2016 (11) TMI 203 - AT - Income Tax

Tribunal affirms CIT(A) decision on fair market value & indexation under Income Tax Act

The Tribunal upheld the CIT(A)'s decision in favor of the assessee, ruling that the fair market value for the cost of acquisition should be based on the ... Cost of acquisition of the property - FMV - A.O. has determined cost of acquisition of the property based on the SRO value of the property fixed by the State Government for the purpose of determination of stamp duty - Held that:- . In the present case on hand, the assessee has adopted fair market value of the property as on 1.4.1981 as cost of acquisition which is based on a certificate issued by the registered valuer. The A.O. without assigning any reasons disbelieved registered valuer’s report and adopted SRO value of the property for the purpose of determination of computation of cost of acquisition, when Act specifically provides powers to the A.O. under the provisions of section 55(2) of the Act, to refer the valuation of the property to the valuation officer, when he is of the opinion that the fair market value of the property adopted by the assessee is higher than the fair market value of the property. The A.O., without exercising the option of referring the matter to the valuation officer, simply adopted SRO value which is fixed in a different context to determine the cost of acquisition of the property. Therefore, we are of the opinion that the A.O. was erred in adopting SRO value to substitute the fair market value adopted by the assessee, which is based on a registered valuer certificate. CIT(A) after considering the relevant details has rightly directed the A.O. to substitute value adopted by the assessee as fair market value of the property as on 1.4.1981 to compute cost of acquisition. We do not find any reasons to interfere with the CIT(A) order. Hence, we inclined to upheld CIT(A) order and reject ground raised by the revenue. Benefit of indexation - Held that:- In the present case on hand, the assessee got right over property by way of inheritance through a partition deed which was acquired by his father prior to 1.4.1981. When the assessee got right over property by any of the mode specified u/s 49(1) of the Act, then for the purpose of computation of indexed cost of acquisition, the period of holding of previous owner has to be considered. The CIT(A) after considering the relevant details rightly held that the assessee is eligible for indexation benefit from the period the asset was first held by the previous owner or 1.4.1981 whichever is later as per the provisions of section 49(1) of the Act. We do not see any reasons to interfere with the order of CIT(A). Hence, we inclined to uphold the CIT(A) order and reject ground raised by the revenue. Issues Involved:1. Determination of the cost of acquisition of the property.2. Application of indexation benefit for computing long-term capital gains.Detailed Analysis:1. Determination of the Cost of Acquisition of the Property:The assessee, an individual deriving income from house property and capital gains, filed a return of income for the assessment year 2009-10. The case was selected for scrutiny, and it was noted that the assessee sold an immovable property and computed long-term capital gains. The assessee adopted the fair market value of the property as of 1.4.1981, based on a registered valuer's certificate, and computed the cost of acquisition by applying indexation from 1.4.1981.The Assessing Officer (A.O.) disagreed with the valuation method used by the assessee. The A.O. obtained the fair market value from the Sub Registrar's Office (SRO) and found discrepancies. The A.O. issued a show cause notice and adopted the SRO value for the purpose of computing the cost of acquisition, rejecting the valuer's certificate provided by the assessee. The A.O. re-computed the long-term capital gain at Rs. 1,89,42,855/-.The CIT(A) ruled in favor of the assessee, stating that the A.O. erred in adopting the SRO value instead of the registered valuer's certificate. The CIT(A) emphasized that the fair market value should be based on the registered valuer's report, which the assessee had substantiated with detailed abstracts of construction. The CIT(A) directed the A.O. to adopt the fair market value as per the registered valuer's report as on 1.4.1981.The Tribunal upheld the CIT(A)'s decision, agreeing that the A.O. was incorrect in substituting the fair market value with the SRO value. The Tribunal referenced the decision of the Hon’ble Karnataka High Court in N. Govindaraju Vs. ITO, which distinguished between 'full value of consideration' and 'fair market value.' The Tribunal concluded that the A.O. should have referred the matter to the valuation officer under section 55(2) of the Act if there were doubts about the fair market value provided by the assessee.2. Application of Indexation Benefit for Computing Long-Term Capital Gains:The second issue was the application of the indexation benefit. The assessee claimed indexation from 1.4.1981, the date his father acquired the property, as the property was acquired by the assessee through a partition deed in 2007-08. The A.O. argued that the indexation benefit should be applied from the date the assessee acquired the property, i.e., 2007-08.The CIT(A) ruled that the indexation benefit should be linked to the period of holding the asset, including the period for which the asset was held by the previous owner. The CIT(A) directed the A.O. to adopt indexation from the year in which the asset was held by the previous owner or from 1.4.1981, whichever is beneficial to the assessee.The Tribunal upheld the CIT(A)'s decision, referencing the Hon’ble Bombay High Court's decision in CIT Vs. Manjula J. Shah, which held that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset. The Tribunal also cited similar decisions from the Hon’ble High Court of Delhi and the Hon’ble High Court of Gujarat, supporting the view that the benefit of indexation should be from the period the asset was first held by the previous owner.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order on both issues. The Tribunal confirmed that the fair market value for the cost of acquisition should be based on the registered valuer's certificate and that the indexation benefit should be applied from the period the asset was first held by the previous owner. The judgment emphasized the importance of adhering to the legislative distinctions and provisions under the Income Tax Act.