SARLA N. SAKRANNAEY, MUMBAI V. ITO 12(3)(3), MUMBAI

ITA 2226/MUM/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1072 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition; Fair market value; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F BEFORE SHRI N.V. VASUDEVAN (JM) & SHRI B. RAMAKOTAI AH (AM) I.T.A.NO. 2226/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) SMT. SARLA N. SAKRANEY 9, MISTRY COURT D.V. ROAD MUMBAI-400 020. PAN : AOAPS6930H VS.. ITO 12(3)(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT I.T.A.NO. 2227/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) SMT. MAYA H. SAKRANEY 1A, COURT CHAMERS 35, NEW MARINE LINES MUMBAI-400 020. PAN : AOWPS6153A VS.. ITO 12(3)(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT ASSESSEE BY : SHRI PRAKASH JOTWANI DEPARTMENT BY : SHRI SANJAY GUPTA ORDER PER N.V. VASUDEVAN, JM :- THESE ARE APPEALS BY THE ASSESSEES AGAINST TWO ORD ERS BOTH DATED 11.1.2010 OF LEARNED CIT(A)-23, MUMBAI RELATING TO A.Y. 2006-07. 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEES ARE ID ENTICAL AND THEY READ AS FOLLOWS :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN MAKING A REFERENCE TO THE DVO U/S. 55A FOR VALUATION OF THE SHOWROOM AS ON 1.4.1981, ALTHOUGH THE VALUE OF THE CAPITAL ASSET AS ON 1.4.1981 AS DECLARED BY THE ASSESSEE IN HER RETURN (I.E. RS. 1000 PER SQ.FT.) WAS MORE T HAN THE FAIR MARKET VALUE AS ESTIMATED BY THE DVO (I.E. RS. 740 PER SQ.FT.). 2) WITHOUT PREJUDICE TO THE ABOVE :- SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 2 A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 77,21,360/- IN PLACE OF RS. 68,99,900/- AS DECLARED BY THE APPELLANT. B(I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE COS T OF ACQUISITION OF THE SHOWROOM AS ON 1.4.1981 AT RS. 18,48,000/- INSTEAD OF RS. 24,36,000/- AS DISCLOSED BY THE APPELLANT. B(II) THE LEARNED CIT(A) ERRED IN CONFIRMING THE VA LUES ADOPTED BY THE VALUATION OFFICER (RS. 740/- PER SQ. FT.) AS AGAINST THE VALUE ADOPTED BY THE APPELLANT @ RS. 1000/- PER SQ.FT., WHICH WAS SUBSTANTIATED WITH SAL E INSTANCES OF PROPERTY IN ADJACENT LOCALITIES. 3) THE LEARNED CIT(A) ERRED IN DISALLOWING THE FOLLOWI NG EXPENSES:- DIVIDING WALL EXPENSES RS. 1,50,000/- ELECTRICITY & WATER METERS TRANSFER CHARGES RS. 94, 000/- VALUATION REPORT CHARGES OF RS. 49,400/- AS THE COS T OF ACQUISITION/IMPROVEMENT U/S. 48 WHICH WAS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE SHOWROOM. 4) THE ASSESSING OFFICER ERRED IN NOT ALLOWING EXEM PTION U/S. 54EC TOWARDS INVESTMENT MADE IN RURAL ELECTRICITY B ONDS. THE ASSESSING OFFICER ERRED IN NOT CONSIDERING THAT THE APPELLANT HAD MADE THE INVESTMENTS BUT BELATEDLY AN D SINCE 54EC IS AN EXEMPTION PROVISION, THE SAME SHOU LD BE CONSTRUED LIBERALLY. HE ERRED TO TAKE INTO CONSIDER ATION THAT INVESTMENTS U/S. 54EC COULD NOT BE MADE IN DUE TIME DUE TO NON AVAILABILITY OF THE BONDS IN THE MARKET. 3. FACTS AND CIRCUMSTANCES GIVING PRESENT APPEALS B Y THE ASSESSEES ARE AS FOLLOWS :- THE ASSESSEE IN ITA NO. 2226/MUM/2001 IS AN INDIVI DUAL BY NAME SMT. SARALA N. SAKRANEY. THE ASSESSEE IN ITA N O. 2227/MUM/2001 IS ALSO AN INDIVIDUAL BY NAME SMT. MA YA N. SAKRANEY. MRS. SARLA SAKRANEY, MRS. MAYA SAKRANEY AND ONE SMT . ROOP K. SAKRANEY JOINTLY OWNED A SHOWROOM NO. D, GROUND FLO OR IN DELSTAR PREMISES COOPERATIVE HOUSING SOCIETY LTD., 9-9A, NY AYAMURTHI S. PATHKAR MARG, HUGHES ROAD, MUMBAI-36 (HEREIN AFTER REFERRED TO PROPERTY). SMT. SARLA SAKRANEY & SMT. MAYA SAKRAN EY OWNED 1/4 TH SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 3 SHARE EACH OVER THE PROPERTY AND SMT. ROOP SAKRANEY OWNED SHARE OF THE PROPERTY. THE AFORESAID PROPERTY WAS SOLD BY TH REE CO-OWNERS ON 24.10.2005 FOR A SALE CONSIDERATION OF RS. 4,05,00, 000/-. CAPITAL GAIN ON SUCH SALE WAS COMPUTED BY THE THREE CO-OWNERS AS FO LLOWS :- DELSTAR SHOWROOM CAPITAL GAINS WORKINGS : DELSTAR IN RS. SALES CONSIDERATION FOR THE PROPERTY 40,50,00,000 LESS : EXPENSES DIVIDING WALL EXPENSES & OTHER EXPENSES 1,50,000 SOCIETY TRANSFER FEES 25000 ELECTRICITY AND WATER METERS TRANSFER CHARGES 94000 VALUATION REPORT (CURRENT VALUE) 15000 VALUATION REPORT (1981) 31400 BROKERAGE 4,05,000 7,20,400 NET CONSIDERATION 39,779,600 1.4.1981 VALUE AS PER VALUATION REPORT (AREA 436@1 000) INDEXED COST OF ACQUISITION 1,21,80,000 LONG TERM CAPITAL GAINS 2,75,99,600 EACH SHARE ROOP SAKRANEY 2,00,00,000/- 50% INVESTED IN CA PITAL GAIN EXEMPTION ACCOUNT SARLA SAKRANEY 6899900 25% INVESTED IN REC BO NDS MAYA SAKRANEY 6899900 25% INVESTED IN REC BOND S 4. MRS. SARLA SAKRANEY & MRS. MAYA SAKRANEY CLAIMED THAT THEIR SHARES OF CAPITAL GAIN HAD BEEN INVESTED IN REC BON DS WHICH ARE LONG TERM SPECIFIED ASSET U/S. 54EC OF THE ACT. CONSEQUE NTLY, THERE WAS NO CAPITAL GAIN WHICH CAN BE BROUGHT TO TAX. IN SUPPOR T OF THE COMPUTATION OF CAPITAL GAIN AS MADE BY THE ASSESSEE AS ABOVE, A SSESSEES HAD FILED REPORT OF GOVERNMENT REGISTERED VALUER VALUING PROP ERTY AS ON 1.4.1981 AT RS. 27,29,600/-. THERE IS NO DISPUTE THAT THE CO ST OF ACQUISITION OF THE PROPERTY HAS TO BE WORKED OUT BY ADOPTING FMV OF TH E PROPERTY AS ON 1.4.1981 AND APPLYING INDEXATION ON SUCH VALUE. THE ASSESSING OFFICER, HOWEVER, WAS OF THE VIEW THAT THE FMV OF THE PROPER TY AS ON 1.4.1981 ADOPTED BY THE ASSESSEE BASED ON THE ESTIMATE BY TH E GOVERNMENT REGISTERED VALUER WAS HIGH AND HE THEREFORE REFERRE D THE MATTER TO THE VALUATION OFFICER OF THE DEPARTMENT (DVO) FOR DETER MINATION OF FMV AS ON 1.4.1981. THE DVO ESTIMATED THE FMV OF THE PROPERTY AS ON 1.4.1981 AT SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 4 RS. 18,41,000/-. THE ASSESSEE HAD RAISED OBJECTION TO THE VALUATION OF THE FMV AS ON 1.4.1981 AS ADOPTED BY DVO. ON CONSID ERATION OF THE ABOVE OBJECTION, THE ASSESSING OFFICER WAS OF THE O PINION THAT VALUATION AS GIVEN BY THE DVO HAS TO BE ACCEPTED SINCE IT MET WITH ALL THE OBJECTIONS RAISED BY THE ASSESSEE WITH REGARD TO TH E VALUATION AS DONE BY THE DVO. 5. IT CAN BE SEEN FROM THE COMPUTATION OF THE CAPI TAL GAIN AS DONE BY THE ASSESSEE THAT THE ASSESSEE HAD CLAIMED AS EXPENSES IN CONNECTION WITH THE TRANSFER OF THE CAPITAL ASSET A SUM OF RS. 1,50 ,000/- TOWARDS DIVIDING WALL EXPENSES, ELECTRICITY AND WATER METERS CHARGES OF RS. 94,000/- AND SUM OF RS. 46,400/- (WRONGLY MENTIONED IN GROUNDS O F APPEAL AS RS. 49,400/-) TOWARDS OBTAINING VALUATION REPORT IN RES PECT OF CURRENT VALUE OF THE PROPERTY AS WELL AS FMV OF THE PROPERTY AS O N 1.4.1981. THE ASSESSING OFFICER HELD THAT THE AFORESAID EXPENSES CANNOT BE CONSIDERED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH TRANSFER OF THE CAPITAL ASSET. THUS, THE ASSESSING OFFICER C OMPUTED CAPITAL GAIN SHOWN BY THE ASSESSEES AS FOLLOWS :- INCOME FROM CAPITAL GAINS :- SALES CONSIDERATION FOR THE PROPERTY 4,05,00,00 0 LESS : EXPENSES CLAIMED BY THE ASSESSEE 7,20,400 LESS : DISALLOWED EXPENSES AS PER 2,90,400 4,30,0 00 PARA 1 OF THE ORDER _____________ 4,00,70,000 INDEXED COST OF ACQUISITION 91,84,560 (18,48,000 X 4.97) AS PER PARA 2 OF THE ORDER ___ __________ 3,08,85,440 ---------------- 6. AGGRIEVED BY THE AFORESAID ADDITION MADE BY THE ASSESSING OFFICER, THE ASSESSEES PREFERRED THE APPEALS BEFORE THE TRIB UNAL. 7. FIRST AND FOREMOST OBJECTION OF THE ASSESSEES BE FORE LEARNED CIT(A) WAS THAT REFERENCE TO THE DVO U/S. 55A WAS INVALID. UNDER CLAUSE (A) OF SECTION 55A OF THE ACT, THE ASSESSING OFFICER IS EN TITLED TO MAKE THE REFERENCE TO THE VALUATION OFFICER IN A CASE WHERE THE VALUE OF THE ASSET AS SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 5 CLAIMED BY THE ASSESSEE IN ACCORDANCE WITH THE ESTI MATE MADE BY THE RV, IF THE ASSESSING OFFICER IS OF THE OPINION THAT THE VALUE SO CLAIMED IS LESS THAN THE FAIR MARKET VALUE. IN ANY OTHER CASE, AS P ROVIDED UNDER CLAUSE (B) OF SECTION 55A OF THE ACT, THE ASSESSING OFFICE R HAS TO RECORD AN OPINION THAT (I) THE FAIR MARKET VALUE OF THE ASSET EXCEEDS THE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE BY MORE THAN SUCH PERCENTAGE OR BY MORE THAN SUCH AN AMOUNT AS MAYBE PRESCRIBED; OR (I I) HAVING REGARD TO THE NATURE OF THE ASSET AND OTHER RELEVANT CIRCUMST ANCES, IT IS NECESSARY TO MAKE SUCH A REFERENCE. THE ASSESSEE HAD CLAIMED THE VALUATION AS ON 1.4.1981 AT A SUM OF RS. 24,36,000/- (WHICH IS RS. 1000/- PER SQ.FT.) AS AGAINST THE RVS REPORT (WHICH IS RS. 1100/- PER SQ .FT.). THEREFORE THE ASSESSING OFFICER WAS REQUIRED TO FORM AN OPINION T HAT THE VALUE SO CLAIMED IS LESS THAN THE FMV. THE ESTIMATED VALUE P ROPOSED BY THE DVO IS SHOWN AT RS. 18,48,000/- (WHICH IS RS. 740/- PER SQ.FT.) WHICH IS LESS THAN THE FMV SHOWN BY THE ASSESSEE AS ON 1.4.1981. THEREFORE CLAUSE (A) OF SECTION 55A OF THE ACT CANNOT BE MADE APPLICABLE . CLAUSE (B) OF SECTION 55A OF THE ACT CAN BE INVOKED ONLY IN ANY OTHER CAS E, NAMELY, WHEN THE VALUE OF THE ASSET CLAIMED BY THE ASSESSEE IS NOT S UPPORTED BY AN ESTIMATE MADE BY A RV. THE ASSESSEES THUS SUBMITTED THAT ON THE FACTS OF THE PRESENT CASE, CLAUSE (B) OF SECTION 55A OF T HE ACT ALSO CANNOT BE INVOKED. THEREFORE, THERE SHOULD BE NO QUESTION OF HAVING RECOURSE TO SUB-CLAUSE (II) OF CLAUSE (B) OF SECTION 55A OF THE ACT. THE APPELLANT HAS RELIED ON HIABEN JAYANTILAL SHAH VS. ITO, (2009) 31 0 ITR 31 (GUJ), CIT VS. DAULAL MOHTA, ITA NO. 1031 OF 2008 (BOMBAY HIGH COURT) DATED 22.9.2008, ITO VS. SMT. LALITABEN B. KAPADIA (2008) 115 TTJ 938 (MUM), SAJJANKUMAR HARLALKA VS. JCIT (2006) 100 ITD 418 ( MUM). FURTHER REFERENCE CAN BE MADE U/S. 55A(B)(II) BY THE ASSESS ING OFFICER IF HE IS OF THE OPINION HAVING REGARD TO THE NATURE OF ASSET AN D OTHER RELEVANT CIRCUMSTANCES THAT IT IS NECESSARY TO DO SO. IT IS OBLIGATORY ON THE PART OF THE ASSESSING OFFICER TO RECORD SUCH OTHER RELEVANT CIRCUMSTANCES ON THE BASIS OF WHICH HE FORMS SUCH OPINION IN ORDER TO RE FER THE MATTER TO THE VALUATION CELL UNDER SAID CLAUSE. THE APPELLANT FUR THER RELIED ON CIT VS. HOTEL JOSHI (1999) 157 CTR (RAJ) 369; (2000) 242 IT R 478 (RAJ), SMT. SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 6 KRISHNABAI TINGRE VS. ITO (2006) 101 ITD 317 (PUNE) . IT WAS CONTENDED THAT ONLY IN CASES OTHER THAN THE CASE WHERE THERE IS NO VLAUERS REPORT GIVEN BY THE ASSESSEE THE ASSESSING OFFICER IS EMPO WERED TO MAKE REFERENCE U/S. 55A(B) AND NOT OTHERWISE. IN THIS RE GARD THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF MS. RUBAB M. KAZERANIS CASE (2004) 91 ITD 429 MUMBAI (TM) LAYING DOWN THE PROPOSITION STATED IN THE EARLIER SENTENCE. APART FROM THE ABOVE, ASSESSEE A LSO CHALLENGED THE VALUATION AS DONE BY THE DVO ON MERITS. 8. WITH REGARD TO DISALLOWANCE OF DIVIDING WALL EXP ENSES, ELECTRICITY AND WATER METER TRANSFER CHARGES, AND VALUATION EXP ENSES, THE ASSESSEE SUBMITTED THOSE EXPENSES HAD BEEN INCURRED WHOLLY A ND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE SHOWROOM. (I) DIVIDING WALL EXPENSES :- IN THE YEAR 1964, THE SHOWROOM (MORE PARTICULARLY DEMARCATED AS (D) IN THE PLAN FU RNISHED HEREWITH) HAD BEEN GIVEN ON LEASE TO HINDUSTAN MACH INE TOOLS LTD. (HMT). HMT HAD ALSO TAKEN ON LEASE THE ADJOINING PROPERTY (MORE PARTICULARLY DEMARCATED AS (C) IN THE PLAN FURNISHED), WHICH BELONG TO ONE MAHTANIS. SINCE, HMT WAS DESIROUS OF CONDUCTING ITS ACTIVITIES IN ON E LARGE SHOWROOM, FOR THE SAKE OF CONVENIENCE, THEY BROKE T HE ADJOINING WALL AND CONDUCTED ALL ITS ACTIVITIES FRO M PLOT NO. (C) & (D). HMT HANDED OVER BACK THE POSSESSION OF T HE SAID SHOWROOM. SEVERAL DAMAGES IN THE SAID SHOWROOM HAD TO BE REPAIRED BEFORE THE SAME COULD BE MADE SALEABLE. AN AMOUNT OF RS. 1,50,000/- IS AN EXPENSES WHICH IS IN CURRED DURING THE YEAR FOR THE PURPOSE OF CLEARLY DEMARCAT ING THE TWO ADJACENT SHOPS WHICH WERE BOUGHT SEPARATELY BUT MADE AS ONE OF THE TENANTS OCCUPYING THE PREMISES. THE W ALL WAS BUILT IN ORDER TO RESTORE THE PREMISES TO ITS ORIGI NAL CONDITION AND THEREBY SHOULD BE ADDED TO THE COST O F ACQUISITION AS COST OF IMPROVEMENT. THIS EXPENDITUR E WAS MADE WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND SHOULD THEREFORE BE ALLOWED U/S. 48(II). (II) ELECTRICITY AND WATER METER TRANSFER CHARGES :- THE ABOVEMENTIONED PREMISES ALONG WITH THE ADJACENT SHOWROOM, WHICH BELONGED TO THE MAHTANIS, HAD BEEN LET OUT TO TENANTS (HMT). ON COMPLETION OF THE LEASE TH E OWNER INCURRED EXPENSE ON TRANSFERRING THE WATER AND ELEC TRICITY METER TO THEIR RESPECTIVE NAMES. THESE EXPENSES WER E INCURRED ONLY FOR THE PURPOSE OF RESTORING THE METE RS TO ITS SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 7 ORIGINAL CONDITION BECAUSE WHEN THE TENANTS HANDED OVER THE POSSESSION BACK TO THE ABOVE MENTIONED ASSESSEE S, THERE WERE CERTAIN OUTSTANDING PAYMENTS DUE TO BEST WHICH HAD TO BE CLEARED BY THE ASSESSEE IN ORDER TO MAKE THE SALE EFFECTIVE. THESE EXPENSES ARE INCIDENTAL T O THE TRANSFER OF THE SAID SHOWROOMS AND SHOULD THEREFORE BE ALLOWED AS A DEDUCTION FROM LTCG. (III) VALUATION EXPENSES :- THE ASSESSEE APPOINTED A RV, KANTI KAMERSEY & CO., IN ORDER TO DETERMINING THE FMV OF THE PREMISES AS ON 1.4.1981 AND ON THE CURRENT DATE, TH E EXPENSES/FEES OF WHICH AMOUNTED TO RS. 31,400/- AND RS. 15,000/- RESPECTIVELY. THESE EXPENDITURES INCURRED WERE NECESSARY IN ORDER TO COMPUTE THE CORRECT VALUE OF THE LONG TERM CAPITAL GAIN AND THEREFORE IS INCIDENTAL TO TH E TRANSFER OF THE ABOVE MENTIONED SHOWROOM. 9. ON THE ISSUE OF VALIDITY OF REFERENCE OF VALUATI ON OF THE ASSESSING OFFICER TO THE DVO U/S. 55A(A) AND 55A(B)(II) LEARN ED CIT(A) HELD AS FOLLOWS :- AS REGARDS THE VALIDITY OF THE REFERENCE TO THE VA LUATION OFFICER, THE DEPARTMENTAL CIRCULAR NO. 96 DATED 25.11.1972 CLARI FIES THE POSITION. SECTION 55A(B)(II) ALLOWS THE ASSESSING O FFICER TO MAKE A REFERENCE TO THE VALUATION OFFICER. THE CASE LAWS C ITED BY THE APPELLANT ARE INAPT. REFERENCE TO THE DVO IS MADE O NLY WHEN THE ASSESSING OFFICER IS OF THE OPINION THAT THE VALUE CLAIMED BY THE ASSESSEE IS LESS THAN THE FMV. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS REFERRED THE MATTER TO THE DVO FOR OBTA INING HIS REPORT ON THE FMV AS ON 1.4.1981. IN HIS REFERENCE MADE TO THE DVO ON 5.8.2008, THE ASSESSING OFFICER HAS RECORDED THAT, THE VALUER HAS ADOPTED THE RATE OF RS.1,100/- FOR 2436 SQ.FT. (FOR THE SHOWROOM) AND RS. 50,000/- FOR CAR PARKING SPACE AND THE BASI S FOR ADOPTING THE RATE IS STATED TO BE MARKET FEED BACK AND INVES TIGATION. THERE IS NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE RATE A DOPTED BY THE VALUER. THE VALUER HAS CITED SALE INSTANCES AS GIVE N IN PART II OF THE VALUATION REPORT. IN THE ABSENCE OF ANY EVIDENC E, THE VALUE AS ON 1.4.1981 ADOPTED BY THE VALUER @ RS. 1100/- FOR 2346 SQ.FT. FOR THE SHOWROOM AND RS. 50,000/- FOR THE CAR PARKING S PACE APPEARS TO BE NOT CORRECT. I AM THEREFORE OF THE VIEW THAT THE CORRECT VALUE OF THE PROPERTY REFERRED TO ABOVE AS ON 1.4.1981 IS NECESSARY IN ORDER TO ARRIVE AT THE CORRECT FMV AS ON 1.4.1981 FOR THE PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE FOR A.Y. 2006-07. THUS, THE ARGUMENT THAT THE REASO NS MUST BE RECORDED BY THE ASSESSING OFFICER BEFORE MAKING A R EFERENCE IS ALSO MET, SINCE THE ASSESSING OFFICER WHILE MAKING THE R EFERENCE HAS CLEARLY DONE SO, AS EVIDENT FROM HIS LETTER OF REFE RENCE TO THE DVO. THE CONTENTION THAT NO REFERENCE CAN BE MADE U/S. 5 5A(B)(II) IF A SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 8 VLAUERS REPORT IS SUBMITTED BY THE ASSESSEE IS FAL LACIOUS. IT CANNOT BE THE INTENTION OF THE LEGISLATURE THAT WHERE A VA LUERS REPORT IS FILED, NO REFERENCE TO THE DVO CAN BE MADE AT ALL. WHEN THE VALUE CLAIMED BY THE ASSESSEE IS MORE THAN THE FMV, EVEN WHERE THE ASSESSING OFFICER IS OF THE OPINION THAT THE VALUE IS OVERSTATED, SECTION 55A(B)(II) PROVIDES RECOURSE TO THE ASSESSI NG OFFICER IN SUCH CIRCUMSTANCES. 10. WITH REGARD TO THE DEDUCTION CLAIMED BY THE ASS ESSEE ON ACCOUNT OF DIVIDING WALL, ELECTRICITY AND WATER METER CHARG ES AND VALUATION EXPENSES, LEARNED CIT(A) UPHELD THE ORDER OF THE AS SESSING OFFICER HOLDING THAT THESE EXPENSES CANNOT BE CONSIDERED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER. 11. AGGRIEVED BY THE ORDERS OF LEARNED CIT(A), ASSE SSEES HAVE PREFERRED GROUND NO. 1 TO 3 BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS FAR AS GROUND NO. 1 IS CONCERNED, WE ARE OF THE VIEW THAT THE REFERENCE TO THE DVO WAS INVLAID. ON THIS ISSUE, LEARNED DR RELIED ON THE ORDER OF LE ARNED CIT(A). WHILE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECI SIONS WHICH WERE CITED BEFORE LEARNED CIT(A) AND FURTHER DREW OUR ATTENTIO N TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF DAULAL MOH TA HUF, ITA NO. 1031 OF 2008 DATED 22.9.2008; WHEREIN, HON'BLE BOMB AY HIGH COURT HAS APPROVED THE DECISION OF HON'BLE ITAT MUMBAI, THIRD MEMBER DECISION IN THE CASE OF MS. RUBAB M. KAZERANI, 91 ITD 429 (MUM) (TM)AND THE HONBLE ITAT PUNE DECISION IN THE CASE OF SMT. KRIS HNABAI TINGRE VS. ITO, 101 ITD 317 (PUNE)(TM). FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF HIABEN JAYANTILAL SHAH VS. ITO, 310 ITO 31 (GUJ). IT HAS TO BE MENTIO NED HERE THAT THERE IS A DECISION OF ITAT MUMBAI BENCH IN THE CASE OF VIJA YKUMAR M. SHAH VS. DCIT (2009), 29 SOT 338 (MUM); WHEREIN A CONTRARY V IEW WAS TAKEN. IN THE SAID DECISION, MUMBAI BENCH OF THE TRIBUNAL HAD TAKEN A VIEW THAT THE ASSESSING OFFICER IS EMPOWERED TO MAKE REFERENC E UNDER SUB-CLAUSE (II) OF SECTION 55A(B), EVEN IN CASES WHERE FMV CLA IMED BY THE ASSESSEE IS HIGHER THAN ACTUAL FAIR MARKET VALUE AND THAT A REF ERENCE CAN BE MADE SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 9 EVEN WHERE CONDITIONS SPECIFIED IN SUB-CLAUSE (II) RELATING TO HAVING REGARD TO ASSET AND OTHER RELEVANT CIRCUMSTANCES I S MET. IT MAY MENTIONED HERE THAT THE AFORESAID DECISION DOES NOT CONSIDER DECISION OF HON'BLE BOMBAY HIGH COURT AS WELL AS DECISION OF HO N'BLE GUJARAT HIGH COURT AND TO THAT EXTENT, WE ARE OF THE VIEW THAT T HE SAID DECISION IS NOT BINDING. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DAULAL MOHATA HUF (SUPRA) DEALT WITH FOLLOWING SUBSTANTIAL QUESTI ON OF LAW :- B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE HON'BLE TRIBUNAL WAS RIGHT IN LAW TO OBSERVE TH AT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING A REF ERENCE UNDER SECTION 55A OF THE ACT TO THE DVO FOR DETERMINATION OF THE FAIR MARKET VALUE OF THE PROPERTY? IN PARA NO. 4&5 OF ITS JUDGEMENT OF HON'BLE HIGH CO URT HELD AS FOLLOWS :- 4. THE TRIBUNAL IN ITS ORDER DATED 23 RD JULY, 2004 HAS CATEGORICALLY OBSERVED THUS :- THE FIRST ISSUE THAT ARISES FOR OUR CONSIDERATION IS WHETHER THE REFERENCE MADE BY THE ASSESSING OFFICER TO THE DVO U/S. 55A IS BAD IN LAW UNDER THE FACTS AND CIRCUMST ANCES OF THE CASE. THIS ISSUE, IN OUR CONSIDERED OPINION IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE B Y THE JUDGEMENT IN THE CASE OF RUBAB M. KAZERANI REPORTED IN 91 ITD 429 (MUM)(TM). FURTHER THE ASSESSEE ALSO COVERE D BY THE THIRD MEMBER DECISION OF THE PUNE BENCH OF THE TRIBUNAL, THE CASE OF THE KRISHNABAI TINGORE VS. IT O REPORTED IN 101 ITD 317 (PUNE)(TM) WHEREIN IT HAS B EEN HELD THAT REFERENCE TO DVO CAN ONLY BE MADE IN CASE S WHERE THE VALUE OF CAPITAL ASSET SHOWN BY THE ASSES SEE IS LESS THAN ITS FAIR MARKET VALUE OF LAND AS ON 1 ST APRIL, 1981 SHOWN BY THE ASSESSEE ON THE BASIS OF APPROVED VALU ERS REPORT BEING MORE THAN ITS FAIR MARKET VALUE, REFER ENCE UNDER SECTION 35A WAS NOT VALID. RESPECTFULLY FOLLO WING THE PROPOSITIONS LAID DOWN THESE TWO CASES BY THE COORD INATE BENCHES WE UPHOLD THE CONTENTION OF THE ASSESSEE AN D HOLD THAT THE REFERENCE MADE BY THE ASSESSING OFFICER TO THE DVO U/S. 55A IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE IS BAD IN LAW. THUS, ON THE SOLE GROUNDS OF AP PEAL, OF THE ASSESSEE HAS TO BE ALLOWED. BEFORE PASSING, WE HAVE TO MENTION THAT THE ASSESSE E HAS SUBMITTED THE ARGUMENTS. AS ON THE BASIS OF THE LEG AL ASPECTS ITSELF WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 10 ASSESSEE, WE REFRAIN FROM UNDERTAKING THIS ACADEMIC EXERCISE OF DISPOSING THIS CASE ON MERITS. 5. IN VIEW THEREFORE IS NO MERIT IN THE APPEAL. APP EAL STANDS DISMISSED. 13. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF H IABEN JAYANTILAL SHAH(SUPRA) HAS HELD ON THIS ISSUE AS FOLLOWS :- UNDER CL. (A) OF S. 55A THE AO IS ENTITLED TO MAKE THE REFERENCE TO THE VALUATION OFFICER IN A CASE WHERE THE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE IS IN ACCORDANCE WITH THE E STIMATE MADE BY THE REGISTERED VALUER, IF THE AO IS OF THE OPINI ON THAT THE VALUE SO CLAIMED IS LESS THAN THE FAIR MARKET VALUE. IN A NY OTHER CASE, AS PROVIDED UNDER CL. (B) OF S. 55A, THE AO HAS TO REC ORD AN OPINION THAT (I) THE FAIR MARKET VALUE OF THE ASSET EXCEEDS THE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE BY MORE THAN SUCH PERCENTAGE OR BY MORE THAN SUCH AN AMOUNT AS MAY BE PRESCRIBED; O R (II) HAVING REGARD TO THE NATURE OF THE ASSET AND OTHER RELEVAN T CIRCUMSTANCES, IT IS NECESSARY TO MAKE SUCH A REFER ENCE. AS CAN BE SEEN FROM THE COMMUNICATION DATED NIL FROM DVO TO T HE PETITIONER INSOFAR AS THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1ST APRIL, 1981 IS CONCERNED, THE PETITIONER HAD CLAIMED THE S AME AT A SUM OF RS. 6,25,000 AS PER REGISTERED VALUER S REPORT . THEREFORE, THE AO WAS REQUIRED TO FORM AN OPINION THAT THE VALUE S O CLAIMED IS LESS THAN THE FAIR MARKET VALUE. THE ESTIMATED VALU E PROPOSED BY THE DVO IS SHOWN AT RS. 3,97,000, WHICH IS LESS THA N THE FAIR MARKET VALUE SHOWN BY THE ASSESSEE AS ON 1ST APRIL, 1981. THEREFORE, CL. (A) OF S. 55A CANNOT BE MADE APPLICA BLE. CLAUSE (B) OF S. 55A CAN BE INVOKED ONLY IN ANY OTHER CASE, NAMEL Y WHEN THE VALUE OF THE ASSET CLAIMED BY THE ASSESSEE IS NOT S UPPORTED BY AN ESTIMATE MADE BY A REGISTERED VALUER . IN THE FACTS OF THE PRESENT CASE, CL. (B) OF S. 55A ALSO CANNOT BE INVOKED. THE REFORE THERE IS NO QUESTION OF HAVING RECOURSE TO SUB-CL. (II) OF CL. (B) OF S. 55A OF THE ACT. 14. IN VIEW OF THE AFORESAID DECISIONS, WE ARE OF T HE VIEW THAT REFERENCE BY THE ASSESSING OFFICER TO THE DVO U/S. 55A FOR VA LUATION OF FMV OF THE PROPERTY AS ON 1.4.1981 IS NOT VALID FOR THE REASON S THAT FMV DECLARED BY THE ASSESSEE AS PER GOVERNMENT REGISTERED VALUERS REPORT WAS MORE THAN THE FMV AS ESTIMATED BY THE DVO. SINCE DETERMINATIO N OF THE FMV AS ON 1.4.1981 WAS BASED ON THE REPORT OF THE DVO, THE S AME IS HELD TO BE INVALID. CONSEQUENTLY, ESTIMATION OF THE FMV OF THE PROPERTY AS ON SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 11 1.4.1981 AS MADE BY THE ASSESSEE IS DIRECTED TO BE ACCEPTED. GROUND NO. 1 OF THE ASSESSEES IS ALLOWED. 15. IN VIEW OF THE DECISION IN GROUND NO. 1, GROUND NO. 2 RAISED BY THE ASSESSEES IN THEIR APPEALS DOES NOT REQUIRE ANY CONSIDERATION. 16. AS FAR AS GROUND NO. 3 IS CONCERNED, WE ARE OF THE VIEW THAT AS FAR AS EXPENSES ON CONSTRUCTION OF DIVIDING WALL, ELECT RICITY AND WATER METER TRANSFER CHARGES ARE CONCERNED, THEY ARE TO BE CONS IDERED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER WITHIN THE MEANING OF SECTION 48(I) OF THE ACT. THESE ARE EXPENSES NECESSARY FOR THE PURPOSE OF GIVING PROPER POSSESSION AND OWNERSH IP OF THE PROPERTY. THEY ARE THEREFORE WHOLLY AND EXCLUSIVELY EXPENDITU RE INCURRED IN CONNECTION WITH THE TRANSFER BY WAY OF SALE OF THE CAPITAL ASSET. THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE IN T HIS REGARD. HOWEVER, VALUATION EXPENSES CLAIMED BY THE ASSESSEE ARE ONLY TO SUPPORT OF ITS COMPUTATION OF CAPITAL GAIN FOR INCOME TAX PURPOSE. THEY CANNOT BE SAID TO BE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY I N CONNECTION WITH SALE OF THE CAPITAL ASSET. TO THE EXTENT OF DISALLOWANCE OF VALUATION EXPENSES, ORDER OF LEARNED CIT(A) IS CONFIRMED. THUS, GROUND NO. 3 RAISED BY THE ASSESSEES IS PARTLY ALLOWED. 17. AS FAR AS GROUND NO. 4 RAISED BY THE ASSESSEES IN THEIR APPEALS ARE CONCERNED, THE FACTS ARE AS FOLLOWS :- 18. WE HAVE ALREADY SEEN THAT THE ASSESSEES SOLD PR OPERTY ON 25.10,2005. SECTION 54EC(1) & EXPLANATION (B) & (BA ) OF THE ACT READS AS FOLLOWS :- 54EC. (1) WHERE THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET (THE CAPITAL ASSET SO TRANSFERRED BEI NG HEREAFTER IN THIS SECTION REFERRED TO AS THE ORIGINAL ASSET) AND THE ASSESSEE HAS, AT ANY TIME WITHIN A PERIOD OF SIX MONTHS AFTER THE DATE OF SUCH TRANSFE R, INVESTED THE WHOLE OR ANY PART OF CAPITAL GAINS IN THE LONG-TERM SPECIFIE D ASSET, THE CAPITAL GAIN SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWIN G PROVISIONS OF THIS SECTION, THAT IS TO SAY, SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 12 ( A ) IF THE COST OF THE LONG-TERM SPECIFIED ASSET IS N OT LESS THAN THE CAPITAL GAIN ARISING FROM THE TRANSFER OF THE ORIGINAL ASSE T, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45 ; ( B ) IF THE COST OF THE LONG-TERM SPECIFIED ASSET IS LES S THAN THE CAPITAL GAIN ARISING FROM THE TRANSFER OF THE ORIGINAL ASSET, SO MUCH OF THE CAPITAL GAIN AS BEARS TO THE WHOLE OF THE CAPITAL GAIN THE SAME PROPORTION AS THE COST OF ACQUISITION OF THE LONG-TERM SPECIFIED ASSE T BEARS TO THE WHOLE OF THE CAPITAL GAIN, SHALL NOT BE CHARGED UNDER SECTION 45 ( B ) LONG-TERM SPECIFIED ASSET, MEANS ANY BOND, REDEEM ABLE AFTER THREE YEARS AND ISSUED ON OR AFTER THE 1ST DAY OF APRIL, 2006, ( I ) BY THE NATIONAL HIGHWAYS AUTHORITY OF INDIA CONST ITUTED UNDER SECTION 3 OF THE NATIONAL HIGHWAYS AUTHORITY OF IND IA ACT, 1988 (68 OF 1988); OR ( II ) BY THE RURAL ELECTRIFICATION CORPORATION LIMITED, A COMPANY FORMED AND REGISTERED UNDER THE COMPANIES ACT, 1956 (1 OF 1956), AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THE OFF ICIAL GAZETTE FOR THE PURPOSES OF THIS SECTION WITH SUCH CONDITIONS (INCL UDING THE CONDITION FOR PROVIDING A LIMIT ON THE AMOUNT OF INVESTMENT B Y AN ASSESSEE IN SUCH BOND) AS IT THINKS FIT: 19. AS CAN BE SEEN FROM THE AFORESAID PROVISIONS, I NVESTMENT IN LONG TERM SPECIFIED ASSET HAS TO BE MADE BY THE ASSESSEE AT ANY TIME WITHIN THE PERIOD OF SIX MONTHS AFTER THE DATE OF TRANSFER . THE LONG TERM SPECIFIED ASSETS WERE BONDS ISSUED BY NATIONAL HIGH WAY AUTHORITY OF INDIA (NHAI) AND RURAL ELECTRIFICATION CORPORATION LTD. (RECL). THEY WERE PERMITTED TO ISSUE BONDS TO PERSON WHO WANTED TO AVAIL BENEFIT U/S. 54EC OF THE ACT; BUT A CEILING WAS FIXED ON THE AMO UNT OF BONDS THAT COULD BE ISSUED BY THESE TWO AUTHORITIES VIZ., RS. 1,500 CRORES FOR NATIONAL HIGHWAY AUTHORITY OF INDIA AND RS. 4,500 C RORES FOR RURAL ELECTRIFICATION CORPORATION LTD. THESE ISSUES WERE OVER-SUBSCRIBED AND THE AFORESAID TWO AUTHORITIES STOPPED RECEIVING APP LICATIONS FOR INVESTMENT IN THESE BONDS. THE ASSESSEES WERE READY TO INVEST THE FUNDS WITHIN THE PERIOD MENTIONED IN SECTION 54EC OF THE ACT. IN FACT, ASSESSEES HAD MADE OUT A DEMAND DRAFT FOR MAKING TH E AFORESAID INVESTMENT ON SPECIFIED BONDS ON 25.4.2006. ULTIMAT ELY THEY COULD MAKE SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 13 INVESTMENT IN REC BONDS ONLY ON 10.7.2006. IN FACT, IN A LETTER DATED 25.4.2006, THE ASSESSEE HAS INFORMED THE ASSESSING OFFICER IN BOTH THE CASE OF THE ASSESSEES THAT THE AFORESAID AUTHORITIE S HAVE REFUSED TO ACCEPT THE APPLICATION OF THE ASSESSEE FOR MAKING I NVESTMENT. THE ASSESSING OFFICER DID NOT ALLOW THE BENEFIT OF EXEM PTION U/S. 54EC OF THE ACT FOR THE REASON THAT THE ASSESSEES DID NOT MAKE THE INVESTMENT OF CAPITAL GAIN IN THE LONG TERM SPECIFIED ASSET WITHI N THE PERIOD CONTEMPLATED BY THE AFORESAID PROVISIONS. LEARNED C IT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 20. AT THE TIME OF HEARING OF THESE APPEALS, IT WAS BROUGHT TO OUR NOTICE THAT CBDT AFTER NOTICING HARDSHIP THAT THE A SSESSEES WERE BEING PUT TO BY THE REASON OF REFUSAL OF REC LTD. AND NHA I TO ACCEPT INVESTMENT IN THEIR BONDS, HAVE ISSUED A CIRCULAR D ATED 30.6.2006 DIRECTED AS FOLLOWS :- IT HAS BEEN BROUGHT TO THE NOTICE OF THE CENTRAL B OARD OF DIRECT TAXES THAT SOME PERSONS COULD NOT AVAIL OF THE BENE FIT UNDER SECTION 54EC OF THE I.T. ACT ON ACCOUNT OF THE NON- AVAILABILITY OF THE CAPITAL GAIN BONDS. FURTHER FOR SOME OTHER PERS ONS THE EFFECTIVE TIME AVAILABLE FOR MAKING THE INVESTMENT IS LESS THAN SIX MONTHS BECAUSE OF NON-AVAILABILITY OF THESE BONDS. WITH A VIEW TO REMOVING THE HARDSHIP CAUSED TO TAXPAYER, THE CENTR AL BOARD OF DIRECT TAXES, IN EXERCISE OF POWERS CONFERRED BY CL AUSE (C) OF SUB- SECTION (2) OF SECTION 119 OF THE I.T. ACT 1961, HE REBY ORDERS THAT THE LIMITATION OF SIX MONTHS FOR MAKING THE INVESTM ENT UNDER SECTION 54EC OF CAPITAL GAINS ARISING FROM THE TRAN SFER OF A LONG TERM CAPITAL ASSET, IS EXTENDED (I) UPTO 30 TH SEPTEMBER 2006, IN CASE OF PERSONS WHERE THE LONG TERM CAPITAL ASSET WAS TRANSFERRED BETWEEN 29. 9.2005 AND 31.12.2005 (BOTH DATES INCLUSIVE); (II) UPTO TO 31 ST DECEMBER 2006, IN CASE OF PERSONS WHERE THE LONG TERM CAPITAL ASSET WAS TRANSFERRED BETWEEN 1.1 .2006 AND 30.6.2006 (BOTH DATES INCLUSIVE). 21. IN THE PRESENT CASE, THE ASSESSEES TRANSFERRED THE CAPITAL ASSET ON 25.10.2005 AND THEREFORE TIME FOR MAKING INVESTMENT HAS BEEN EXTENDED UP TO 31.9.2006. THE ASSESSEES HAVE MADE THE INVEST MENT IN LONG TERM SPECIFIED ASSET ON 10.7.2006 WITHIN THE EXTENDED TI ME LIMIT LAID DOWN BY THE CIRCULAR REFERRED TO ABOVE. IN VIEW OF THE ABOV E, THE ASSESSEE WERE SMT. MAYA SAKRANEY & SMT. SARLA SAKRANEY 14 ENTITLED TO CLAIM DEDUCTION U/S. 54EC OF THE ACT. W E DIRECT THE ASSESSING OFFICER TO ALLOW CLAIM OF THE ASSESSEES FOR EXEMPTI ON U/S.54-EC OF THE ACT. THUS, GROUND NO. 4 IS ALLOWED. 21. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED. ORDER WAS PRONOUNCED ON 23 RD DAY OF JULY, 2010. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 23 RD JULY, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS