(A). 6. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. Admittedly, from the submissions made by the Ld. AR, we find that the Tashildar has taken possession of the impugned property situated in Survey No. 59/3, Marripalem, Visakhapatnam comprising of 12,656.22 sq meters under the Urban Land (Ceiling and Regulation) Act, 1976. It is also admitted that at the time of execution of the sale deed there 8 remains 52 years of unexpired lease period. The Ld. AR also submitted that the valuation of the property as per the rent capitalization method determined in accordance with the Schedule-3 of the Wealth Tax Act, 1957 which stood at Rs. 37,45,070/- as against the sale consideration received by the assessee and others aggregating to Rs. 4,15,00,000/-. We find merit in the argument of the Ld. AR that the similar valuation was adopted in the case of the adjacent property as demonstrated by the Ld. AR. A reference was made by the Ld. AR to the CBDT Circular which is available in page 55 of the paper book which states as follows: “(i).......... (ii).......... (iii)......... (iv) Cases where acquisition proceedings are in advance stage and the intention of the Government to acquire the property is indicated or in case where notice U/s. 10(1) & 10(3) of UL (C&R) Act, 1976 have been issued by the Government. Mere declaration of land surplus under Urban Land (Ceiling Regulation) Act, 1976 does not deprive the land lords f rom his rights, title and interest in the excess vacan t land. Those will not be extinguished till the date of publication of notif ication under section 10(3) of UL (C&R) Act, 1976, to acquire the excess land for public purposes. So long as there is no such notif ication by the Govt. there is no question of land being valued on the basis of rate contained in section 11(1) of UL (C&R) Act, 1976, as such the cases f alling under the categories (i) & (ii) of the Act but to be valued at the market rates. 9 As regards category (iii), it may be assumed that exemption will be given. The time interval between the date of valuation and the date of completion of the group housing af ter completion of all f ormalities by the local bodies, is to be esti mated and the value be def erred f or such time period @ 12% rate of interest P.A. Note: The Urban Land (Ceiling & Regulation) Act, 1976 has been enacted by the Parliament in the Fif tieth Year of the Republic of India by the Urban Land (Ceiling and Regulation) repeal Act 1999 by No. 15 of 1999, 22 n d March, 1999 effective f rom 11 t h January, 1999. As regards the categories (iv), the excess vacant land is to be valued at the rate contained in section 11(i) of the Act.” 7. The arguments of the Ld. DR that since the lease agreement was cancelled first and then sale agreement was entered into by the assessee which is on the same day, cannot alter the character of the land to free hold land, could not be accepted. Further, in our view it does not make any difference when the lease deed was cancelled vide a clause in the sale deed as against two separate deeds in the instant case on the same day. Further, the Revenue has also not disputed the proceedings under the Urban Land (Ceiling and Regulation) Act, 1976 for the impugned property. The Hon’ble Supreme Court in the case of S.N. Wadiyar (Dead) through LR vs. Commissioner of Wealth Tax (supra) in para 31 of its judgment held as follows: 10 “31. .........When the asset is under the clutches of the Ceiling Act and in respect of the said asset/vacant land, the Competent Authority under the Ceiling Act had already determined the maximum compensation of Rs.2 lakhs, how much price such a property would fetch if sold in the open market? We have to keep in mind what a reasonably assumed buyer would pay for such a property if he were to buy the same. Such a property which is going to be taken over by the Government and is awaiting notification under Section 10 of the Act for this purpose, would not fetch more than Rs.2 lakhs as the assumed buyer knows that the moment this property is taken over by the Government, he will receive the compensation of Rs.2 lakhs only. We are not oblivious of those categories of buyers who may buy "disputed properties" by taking risks with the hope that legal proceedings may ultimately be decided in favour of the assessee and in such a eventuality they are going to get much higher value. However, as stated above, hypothetical presumptions of such sales are to be discarded as we have to keep in mind the conduct of a reasonable person and "ordinary way" of the presumptuous sale. When such a presumed buyer is not going to offer more than Rs.2 lakhs, obvious answer is that the estimated price which such asset would fetch if sold in the open market on the valuation date(s) would not be more than Rs.2 lakhs. Having said so, one aspect needs to be pointed out, which was missed by the Commissioner (Appeals) and the Tribunal as well while deciding the case in favour of the assessee. The compensation of Rs.2 lakhs is in respect of only the "excess land" which is covered by Sections 3 and 4 of the Ceiling Act. The total vacant land for the purpose of Wealth Tax Act is not only excess land but other part of the land which would have remained with the assessee in any case. Therefore, the valuation of the excess land, which is the subject matter of Ceiling Act, would be Rs.2 lakhs. To that market value of the remaining land will have to be added for the purpose of arriving at the valuation for payment of Wealth Tax. The question formulated is answered in the aforesaid manner.” 8. Further, the Ld. DVO has not determined the value of the property as per section 11(1) of the Urban Land Ceiling and Regulation Act, 1976 as mandated by the Guidelines for valuation of Immovable Property issued by the CBDT. Further, from the written submissions of the Ld. AR, we find that orders under Urban Land (Ceiling and Regulation) Act, 1976 is contested and pending before the Hon’ble High Court of Andhra Pradesh. 11 Further, the proceedings of the Competent Authorities under the Urban Land (Ceiling and Regulation) Act, 1976 and eviction proceedings against the lessee are still pending before the concerned Authorities. Since, the impugned property is covered under the proceedings under Urban Land Ceiling and Regulation Act, 1976, it is impracticable to fetch a higher market value. In the instant case, since the property is under dispute and the proceedings are pending before the Hon’ble High Court of Andhra Pradesh, we are of the considered view that this property cannot fetch a fair value when compared to the properties which are not under litigation. Further, the value as per the rent capitalization method is also far below to the actual consideration received by the assessee. We therefore are of the considered view that the sale consideration received by the assessee is to be adopted for the purpose of computing capital gains and accordingly the Ld. AO is hereby directed to consider Rs.1,38,33,333/- being the share of the assessee from the impugned sale of land and thereby allow the appeal of the assessee. It is ordered accordingly. 9. In the result, appeal filed by the assessee is allowed. 12 ITA No.219/Viz/2020 (AY 2012-13) (Pydi Giridhar Babu) 10. In this appeal, the assessee has originally raised four grounds of appeal however, later revised to one ground of appeal which reads as under: “In the f acts and circumstances of the case and as per l aw the Ld. CIT (A) is not justified in adopting the fair market v al ue of the property sol d under section 50C as dete rmined by the DVO as full val ue of consideration for the purpose of section 48 instead of the fai r market v al ue determined as per the provisions of the Urban Land Ceil ing and Regul ation Act, 1976, or the amount de termined as per rent capital ization method by the DVO in contiguous properties simil arl y pl ace d or the amou nt of actu al consideration received by the assessee as per the registered s al e deed whichever is higher as cl aimed by the assessee before the Assessing Officer and al so the Co mmissioner of Income Tax (Appeal s).” 11. This ground raised by the assessee is identical to that of the ground raised by Mr. Pydi Venkataramana in ITA No. 218/Viz/2020 (AY: 2012-13) which is adjudicated in the above paragraphs of this order. Considering the similarity of the issues involved in both the appeals, our decision given in the case of Mr. Pydi Venkataraman in ITA No. 218/Viz/2020 mutatis mutandis applies to the appeal in the case of Pydi Giridhar Babu (ITA No. 219/Viz/2020). Accordingly, the ground raised by the assessee is allowed. 13 12. In the result, appeal of the assessee is allowed. Pronounced in the open Court on the 01 st June, 2023. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 01.06.2023 OKK - SPS आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–(i) Pydi Venkata Ramana, 39-16-36/1, Muralinagar, Madhavadhara, Visakhapatnam, Andhra Pradesh-530 007. (ii) Pydi Giridhar Babu, D.No. 38-40-87, Marripalem, Visakhapatnam. 2. राजèव/The Revenue –(i) Income Tax Officer, Ward-2(3), Visakhapatnam. (ii) Income Tax Officer, Ward-4(2), Visakhapatnam. 3. The Principal Commissioner of Income Tax-1, Visakhapatnam. (ii) The Principal Commissioner of Income Tax-1, Visakhapatnam. 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam