Fair market value of Rs. 1,20,000 accepted for land valuation plus Rs. 45,000 for watchman room, Section 54 deduction partially allowed at Rs. 32.5 lakh

ITAT Raipur partially allowed the assessee's appeal regarding capital gains computation. The tribunal accepted fair market value of Rs. 1,20,000 for land as on 01.04.1981 based on government approved valuer's certificate, plus Rs. 45,000 for existing watchman room. However, it rejected claims for site development costs and renovation expenses for non-existent structures. For Section 54 deduction, the tribunal allowed 50% of Rs. 65 lakh investment in new residential property (Rs. 32.5 lakh) as only two of four flats were established as converted for family residence, while disallowing the remainder.

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Issues Involved:
1. Fair Market Value as on 01.04.1981.
2. Indexed value of renovation expenses.
3. Restriction on subsequent investment in residential house property.
4. Restriction on claim of exemption u/s 54.
5. General grounds.

Summary:

Issue 1: Fair Market Value as on 01.04.1981
The assessee contested the fair market value of Rs. 50,000/- as determined by the Commissioner of Income-tax (NFAC) instead of Rs. 5,00,000/- claimed by the assessee. The Tribunal found that the valuation provided by the government-approved valuer was more credible and directed the fair market value to be adopted at Rs. 1,20,000/- for the land and Rs. 45,000/- for the watchman room, instead of the Rs. 50,000/- estimated by the CIT(A).

Issue 2: Indexed Value of Renovation Expenses
The assessee claimed renovation expenses of Rs. 19,56,688/-. The Tribunal upheld the disallowance by the CIT(A) since the renovation expenses were not for the building that existed at the time of sale. Only the cost of the watchman room, which was Rs. 45,000/-, was considered valid.

Issue 3: Restriction on Subsequent Investment in Residential House Property
The assessee argued that Rs. 65,00,000/- was spent to convert four flats into one residential unit. The Tribunal allowed 50% of the claimed expenditure, i.e., Rs. 32,50,000/-, as the evidence showed only two flats were interconnected and used by the assessee's family, while the other two flats were rented out.

Issue 4: Restriction on Claim of Exemption u/s 54
This issue was consequential to the decisions on the previous grounds. The Tribunal directed the quantum of deduction u/s 54 to be computed based on the revised fair market value and allowable renovation expenses.

Issue 5: General Grounds
The general grounds raised by the assessee were deemed academic and not separately adjudicated.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for recalculating the fair market value, allowable renovation expenses, and deduction u/s 54 based on the Tribunal's findings.

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