2014 (10) TMI 34 - AT - Income Tax

Tribunal partially grants appeal, remits cost apportionment issues, rules in favor of assessee on DVO reference.

The tribunal partly allowed the appeal, remitting issues on apportionment of preliminary costs, common amenities, and interest costs back to the FAA for ... Reference to Valuation Officer under section 55A - Fair market value for capital gains - Admission of additional grounds before the Tribunal - Apportionment of project-wide preliminary and common expenses - Apportionment of interest as project cost versus attributable to completed phase - Non-pressing of a groundAdmission of additional grounds before the Tribunal - Admission of the additional ground challenging the AO's reference to the Valuation Officer was allowed - HELD THAT: - The Tribunal reviewed the law and authorities on leave to urge additional grounds under Rule 11 of the ITAT Rules (analogy to Order XLI, r.2 CPC). It held that the Tribunal has a discretion to admit an additional ground where it relates to the subject-matter of the appeal, does not require fresh factual investigation and is essentially a legal question. The Tribunal found that the additional ground was a pure legal issue, that necessary facts were on record, and that the Department had not shown prejudice or absence of material to decide the point. Applying the principles (including that discretion must be exercised judicially and reasons recorded), the Tribunal admitted the additional ground. [Paras 3]Additional ground admittedReference to Valuation Officer under section 55A - Fair market value for capital gains - Validity of AO's reference to the Departmental Valuation Officer under section 55A in the facts of this case - HELD THAT: - The Tribunal examined section 55A, its legislative purpose and explanatory circular, and surveyed precedents. It emphasised that at the relevant time clause (a) permitted reference where the value claimed by the assessee (by a registered valuer) was less than FMV, and clause (b)(ii) could be invoked only if the AO, having regard to the nature of the asset and other relevant circumstances, formed a pre-decisional opinion that reference was necessary. The record did not disclose any pre-formed opinion of the AO or the relevant reasons for invoking clause (b)(ii). Because the value shown by the assessee was not less than the FMV, and no reasons were recorded for invoking the residuary clause, the reference to the DVO was unjustified. The Tribunal further relied on and followed the reasoning in the jurisdictional High Court decisions cited (Daulat Mohta; Puja Prints) and concluded that the AO's reference could not be sustained under the law as it stood for the relevant period. [Paras 4]Reference to DVO under section 55A quashed; additional ground decided in favour of the assesseeApportionment of project-wide preliminary and common expenses - Allocation of preliminary costs and common amenities between Building A and the balance of the project was remitted for fresh adjudication - HELD THAT: - AO treated specified expenditures (project management fees, preliminary costs, common amenities) as project-wide and apportioned them over total saleable area. Assessee contended some items (including the project management fees) related exclusively to Building A and provided documentary material. The FAA endorsed the AO without adequate reasoning and did not consider the assessee's alternative apportionment argument. The Tribunal found the FAA's order to be non-speaking on the alternative contentions and restored the matter to the FAA directing a reasoned decision after giving the assessee an opportunity of hearing. [Paras 5]Matter remitted to FAA for fresh, reasoned adjudicationApportionment of interest as project cost versus attributable to completed phase - Apportionment of interest expenditure was remitted to the FAA for consideration - HELD THAT: - AO apportioned the total interest across the entire project; assessee argued interest up to completion was attributable to Building A (or alternatively sought a specific apportionment formula). The FAA disposed of the contention briefly without parsing the alternative submissions. In light of the FAA's non-speaking treatment and because the interest apportionment is connected to the same core controversy as the other allocation issues, the Tribunal remitted the interest apportionment for fresh consideration by the FAA, with directions to pass a speaking order after affording opportunity to the assessee and considering relevant precedent. [Paras 6]Interest apportionment remitted to FAA for fresh, reasoned adjudicationNon-pressing of a ground - Ground no. 4 (cost of settlement with tenant) was not pressed and is dismissed as not pressed - HELD THAT: - The assessment ground raised regarding the cost of settlement with tenant was not pursued by the assessee during hearing before the Tribunal; accordingly the Tribunal recorded that the ground was not pressed and treated it as dismissed for that reason. [Paras 2]Ground dismissed as not pressedFinal Conclusion: The Tribunal admitted the additional ground and, on the merits, held that the AO's reference to the Departmental Valuation Officer under section 55A was not justified in the facts and allowed the additional ground in favour of the assessee; issues of apportionment of preliminary/common expenses and of interest were remitted to the First Appellate Authority for fresh, reasoned decisions after hearing the assessee; one ground was dismissed as not pressed and the appeal was partly allowed. Issues Involved:1. Valuation of land at Boat Club Road, Pune2. Apportionment of Preliminary Costs & Common Amenities3. Apportionment of Interest Cost4. Cost of Settlement with Tenant5. Reference to Valuation Officer u/s 55A of the Income Tax Act, 1961Issue-wise Detailed Analysis:1. Valuation of Land at Boat Club Road, Pune:- Value as on Date of Conversion (12.06.1995): The CIT(A) confirmed the valuation of the land at Rs. 12,82,41,000 as per the DVO's report. The assessee argued that this valuation was incorrect and should be reconsidered.- Valuation of Part of the Land Converted in January 2001: The CIT(A) confirmed the valuation at Rs. 94,79,000 instead of the appellant's claimed Rs. 2,04,11,552. The assessee contended that the valuation should be proportional to the area based on the 1995 valuation.2. Apportionment of Preliminary Costs & Common Amenities:- Preliminary Costs (Rs. 36,87,001) & Common Amenities (Rs. 76,96,000): The CIT(A) upheld the apportionment of these costs proportionately to Building A based on its saleable area ratio to the total project area. The assessee argued that these costs should be entirely attributed to Building A. The tribunal found that the FAA did not provide a reasoned order and remitted the matter back for fresh adjudication.3. Apportionment of Interest Cost (Rs. 69,69,203):- Interest Cost Allocation: The CIT(A) confirmed the apportionment of interest costs proportionately to Building A. The assessee argued that interest should be fully attributed to Building A or, alternatively, apportioned differently. The tribunal remitted the issue back to the FAA for a reasoned order, considering the decision of the jurisdictional High Court.4. Cost of Settlement with Tenant (Rs. 40,00,000):- Disallowance as Capital Expenditure: The assessee did not press this ground during the hearing, and it was dismissed as not pressed.5. Reference to Valuation Officer u/s 55A:- Legality of Reference: The assessee challenged the AO's reference to the DVO for determining the FMV of the property. The tribunal admitted the additional ground, citing the importance of substantial justice and the legal nature of the issue. It was noted that the AO did not form a clear opinion before making the reference, and the tribunal found no justification for the reference under the specific provisions of section 55A, particularly given that the value shown by the assessee was not less than the FMV. The tribunal reversed the FAA's order on this ground.Conclusion:The tribunal allowed the appeal partly, remitting issues related to the apportionment of preliminary costs, common amenities, and interest costs back to the FAA for fresh adjudication, while deciding the additional ground regarding the reference to the DVO in favor of the assessee. The issue of the cost of settlement with the tenant was dismissed as not pressed.