ACIT 24(3), MUMBAI V. SUNDRI K THAWANI, MUMBAI

ITA 3026/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9084 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Capital asset; Opportunity of being heard; Fair market value; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI I. P. BANSAL, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.: 3026/MUM/2011 ASSESSMENT YEAR: 2007-08 ASST. CIT-24(3), ROOM NO.701, C-11, 7 TH FLOOR, B.K.C., BANDRA (E), MUMBAI 51. VS. SUNDRI K. THAWANI BLOCK NO.3, BLDG. NO.3, GAJANAN COLONY, JAWAHAR NAGAR, GOREGAON (WEST) MUMBAI 400 062 [ PAN NO.: AACPT 3017 G ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJEEV JAIN RESPONDENT BY : SHRI VIPUL B. JOSHI DATE OF HEARING : 04.12.2012 DATE OF PRONOUNCEMENT : 21.12.2012 ORDER PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-34 MUMBAI (CIT(A) FOR SHO RT) DATED 11.02.2011, PARTLY ALLOWING THE ASSESSEE-RESPONDENTS APPEAL CONTESTIN G ITS ASSESSMENT FOR THE ASSESSMENT YEAR (A.Y.) 2007-08 VIDE ORDER U/S.143(3) OF THE IN COME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 21.12.2009. 2. THE ONLY ISSUE IN APPEAL, PROJECTED BY THE REVEN UE PER ITS GROUND NO. 1, IS THE DIRECTION BY THE LD. CIT(A) FOR ADOPTING THE FAIR M ARKET VALUE (FMV) OF THE ASSESSEES HOUSE PROPERTY SOLD DURING THE RELEVANT PREVIOUS YE AR, BEING FINANCIAL YEAR 2006-07, AS AT ITA NO. 3026/MUM/2011 SUNDRI K. THAWANI (A.Y.: 2007-08) 2 01/04/1981, AT RS.48,18,274/-, I.E., AS CLAIMED BY THE ASSESSEE, IN COMPUTING THE LONG TERM CAPITAL GAINS ON THE TRANSFER OF THE SAID HOUS E PROPERTY. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. 3.1 WE FIND THAT THE BASIS OF THE ASSESSEES VA LUATION IS THE VALUATION REPORT DATED 30/3/2007 BY A REGISTERED VALUER, VALUING THE PROPE RTY AT RS.96,36,548/-. THE ASSESSEE HAVING A 50% SHARE THEREIN, THE SAME, THUS, STOOD W ORKED OUT TO RS.48.18 LAKHS. THE BASIS OF THE REVENUES WORKING, ON THE OTHER HAND, IS THE STAMP VALUATION BY THE STAMP DUTY AUTHORITIES FOR THE IMMEDIATELY PRECEDING PREV IOUS YEAR, I.E., F.Y. 2005-06. THE SAME, AT RS.51.99 LAKHS, BEING FOR A PART OF THE PR OPERTY (I.E., 1626 SQ. MTRS.), THE VALUATION AS ON 01.04.1981 FOR THE AREA ATTRIBUTABL E TO THE LONG-TERM CAPITAL ASSET (1957.47 SQ. MTRS.) WAS DEDUCED BY THE ASSESSING OF FICER (A.O.) ON PROPORTIONATE (AREA) BASIS, FURTHER APPLYING THE REVERSE INDEX METHOD, S O AS TO ARRIVE AT A FIGURE OF RS.12,59,325/- FOR THE VALUE AS ON 01/4/1981. THE LONG-TERM CAPIT AL GAIN WAS WORKED OUT BY HIM ACCORDINGLY, I.E., BY ADOPTING THE SAME AS I TS FMV AS ON 01.4.1981. THE ASSESSEE FOUND FAVOUR WITH THE LD. CIT(A) IN APPEAL ON THE B ASIS OF THE DECISION BY THE TRIBUNAL IN THE CASE OF RUBAB M. KAZERANI V. JT. CIT , 91 ITD 429 (MUM) (TM), WHEREIN IT STOOD CLARIFIED THAT THE POWER OF THE A.O. U/S.55A COULD BE EXERCISED ONLY WHERE IN HIS OPINION THE FAIR MARKET VALUE DISCLOSED BY THE ASSESSEE IS LESS. AS SUCH, THE SAME COULD NOT BE INVOKED, WHERE IN THE OPINION OF THE A.O. (OR THE F IRST APPELLATE AUTHORITY), THE VALUE AS FURNISHED BY THE ASSESSEE IS, RATHER, ON THE HIGHER SIDE. AS APPARENT FROM THE RECORD, AND AS ALSO CONCEDED TO BY THE PARTIES DURING HEARING, THERE HAS BEEN NO REFERENCE BY THE A.O. TO THE VALUATION OFFICER U/S.55A IN THE PRESENT CAS E. AS SUCH, THE VERY BASIS ON WHICH RELIEF STANDS ALLOWED TO THE ASSESSEE PER THE IMPUG NED ORDER DOES NOT SURVIVE, AND WHICH (ORDER) THEREFORE HAS BUT TO BE SET ASIDE. 3.2 COMING TO THE MERITS OF THE CASE, AS AFORE-N OTED, THE VALUATION REPORT BY THE REGISTERED VALUER IN FORM O-1 DATED 30.03.2007 (PB PGS. 20 TO 29) FORMS THE BASIS OF THE ITA NO. 3026/MUM/2011 SUNDRI K. THAWANI (A.Y.: 2007-08) 3 ASSESSEES CLAIM QUA THE VALUATION OF THE RELEVANT LONG-TERM CAPITAL AS SET AS ON 01.4.1981. THE SAME VALUES THE LAND COMPONENT AT RS.160/- PER SQ. FT. (AT RS.56.17 LAKHS) AND THE BUILT-UP AREA AT RS.600/- SQ. FT. (AT RS.40.20 LAKH S), WORKING TO AN AGGREGATE TO RS.96.37 LAKHS. THE LD. AR WAS UNABLE TO FURNISH ANY EXPLANA TION BEFORE US AS TO THE BASIS ADOPTED FOR ARRIVING AT THE SAID LAND RATE, WHICH COULD ONL Y BE PER SOME INDEPENDENT MATERIAL, VIZ. THE STAMP DUTY VALUATION AT THE RELEVANT TIME, OR S OME PURCHASE/SALE TRANSACTIONS QUA LAND IN THE VICINITY (THE PROPERTY BEING LOCATED IN AN I NDUSTRIAL AREA, AND IN A MIDDLE CLASS LOCALITY / PB PG. 20) AT THE RELEVANT TIME. IN FACT , THE REPORT ITSELF STATES (AT COL. 38) OF NO SALE INSTANCES BEING READILY AVAILABLE, SO THAT THE SAME ADMITTEDLY DO NOT INFORM THE LAND RATE ADOPTED. HOW HAS THEN THE SAME BEEN ARRIVED AT ? EVEN THE RATE FOR CONSTRUCTION COULD ONLY BE WITH REFERENCE TO THE QUALITY OF THE CONSTRUCTION, WHICH IS COMPRISED OF THREE (3) SHEDS IN THE FORM OF A CHAWL, A C.I. SH ED AND A A.C. ROOF SHED, WITH ORDINARY FITTINGS AND NO SANITARY INSTALLATIONS/REFER COL. 3 4, PART I, PART II AND ANN. TO FORM O1). FURTHER, WE FIND CONSIDERABLE SUBSTANCE IN THE REVENUES CASE IN DOUBTING THE SAID VALUATION INASMUCH AS THE SAID PROPERTY WAS PU RCHASED BY THE ASSESSEE, ALONG WITH THE OTHER CO-OWNER, FOR A SUM OF RS.1.75 LAKHS VIDE AN AGREEMENT DATED 15.02.1979 (3252 SQ. MTRS.), AND THE BALANCE (331.47 SQ. MTRS.) IN N OVEMBER-DECEMBER, 1980 FOR RS.50,000/-. AS SUCH, THE PROPERTY, WHICH STANDS VA LUED BY THE REGISTERED VALUER AT RS.96.37 LAKHS AS ON 01.4.1981, WAS PURCHASED BY THE ASSESSEE, OS TENSIBLY ONLY AT ITS FAIR MARKET VALUE, WITHIN OVER A YEAR PRIOR TO THE VALUA TION DATE (01.4.1981), AT AS LOW AS RS.2.25 LAKHS . THE DIFFERENCE, IN FACT, IS EVEN HIGHER THAN THE APPARENT RS. 94.12 LACS , INASMUCH AS THE PROPERTY ADMITTEDLY VALUED MEASURES ONLY 3262.4 SQ. MTRS., WHILE THE TOTAL PROPERTY ACQUIRED AND SOLD ADMEASURES 3583.47 SQ. MTRS. THE LD. AR WOULD, TOWARD THIS, ON BEING QUESTIONED BY THE BENCH DURING HEARI NG, SUBMIT THAT IT COULD BE SO AS THE PROPERTY WAS UNDER TENANCY, AND WHICH IS DEFINITELY AN ENCUMBRANCE, HAVING A BEARING ON THE VALUE AT WHICH THE PROPERTY IS TRANSACTED, AND FOR WHICH HE SOUGHT TO DRAW OUR ATTENTION TO SOME WRITTEN SUBMISSIONS BEFORE THE AO , STATING THAT THE PROPERTY WAS UNDER DISPUTE AND UNDER TENANCY. THE SAME, HE CONTINUED, WERE HOWEVER NOT CONSIDERED BY AO. ITA NO. 3026/MUM/2011 SUNDRI K. THAWANI (A.Y.: 2007-08) 4 IN OUR VIEW, THOUGH WITHOUT DOUBT THERE IS NO REFER ENCE IN THE ORDERS OF THE AUTHORITIES BELOW TO THE PROPERTY BEING UNDER TENANCY AS ON 01. 4.1981 AND, THUS, ENCUMBERED IN THAT RESPECT, OR OF ANY DISPUTE ATTENDING THE SAME, AS B EING SUGGESTED BY THE LD. AR BEFORE US, THE FACT OF TENANCY HAS DEFINITELY BEEN BROUGHT TO THE AOS NOTICE BY THE ASSESSEE, AND WHICH COULD HAVE A BEARING IN THE MATTER. IN FACT, THE VALUATION REPORT ITSELF CLARIFIES THAT THE ENTIRE BUILT-UP AREA IS UNDER TENANCY, YIELDING A MONTHLY RENT OF RS.43,906/-. WE WONDER AS TO HOW THE RENTALS OBTAINING FOR THE YEAR 1981 WERE GATHERED? SO, HOWEVER, THE REGISTERED VALUER HAS NOT ADOPTED THE RENT CAPITALI SATION METHOD, WHICH WOULD RATHER YIELD A MUCH LOWER VALUE THAN THAT ASSESSED (RS. 96 .37 LAKHS), PARTICULARLY CONSIDERING THAT THE PROPERTY TAX AND WATER/ELECTRICITY CHARGES WERE BEING BORNE BY THE OWNER- LANDLORD . IN ANY CASE, THE DEPRESSION IN THE VALUE ON ACCO UNT OF THE SAID ENCUMBRANCE IS NOT SOMETHING CONSTANT, BUT WOULD DEPEND ON THE REN T BEING EARNED AT THE RELEVANT TIME, AND THE REGULATION IN ITS RESPECT, IF ANY, INCIDENT AL ON THE PROPERTY. AS REGARDS DISPUTES, THERE IS, HOWEVER, NOTHING ON RECORD TO DEMONSTRATE OR DOCUMENT THE SAME. RATHER, THE VALUATION REPORT (PER COL. 36, PART I) STATES OF TH ERE BEING NO DISPUTE/S BETWEEN THE LANDLORD AND THE TENANTS . FURTHER, THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE INCURRED ANY EXPENDITURE DURING THE INTERVENING YEARS, I.E., FRO M 01.4.1981 TO THE TIME OF ITS SALE DURING THE RELEVANT PREVIOUS YEAR, ON ITS IMPROVEME NT, INCLUDING BY WAY OF ANY PAYMENT TO THE TENANTS FOR EVICTION OR FOR SETTLING DISPUTE /S, IF ANY, NOR IN FACT THERE IS ANY CLAIM BY THE ASSESSEE TO THIS EFFECT, WHICH IN ANY CASE WOUL D HAVE TO BE EXHIBITED. AS SUCH, IT MAY WELL BE THAT THE PROPERTY AS SOLD WAS ALSO SUBJECT TO TENANCIES, OR SUBSTANTIALLY SO, SO THAT THIS BECOMES A CONSTANT FACTOR ACROSS BOTH VALUATIO NS, I.E., AS ON 01.4.1981, AS WELL AS AT THE TIME OF SALE AND, THUS, THE FACT OF ENCUMBRANCE IS OF LITTLE CONSEQUENCE. THE SALE DEED IS ALSO NOT ON RECORD, WHICH MAY BEAR OUT THE FACT OF ANY SUBSISTING TENANCIES AND/OR DISPUTES. IN OTHER WORDS, IT MAY WELL BE THAT THE P ROPERTY IS TRANSFERRED IN SUBSTANTIALLY THE SAME FORM IN WHICH IT WAS ACQUIRED. ON THE OTHER HA ND, IF, OR EVEN ASSUMING IT TO BE, NOT SO, IT NEEDS TO BE BORNE IN MIND THAT THE STAMP VAL UATION OBTAINING DURING F.Y. 2005-06, ITA NO. 3026/MUM/2011 SUNDRI K. THAWANI (A.Y.: 2007-08) 5 WHICH FORMS THE BASIS OF THE AOS VALUATION, ALSO D OES NOT ACCOUNT FOR ANY SUCH ENCUMBRANCE. IN FACT, IT WOULD BE NOTED THAT THE AS SESSEE CONTRADICTS HERSELF WHEN SHE SEEKS TO JUSTIFY THE LOW PURCHASE RATE ON ACCOUNT O F ENCUMBRANCES, WHILE AT THE SAME TIME PLACING RELIANCE ON A VALUATION THAT IS SANS ANY SUCH. IT CANNOT BE EMPHASIZED ENOUGH, THEREFORE, THAT THE VALUE AS ON 01.4.1981 ADOPTED B Y THE A.O. (AT A TOTAL OF RS.23.05 LAKHS FOR THE ENTIRE AREA OF 3583.47 SQ.MTRS.) IS AT OVER 10 TIMES THE ASSESSEES PURCHASE PRICE, WHICH IS PROXIMATE IN TIME TO THE VALUATION DATE, W HILE THE ASSESSEES VALUE WORKS TO A PHENOMENAL INCREASE OF NEARLY 50 TIMES THE PURCHASE PRICE. FURTHER, GRANTING THE ASSESSEES VALUATION WOULD IMPLY THAT THE PROPERTY HAS IN FACT DEPRECIATED SINCE 1981 (UP TO THE F.Y. 2005-06) BY OVER 50%, EVEN GOING BY THE NOMINAL VALUES ; THE FMV (FOR THE TOTAL AREA OF 3583.5 SQ. MTRS.) AS ON 01/4/1981 AND F.Y. 2005-06 (AS PER THE STAMP VALUATION) BEING AT RS. 106 LACS AND RS. 52 LACS RE SPECTIVELY! OR, BY AS MUCH AS 10 TIMES IN COMPARATIVE TERMS, I.E., IMPUTED ON THE BASIS OF THE (WHOLE SALE) PRICE INDEX, WHICH HAS GROWN BY NEARLY 5 TIMES DURING THE INTERVENING PERI OD. 3.3 IT WAS, THEREFORE, CONSIDERED BY US THAT TH E FMV OF PROPERTY (AS AT 01/4/1981) SEEMS TO HAVE BEEN VERY LIBERALLY VALUED BY THE A.O . IT IS THIS, I.E., THE ENTIRETY OF THE FACTS, WHICH LED US TO EXPRESS THE SAME DURING HEAR ING, RATHER THAN THE CONFIRMATION PER SE OF THE METHOD ADOPTED BY THE A.O., I.E., THE REVERS E INDEXATION METHOD, ASSAILING WHICH FORMED THE THRUST OF THE ASSESSEES ARGUMENTS BEFOR E US. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT THE SAME (THE REVERSE INDEXATION) WOULD ONLY IMPLY THAT THE INCREASE WITNESSED IN THE FMV (AS MEASURED OR CAPTURED BY TH E STAMP VALUATION OF A RECENT DATE) OVER DECADES, IS ONLY IN TERMS OF THE INCREASE IN T HE PRICE INDEX, AND WHICH IS NOT AN UNREASONABLE PRESUMPTION TO MAKE AS FAR AS THE REVE NUE IS CONCERNED INASMUCH AS IT WOULD ONLY YIELD A MARGINAL/LOWER CAPITAL GAIN. THE DIFFERENCE IN THE TWO VALUATIONS ARISES, IT MAY BE APPRECIATED, THUS, NOT ON ACCOUNT OF THE SAID METHOD, BUT THE DIFFERENCE BETWEEN THE MARKET VALUE AND THE STAMP VALUATION . FURTHER, THAT THE LATTER WORKS OUT TO AN AMOUNT MUCH CLOSER TO THE ACTUAL PURCHASE PRICE (WH ICH IS PROXIMATE IN TIME TO APRIL 1, ITA NO. 3026/MUM/2011 SUNDRI K. THAWANI (A.Y.: 2007-08) 6 1981) FURTHER STRENGTHENS THE SAME, EVEN THOUGH THE RE IS YET A HUGE GAP OF OVER 9 TIMES (AS ON 01/4/1981), SO THAT THE ASSESSEES ARGUMENT OF ENCUMBRANCE COULD, EVEN IF VALID, BE OF LITTLE CONSEQUENCE. THE LD. AR, HOWEVER, ON C ONFERRING WITH THE ASSESSEE, WOULD SUBMIT THAT THE ASSESSEE DOES NOT ACCEPT THE REVENU ES WORKING; IS CONFIDENT OF HER VALUATION, AND WOULD BE ABLE TO ESTABLISH ITS CLAIM , I.E., OF HAVING ADOPTED A REASONABLE BASIS OF VALUATION AS ON 01.4.1981 AS MADE, BEFORE THE A.O., TO WHOM A REMISSION MAY BE MADE FOR CONSIDERATION OF THE FACTS, WHICH APPARENT LY HAVE NOT CONSIDERED BY HIM. THE LD. DR ALSO DID NOT HAVE ANY OBJECTION TO THE SAME. 3.4 WE, THEREFORE, IN THE FACTS AND CIRCUMSTANC ES OF THE CASE, CONSIDER IT FAIR AND PROPER TO REMIT THE MATTER BACK TO THE FILE OF THE A.O. FO R VERIFICATION OF THE ASSESSEES CLAIMS IN THE MATTER, I.E., THE DETERMINATION OF THE FMV OF T HE RELEVANT LONG TERM CAPITAL ASSET AS ON 01/4/1981. THE ASSESSEE, WHO SHALL BE ALLOWED A REA SONABLE OPPORTUNITY OF BEING HEARD, MAY FURNISH ANY MATERIALS IN SUPPORT OF HER CLAIM, I.E., AS TO THE FAIR MARKET VALUE AS ON 01.4.1981, WHICH IS ESSENTIALLY A MATTER OF FACT, I N THE SAID PROCEEDINGS. THE AO SHALL DECIDE THE SAME BY ISSUING DEFINITE FINDINGS OF FAC T, AFTER VERIFYING THE ASSESSEES CLAIMS, TOWARD WHICH HE IS AT LIBERTY TO SATISFY HIMSELF, C ALLING FOR ANY MATERIALS/EVIDENCE AND/OR EXPLANATIONS THAT HE MAY DEEM RELEVANT OR PROPER. W E DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 21 ST DAY OF DECEMBER, 2012 SD/- - SD/- (I.P. BANSAL) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE: 21.12.2012 ITA NO. 3026/MUM/2011 SUNDRI K. THAWANI (A.Y.: 2007-08) 7 COPY FORWARDED TO: 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C.I.T. 4. CIT (A) 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI