DCIT, Trichy V. Shri R.Anandakumar, Trichy

ITA 372/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4744 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Keywords: Capital asset; Cost of acquisition; Fair market value; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.372/MDS/2011 ASSESSMENT YEAR : 2007-08 THE DY. CIT COMPANY CIRCLE I TRICHY VS SHRI R.ANANDAKUMAR NO.3, FIRST STREET MARIS AVENUE CANTONMENT TRICHY [PAN AEDPA9870K] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.B.SEKARAN, CIT/DR RESPONDENT BY : NONE O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEA R 2007-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), TIRUC HIRAPALLI, DATED 15.12.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08, O N 19.2.2008 ADMITTING TOTAL INCOME OF ` 24,52,456/-. THE FAMILY MEMBERS OF THE ITA 372/11 :- 2 -: ASSESSEE INCLUDING HIMSELF, PURCHASED A PIECE OF L AND ALONGWITH A BUILDING CONSTRUCTED ON A PORTION THEREOF AND SITUA TED IN COONNOOR AT TEDDINGTON, QUAIL HILL ROAD, IN 1961. THE TOTAL AR EA OF THE LAND IS 1.72 ACRES. THE VALUE OF THE LAND WITH BUILDING IN 1961 , AS PER THE DEED OF SALE, WAS ` 22,500/- AND THE REGISTRATION FEES FOR THE ABOVE P ROPERTY WAS ` 2,020/-. THE ASSESSEE GOT HIS SHARE OF THIS PROPE RTY ON 23.3.1994 THROUGH A FAMILY SETTLEMENT AND SUBSEQUEN TLY SOLD THIS PROPERTY ON 18.1.2007 TO TWO VENDORS NAMELY, SMT R EKHA SANJAY SHAH AND SHRI SANJAY R.SHAH, WHO PURCHASED THE SAME JOINTLY FOR A CONSIDERATION OF ` 2 CRORES [LAND COST - ` 1,32,50,000, BUILDING COST - ` 67,50,000]. THE ASSESSEE, AFTER TAKING THE COST OF LAND AND BUILDING TOGETHER AT ` 33,40,000 [ LAND FOR ` 25,80,000, BUILDING FOR ` 7,50,000] AS ON 1.4.1981 AND; AFTER WORKING OUT THE COST OF ACQUISITION AND DEDUCTING BROKERAGE EXPENSES ETC. OFFERED ` 23,14,850/- AS INCOME UNDER THE HEAD CAPITAL GAINS. THE ASSESSE E ALSO FILED A VALUATION REPORT OBTAINED FROM A REGISTERED VALUER, SHRI A.KRISHNAN, WHO HAS STATED TO HAVE ARRIVED AT THE VALUE OF THIS PROPERTY BASED ON MARKET SURVEY. HE HAS TAKEN THE VALUE OF THE BUILD ING BASED ON PLINTH AREA RATES. THERE WAS ADMITTEDLY NO ANY SALE INSTA NCE(S) DURING 1980S. BUT THE ASSESSING OFFICER DID NOT ACCEPT THE VALUATION REPORT AND HE (A.O) HAS HIMSELF PREPARED A VALUATION OF TH E LAND AND BUILDING ITA 372/11 :- 3 -: AS PER THE MARKET RATES PREVAILING AS ON 1.9.1981 BASED ON SUB- REGISTRARS OFFICE, COONNOOR GUIDELINE RATES; AND P LINTH AREA RATES PRESCRIBED BY PUBLIC WORKS DEPARTMENT OF TAMIL NADU . THIS REPORT WAS SENT TO THE ASSESSEE FOR CONFRONTATION WHICH WA S REPLIED THROUGH LETTER DATED 18.11.2009 STATING THAT THE COST OF AC QUISITION OF THE TEDDINGTON PROPERTY IN 1961 WAS ` 5,00,000 AND AFTER EXTRAPOLATING BY AN INTERNAL RATE OF RETURN(IRR) OF 12%, THE INVEST MENT MADE IN THE YEAR 1961 WILL COME TO ` 30,65,197/- AFTER A LAPSE OF 16 YEARS. IT WAS REQUESTED THAT FAIR MARKET VALUE AS ON 1.4.1981 SHO ULD BE ADOPTED ON THIS FIGURE AS THERE WAS NO SPECIFIC INSTANCE(S) OF SALE(S) OF LAND WITH BUILDING, PROXIMATE IN TIME AND PLACE. THE ASSESSE E WANTED FURTHER TIME TO FURNISH EVIDENCE TO SUBSTANTIATE HIS CLAIM REGARDING COST OF ACQUISITION, BUT THE ASSESSING OFFICER HAS REJECTED THIS CONTENTION OF THE ASSESSEE BY STATING THAT IRR IS THE BASE METHOD OF VALUATION OF PROPERTY ONLY FOR WEALTH TAX PURPOSE. FINALLY, HE HAS COMPUTED TOTAL CAPITAL GAINS AT ` 1,79,97,608/- AGAINST WHICH THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO HAS ACCEPTED THE CONTENTION OF THE ASSESSEE AND HAS DELETED THE ENTIRE ADDITION SO MA DE BY THE ASSESSING OFFICER. NOW, THE REVENUE IS AGGRIEVED A ND HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: ITA 372/11 :- 4 -: 1. THE ORDER OF THE CIT (APPEALS) IS CONTRARY T O LAW, FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF .INCOME TAX (APPE ALS) HAS ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF CAPITAL GAINS, ADOPTING THE FAIR MARKET VALUE AS IN 01.04.1 981. 2.1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS FAILED TO NOTICE THAT THE VALUATION REPORT OF A VAL UER USED BY THE ASSESSEE FOR TAKING THE FAIR MARKET VALUE AS ON 01.04.1981 IS HIGHLY SUBJECTIVE AND DOES NOT SPEAK OF ANY SPECIFIC MARKET ENQUIRIES. 2.2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) FAILED TO NOTICE THE FAILURE OF THE ASSESSEE OF PROVE THA T THE GUIDELINE VALUE WAS LESS THAN FAIR MARKET VALUE ADO PTED BY THE ASSESSEE. FURTHER,. THE ASSESSEE DID NOT ES TABLISH THAT THE ADOPTION OF STATE PWD RATES WOULD NOT REFL ECT THE FAIR MARKET VALUE OF THE BUILDING AS ON 01.04.1981. 3. FOR THESE AND OTHER REASONS THAT MAY BE. ADDUCE D AT THE TIME OF HEARING, THE ORDER OF THE CIT (A) MAY B E CANCELLED AND THAT OF THE ASSESSING OFFICER BE REST ORED. I 3. THE NOTICES SENT THE ASSESSEE WERE RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARK NO SUCH ADRESSEE, THE REFORE, THE CASE WAS HEARD EX-PARTE. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD.DR AN D HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CONTENTIONS OF THE LD.AR PUT FORTH BEFORE THE LD. CIT(A), IN ESSENCE, IN RELATION TO DETERMINATION OF FAIR MARKET VALUE A ROUND WHICH THE ENTIRE CONTROVERSY IN THIS CASE HINGES, ARE AS UNDE R: ITA 372/11 :- 5 -: 1) THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX HAD VIEWED THE ENTIRE TRANSACTION IN A STRAIT JACKET IN THE SENSE THAT HE HAD BEEN OBLIVIOUS OF THE FACT THAT THE SUBSTITUTION OF VALUE AS ON 01.04.1981 POSTULATED BY THE SECTION IS THE FAIR MARKET VALUE AND NOT GUIDELINE VALUE. 2) THE ASSISTANT COMMISSIONER OF INCOME TAX OUGHT NOT TO HAVE DISMISSED THE REPORT OF AN APPROVED VALUER, AN EXPERT'S OPINION, WITHOUT ANY BASIS. 3) THE ASSISTANT COMMISSIONER OF INCOME TAX HAD OVERLOOKED THE HILLY LOCATION OF THE ASSET AND HAD APPLIED THE RATES OF CONSTRUCTION APPLICABLE TO PLAINS. 4) THE ASSISTANT COMMISSIONER OF INCOME TAX OUGHT TO HAVE FOLLOWED THE RATIO LAID DOWN IN RUSTOM CAVASJEE COOPER VS.UNION OF INDIA AIR 1970 SC 564 AND IN STATE OF KERALA VS. P P HASSAN KOYA AIR 1968 SC 1201 FOLLOWED IN R V GOVINDARAJULU & ORS VS. COMMISSIONER OF INCOME TAX; (1975)100 ITR 621 (KAR). 5) THE VALUE ARRIVED AT IS ARBITRARY AND HIGHLY UNSCIENTIFIC IN SO MUCH AS THE ASSISTANT COMMISSIONER OF INCOME TAX OVERLOOKED THE FACT THAT THE METHOD OF DETERMINING THE VALUE OF PROPERTY BY THE APPLICATION OF AN APPROPRIATE MULTIPLIER TO THE NET ANNUAL INCOME OR PROFITS IS A SATISFACTORY METHOD OF VALUATION OF LANDS WITH BUILDINGS. 6) THE ASSISTANT COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT CAPITALIZATION OF NET ANNUAL PROFIT OUT OF THE PROPERTY AT A RATE EQUAL I N NORMAL CASES TO THE RETURN FROM GILT-EDGED SECURITIES IS ONE OF THE WELL KNOWN METHODS OF VALUATION. 7) THE ASSISTANT COMMISSIONER OF INCOME TAX FAILED TO APPRECIATE THAT THE CRUX OF THE DECISIONS CITED IS ON THE DETERMINATION OF VALUE. ITA 372/11 :- 6 -: 8) IN ANY EVENT THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME TAX HAD BEEN HIGHLY ARBITRARY AND UNJUST. 9) IN VIEW OF THE ABOVE AND THOSE THAT MAY BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE COMMISSIONER OF INCOME TAX ( APPEALS) MAY KINDLY BE PLEASED TO DIRECT THAT THE FAIR MARKET VALUE ADOPTED BY YOUR APPELLANT BE SUBSTITUTED FOR COST OF ACQUISITION AND THUS RENDER JUSTICE. 5. THE ARGUMENTS OF THE LD.DR TO SUPPORT THE FINDING S OF THE ASSESSING OFFICER ARE IN LINE WITH THE DEFINITION O F FAIR MARKET VALUE GIVEN IN SECTION 2(22B) OF THE ACT AND THE COST OF ACQUISITION AS DEFINED IN SECTION 48 & 49 OF THE ACT. AFTER GOI NG THROUGH THE APPELLATE ORDER AND THE SUBMISSIONS OF THE LD.DR, W E FIND THAT THERE ARE NO TWO OPINIONS ABOUT THE LEGAL PROPOSITION THA T THE ASSESSEE HAS TO ADOPT EITHER COST OF ACQUISITION BEFORE 1.4.1981 OR FAIR MARKET VALUE AS ON 1.4.1981, WHICHEVER IS HIGHER. OBVIOUSLY, TH E FAIR MARKET VALUE OF A CAPITAL ASSET IS THE ORDINARY VALUE WHICH ANY ASSET WILL FETCH ON SALE IN THE OPEN MARKET ON THAT RELEVANT DATE. WHE N SUCH A PRICE IS NOT ASCERTAINABLE, THE RULES AND PRECEDENTS THEREON HELP IN COMING TO A CONCLUSION. THE ASSESSEE HAS ADOPTED THE FAIR MARKET VALUE AS PER THE VALUATION REPORT PREPARED BY AN EXPERT, IN THIS LINE, SHRI A.KRISHNAN. THE REVENUE HAS NOT DISPUTED THAT SHRI A.KRISHNAN IS NOT THE EXPERT FOR ASCERTAINING THE FAIR MARKET VALUE. THE ASSESSING ITA 372/11 :- 7 -: OFFICER HAS HIMSELF SUBSTITUTED AND HAS WITH REFERE NCE TO THE DEFINITION OF FAIR MARKET VALUE AND COST OF ACQUISITION, H AS ARRIVED AT HIS OWN VALUE WHICH IN A WAY IS CONTRADICTORY TO HIS PREMIS E WITH WHICH HE STARTED TO ASCERTAIN THE COST OF PROPERTY. ADMITTE DLY, THERE IS NO COMPARABLE INSTANCE DURING THE RELEVANT PERIOD WITH REFERENCE TO WHICH ONE CAN CALCULATE THE COST OF ACQUISITION AS ON 1.4.1981. THE LD. CIT(A) HAS CORRECTLY MENTIONED THAT THERE ARE MANY FACTORS WHICH CONTRIBUTE TOWARDS THE COST OF A PARTICULAR ASSET AT A GIVEN POINT OF TIME. THESE FACTORS INCLUDE THE SITUATION OF THE P ROPERTY, ACCESSIBILITY TO MAIN ROADS AND THE MARKET, PROXIMITY WITH THE CI TY AND OTHER ALLIED FACTORS. IN OTHER WORDS, A PROPERTY AT A GIVEN P OINT OF TIME MAY HAVE DIFFERENT COSTS DEPENDING UPON ITS GEOGRAPHICAL SIT UATION. WHEN THE REGISTERED VALUER HAS GIVEN HIS REPORT AND THE ASS ESSING OFFICER HAS SUBSTITUTED HIS OWN CALCULATION AND WITHOUT GIVING ANY VALID REASON TO TAKE A DIFFERENT VIEW WITHOUT REFERRING IT TO DVO, IS SOMETHING A PROCEDURE UNKNOWN IN SUCH PROCEEDINGS. THE ASSESSI NG OFFICER COULD VERY WELL CALL FOR THE REPORT OF THE DVO TO CONTRAD ICT THE REPORT OF THE REGISTERED VALUER. THE ASSESSING OFFICER CANNOT BE TREATED AS AN EXPERT FOR THIS PURPOSE. IN THIS REGARD, THE DE CISION OF HON'BLE MUMBAI TRIBUNAL RENDERED IN THE CASE OF DEVIDAYAL ROLLING AND REFINERIES P. LTD VS THE INCOME-TAX OFFICER, 12 SOT 621, IS RELEVANT. ITA 372/11 :- 8 -: IN THIS CASE, IT HAS BEEN HELD THAT THE DETERMINATI ON OF FAIR MARKET VALUE IS A VERY SPECIAL SUBJECT INVOLVING TECHNICAL KNOWLEDGE AND SKILLS AND THE DETERMINATION OF VALUE BY A PERSON VIZ. THE ASSESSING OFFICER WHO IS NOT RECOGNIZED TO POSSESS SUCH SKILLS CANN OT SUPERSEDE AN EXPERTS OPINION. THERE SEEMS TO BE FORCE IN THE C ONTENTION OF THE ASSESSEE THAT THE GUIDELINE VALUE FIXED BY THE STA TE GOVERNMENT IS USUALLY ADHOC VALUE WHICH IS NOT REVISED PERIODICAL LY. THIS VALUE IS GENERALLY LINKED TO THE REGISTERED DOCUMENT IN THE SAME SURVEY NUMBER. THE PROPERTY IN DIFFERENT SURVEY NUMBERS M AY FETCH DIFFERENT VALUE WHEN SOLD IN THE OPEN MARKET. IT IS AN UNDI SPUTED FACT THAT THERE IS NO SALE INSTANCE IN THIS SURVEY NUMBER, B ETWEEN THE YEARS 1965 TO 2005, WHICH IS A LONG PERIOD OF FOUR DECADE S. THUS, WE ARE IN AGREEMENT WITH THE LD. CIT(A) THAT RELYING ON SUCH A GUIDELINE VALUE IS NOT SAFE TO CONTROVERT THE VALUE ADOPTED BY THE REG ISTERED VALUER. THE ASSESSEE HAS PRODUCED REPORT FROM AN EXPERT. T HIS REPORT CAN BE REJECTED ONLY WITH COGENT REASONING AFTER FINDING M ATERIAL FAULTS THEREIN OR BY REFERRING IT TO THE VALUATION CELL. INSTEAD, THE ASSESSING OFFICER HAS SUBSTITUTED HIS OWN PERSONAL OPINION. THIS TYP E OF PROCEDURE ADOPTED BY THE ASSESSING OFFICER CANNOT BE APPROVED . HENCE, THE GUIDELINE VALUE, WHICH HAS NOT UNDERGONE ANY CHANGE , FOR A LONG PERIOD OF FOUR DECADES, CANNOT BE MADE A BASIS FOR ARRIVING AT A FAIR ITA 372/11 :- 9 -: MARKET VALUE OF AN ASSET. THE OTHER REASONING MEN TIONED ABOVE WITH THE HELP OF WHICH THE LD.AR HAS CONTESTED THE ACTIO N OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A) ARE ALSO RELEVANT AND SUPPORT OUR ABOVE CONCLUSION. IN VIEW OF OUR FOREGOING DISCUSSION, W E DISMISS THE APPEAL OF THE REVENUE AND UPHOLD THE FINDING OF THE LD. CI T(A). 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.7.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 18 TH JULY, 2011 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR