Shri Purushottambhai R. Agrawal, RAJKOT-GUJARAT V. The Assistant Commr. Income Tax,Circle-5, RAJKOT-GUJARAT

ITA 96/RJT/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5507 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DM RINDANI
• Keywords: Value adopted by valuation officer; Capital asset; Depreciation; Principle of natural justice; Cost of acquisition; Fair market value; Valuation report; Set aside; Capital Gains
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT L LL LK KK KOZJH OZJH OZJH OZJH OLHE OLHE OLHE OLHE VGEN VGEN VGEN VGEN] YS[KK ] YS[KK ] YS[KK ] YS[KK LNL; ,O LNL; ,O LNL; ,O LNL; ,O EK/ EK/EK/ EK/KQFERK KQFERK KQFERK KQFERK JKW; JKW;JKW; JKW;] U; ] U;] U; ] U;KF KFKF KF;D ;D;D ;D LNL; DS LE{KA LNL; DS LE{KA LNL; DS LE{KA LNL; DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO. 96/RJT/2016 ( / ASSESSMENT YEAR : 2008-09) SHRI PURUSHOTTAMBHAI R. AGRAWAL, HARYANA-GUJARAT ROADLINES, 59-B, BHAKTINAGAR STATION PLOT, RAJKOT. / VS. THE ACIT, CIRCLE 5, RAJKOT. ./ ./ PAN/GIR NO. : ADDPA 9200 A ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D. M. RINDANI, A.R. ! / RESPONDENT BY : SHRI PRAVEEN VERMA, SR. D.R. ' #$ % ! & / DATE OF HEARING 31/08/2018 '( ! & / DATE OF PRONOUNCEMENT 01/11/2018 )* / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL)-3, RAJKOT [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-3/A3/0408/1 0-11 DATED 18-01- 2016 ARISING IN THE MATTER OF ASSESSMENT ORDER PASS ED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 30.12.2010 RELEVANT TO ASSESSMENT YEAR (AY) 2008-09 . ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 2 - 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APP EALS) - 3, RAJKOT ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER IN MAKING REFERENCE TO THE A.V.O. U/S 55A OF THE ACT FOR DETE RMINING FAIR MARKET VALUE OF RESIDENTIAL HOUSE AS ON 01-04-1981. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (AP PEALS) - 3, RAJKOT ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER IN COMPUTING LONG TERM CAPITAL GAIN ON SALE OF RESIDEN TIAL HOUSE AT RS. 14,46,245/- BY ADOPTING THE FAIR MARKET VALUE A S ON 01-04- 1981 AS PER REPORT OF A.V.O. BY DISREGARDING THE RE PORT OF REGISTERED VALUER. 3. THE LEARNED COMMISSIONER OF INCOME -TAX (APP EALS) - 3, RAJKOT ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN MAKING ADDITION OF RS.4,13,625/- BY WAY OF DISALLOWANCE FR OM THE ACTUAL COST OF SHARES FOR WHICH INTEREST WAS ACTUALLY INCU RRED ON RELATABLE BORROWINGS. 4. THE LEARNED COMMISSIONER OF INCOME - TAX (AP PEALS) - 3, RAJKOT ERRED IN NOT ADJUDICATING GROUND RELATING TO ADJUST ING THE WRITTEN DOWN VALUE ON BUILDINGS ON ACCOUNT OF PARTIAL DISAL LOWANCE OF DEPRECIATION. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND WITHDRAW ANY GROUND OF APPEAL ANYTIME UP TO THE HEARING OF THIS APPEAL. 3. THE ASSESSEE IN THE INTERCONNECTED GROUND NO.1 & 2 HAS CHALLENGED THE COST OF ACQUISITION CONFIRMED BY THE LD. CIT(A) AS ON 01.04.1981 WHICH IS BASED ON THE REPORT OF THE DVO UNDER SECTI ON 55A OF THE ACT. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRANSPORT COMMISSION AND SHARE TRADING. THE ASSESSEE DURING THE YEAR HAS DECLARED LONG TERM LOSS ON SALE OF HOUSE LOCATED AT NALANDA SOCIETY, RAJKOT FOR RS. 2,04,000/- ONLY. THE ASSESSEE WHILE CALCULATING THE LONG TERM CAPITAL LO SS ON SALE OF THE HOUSE HAS TAKEN THE COST OF ACQUISITION AS ON 01.04.1981 AT RS.4,00,000/- . THE ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 3 - ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAS OBTA INED THE VALUATION REPORT FROM THE REGISTERED VALUER WHEREIN THE FAIR MARKET VALUE AS ON 01.04.1981 WAS SHOWN AT RS.3,65,200/-. ACCORDINGLY, THE ASSESSEE REDUCED THE LONG TERM CAPITAL LOSS FROM RS. 2,04,00 0/- TO RS.12,252/- ONLY. HOWEVER, THE AO REFERRED THE MATTER TO THE DVO FOR THE VALUATION OF THE PROPERTY AS ON 01.04.1981. THE DVO IN TURN VALUATED THE FAIR MARKET VALUE OF THE PROPERTY AS ON 01.04.1981 FOR RS. 1,00 ,500/- ONLY. ACCORDINGLY, THE AO WORKED OUT THE LONG TERM CAPITA L GAIN AS DETAILED UNDER: SALE CONSIDERATION OF THE PROPERTY RS.20,00,000/- (A) VALUE OF PROPERTY (HOUSE AT NALANDA SOCIETY) AS ON 01/04/1981 (AS PER VALUATION REPORT) INDEXED COST OF PROPERTY 100500 551 = RS. 5,53,755/- (B) 100 NET LONG TERM CAPITAL GAIN (A - B) RS.14,46,245/- 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE P LOT WAS PURCHASED IN 1978 AND IN THE SAME YEAR THE BUILDING WAS CONSTRUC TED ON SUCH PLOT OF LAND. THE ASSESSEE HAS SHOWN COST OF LAND AND BUILD ING THEREON IN ITS BOOKS OF ACCOUNTS AT RS. 1,75,500/- THE ASSESSEE AL SO CLAIMED TO HAVE SHOWN THE VALUE OF LAND AND BUILDING IN ITS BALANCE SHEET AS ON 31.03.1994 AT RS.1,75,500/-. THE ASSESSEE ALSO FILE D A CERTIFICATE FROM A CHARTERED ACCOUNTANT DATED 29.04.1997 IN SUPPORT OF HIS CLAIM FOR THE VALUATION OF LAND AND BUILDING. ACCORDINGLY, THE AS SESSEE CLAIMED THAT THE ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 4 - DVO CANNOT DETERMINED THE VALUE OF SUCH PROPERTY AS ON 01.04.1981 AT A VALUE LESSER THEN THE ACTUAL COST INCURRED BY THE A SSESSEE. 5.1 THE ASSESSEE ALSO SUBMITTED THAT THE PARAMETERS ADOPTED BY THE DVO FOR VALUING THE FMV OF THE PROPERTY AS ON 01.04 .1981 IS NOT BASED ON REALISTIC INFORMATION. 5.2 THE ASSESSEE ALSO SUBMITTED THAT THE FMV DETERM INED BY THE DVO IS LESS THAN THE VALUE DECLARED BY THE MUNICIPAL CO RPORATION. 5.3 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE AL SO SUBMITTED THAT THERE IS NO PROVISION U/S 55A OF THE ACT TO REFER T HE MATTER TO THE DVO IN RESPECT OF THE PROPERTY WHICH IS VALUED MORE THAN T HE VALUE DETERMINED BY THE DVO. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : 6.1 GROUND 1 AND 2 BASICALLY REVOLVE AROUND THE A O'S ACTION OF NOT ACCEPTING THE MV AS ON 1/4/81 OF THE IMPUGNED HOUSE PROPERTY DECLARED BY APPELLANT AT RS.4,00,000/-. APPELLANT LATER ON R EDUCED THE SAID VALUE ON THE BASIS OF REGISTERED VALUER'S REPORT WHICH SU GGEST COMPOST VALUATION (OF LAND AND CONSTRUCTED STRUCTURE) AT RS . 365200/- BUT IT WAS ALSO NOT ACCEPTED BY AO AND HE REFERRED THE VALUATI ON TO DVO AS VALUE GIVEN BY THEM WAS RS.1,00,500/- WHICH WAS UTILIZED BY THE AO FOR COMPUTING LTCG. 6.2 TECHNICAL ARGUMENTS RAISED BY HON'BLE AR THAT I) SECTION 55A DOESN'T EMPOWER THE AO TO REFER THE CASE TO DVO BEC AUSE IN THIS CASE, VALUE DECLARED BY THE APPELLANT IS MORE THAN VALUE ASSESSED!! AND II) AO WAS WRONG IN REJECTING THE REPORT OF REGISTERED VALUER AND BLINDLY ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 5 - ACCEPTING-THE REPORT OF DVO WITHOUT UNDERTAKING ANY EXERCISE OF JUDGMENT WERE CONSIDERED BY ME. 6.3 SECTION 55A (BEFORE 1/7/2012) IS BEING REPR ODUCED AS UNDER: (QUOTE) 'WITH A VIEW TO ASCERTAINING THE FAIR MARKE T VALUE OF A CAPITAL ASSET FOR THE PURPOSE OF THIS CHAPTER, THE [ASSESSING] OFFICER MAY REFER THE VALUATION OF CAPITAL ASSET TO A VALUATION OFFICER- (A) IN A CASE WHERE THE VALUE OF THE ASSET AS CLAI MED BY THE ASSESSEE IS IN ACCORDANCE WITH THE ESTIMATE MADE BY A REGISTERED VALUER, IF THE [ASSESSING] OFFICER IS OF OPINION THAT THE VALUE SO CLAIMED IS LESS THAN ITS FAIR MARKET VALUE. (B) IN ANY OTHER CASE, IF THE [ASSESSING] OFFICER IS OF OPINION:- (I) THAT THE FAIR MARKET VALUE OF THE ASSET EXCEEDS THE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE BY MORE THAN S UCH PERCENTAGE OF THE VALUE OF THE ASSET AS SO CLAIMED OR BY MORE THAN SUCH AMOUNT AS MAY BE PRESCRIBED IN THIS BEHALF; OR (II) THAT HAVING REGARD TO THE NATURE OF THE ASSET AND O THER RELEVANT CIRCUMSTANCES, IT IS NECESSARY SO TO DO, AND WHERE ANY SUCH REFERENCE IS MADE,...........' ( UNQUOTE) 6.4 IT IS APPARENT THAT THE LD AR IS RESTRICTIN G THE SCOPE OF SECTION 55(A) ONLY TO THE CIRCUMSTANCES AS DESCRIBED (IN CL AUSE 'A') OF THE SAID SUB-SECTION. CONSIDERING THE W1 DE DIFFERENCE BETWEEN THE COST OF ASSET ACQUIRED IN 1978-79 ONLY AND SHOWN IN THE BALANCE S HEET AT RS.17500/- AND THE FMV DECLARED AS ON 1/4/1981 AT RS.4,00,000, THE AO HAS FULLY JUSTIFIED IT REFERRING THE CASE TO THE DVO. DVO HAS GIVEN AMPLE OF OPPORTUNITY TO THE APPELLANT BEFORE DETERMINING THE FMV AS ON 1/4/1981. AFTER CONSIDERING THESE FACTS (OF NATURAL JUSTICE ALREADY ACCORDED TO APPELLANT) AND I DO NOT FIND ANY FAULT IN THE ACTION OF THE AO IN ACCEPTING THE REPORT OF DVO. IT SHOULD BE KEP T IN MIND THAT COURTS HAVE ALWAYS ENCOURAGED THE ITO TO RELY UPON THE EXP ERTS OPINION LIKE OF DVO WHILE DEALING WITH THE TECHNICAL ISSUES, DVO IS OBVIOUSLY MUCH MORE QUALIFIED THAN THE AO IN ARRIVING AT THE FMV O F THE BUILDING. ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 6 - 6.5 ON MERIT IT IS ACCEPTED BY APPELLANT HIMSELF (A R'S WRITTEN SUBMISSION AND APPELLANT'S LETTER DT 3/12/2010 TO A O, THAT TOTAL COST INCURRED BY THE APPELLANT TO ACQUIRE THE LAND AND B UILD THE STRUCTURE THEREON IN 1978-79 WAS ONLY 175500/-. IN SUCH CIRC UMSTANCE, CLAIMING THE U.LUE OF THE SAME AS ON 1/4/1981 AT RS.4,00,000 /-.WAS DEFINITELY GOING TO RAISE THE CURIOSITY OF THE AO. WHEN HE SOU GHT EXPLANATION VIDE NOTICE DT 4/11/2010 IT WAS REPLIED BY APPELLANT VID E LETTER DT.26/11/2010 THAT HE WILL TRY TO FILE PURCHASE DEED AND VALUATIO N REPORT WITHIN A WEEK AND SAME WAS SUBMITTED ONLY VIDE LETTER DT. 3/12/20 10. MEANWHILE THE AO REFERRED THE CASE TO DVO VIDE LETTER DT.13/12/20 10. DVO WHO INSPECTED THE PROPERTY ON 21/12/2010 AND PROPOSED T O THE APPELLANT THE VALUE TO BE TAKEN AT RS.100500/- VIDE LETTER DT. 22/12/2010 ALSO INVITING HIM TO FILE OBJECTION, IF ANY, ON SCHEDULED DATE OF THE HEARING I.E. 28/12/2010. WHILE ARRIVING AT THE PROPOSED VALUE, H E HAD TAKEN DEPRECATED COST OF BUILDING AT RS.75619/- AND VALUE OF LAND @ 147 PER SQ.METER) AT RS.24856/-. FOR ARRIVING AT LAND VALUE , HE HAD GIVEN TWO SALE INSTANCES OF ADJOINING PLOTS (PLOT NO 8/4 AND PLOT NO 1). THE PROPERTY SOLD WAS AT PLOT NO.40 AND DVO HAD CONSIDE RED SIZE, SHAPE, LOCATION, SITUATION AND COMMERCIAL UTILITY WHILE AR RIVING AT THE VALUE OF THE LAND AS ON 1/4/1981. THE APPELLANT IN HIS REPRE SENTATION TO THE DVO (THROUGH HIS REGISTERED VALUER) ON 24/12/2010 HAD S TALED US UNDER: (QUOTE) 'TO VALUATION OFFICER INCOME DEPT. RAJKOT THIS IS TO SAY THAT I HAVE PERSONALLY INSPECTED AND VALUED THE RESIDENTIAL BLOCK NO. 40 OF NALANDA CO.. OP. HOUSIN G LTD. KNOWN AS 'RAMTIRTH' SITUATED AT KALAWAD ROAD, RAJKOT, TAL , DIST. : RAJKOT. (GUJ.) AS ON 24-11-2010 AND DONE VALUATION OF IT FOR THE DATE 01-04-1981. REGARDING THAT 1 HAVE TO STATE THA T: 1 HAVE VALUATED THE SAID PROPERTY AND UNIT RATE OF LAND CONSIDERED IN THE REPORT IS DECIDED AS PER LOCAL IN QUIRY OF OLD PERSONS RESIDING NEARBY THE SITE. AS ON 1981, GOVER NMENT JANTRY RATES WERE NOT AVAILABLE. AT THAT TIME THERE WERE N O AUTHENTIC RATES FOR PREPARING THE AGREEMENTS OR VALE DEEDS. H ENCE THE SAME WERE DOING HAPHAZARDLY. ACCORDINGLY THE SAME C ANNOT BE RELIED UPON. SIMILARLY, THE CONSTRUCTION OF THE SAID BUILDING IS DONE WITH PERSONAL INTEREST FOR HIS OWN RESIDENTIAL - USAGE. SO NATURALLY MADE BETTER IN QUALITY THAN OTHER NORMAL BUILDINGS. SO THE RATE OF CONSTRUCTION CONSIDERED (RS. 662/- PER SQ.MT.) BY Y OU IS ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 7 - ACCEPTABLE IN CASE OF NORMAL BUILDING BUT IN OUR CA SE RS. 1,200/- PER SQ.MT OF CONST, IS JUSTIFIABLE ACCORDING TO QUA LITY OF CONST, OF THE SAID BLDG. AS PER MY OPINION AND KNOWLEDGE. THAT'S WHY WE HAVE VALUED THE PROPERTY ACCORDING TO THE PREVAILING MARKET VALUE AT THAT TIME AND IT IS OUR OPINION ONLY. THE AUTHORITY IS ENTITLED TO GET OPINION OF THE SAM E BY OTHER VALUATION OFFICER. 1 AM RETIRED EXECUTIVE ENGINEER (CLASS - 1) GOVERNM ENT REGISTED VALUATION OFFICER AT PRESENT AND HAVE BEEN WORKING SINCE 5 YEARS. I HAVE SERVED FOR P.W.D. FOR 30 YEARS AND 1 HAVE MU CH EXPERIENCE OF BUILDING WORKS. SO I AM VERY MUCH FAM ILIAR AND CONVERSANT WITH THE RATES OF BUILDING WORKS. ' (UNQ UOTE) 6.6 THUS APPELLANT WANTS TO REJECT THE COMPARABLE OF REGISTERED SALE RATES (USED BY DVO) BY IN FAVOUR OF RATES BASED ON OLD PERSON (REPORTED BY REGISTERED VALUER). HE HAD STATED THAT GOVERNMEN T JANTRI AVAILABLE AND THEREFORE THE SALE INSTANCES CITED BY DVO CAN'T BE RELIED UPON. SIMILARLY, ABOUT THE COST OF CONSTRUCTION, VALUER H AS ACCEPTED THE NORMAL COST OF RS.662/- SQ.MT AS ADOPTED BY DVO BUT HAD ASSERTED THAT IN HIS CASE RS.1200/- PER SQ.MT. IS JUSTIFIABLE (BE CAUSE OF THE QUALITY OF CONSTRUCTION). REGISTERED VALUER WANTS COST OF LAND TO BE TAKEN AT RS.1500/- SQ.MT. (ALMOST 10 TIMES OF RATE AT WHICH 2 LAND PLOTS WERE SOLD IN 1980 AS REPORTED BY DVO) AND COST OF CONSTRUCTIO N TO BE TAKEN AT RS.1200 PER SQ.MT WHICH IS ALMOST DOUBLE OF NORMAL COST OF CONSTRUCTION (AS ADMITTED BY HIMSELF). IT IS APPARENT THAT THE V ALUATION DONE BY THE DVO IS MUCH MORE REALISTIC, BASED ON EVIDENCES AND LOGICAL WHEREAS THE REGISTERED VALUER'S METHOD IS (PURPORTEDLY) BAS ED ONLY ON (UNCITED UNFERIFIABLE) LOCAL ENQUIRES. IT SHOULD BE KEPT IN MIND THAT THE LAND WAS PURCHASED JUST 2 YEARS BACK AND CONSTRUCTION WAS CO MPLETED AFTER THAT AND AS SUCH QUANTUM JUMP IN THE RATE OF PROPERTY IS TOTALLY UNREASONABLE. THIS MAKES VALUE ARRIVED AT BY THE RE GISTERED VALUER MORE UNREALISTIC. I DON'T FIND ANY FAULT IN AO'S RE LIANCE ON THE DVO'S REPORT IN ADOPTING THE FMV AS ON 1/4/1981. ' GROUND 1 AND 2 ARE DISMISSED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 8 - 6. THE LD AR BEFORE US FILED A PAPER BOOK RUNNING F ROM PAGES 1-65 AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE L D. CIT(A). 7. ON THE OTHER HAND, THE LD DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE VALUATION ADOPTED BY THE AO AS ON 01.04.1981 FOR CALCULATION OF THE CAPITAL GAIN ON THE SALE OF THE PROPERTY. THE ASSESSEE IN THE INSTA NT CASE HAS DETERMINED THE FMV AS ON 01.04.1981 OF RS. 3,65,200/- ON THE B ASIS OF REGISTERED VALUER REPORT WHEREAS, THE DVO HAS DETERMINED THE V ALUE AT RS. 1,00,500/- ONLY. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE ASS ESSEE HAS CLAIMED HIGHER VALUE OF THE PROPERTY AS ON 01.04.1981 WHEREAS THE AO IS DETERMINING AT THE LESSER VALUE. THUS, THE ISSUE BEFORE US REVOLVE S ON VALUATION OF THE PROPERTY AS ON 01.04.1981. IN THIS REGARD, WE FIND PERTINENT TO REPRODUCE THE PROVISION OF SECTION 55A OF THE ACT PRIOR TO TH E AMENDMENT 01.07.2012 WHICH READS AS UNDER: [ REFERENCE TO VALUATION OFFICER. 55A. WITH A VIEW TO ASCERTAINING THE FAIR MARKET VALUE OF A CAPITAL ASSET FOR THE PURPOSES OF THIS CHAPTER, THE [ASSESSING] O FFICER MAY REFER THE VALUATION OF CAPITAL ASSET TO A VALUATION OFFICER (A) IN A CASE WHERE THE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE IS IN ACCORDANCE WITH THE ESTIMATE MADE BY A REGIST ERED VALUER, IF THE [ASSESSING] OFFICER IS OF OPINION THAT THE VALUE SO CLAIMED IS LESS THAN ITS FAIR MARKET VALUE ; ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 9 - 8.1 A PLAIN READING OF THE ABOVE PROVISION REVEALS THAT THE AO CAN REFER THE MATTER TO THE DVO IF IN HIS OPINION THE V ALUE CLAIMED BY THE ASSESSEE IS LESS THAN THE FAIR MARKET VALUE. THE AS SESSEE IN THE INSTANT CASE HAS TAKEN HIGHER VALUE. THEREFORE THERE WAS NO PROVISION UNDER THE ACT TO REFER THE MATTER TO THE DVO FOR DETERMINING THE VALUE AS ON 01.04.1981. IN THIS REGARD, WE FIND SUPPORT AND GUI DANCE FROM THE JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE O F CIT VS. PUJA PRINTS REPORTED IN 43 TAXMANN.COM 247 WHERE IN IT W AS HELD AS UNDER: SECTION 55A(A) VERY CLEARLY AT THE RELEVANT TIME P ROVIDED THAT A REFERENCE COULD BE MADE TO THE DEPARTMENTAL VALUATI ON OFFICER ONLY WHEN THE VALUE ADOPTED BY THE ASSESSEE WAS LESS THA N THE FAIR MARKET VALUE. IN THE PRESENT CASE, IT IS AN UNDISPUTED POS ITION THAT THE VALUE ADOPTED BY THE RESPONDENT ASSESSEE OF THE PROPERTY AT RS.35.99 LAKHS WAS MUCH MORE THAN THE FAIR MARKET VALUE OF RS.6.68 LAKHS EVEN AS DETERMINED BY THE DEPARTMENTAL VALUATION OFFICER. I N FACT, THE ASSESSING OFFICER REFERRED THE ISSUE OF VALUATION T O THE DEPARTMENTAL VALUATION OFFICER ONLY BECAUSE IN HIS VIEW THE VALU ATION OF THE PROPERTY AS ON 1981 AS MADE BY THE RESPONDENT ASSESSEE WAS H IGHER THAN THE FAIR MARKET VALUE. IN THE AFORESAID CIRCUMSTANCES, THE I NVOCATION OF SECTION 55A(A) IS NOT JUSTIFIED THE CONTENTION OF THE REVENUE THAT IN VIEW OF THE A MENDMENT TO SECTION 55A(A) IN 2012 BY WHICH THE WORDS 'IS LESS THAN THE FAIR MARKET VALUE' IS SUBSTITUTED BY THE WORDS 'IS AT VARIANCE WITH IT S FAIR MARKET VALUE' IS CLARIFICATORY AND SHOULD BE GIVEN RETROSPECTIVE EFF ECT. THIS SUBMISSION IS IN FACE OF THE FACT THAT THE 2012 AMENDMENT WAS MAD E EFFECTIVE ONLY FROM 1-7-2012. THE PARLIAMENT HAS NOT GIVEN RETROSP ECTIVE EFFECT TO THE AMENDMENT. THEREFORE, THE LAW TO BE APPLIED IN THE PRESENT CASE IS SECTION 55A(A) AS EXISTING DURING THE PERIOD RELEVA NT TO THE ASSESSMENT YEAR 2006-07. AT THE RELEVANT TIME, VERY CLEARLY RE FERENCE COULD BE MADE TO DEPARTMENTAL VALUATION OFFICER ONLY IF THE VALUE DECLARED BY THE ASSESSEE IS IN THE OPINION OF ASSESSING OFFICER LESS THAN ITS FAIR MARKET VALUE. THE CONTENTION OF THE REVENUE THAT THE REFERENCE TO THE DEPARTMENTAL VALUATION OFFICER BY THE ASSESSING OFFICER IS SUSTA INABLE IN VIEW OF SECTION 55A(A)(II) IS NOT ACCEPTABLE. THIS IS FOR T HE REASON THAT SECTION ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 10 - 55A(B) VERY CLEARLY STATES THAT IT WOULD APPLY IN A NY OTHER CASE I.E.A CASE NOT COVERED BY SECTION 55A(A). IN THIS CASE, I T IS AN UNDISPUTABLE POSITION THAT THE ISSUE IS COVERED BY SECTION 55A(A ). THEREFORE, RESORT CANNOT BE HAD TO THE RESIDUARY CLAUSE PROVIDED IN S ECTION 55A(B)(II). IN VIEW OF THE ABOVE, THE CBDT CIRCULAR DATED 25-11-19 72 CAN HAVE NO APPLICATION IN THE FACE OF THE CLEAR POSITION IN LA W. THIS IS SO AS THE UNDERSTANDING OF THE STATUTORY PROVISIONS BY THE RE VENUE AS FOUND IN CIRCULAR ISSUED BY THE CBDT IS NOT BINDING UPON THE ASSESSEE AND IT IS OPEN TO AN ASSESSEE TO CONTEND TO THE CONTRARY FROM THE ABOVE DISCUSSION, THERE REMAINS NO DOUBT T HAT THE POSITION PRIOR TO THE AMENDMENT 01.07.2012 WAS THAT THE AO CAN MAK E THE REFERENCE TO THE DVO ONLY IN THE CASES WHERE THE VALUE CLAIMED B Y THE ASSESSEE IS LESS THAN ITS FAIR MARKET VALUE. THEREFORE WE HAVE NO HE SITATION IN REVERSING THE ORDERS OF AUTHORITIES BELOW. ACCORDINGLY, WE SE T ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MAD E BY THE AO ON ACCOUNT OF SALE OF PROPERTY. HENCE, THE GROUND OF A PPEAL OF THE ASSESSEE IS ALLOWED. 9. THE NEXT ISSUE RAISED IN GROUND NO. 3 IS THAT LD . CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 4,13,625/- ON ACCOUN T OF INTEREST EXPENSE INCURRED ON THE BORROWING USED FOR PURCHASE OF SECU RITIES. 10. THE ASSESSEE DURING THE YEAR HAS PURCHASED THE SHARES OF DIFFERENT COMPANIES. THESE SHARES WERE ACQUIRED OUT OF THE BO RROWED FUND. THUS, THE ASSESSEE HAS INCURRED INTEREST EXPENSES ON THE PURCHASE OF SHARES. THE NECESSARY DETAILS OF THE COMPANIES WHOSE SHARES WER E PURCHASED BY THE ASSESSEE AND INTEREST COST INCURRED BY HIM STANDS A S UNDER: ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 11 - SR NO. NAME OF COMPANY INTEREST EXPENSES 1. MUDRA PORT 1,68,185/- 2. EDELWESS CAPITAL LTD. 1,17,240/- 3. POWER GRID 1,28,200/- TOTAL INTEREST IS 4,13,625/- 10.1 THE ASSESSEE HAS INCREASED THE VALUE OF SHARES OF THE AFORESAID COMPANIES BY THE AMOUNT OF INTEREST COST INCURRED O N THE PURCHASE OF THESE SHARES. HOWEVER, THE AO WAS OF THE VIEW THAT THE INTEREST C OST INCURRED ON THE PURCHASE OF SHARES CANNOT BECOME AS PART OF COST OF ACQUISITION OR COST OF IMPROVEMENT. THEREFORE THE SAME NEEDS TO BE IGNORED WHILE CALCULATING THE INCOME UNDER THE HEAD CAPITAL GAIN. 10.2 THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS SHOWN THE SHARES OF THE AFORESAID COMPANIES IN ITS CLOSING STOCK AS ON 31.03.2008 AFTER INCLUDING THE INTEREST COST ON SUCH SHARES. THE NEC ESSARY DETAILS OF THE CLOSING STOCK SHOW BY THE ASSESSEE AFTER INCLUDING THE INTEREST COST STANDS AS UNDER: SR NO. NAME OF SCRIPT TOTAL VALUE SHOWN FACE VALUE INTEREST PORTION 1 MUNDRA PORT 375725 207240 168185 2 EDELWESS CAPITAL LTD. 259965 142725 117240 3 POWER GRID 790056 661856 128200 TOTAL 413625 ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 12 - IN VIEW OF ABOVE, THE AO OBSERVED THAT THE AMOUNT O F CAPITAL GAIN INCOME WILL BE REDUCED BY THE AMOUNT OF INTEREST EX PENSES INCLUDED IN THE CLOSING STOCK OF SHARES AS AND WHEN THESE SHARE S WILL BE SOLD IN THE MARKET. THEREFORE, THE AO EXCLUDED THE INTEREST COS T FROM THE VALUE OF THE CLOSING STOCK OF THE SHARES AND ADDED TO THE TO TAL INCOME OF THE ASSESSEE. 11. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE B ORROWED FUND WERE USED IN ACQUIRING THE SHARES AS DISCUSSED ABOVE WHI CH WERE HELD AS CLOSING STOCK IN THE YEAR UNDER CONSIDERATION. THE INTEREST ADDED TO THE VALUE OF CLOSING STOCK PERTAINS TO THE PERIOD PRIOR TO THE ALLOTMENT OF THE SHARES. THUS, THERE WAS A DIRECT NEXUS BETWEEN THE COST OF THE SHARES AND THE INTEREST COST INCURRED ON THE ACQUISITION OF SU CH SHARES. THUS, THE ASSESSEE CLAIMED THAT INTEREST COST INCURRED ON THE ACQUISITION OF THE SHARES BECOMES PART OF THE COST OF CAPITAL ASSETS U /S 43(1) OF THE ACT. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : 6.9 THE LD AR ARGUED THAT THE INTEREST PAID TO THE FINANCING COMPANIES FOR THREE PARTICULARS SHARES PERTAINS TO PERIOD PRIOR TO ALLOTMENT OF THE SHARES BY THE COMPANIES AND THEREF ORE THIS SHOULD BE INCLUDED IN THE COST OF ACQUISITION. 6.10 IN MY OPINION NO ADJUDICATION ON THIS ARGUMENT (WHETHER INTEREST COMPONENT CHARGED BY THE FINANCING COMPANY BE ALLOW ED AS COST OF IMPROVEMENT) IS REQUIRED AS ON NOW BECAUSE NO COMPU TATION OF STCG ON SALE OF THESE SHARES IS UNDER CONSIDERATION. APP ELLANT HAD TRIED TO REDUCE THE STCG BY CLAIMING THIS INTEREST EXPENDITU RE AGAINST STCG ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 13 - ARISING DUE TO SALE OF OTHER SHARES. THUS, PRESENTL Y WE ARE CONCERNED ONLY WHETHER ANY EXPENDITURE RELATED LO THESE SHARE S IS ALLOWED TO REDUCE THE STCG (ARISING OUT OF SALE OF OTHER SHARE S). TO EXAMINE THE (RATHER PECULIAR) CLAIM OF APPELLANT REGARDING SHOR T TERM CAPITAL GAIN, CASE RECORDS WERE CALLED FOR FROM THE AO AND THE SA ME WAS RECEIVED ON 11.01.2016. 6.11 IT APPEARS THAT METHOD OF COMPUTATION OF SHOR T TERM CAPITAL GAIN ADOPTED BY APPELLANT IS NOT AS PER THE SCHEME OF THE ACT. 1 HE APPELLANT HAS COMPUTED SHORT TERM CAPITAL GAIN AS U NDER: INVESTMENT ACCOUNT (SHORT TERM) PARTICULARS AMOUNT PARTICULARS AMOUNT TO OPENING STOCK AFTER CONVERSION FROM SHORT TERM TO LONG TERM 13,98,645.92 BY SALES 1,69,84,866.42 TO PURCHASE 2,91,77,047.86 BY SHORT TERM GAIN ON KOTAK PMS 25,73,068.64 TO SHORT TERM LOSS ON PRINCIPAL MF 20,46,681.97 BY CLOSING 1,64,86, 943.45 STOCK TO SHORT TERM LOSS ON DSPML MF 673.92 TO SHORT TERM LOSS ON PMS FRANKLIN 2,50,851.48 TO SHORT TERM LOSS ON PMS ICICI 1,55,151.51 SHORT TERM PROFIT TRF. TO TRADING A/C. 30,15,825.85 3,60,44,878.51 3,60,44,878.51 6.12 IT IS APPARENT FROM THE DETAILS SUBMITTED THAT IMPUGNED THREE SHARES ARE ALSO PART OF CLOSING STOCK OF SHARES (ST ILL UNSOLD) THEREFORE THIS SHARES DO NOT FORM PART OF ASSET DISPOSAL OF W HOM HAS GENERATED THE SHORT TERM CAPITAL GAIN. THE SCHEME OF CAPITAL GAIN I.E. SECTION 45 AND 48 IS ASSET SPECIFIC, THE ASSET BEING IN THIS C ASE THE SHARES OF INDIAN ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 14 - COMPANIES SOLD BY THE APPELLANT DURING THE YEAR. ON LY THE SALES CONSIDERATION RECEIVED IN RESPECT OF THESE SHARES AND CORRESPONDING COSTS OF ACQUISITION AND COSTS OF IMPROVEMENT WILL BE RELEVANT FOR COMPUTATION OF STCG. THE IMPUGNED SHARES OF THREE C OMPANIES HAVE NOT YET BEEN DISPOSED AND HENCE NEITHER THEIR COST OF ACQUISITION NOR ANY COST OF IMPROVEMENT (IF AT ALL THE SAID INTERES T IS TREATED SO) THEREON CAN BE ALLOWED AS DEDUCTION THIS IN THIS PREVIOUS Y EAR. THEY MAY REMAIN IN THE BOOKS OF THE APPELLANT EMBEDDED IN THE CLOSI NG STOCK BUT THEY WILL BE CONSIDERED ONLY WHEN THEY ARE SOLD. AO WAS RIGHT IN DISALLOWING THE SO CALLED COST OF IMPROVEMENT OF THIS SHARES. T HIS GROUND IS DISMISSED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 12. THE LD. AR BEFORE US FILED A CHART DEPICTING TH E COST OF PURCHASE OF THE SHARES AND INTEREST COST INCURRED THEREON. T HE LD. AR REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD. CIT(A) WHEREAS, THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES B ELOW. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A FACT ON RECORD THAT TH E ASSESSEE HAS NOT SOLD THE SHARES OF THE COMPANIES AS DISCUSSED IN THE PRECEDI NG PARAGRAPH. THUS, IT IS IMPLIED THAT THE ASSESSEE HAS NOT OFFERED ANY IN COME UNDER THE HEAD CAPITAL GAIN IN RESPECT OF SHARES OF THE COMPANIES AS DISCUSSED ABOVE. THEREFORE, IT IS CLEAR THAT THERE WAS NO IMPACT ON THE CAPITAL GAIN DISCLOSED BY THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION ON ACCOUNT OF INTEREST COST INCURRED BY THE ASSESSEE AND ADDED IN THE VALUE OF SHARES. THE QUESTION AT ALL IF ARISES WILL BE RELEVANT IN T HE YEAR IN WHICH THESE SHARES WILL BE SOLD. THEREFORE IN OUR CONSIDERED OP INION IN SUCH FACTS AND ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 15 - CIRCUMSTANCES THERE IS NO OCCASION TO MAKE ANY ADJU STMENT IN THE INCOME OF THE ASSESSEE ON ACCOUNT OF INTEREST COST INCURRE D ON THE ACQUISITION OF SUCH SHARES. 13.1 IN ADDITION TO THE ABOVE, WE NOTE THAT THERE IS ALSO NO AMBIGUITY ABOUT THE COST OF INTEREST INCURRED ON THE PURCHASE OF THE SHARES OF THE AFORESAID COMPANIES. THUS, IN OUR CONSIDERED VIEW T HERE IS A DIRECT NEXUS BETWEEN THE INTEREST COSTS INCURRED ON THE BORROWED MONEY USED FOR THE PURPOSE OF ACQUISITION OF THE SHARES OF THE COMPANI ES AS DISCUSSED ABOVE. THUS, THE INTEREST COST INCURRED BY THE ASSESSEE BE COMES PART OF THE PURCHASE PRICE OF THE SHARES. IN HOLDING SO, WE FIN D SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN T HE CASE OF CIT VS. TRISHUL INVESTMENT LTD. REPORTED IN 305 ITR 434 WHE REIN, IT WAS HELD AS UNDER: THAT AS PER THE MEMORANDUM OF ASSOCIATION OF THE A SSESSEE COMPANY, IT COULD BE SEEN THAT THE ASSESSEE COMPANY WAS INCORPO RATED ON 24-1- 1995 UNDER THE COMPANIES ACT, 1956 TO ENGAGE IN THE BUSINESS OF INVESTMENT. THE FINDING GIVEN BY THE TRIBUNAL WAS T HAT THE ASSESSEE HAD NO INTENTION TO TRADE IN SHARES. HENCE, THE PURCHAS E OF SHARES COULD NOT BE BUSINESS ASSET IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAD RIGHTLY OFFERED THE SAME UNDER THE HEAD 'CAPITAL GAIN'. THE TRIBUNAL ALSO CORRECTLY ARRIVED AT A CONCLUSION THAT IT WAS ONLY AN INVESTMENT ACTIVITY AND HELD THAT THE PROFIT DERIVED FROM THE SALE OF S HARES WAS SUBJECT TO CAPITAL GAIN. THE REASONS GIVEN BY THE TRIBUNAL WER E BASED ON VALID MATERIALS AND EVIDENCE AND THERE WAS NO INFIRMITY I N THE ORDER OF THE TRIBUNAL. MOREOVER, THE INTEREST PAID FOR ACQUISITION OF SHAR ES WOULD PARTAKE CHARACTER OF COST OF SHARE AND, THEREFORE, THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF ACQUISITION OF S HARES ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 16 - 13.2 WE ALSO FIND SUPPORT AND GUIDANCE FROM THE JUD GMENT CIT VS. MAITHREYI PAI REPORTED IN 152 ITR 247 WHEREIN IT WA S HELD AS UNDER: SECTION 48 PROVIDES FOR DEDUCTING FROM THE FULL VA LUE OF CONSIDERATION RECEIVED, THE COST OF ACQUISITION OF THE CAPITAL AS SET. THE INTEREST PAID ON THE BORROWINGS FOR THE ACQUISITION OF THE CAPITAL A SSET MUST FALL FOR DEDUCTION UNDER SECTION 48. BUT, IF THE SAME SUM IS ALREADY THE SUBJECT- MATTER OF DEDUCTION UNDER OTHER HEADS LIKE UNDER SE CTION 57, IT CANNOT AGAIN FIND A PLACE FOR THE PURPOSE OF COMPUTATION U NDER SECTION 48. NO ASSESSEE UNDER THE SCHEME OF THE INCOME-TAX ACT COU LD BE ALLOWED DEDUCTION OF THE SAME AMOUNT TWICE OVER, AND IF THE AMOUNT IS ALREADY ALLOWED UNDER SECTION 57, THE SAME CANNOT BE ALLOWE D AS DEDUCTION FOR THE PURPOSE OF COMPUTING THE 'CAPITAL GAINS' UNDER SECTION 48. FROM THE ABOVE JUDGMENT THEIR REMAINS NO AMBIGUITY THAT THE INTEREST COST INCURRED BY THE ASSESSEE REPRESENTS THE COST O F PURCHASE OF THE SHARES. THEREFORE WE ARE INCLINED TO SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY THE AO . HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 14. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO.4 IS THAT THE LD CIT(A) ERRED IN NOT ADJUDICATING THE GROUNDS OF APP EAL FOR THE ADJUSTMENT IN THE WRITTEN DOWN VALUE ON BUILDING ON ACCOUNT OF PARTLY DISALLOWANCE OF DEPRECIATION. 15. AT THE TIME OF HEARING, THE AFORESAID ISSUE WAS NOT PRESSED BY THE LD. COUNCIL FOR THE ASSESSEE. THEREFORE WE DISMISS THE SAME AS NOT PRESSED. ITA NO.96/RJT/2016 SHRI PURUSHOTTAMBHAI R. AGRAWAL VS. ACIT A.Y. 2008-09 - 17 - 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 01/11/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; YKS[KK LNL; U;KF;D LNL; YK S[KK LNL; U;KF;D LNL; YK S[KK LNL; U;KF;D LNL; YK S[KK LNL; (MADHUMITA ROY) (WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 01/11/2018 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. + & ' ,& / CONCERNED CIT 4. ' ,& () / THE CIT(A)-3, RAJKOT. 5. /$0 1 2&2# , , 45) + ) / DR, ITAT, AHMEDABAD. 6. 1 67 8 % / GUARD FILE. / BY ORDER, /& 2& //TRUE COPY// / ! '#$ ( DY./ASSTT.REGISTRAR) ! $%! &, / ITAT, AHMEDABAD