2014 (4) TMI 204 - AT - Income Tax

Tribunal remands Rs. 3 crores deduction issue, sets new FMV at Rs. 25/sq. mtr.

Assistant Commissioner of Income tax Versus Shri Vallabh Vinayak Juwarkar And Others

The Tribunal remanded the issue of deduction of Rs. 3 crores in computation of Long Term Capital Gains back to the CIT(A) for clarification on the nature ... Capital Gains u/s 48 r/w Sec. 55 - deduction of expenditure incurred towards transfer of capital assets - cost of transfer or cost of acquisition - CIT(A) allowed deduction of Rs. 3 crore in computing Long Term Capital Gains – Held that:- CIT(A) although directed AO to allow deduction to Assessee, has not given any finding whether payment made by Assessee represents expenditure incurred wholly and exclusively with regard to transfer or it is cost of acquisition or it is cost of improvement thereof. High Court has directed Assessee to pay a sum of Rs. 3 crores to Shri Digambar Juwarkar for withdrawal of application filed by Digambar Juwarkar dt. 29.6.1995 and 15.2.1994 before Civil court - Set aside order of CIT(A) and restore this issue to file of CIT(A) with direction that CIT(A) will reconsider this issue afresh and give a clear-cut finding under which head expenditure has to be allowed under provisions of Sec. 48 of Act - Assessee should be given proper opportunity before deciding issue afresh so that Assessee may adduce necessary evidence in this regard – Decided partly in favour of Revenue. Determination of Fair Market Value - AO rejected Fair Market Value as determined by Inspector and adopted Fair Market Value at Rs. 3.75 per sq. mtr. – CIT(A) adopted cost of land at rate of Rs. 17 per sq.mtr - Held that:- Sub-Registrar has also cited instances from surrounding villages where rate varies from Rs. 0.96 to Rs. 70/- per sq. mtr. - Other Inspector has worked out average Fair Market Value at Rs. 15-16/- per sq. mtr. - In view of all these different Fair Market Value being determined by different persons - AO cannot take least Fair Market Value since in case of Assessee, Inspector of same office has duly verified nature of land and has also collected various sale instances of comparative villages - Therefore it will be appropriate that Fair Market Value as on 1.4.1981 be taken at Rs. 25/- per sq. mtr. - Fair and reasonable to adopt Fair Market Value as has been worked out by Inspector of Department - Set aside order of CIT(A) on this issue and direct AO to work out Fair Market Value as on 1.4.19981 at Rs. 25/- per sq. mtr. – Decided partly in favour of Revenue. Issues Involved:1. Deduction of Rs. 3 crores in computation of Long Term Capital Gains.2. Determination of the Fair Market Value as on 1.4.1981 for computing Capital Gains.Detailed Analysis:1. Deduction of Rs. 3 crores in computation of Long Term Capital Gains:The first issue pertains to whether the deduction of Rs. 3 crores paid to the legal heirs of the deceased brother of the assessee, Shri Digambar V. Juwarkar, should be allowed in computing Long Term Capital Gains. The property in question was sold by the assessee to M/s. RPA Promoters & Builders Pvt. Ltd. for Rs. 11,63,34,841/-. The assessee claimed a deduction of Rs. 3 crores paid to the legal heirs of Digambar V. Juwarkar as per a consent order of the Hon'ble High Court dated 24.5.2006, amended on 1.6.2007. The property was originally gifted to Shri Vallabh Juwarkar and Shri Shripad Juwarkar by their grandmother in 1950. The legal dispute arose when the youngest brother, Digambar Juwarkar, who was not born at the time of the gift, required the property to be included in the family inventory after the death of their father. The civil court initially decreed that the property should be included in the family assets, and the income from the property should be shared among the three brothers. This was challenged, leading to a consent order by the High Court, which mandated a payment of Rs. 3 crores to Digambar's heirs for relinquishing their claims.The CIT(A) allowed the deduction, stating that the payment was made for the right in the property, thus making the assessee eligible for the deduction. However, the Revenue argued that the High Court had recognized the exclusive ownership of the property by the assessee and his brother, and the payment was for withdrawal of the suit, not related to the cost of acquisition or improvement of the asset.The Tribunal noted that the CIT(A) did not specify under which provision of Section 48 of the Income Tax Act the deduction should be allowed. The Tribunal thus set aside the CIT(A)'s order and remanded the issue back to the CIT(A) to reconsider and provide a clear finding on whether the payment constituted an expenditure incurred wholly and exclusively in connection with the transfer, cost of acquisition, or cost of improvement.2. Determination of the Fair Market Value as on 1.4.1981:The second issue concerns the determination of the Fair Market Value (FMV) as on 1.4.1981 for computing Capital Gains. The assessee opted for an FMV of Rs. 65/- per sq. mtr. based on a Valuation Report by an approved valuer. The AO, however, appointed an Inspector who determined the FMV at Rs. 25/- per sq. mtr. based on records from the Sub-Registrar, which showed no sale statistics for the specific village in 1981 but provided data from a nearby village. The AO rejected the valuer's report and adopted an FMV of Rs. 3.75 per sq. mtr.The CIT(A) reviewed the assessment records of the assessee's brother, where the FMV was determined at Rs. 15-16/- per sq. mtr., and directed the AO to adopt an FMV of Rs. 17/- per sq. mtr. The Tribunal, however, found that the instances cited by the approved valuer were not relevant to the locality, time, or nature of the land. The Tribunal noted that the Inspector had verified the records and determined an average FMV of Rs. 25/- per sq. mtr., which seemed reasonable given the lack of specific sales data for the village in question.The Tribunal thus set aside the CIT(A)'s order on this issue and directed the AO to adopt an FMV of Rs. 25/- per sq. mtr. as on 1.4.1981, considering it a fair and reasonable value based on the available evidence.Conclusion:In conclusion, the Tribunal remanded the first issue back to the CIT(A) for a clear finding on the nature of the deduction under Section 48, while for the second issue, the Tribunal directed the AO to adopt an FMV of Rs. 25/- per sq. mtr. Both the appeals filed by the Revenue were partly allowed for statistical purposes, and the cross objections filed by the assessees were partly allowed.