SANJEEV KUMAR KATHURIA,YAMUNA NAGAR V. INCOME TAX OFFICER WARD 1 , YAMUNANAGAR

ITA 329/CHANDI/2024

AI Insights

The case involves an appeal by Sanjeev Kumar Kathuria against the order of the PCIT, Panchkula, which pertained to the assessment year 2018-19. The primary issue was the determination of the cost of acquisition for a residential property sold by the assessee, which was acquired through a gift deed from his father. The PCIT challenged the assessment order on grounds that the FMV used by the AO was inflated to reduce the long-term capital gains tax liability. The Tribunal examined the valuation report and the inquiries made by the AO and concluded that the AO's assessment was correct and in accordance with the law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107703 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Other Referred Cases: Rajiv Mehra vs CIT, CIT vs Manjula J. Shah, Mrs. Pushpa Sofat Vs. ITO, Vishwanath Sharma Vs. Asst. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Assessee Lawyers: AJAY JAIN; C.A; WAY OF ANY DISTRIBUTION OF
• Keywords: Set aside; Capital asset; Sale consideration of property below Jantri Value; Fair market value; Cost of acquisition; Gift; Capital Gains; Valuation report; Assessment record; Revision of order; Prejudicial to interest
• Section: 143(3); 142(1); 143(2); 263; 48; 2; 40A(3)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE ŵी िवŢम िसंह यादव, लेखा सद˟ एवं ŵी परेश म. जोशी, Ɋाियक सद˟ BEFORE: SHRI. VIKRAM SINGH YADAV, AM &SHRI. PARESH M. JOSHI, JM आयकर अपील सं./ ITA NO. 329/Chd/2024 िनधाŊरण वषŊ / Assessment Year : 2018-19 Sanjeev Kumar Kathuria E-32, Industrial Area Haryana-135001 बनाम The ITO Ward -1 Yamunanagar ˕ायी लेखा सं./PAN NO: ACZPK4672P अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Ajay Jain, C.A राजˢ की ओर से/ Revenue by : Smt. Kusum Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 17/02/2025 उदघोषणा की तारीख/Date of Pronouncement : 27/02/2025 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. PCIT, Panchkula dt. 28/03/2024 pertaining to Assessment Year 2018-19. 2. In the present appeal, the assessee has raised the following grounds of appeal: 1. That the PCIT, Panchkula has wrongly framed order under section 263 of Income Tax and set the assessment order passed under section 143(3) after making detailed enquiries with respect to capital gain on sale of residential house. 2. The PCIT has wrongly enhanced the scope of scrutiny assessment while faming order under section 263 of Income Tax Act. 3. Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs. 69,52,590/-. Subsequently, return of income was selected for complete scrutiny and notice under section 143(2) and 142(1) were issued alongwith questionnaire, and after taking into consideration the 2 submission filed by the assessee and carrying out the necessary verification/ examination, the assessment proceedings were completed under section 143(3) r.w.s 143(3A) &143(3B) of the Act, wherein the assessed income was determined at Rs. 88,44,429/- after making the disallowance under section 40A(3) of the Act amounting to Rs. 12,09,560/-. 4. Subsequently, the assessment records were called for and examined by the Ld. PCIT, Panchkula and a show cause under section 263 dt. 12/12/2023 was issued by the Ld. PCIT and the contents thereof read as under: “Perusal of assessment record reveals that you had sold a residential property, 139, Masjid Moth, Uday Park, New Delhi, measuring 180 sq.m. for Rs. 5,01,00,000/- during previous year 2017-18 and had declared Long Term Capital Gain of Rs. 49,19,440/- on the same in the ITR. Computation of LTCG as per ITR is as under: Full value of consideration received 5,01,00,000/- Less: Cost of acquisition with indexation 4,51,80,560/- Long Term Capital Gains 49,19,440/- The indexed cost of acquisition was taken by taking the base year as 2001. You furnished a Valuation Report of the property in support of the Fair Market Value (FMV) of the property as on 01.04.2001. From the perusal of the Valuation Report, it is seen that the FMV of the property as on 01.04.2001 was takenat Rs.1,66,10,500/- (FMV of the land and construction were Rs. 1,33,30,000/- and Rs. 32,80,500/- respectively). This property was received by you through gift deed dated 08.10.2009 executed by your father Sh. Sudershan Kumar Kathuria who had purchased this property through conveyance deed dated 18.06.1996. As per record, while executing gift deed dated 08.10.2009, FMV of the said property was determined at Rs.1,08,00,000/- for calculating stamp duty of the gift deed. Further, perusal of the Valuation Report reveals that the Valuer has determined the FMV on the basis of a sale deed of a first floor dwelling unit with 25% land of area 183 sq.m. which was executed on 21.01.1998 for a sale consideration of Rs.35,00,000/-. In this sale instance, saleconsideration of Rs. 35,00,000/- included cost of land share of 25% as well as construction cost of the dwelling unit on first floor. But yourValuer in his valuation report took the whole amount as cost of 25% share of the land area and determined the FMV of the land in your case at Rs.57,377/-, thereby total indexed FMV of landas on 01.04.2001was taken at Rs.1,33,30,000/-. In this way, the Valuer manipulated the calculation of FMV to reduce Long Term Capital Gain Tax liability substantially. 3 Further, as per Schedule of Residential Land Rates issued by the Land and Development Office, Delhi vide letter no. L&DO/F-24013/3/2013-CDN/106 dated 02.05.2017, maximum per square meter rate was Rs.13,860/- in South Zone of Delhi during the period 01.04.2000 to 14.02.2006. As per these rates, the maximum FMV of the land in question will work out to Rs 24,94,800/- (Rs. 13,860/- X 180 sq.m.). Further, if FMV of construction of the building on the said land is taken at Rs.32,80,500/-/as per calculation given in the Valuation Report on the basis of CPWD rates, the total FMV of the property as on 01.04.2001 works out toRs. 57,75,300/-. However, the Assessing Officer failed to take cognizance of the above documents/facts and accepted the Valuation Report submitted by you which had apparently been prepared forreducing tax liability by computing fair market value at exorbitantly inflated rates. The computation of LTCG was required to be as under: Full value of consideration received 5,01,00,000/- Less: Cost of acquisition with indexation Rs.57,75,300/-X 272/100 1,57,08,816/- Long Term Capital Gains 3,43,91,184/- Hence, Long Term Capital Gain was under assessed by Rs.2,94,71,744/-on the basis of material on record. Therefore, the assessment order for AY 2018-19 passed on 08.04.2021 in your case u/s 143(3) of the Income Tax Act, 1961, is proposed to be held as erroneous and prejudicial to the interest of Revenue in terms of Section 263 of I.T. Act, 1961. Accordingly, in view of provisions contained in section 263 of the I.T. Act, 1961, I propose to hold the said assessment order for AY 2018-19 to be erroneous, insofar as it is prejudicial to the interests of revenue in terms of Section 263 of the Income Act, especially as per clause (a) and (b) of Explanation 2 to Sec 263 of the Act, and take suitable remedial action u/s 263 of the Income-tax Act, 1961.” 5. In response to the show cause, the assessee filed his submissions before the Ld. PCIT. In its submissions the assessee has submitted as under: “1. The Assessing officer has made extensive enquiry in respect of FMV of residential house as on 1-4-2001 vide notice under section 142(1) dated 17/11/2020 and demanded valuation report and assessee has given reply on 22/12/2020 in response to his question raised and submitted valuation report from Income Tax approved registered valuer. The Ao has already made enquiry and accepted the FMV as on 1-4-2001 on the basis documents/valuation report therefore the order passed under section 143(3) is neither erroneous nor prejudicial to interest of revenue. 2. Your honour has taken schedule of residential land for conversion lands rate of DDA for residential purposes. There are 2 element in schedule referred by 4 you that (i) It is conversion rate (ii) It is land rate of DDA for residential purposes. We strongly object coercion rate cannot be considered FMV and second DDA flat land cannot be compared with independent freehold house in posh area. 3. The Finance Act 2020 added proviso for the purpose of FMV as on 1-4- 2001 which is wef AY 2021-22 which is re produced as under Provided that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001. In this regards we submit that before AY 2021-22 the FMV as on 1-4-2001 is required to be taken for the purpose of Indexed cost ofacquisition and not collector rate. Your honour is relying on Schedule of Residential rates notified by Government of India Ministry of urban Development New Delhi published on 02/05/2017 which has no relevance with Fair Market Value. Further schedule is applicable to conversion of Land rate of DDA for residential properties. Our property was not constructed /allotted by DDA and therefore the reliance placed on such conversion rate is misplaced. We also object that your honour has mentioned Maximum per square Meter rate was Rs 13860/- but in schedule no where it is mentioned that such rate is Maximum per square meter. The rate of DDA flats cannot be applicable to other residential house. The DDA allots the flat at lowest possible rate by draw system in order to provide affordable house to needy and middle / poor people. The conversion rate of land of DDA land cannot be applied in instant case as our residential is constructed on independent freehold plot & t located in Posh Colony near to ring road and Income tax approved valuer has made valuation on the basis of registered sale deed Doc no 464 Vol 1356 regd on 21/01/998 in which sale of 25% share in land measuring 183 Square Meter and only first floor has been sold for Rs 35 Lakhs before 1-4-2001 and valuer has correctly valued at Rs 1.66 crore & there is no reason to disbelief the valuation done by Income tax Registered valuer. 4. In view of above the calculation of capital at Rs 343,91,184 is not based on correct appreciation of fact and calculating is misleading 5. We also submit that the collector rate is always fixed as minimum rate in order to collect stamp duty and FMV cannot be compared with collector rate. 6. The FMV of construction of house depends upon the quality of construction and collector rate can not applied blankly on all type of construction and your honour shall appreciate the fact that DDA/Housing board provide flats at minimum possible price with low level of construction which cannot be compared with residential house on independent plot in posh area. 7. We also submit that your honour has again placed reliance on gift deed dated 8/10/2009. Stamp duty is charged on minimum collector for stamp duty purposes and it cannot reflect FMV as on 1-4-2001. The collector value is always fixed as minimum value onwhich buyer / seller has to pay stamp duty and it is well known fact that the stamp value cannot be substitute the Fair market value.” 5 6. The submissions so filed by the assessee were considered but not found acceptable to the Ld. PCIT and the assessment order so passed by the AO was held to be erroneous in so far as prejudicial to the interest of the Revenue as per Clause (a) &(b) of Explanation 2 to Section 263 of the Act and the assessment order was set aside with direction to the AO to pass fresh assessment order after making requisite inquiries and verification and the findings of the ld PCIT read as under: “4. I have considered the reply of the assessee to the Show Cause Notice u/s 263 of the Act and the assessment records. (i). Return of income for AY 2018-19 was filed by the assessee on 29.10.2018 declaring total income of Rs. 69,52,490/-. The case was selected for complete scrutiny on the issue of 'Share Capital/Other Capital'. The assessee had sold a residential property, 139, Masjid Moth, Uday Park, New Delhi, measuring 180 sq.m. for Rs. 5,01,00,000/- during the previous year 2017-18. Long Term Capital Gain on the above sale was declared in the ITR as under: Full value of consideration received Rs. 5,01,00,000/- Less: FMV of the land : Rs.1,33,30,000/- Add Cost of construction : Rs. 32,80,500/- Total cost of acquisition : Rs.1,66,10,500/- Indexed cost of acquisition : Rs. 4,51,80,560/- Long Term Capital Gain : Rs. 49,19,440/- (ii) However, reference to the records shows that the FMV was inflated with a view to reduce tax liability on the LTCG. (a) The property sold by the assessee was received by the assessee through a gift deed dated 08.10.2009 executed by his father Sh. Sudershan Kumar Kathuria who in turn had purchased this property through conveyance deed dated 18.06.1996. The fair market value (FMV) of the said property was determined by the State Revenue authorities at Rs. 1,08,00,000/- as on 08.10.2009 for calculating stamp duty on the gift deed. It could not be taken at Rs. 1,66,10,500/- as on 1.4.2001, that is nearly 8 years before. (b) While computing LTCG, the assessee opted to take the cost of acquisition as the fair market value (FMV) of the property as on 01.04.2001. The assessee supported the FMV ofRs 1,66,10,500 by filing a Valuation Report of the property sold from a private approved valuer Sh. ParveshGhai. A reference to the said Valuation Report shows that the FMV of Rs 1,66,10,500 was assessed by the valuer on the basis of a sale instance of another nearby property, i.e, sale deed of property C26, Gulmohar Bagh, New Delhi, dated21.01.1998. 6 However, reference to the Valuation Report shows that the FMVhad been inflated with a view to reduce tax liability on the LTCG. The sale instance/sale deed has not been correctly applied by the valuer for the following reasons and was meant to suppress income from LTCG by inflating the cost of acquisition: Property Sold by Assessee House No. 139, Masjit Moth, Uday Park, New Delhi Description of property sold as per Valuation report Plot No. 139, 180 sq.m., having Ground, First and Second floor. The G.Fl is having one drawing / diningroom, three bed rooms, one kitchen, attached toilets, one store and one stairs. On 1st floor and second floor, it is same as on ground floor. Amount Date of sale Rs. 5,01,00,000/- F.Y 2017-18 Sale instance taken by Valuer in the valuation report C26, Gulmohar Park, New Delhi Description of property sold as per Registered Sale deed Plot measuring 183 sq. m (200 Sq. yard) Property of portion sold as per Registered Sale Deed Dwelling unit on the first floor comprising three bed rooms, one living room, on dining area, one kitchen, three toilets and balconies at entire 1st Floor along with 25% undivided and indivisible rights,, interest, liens and titles in the land beneath the same, common passages and staircases for approach, rights of usage of necessary amenities, services attached thereto collectively referred to as demised portion of the free hold property Amount / Date of sale Rs. 35,00,000/- 21.01.1998 In this sale instance, sale consideration of Rs.35,00,000/- was for sale of property comprising plot measuring 183 sq.m (200 Sq yard), dwelling unit constructed on the first floor as described above and 25% of the undivided and indivisible rights attached to the demised portion of the property. However, the Valuer of the assessee in his valuation report took the whole amount of Rs. 35,00,000/- as cost of land and determined the FMV of the land at Rs.57,377/- per Sqm, (Rs.1,33,30,000/- in total). To this, cost of construction of the assessee's own property was further added at Rs.32,80,500/- separately. In this way, the Valuerover-assessed the calculation of FMV to reduce Long Term Capital Gain Tax liability substantially. (iii) The AO has erred in accepting the fair market value of land as on 01.04.2001 at Rs. Rs.1,66,10,500/-as claimed by the assessee on the basis of the above Valuation report. 7 (iv) Even if submission of the assessee that DDA rates were not applicable were to be accepted, the fact stands that the FMV of the sold property assessed by the concerned State Revenue authorities for the purpose of stamp duty at the time of registration of the gift deed could not be ignored.Infact, it was the best valuation of FMV available to the AO which had been made in respect of the property itself. 5. In view of the foregoing, it is held that the assessment order for AY 2018-19 dated 08.04.2021 is erroneous in so far as it is prejudicial to the interests of the revenue as per clauses (a) and (b) of Explanation 2 to Sec 263 of the Income-tax Act, 1961. 6. The assessment order is set aside with the directions to the assessing officer to pass a fresh assessment order after making the requisite inquiries and verifications and giving due opportunity of hearing to the assessee.” 7. Against the said findings and directions of the Ld. PCIT, theassessee is in appeal before us. 8. During the course of hearing, the Ld. AR submitted that the assessee has sold a residential house at Delhi. The assessee has taken FMV as on 1-4-2001 as cost of acquisition for the purpose of calculation of capital gain as the property has been acquired before 1-4-2001.The case has been selected under scrutiny U/s 143(2) and the AO has issued various notices U/s 142(1) from 7/2/2020 to 24/03/2021& made extensive enquiries. The AO has made complete enquiry and made addition U/s 40A(3) of Income Tax Act and same has been challenged before NFAC New Delhi. 9. The ld. AR further submitted that the Assessing officer has made enquiry in respect of FMV of residential house as on 1-4-2001 vide notice under section 142(1) dated 07/02/2020 and asked for details of sale of property and capital gain &assessee has submitted complete details along with calculation of capital gain. It was submitted that the Assessing officer thereafter vide notice under section 142(1) dated 17/11/2020 & notice U/s 142(1) dated 11/01/2021 hadsought valuation report and assessee has given reply on 22/12/2020 & 26/01/2021 in response to his question raised and submitted valuation report 8 from Income Tax approved registered valuer. The AO has made due enquiry and accepted the FMV as on 1-4-2001 on the basis documents / valuation report therefore the order passed under section 143(3) is neither erroneous nor prejudicial to interest of revenue. 10. It was submitted that the Ld. PCIT has taken schedule of residential land for conversion lands rate of DDA for residential purposes. There are 2 elements in schedule referred by her that (i) It is conversion rate (ii) It is land rate of DDA for residential purposes. We strongly objected to the same as conversion rate cannot be considered FMV and second DDA flat land cannot be compared with independent freehold house in posh area. 11. It was submitted that the Finance Act 2020 added proviso for the purpose of FMV as on 1-4-2001 which is w.e.f AY 2021-22 which is reproduced as under: “Provided that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001.” 12. The Ld. AR submitted that before AY 2021-22, the FMV as on 1-4-2001 is required to be taken for the purpose of Indexed cost of acquisition and not collector rate and the ld PCIT has relied on Schedule of Residential rates notified by Government of India, Ministry of urban Development New Delhi published on 02/05/2017 which has no relevance with Fair Market Value. Further schedule is applicable to conversion of land rate of DDA for residential properties and the subject property was not constructed / allotted by DDA and therefore the reliance placed on such conversion rate is misplaced. The assessee has objects to Maximum per square Meter rate of Rs 13860/- as in schedule, no where it is mentioned that such rate is Maximum per square meter. The rate of DDA flats cannot be applicable to other residential house. The DDA allots the flat at 9 lowest possible rate by draw system in order to provide affordable house to needy and middle / poor people. The conversion rate of land of DDA land cannot be applied in instant case as the subject residential house is constructed on independent freehold plot & located in Posh Colony near to ring road. 13. It was submitted that Income tax approved valuer has made valuation on the basis of registered sale deed Doc no 464 Vol 1356 regd on 21/01/998 in which sale of 25% share in land measuring 183 Square Meter and only first floor has been sold for Rs 35 Lakhs before 1-4-2001 and valuer has valued at Rs 1.66 crore & there is no reason to disbelief the valuation done by Income tax Registered valuer. 14. Ld. AR also submitted that the collector rate is always fixed as minimum rate in order to collect stamp duty and FMV cannot be compared with collector rate.Ld. AR submitted that the FMV of construction of house depends upon the quality of construction and collector rate cannot applied blankly on all type of construction and your honour shall appreciate the fact that DDA/ Housing board provide flats at minimum possible price with low level of construction which cannot be compared with residential house on independent plot in posh area. 15. The Ld. AR further submitted that PCIT has placed reliance on gift deed dated 8/10/2009 executed in favour of the assessee by his father. Stamp duty is charged on minimum collector for stamp duty purposes and it cannot reflect FMV as on 1-4-2001. The collector value is always fixed as minimum value on which buyer / seller has to pay stamp duty and it is well known fact that the stamp value cannot be substitute the Fair market value. It was submitted that the assessee’s father had acquired the said property on 18/06/1996 prior to 1-4- 2001, the indexed cost of acquisition has therefore been worked out with reference to FMV as on 1-04-2001 and not with reference to date on which the 10 assessee acquired the property by way of gift and in support, reliance was placed on the decision of Hon’ble Punjab and Haryana High Court in case of Rajiv Mehra vs CIT [2024] 168 taxmann.com 273, the decision of Hon’ble Bombay High Court in case of CIT vs Manjula J. Shah [2011] 16 taxmann.com 42 besides Coordinate Chandigarh Benches decisions in case of Mrs. Pushpa Sofat Vs. ITO (2002) 81 ITD 1 (Chd Trib) and Vishwanath Sharma Vs. Asst. CIT (2013) 32 taxmann.com 211 (Chd Trib). It was accordingly submitted that the assessee objects to ld PCIT invoking his jurisdiction for initiating the revision proceedings by issue of notice under section 263 of the Act dated 12th March 2023 and the order so passed be set-aside and that of the AO be sustained. 16. Per contra, the Ld. CIT DR has relied on the findings of the Ld. PCIT. 17. We have heard the rival contentions and pursued the material available on record. The issue under consideration relates to determination of cost of acquisition in respect of residential property sold by the assessee during the previous year 2017-18 relevant to impugned assessment year 2018-19. In this regard, it is an admitted fact that the said property was acquired by the assessee through a gift deed dt. 08/10/2019 executed by the assessee’s father Shri Sudharshan Kumar Kathuria who in turn had purchased this property through a conveyance deed dt. 18/06/1996. In the show cause notice issued under section 263 of the Act, the Ld. PCIT was of the prima facie view that index cost of acquisition as so computed by the assessee has not been properly computed and not properly examined by the AO. She has referred to the valuation report so submitted by the assessee during the course of assessment proceedings and has stated that the valuer manipulated calculation of FMV to reduce LTCG liability. Further she has referred to Schedule of residential land rate issued by the Land and Development Office Delhi vide letter dt. 02/05/2017 and basis the same has held that the FMV of the property as on 01/04/2001 working out to Rs. 11 57,75,300/-. Besides that, she has mentioned that while executing Gift deed dt. 08/10/2009, the FMV of the property was determined at Rs. 1,08,00,000/- for calculating stamp duty of the gift deed and which should be taken as the FMV for the purpose of determining the Index Cost of Acquisition. However, if we look the final finding of the Ld. PCIT, she has apparently accepted the assessee’s contention regarding non-applicability of land rates as per LDO Delhi and has restricted her findings in relation to the valuation report as well as the FMV of the property sold at the time of registration of the gift deed. Therefore, we restrict our examination to these two issues and respective contentions in order to examine where the order so passed by the AO has been rightly held to be erroneous in so far as prejudicial to the interest of the Revenue or not. 18. Firstly, as regards to the findings of the Ld. PCIT that the FMV of the sold property assessed by the concerned said Revenue Authority for the purpose of stamp duty at the time of registration of the gift deed could not be ignored and it was best valuation of FMV available to the AO, we find that it is an admitted position that the assessee has acquired the said property through a gift deed dt. 08/10/2009 executed by his father Shri Sudarshan Kumar Kathuria who inturn had purchased this property through conveyance deed dt. 18/06/1996 before the first day of April 2001. 19. In this regard, during the course of hearing, with the assistance of the Ld. AR, we have gone through the definition of cost of acquisition and the relevant provisions are contained in 55(1)(b) of the Act wherein in Clause (ii), it has been provided that “where the capital asset became the property of the assessee by any of the modes specified in Sub Section (1) of Section 49 and the capital asset became the property of the previous owner before the first day of April 2001, the cost acquisition means the cost of the capital asset to the previous owner or the FMV of the asset on the first day of April 2001 at the option of the assessee.”- 12 Further by the Finance Act 2020 with effect from 01/04/2021, a proviso has been inserted in the said definition which provide that in case of capital asset referred to the Sub Clause 1 & 2 being land or building or both, the FMV of said assets on the first day of April 2001 for the purpose of Sub Clause shall not exceed the stamp duty value wherever available of such asset as on the first day of April 2001. 20. In the instant case, the assessee has acquired the property through a registered gift deed from his father, which is one of the mode specified in Sub Section (1) of Section 49 of the Act and it is also an admitted fact that the said property has been acquired by the assessee’s father on 18/06/1996 well before the first day of April 2001. Therefore in such situation, the assessee has the option to determine the cost of the asset either as per the cost to the previous owner or FMV of the asset as on the first day of April 2001. In the instant case, the assessee has exercised the said option and has determined the cost of acquisition basis the FMV of the asset as on the first day of April 2001. Therefore, where the AO has allowed the assessee to consider the cost of acquisition basis FMV as on the first day of April 2001, we are of the considered view that the order so passed by the AO cannot be held to be erroneous as the same is in consonance with the stated provisions in Sub Section 55(1)(b) of the Act which apparently has skipped the attention of the Ld. PCIT. 21. Further, we refer to the provision of Explanation (iii) to Section 48 which talks about the Index cost of acquisition which has been defined to mean an amount which bears to the cost of acquisition the same proportion of cost of inflation index for the year in which the asset is transferred bears to the cost of inflation index for the first year in which the asset was held by the assessee or for the year beginning the first day of April 2001 whichever is later. 13 22. In the instant case, where the assessee’s father acquired the property prior to the 01/04/1981 and thereafter the property has been gifted to the assessee which has been sold in the year under consideration while computing capital gain the term “first year in which the asset was held by the assessee” as so interpreted by the Courts to means the year in which asset was first held by the previous owner and not the year in which the assessee became the owner of the asset in terms of the gift deed. In this regard, our reference was drawn to the decision of Hon’ble Bombay High Court in case of CIT Vs. Manjula J. Shah (Supra) wherein the relevant findings read as under: “Section 45 provides that any profits or gains arising from the transfer of a capital asset in the previous year shall be chargeable to income-tax under the head 'capital gains'. Where the gains arise on transfer of a short-term capital asset as defined under section 2(42A), the gains are taxed as short-term capital gains. Where the gains arise on transfer of long term capital asset, as defined under section 2(29A), the said gains are taxed as long term capital gains. Section 47(iii) provides that where a capital asset is transferred under a gift or will, then, such transaction shall not be regarded as transfer and in such a case the liability to pay capital gains tax would not arise. Liability to pay capital gains tax, however, would arise when the assessee transfers the capital asset acquired under a gift or will for valuable consideration. [Para 10] The mode and the manner of computing the capital gains is provided under section 48. As per section 48, the income chargeable under the head 'capital gains' is liable to be computed by deducting from the full value of the consideration received on transfer of the capital asset, the amount of expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. Where the assessee acquires any capital asset under a gift or will without incurring any cost of acquisition, there would be no capital gains liability. However, section 49(1)(ii) provides that in the case of an assessee acquiring an asset under a gift or will, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee as the case may be. Thus, on account of the deeming fiction contained in section 49(1)(ii ), gains arising on transfer of a capital asset acquired by the assessee under a gift or will would arise. In such a case, the capital gains under section 48 would have to be determined by deducting from the total consideration received by the assessee, inter alia the deemed cost of acquisition. [Para 11] Where the gains are long term capital gains (other than long term capital gains arising to a non-resident from the transfer of shares or debentures of an Indian Company), then, as per the second proviso to section 48 of the Act, the capital gains have to be computed by deducting from the full value of consideration the 14 'indexed cost of acquisition' and the 'indexed cost of any improvement' instead of deducting the 'cost of acquisition' and 'cost of improvement'. [Para 12] In the instant case, the capital asset in question was originally acquired by the previous owner (daughter) on 29-1-1993 and the same was acquired by the assessee under a gift deed dated 2-1-2003 without incurring any cost. The assessee sold the said capital asset on 30-6-2003. Since the assessee held the capital asset for less than thirty six months (2-1-2003 to 30-6-2003) in the ordinary course, as per section 2(42A), the assessee would have held the asset as a short- term capital asset and, accordingly, liable for short-term capital gains tax. However, in view of Explanation 1(i)(b) to section 2(42A) which provides that in determining the period for which any asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included, the assessee is deemed to have held the asset as a long term capital asset and, accordingly, liable for long term capital gains tax. Thus, by applying the deeming provision contained in the Explanation 1(i)(b) to section 2(42A) of the Act, the assessee is deemed to have held the asset from 29-1-1993 to 30-6-2003 (by including the period for which the said asset was held by the previous owner) and, accordingly, held liable for long term capital gains tax. [Para 13] It is not disputed by the revenue that the assessee must be deemed to have held the capital asset from 29-1-1993 (though actually held from 1-2-2003) by applying the Explanation 1(i )(b) to section 2(42A) and, hence, liable for long term capital gains tax. However, the revenue disputes the applicability of the deemed date of holding the asset from 29-1-1993 while determining the indexed cost of acquisition under clause (iii ) of the Explanation to section 48. [Para 14] It is the contention of the revenue that since the indexed cost of acquisition as per clause (iii) of the Explanation to section 48 has to be determined with reference to the cost inflation index for the first year in which the asset was held by the assessee and in the present case, as the assessee held the asset with effect from 1-2-2003, the first year of holding the asset would be financial year 2002-03 and, accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. [Para 16] There is no merit in the above contention. As rightly contended by the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under section 48, that expression has to be understood as defined under section 2. Explanation 1(i)(b ) to section 2(42A) provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29-1-1993, as per Explanation 1(i)(b ) to section 2(42A), the assessee is deemed to have held the capital asset from 29-1-1993. By reason of the deemed holding of the asset from 29-1-1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under section 48 by treating that the assessee held the capital asset from 29-1-1993, then, naturally in determining the indexed cost of acquisition under section 48, the assessee must be treated to have held the asset from 29-1-1993 and, accordingly, the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. [Para 17] 15 If the argument of the revenue that the deeming fiction contained in Explanation 1(i)(b ) to section 2(42A) cannot be applied in computing the capital gains under section 48 is accepted, then, the assessee would not be liable for long term capital gains tax, because, it is only by applying the deemed fiction contained in Explanation 1(i)(b ) to section 2(42A) and section 49(1)(ii) the assessee is deemed to have held the asset from 29-1-1993 and deemed to have incurred the cost of acquisition and, accordingly, made liable for the long term capital gains tax. Therefore, when the legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under section 48 has to be computed by applying the deemed fiction, it is not possible to accept the contention of revenue that the fiction contained in Explanation 1(i )(b) to section 2(42A) cannot be applied in determining the indexed cost of acquisition under section 48. [Para 18] It is true that the words of a statute are to be understood in their natural and ordinary sense unless the object of the statute suggests to the contrary. Thus, in construing the words 'asset was held by the assessee' in clause (iii) of Explanation to section 48, one has to see the object with which the said words are used in the statute. If one reads Explanation 1(i )(b) to section 2(42A) together with sections 48 and 49, it becomes absolutely clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee under a gift or will as provided under section 49 where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in clause (iii) of the Explanation to section 48 that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Explanation 1(i )(b) to section 2(42A). [Para 19] To accept the contention of the revenue that the words used in clause (iii) of the Explanation to section 48 has to be read by ignoring the provisions contained in section 2 runs counter to the entire scheme of the Act. Section 2 expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under section 2. In section 48, the expression 'asset held by the assessee' is not defined and, therefore, in the absence of any intention to the contrary the expression 'asset held by the assessee' in clause (iii) of the Explanation to section 48 has to be construed in consonance with the meaning given in section 2(42A). If the meaning given in section 2(42A) is not adopted in construing the words used in section 48, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the capital gains tax which is not intended by the legislature. Therefore, the argument of the revenue which runs counter to the legislative intent cannot be accepted. [Para 20] 16 Apart from the above, section 55(1)(b )(2)(ii) provides that where the capital asset became the property of the assessee by any of the modes specified under section 49(1) not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under section 48. The question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under section 49(1) would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under-section 49(1), the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. [Para 21] The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per the CBDT Circular No.636 dated 31-8-1992 a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at the indexed cost of acquisition and the indexed cost of improvement and then, deduct the same from the sale consideration to arrive at the long term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under section 49(1), the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously, in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee. [Para 22] Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. [Para 23] In the result, that the Tribunal was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. [Para 24]” 23. Further, our reference was drawn to the decision of Hon’ble Punjab & Haryana High Court in case of Rajiv Mehra Vs. CIT (supra) wherein it has been held as under: ■ Section 47(iii) specifically lays down that any transfer of a capital asset under a gift or will or an irrevocable trust would not be covered by the provisions of section 45(1) and taking into consideration the transfer of capital asset cannot be computed in terms of section 45. Thus, the present transfer of property has to be examined in terms of section 47 which specifically 17 takes into consideration section 47(I) as any distribution of capital assets on the total or partial partition of a Hindu undivided family. In the instant case, there is a settlement arrived at between the members of the Hindu undivided family (HUF). Accordingly, the cost with reference to the acquisition of property would have to be assessed as per section 49(1)(i). [Para 16] ■ From the perusal of the aforesaid, it is apparent that a capital asset can be treated to be transferred where there is a consideration involved and would also include sale, exchange or relinquishment of an asset, or where a right of any person is extinguished. However, if there is any transfer of a capital asset like property by way of a gift or a will or an irrevocable trust, provisions of section 45 would have no application. Sections 48 and 49 provide the method and manner of computation of income chargeable under the head of capital gains. [Para 17] ■ For assessing the cost with reference to certain modes of acquisition has been now treated as per the Explanation (iii) to section 48 to be First day of April, 1981 or the cost of acquisition for the year in which the asset is transferred to the same proportion as cost of first year in which the asset held by the assessee, whichever is later. [Para 18] ■ Where the capital asset becomes the property of the assessee by way of any distribution of assets on the total or partial partition of HUF, then the cost of acquisition on the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. [Para 19] ■ Thus, in the instant case, since there was admittedly a family settlement whereafter, it has been held by the Tribunal that the assessee became the owner/title holder of the capital asset, then his case has to be examined in terms of section 49(I). Thus, the said family settlement cannot be treated as transfer of property. [Para 21] ■ If the family arrangements records a previous settlement already arrived at between the parties which they are adhering to, the same would not require registration. [Para 29] ■ From the above discussion of law, it is found that the family settlement arrived at between the parties, which was duly available on record, which recorded the earlier settlement already arrived at between the parties was, therefore, a valid family settlement to be noticed for the purpose of computation and computation of capital gains in terms of section 49(1)(i). The cost inflation index is to be calculated with reference to the year 1-4-1981 by treating the acquisition of the property as purchased by the father of the petitioner on 1-4-1963 through registered deed dated 6-6-1963. [Para 32] ■ Thus, it is found that a family settlement is not required to be compulsorily registered. [Para 33] ■ A primary condition must be satisfied before a tax is levied on a capital gain. A family arrangement, in the interest of settlement, may involve movement of property or payment of money from one person to another. Several judgments have held that there is no ‘transfer’ involved in a family arrangement. Therefore, there is no question of capital gains tax index under a family arrangement. [Para 35] ■ Thus, even though the documents relating to will may not have been accepted by the Tribunal, still the calculation has to be done treating the indexation as on 1-4-1981 and merely because the family settlement was arrived in the year 2003 would not make any difference, and the order passed by the Commissioner (Appeals), is therefore, found to be correct although the Commissioner (Appeals) has applied section 49(1)(ii). [Para 36] 18 ■ Therefore, agreeing with the submission of the appellant-assessee that even if the existence of the will may be ignored so far as the appellant-assessee is concerned he has become the holder of the property on the basis of a family settlement and the cost of acquisition shall be with reference to 1-4-1981 alone. The calculation, therefore, has to be done accordingly and the order passed by the Commissioner (Appeals) was not required to be interfered with. [Para 37] 24. We therefore find that even on this account, where the assessee has computed the Index cost of acquisition by taking into consideration cost of inflation index for the year beginning first day of April 2001, the same is in consonance with the stated provision in the statute and where the AO has verified and allowed the same, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. 25. Now coming to the valuation report of a registered valuer so submitted by the assessee during the course of assessment proceedings and the findings of the Ld. PCIT. In this regard, as per the Ld. PCIT, in the valuation report, the sale instance which has been considered relates to the sale of property comprising plot measuring 200 Sq. Yrds dwelling unit constructed on the first floor and 25% of the undivided and individual right attached to the said property. However the valuer in his valuation report took whole amount of Rs. 35,00,000/- as cost of land and determining the FMV and thereafter cost of construction of the assessee owned property was added which has resulted in over assessment of the FMV. In this regard the submissions of the Ld. AR is that the comparable sale in the instant case relates to the property wherein the seller hold 25% of the undivided property and it is an admitted position that the chance of dispute in undivided property are high as against the property which has been sold by the assessee wherein the assessee is the sole owner having 100% ownership right. In such circumstances for the purpose of comparison, the discounting of the sale consideration by 25% as has been done currently by valuer should not have been done and where such discounting so done by the valuer is excluded, the 19 FMV as on 01/04/2001 will comes to Rs 1,77,22,578/- as against the current FMV of Rs 1,66,10,500/- taken by the assessee. It was accordingly submitted that even where the contention of the Ld. PCIT is taken into consideration, there is no prejudice which is caused to the Revenue as the Ld. PCIT has equally failed to take into consideration the discounting so done by the valuer. It was accordingly submitted that where the AO has accepted the valuation report and has not referred the matter to the valuation officer, he has arrived at the reasonable view that the value so determined is not at variance with the FMV of the property so sold by the assessee and where such an opinion has been formed by the AO after due application of mind, the order so passed by the Ld. AO cannot be held to be erroneous and prejudicial to the interest of the Revenue. 26. We find force in the contention so advanced by the Ld AR as what is relevant for determining the fair market value is the comparative sale instance not just in terms of land area, built up structure, proximity of location but also the ownership rights and inherent risks associated with such ownership and therefore, where the assessee has sold a property having 100% ownership rights, the comparative sale instance where the seller holds 25% undivided share has to be suitably grossed up rather than discounted as currently done by the Valuer and where the adjusted value is considered, there is no prejudice which is caused to be Revenue as the same is on a higher side as compared to what has been considered by the assessee. 27. In light of the aforesaid discussion and in the entirety of facts and circumstances of the case, we are of the considered view that the Assessing officer, after calling for required information/documentation and after duly considering the explanations and documentation submitted before him, reached a rightful conclusion in terms of determining the indexed cost of 20 acquisition while working out the capital gains in the hands of the assessee. In our view, such a view is clearly a plausible view which a reasonable and prudent officer could have taken and the view so taken and order so passed by the Assessing officer cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue and the exercise of revisional jurisdiction by the Ld. PCIT u/s 263 cannot be sustained in the eyes of law. The order so passed by the ld PCIT is accordingly set-aside and that of the AO is sustained. 28. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 27/02/2025. Sd/- Sd/- परेश म. जोशी िवŢम िसंह यादव (PARESH M. JOSHI) ( VIKRAM SINGH YADAV) Ɋाियक सद˟ / JUDICIAL MEMBER लेखा सद˟/ ACCOUNTANT MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "