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2014 (3) TMI 1156
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.... total income of Rs. 64,55,376 in the case of Sri Ankitham Jagga Row Indrani and an amount of Rs. 56,50,510 in the hands of Sri Ankitham Venkata Monish Samerandra Rao. They declared income on long term capital gains and share in partnership firm. The returns were processed u/s 143(1) on 07.05.2012. The cases were selected for scrutiny under CASS and notices u/s 143(2) were issued. On a scrutiny of the returns, the Assessing Officer found that the assessees had offered long term capital gains, on their share of the sale proceeds of immovable property. The total consideration declared from the sale was Rs. 4,79,00,000. 1/3rd of the same i.e. Rs. 1,59,66,667 was taken as consideration of each of the assessee and after reducing the cost of acquisition i.e. market value as on 01.04.1981 and indexation thereon, they declared long term capital gains at Rs. 55,89,227 each. The Assessing Officer verified the sale consideration with registered sale deed and noted that the total sale consideration recorded in the documents was Rs. 4,79,00,000 and whereas the stamp valuation authority determined the value at Rs. 20,93,50,000. The assessee was asked as to why the fair market value of the proper....
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....ubjected to tax. As you are kindly aware, the property under reference is clearly an encumbered property with registered lease for a period of fifty years up to July.2021 and the fair market value of such encumbered property can be ascertained only after taking all issues associated with such property including the following into consideration; a) Registered lease deed in July, 1971 for a period of fifty years expiring in July, 2021 which means 17 years still to be completed as on the date of negotiation with the Vendee company for sale of our property despite leasehold. b) Legal disputes with the Lessee and petition filed in civil court. c) Our negotiation with the Vendee company in October, 2004 followed by Lok Adalat Award on 25"' March, 2005, based on a compromise petition between the parties. d) Our communication in Sept.2005 to the urban land Ceiling (ULC) authorities seeking permission for sale of property. e) Hotel structure in the premises having commenced in the year 1980 with plinth area of around 130000SFT including all utilities. f) Payments received in the year 2007 in token of advance by way of cheques drawn i....
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....ces under which it was sold. I also invite your kind attention to the clarification issued by CBDT vide Circular No.8 of 2002 dated August,27,2002 (effective from the asst year 2003-04) which clearly supports our submissions and contention that when the property is referred to valuation, when the value fixed by DVO is less than the value adopted for stamp duty purposes, the value determined is to be considered as fair market value for the ascertaining the capital gains in respect of the property sold. A copy of the circular is enclosed for your kind perusal. I also rely upon a Judgment rendered in the case of CIT Vrs Dr Indra Swaroop Bhanagar (Hon'ble Allahabad High Court) 349 ITR 210 (2012) wherein it was clearly held that when once the matter is referred to departmental valuation, the assessing authority shall adopt the value determined by DVO being the authority on valuation. While mentioning law upheld in the case of Dr H Rahman as to interpretation of section 50C, the Hon'ble court observed that "A reading of the sub-section shows that wealth tax officer has no option but to proceed to complete the assessment in conformity with the assessment of the v....
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....k Adalat. He dismissed the pleading of the assessee that the delay in registration was due to inordinate delay in obtaining Urban Land Ceiling Permission. On the argument that the property is tenanted property, the AO recorded that the person who has brought the property is the same person who has taken the property on lease and hence rejected this argument. He computed capital gains by adopting Rs. 20,93,55,000 as the full value of consideration. Aggrieved, the assessee carried the matter in appeal. 4. After considering the submissions of the assessee, the first appellate authority in the one hand, held as follows:- (a) The estimate by the DVO is binding on the assessing authority but not on the appellate authority. (b) On a perusal of the valuation report and analyzing the same he held that items 2, 3 and 4 of the table in the valuation report given in the ld.CIT(A)'s order on account of encumbrance created on the property by way of lease decrease in the fair value of the property is justified, in the facts of the case and whereas on the other factors referred in item nos. 1, 5, 6, 7, 8 and 9 on the table do not relate to encumbrance on account of leasehold r....
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....ng circumstances of the case, on facts the sale consideration received by the assessee is to be taken as full sale consideration and no addition is called for. That when a sale deed is registered in accordance with an agreement, which was entered earlier, the provisions of section 50C should be applied as on the date of sale agreement and not on the date of sale registration or conveyance. The transaction dates back to the agreement. (f) That the consideration in question was originally determined by a legal forum by way of an award and that the consideration received was higher than this legal forum and under the circumstances, there is no understatement of consideration, calling for application of section 50C. The learned CIT(A) was erred that, where on the one hand he held that the report of the DVO is binding on the Assessing Officer and whereas on the other hand, went into the details of the valuation report and expressed certain opinion on the same, which is bad in law. He submitted that the report of the DVO is binding on the Assessing Officer and the CIT(A) is not an expert to tinker with the report of the DVO, and if at all, he could refer back to the DVO, if he h....
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....ect to your proposed estimation of value of the property sold in the year 2005 virtually ignoring the actual consideration received from the Vendee company, facts of the case and the mandatory circumstances under influence of which the sale of property had taken place. Your basic approach to estimate the value of property sold is not based on prudent basis and valuation principles. I therefore submit hereunder my objections to the proposed estimation vide your letter referred to above which is baseless and causing us huge tax liability including interest on a notional income which had never accrued nor received by us from the said sale transaction; * Your estimation of value of property ignoring the fair market value approach in the case of the property virtually encumbered for ever without any freedom for the marketability is incorrect. You should have accepted the value received by the vendors as the fair market value in the given circumstances instead of drawing your own conclusion without any prudent basis or method and in comparison with other free hold properties. * You should also have properly and fairly examined the documents produced before your goodselv....
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....e do not have any right to sell the property to any other third party unless it is agreed by the Vendee company. * The learned District Valuation officer should have appreciated that the property cannot be sold to any other private buyer in view of the unexpired registered lease upto the year 2021 with huge structure in the premises. Even on the date of execution of sale deed in July,2009, the unexpired period was 12 years. * The learned District Valuation officer should have given due weightage of 100% for the registered lease alone in the given circumstances apart from may other factors that have directly impacted the transaction of sale. * The learned District Valuation officer should have appreciated that, when the Vendors having received advance and also agreed before another statutory body i.e. LOK ADALAT as awarded on 25th March,2005 for a consideration of Rs. 26235000, have no other option except to execute the sale deed once the ULC permission is obtained. * The learned District Valuation officer should also have appreciated that the Award issued by Lok Adalat is a direction which is mandatorily binding on both the parties in terms of va....
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....t you to please consider the actual value of consideration of Rs. 479,00,000 received from the Vendee company in July,2009 instead of estimating the value without any prudent approach and basis. Kindly reconsider and substitute the actual value and oblige." 6.2 A perusal of the above objections, which are not disputed by the learned Departmental Representative, demonstrate that there are number of depressing factors and the fair market value cannot by way of any stretch of imagination be taken at Rs. 20,93,50,000. 6.3 The second important document which we extract is the comprise petition filed by both vendor and vendee before the Lok Adalat, Visakhapatnam in O.S.1279/2004:- "COMPROMISE PETITIONFILED UNDER ORDER-23 R-3 OF C.P.C. The Plaintiffs herein are the absolute owners and Lessors of the property covered by and located (hereinafter referred to as `property'), at Survey No.T.S.No.1176(Part), Block No.36 (Part), Allipuram Ward, Daba Gardens, Visakhapatnam. The property is under a long term lease of 50 years with the Defendant, of which 16 years still to be completed as on date. The Defendants, considering the long unexpired period of lea....
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....pplications affidavits or joining of any of the member of their family as parties to the Sale Deed / Deeds, Permissions if any, as may be required for better and effectual conveyance of legal and marketable title to the schedule property and shall further do such other things for mutation of schedule property in favour of the purchaser / purchasers. 07. The Plaintiff hereby declare and assure the Defendant that the schedule property is not affected by the Urban Land Ceiling Act and this is not an assigned land under the A.P.Assigned Lands (Prohibition of Transfer) Act, 1977 nor that it belongs to government or Institutions like Hindu Charitable and Religious Endowments or Wakf Board. 08. Both the parties herein agree that in case the Plaintiffs fail to execute the sale deed as mentioned above, the Defendant will be entitled to get the sale deed executed through Court by executing this Award. In case the Defendant commits a breach of any of the terms of this Compromise, the Plaintiffs are at liberty to take such steps as are open to them under law." 6.4 We also extract the Award by the Lok Adalat, Visakhapatnam, dated 25th March, 2005, as follows:- "AWARD ....
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....favour of the purchaser / purchasers. 07. that the Plaintiff hereby declare and assure the Defendant that the schedule property is not affected by the Urban Land Ceiling Act and this is not an assigned land under the A.P.Assigned Lands (Prohibition of Transfer) Act, 1977 nor that it belongs to government or Institutions like Hindu Charitable and Religious Endowments or Wakf Board. 08. that both the parties hereby agree that in case the Plaintiffs failed to execute the sale deed as mentioned above, the Defendant will be entitled to get the sale deed executed through Court by executing this Award. 09. that in case the Defendant commits a breach of any of the terms of this Compromise, the Plaintiffs are at liberty to take such steps as are open to them under law." 6.5 The registration of the property could not take place due to long delay in obtaining permission from the Urban Land Ceiling Authority. Finally the sale deed was registered on a consideration of Rs. 4,79,00,000. 6.6 On a careful examination of the above facts demonstrate that there were a number of impediments and depressing factors, which resulted in the depressing the fair market value o....
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....appellate authority considered this offer. Under the circumstances, the learned Counsel for the assessee submits that this concession is no more binding on the assessee. We uphold this contention. In our view, the liability to tax has to be determined based on the facts and law and not based on concession of parties. There is no estoppels against law. As the fact that price is fixed after protracted litigation between unrelated parties, this is to be considered as a fair market value. An opinion of a valuer cannot take the place of this fact, when there is no other evidence with the revenue and when it accepts that the value fixed by S.R.O. is not the fair market value. 6.8 From the perusal of the compromise decree before the Lok Adalat, it is evident that there are legal disputes between the parties consequent to a registered 50 year lease deed executed between the parties in July, 1971. On a consideration of all the factors, the Lok Adalat has issued award determining the total consideration of sale at Rs. 2,62,35,000 on 20th March, 2005. On the facts and circumstances of this case, in our view, weight has to be given to this factor in determining the fair market value as on t....
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....on as on 30.07.2009 (36291-1316/25*15) 22301 7 28.04.2010 2524/2010 19.33 951500 500 250000 701500 36291 Average Rate of Sale instances (1 to 6a) per Sq. yd. = 10149 Government stamp duty rate per sq.yd. = 25500 Adoptable base rate per Sq.yd. = 25500 6.10 The land rates by sq.yards various between Rs. 1602 and Rs. 36,291. Such a variation demonstrates that the valuation report by the DVO is not correct and has to be seen as not given the appropriate fair market value. 6.11 Coming to the decisions cited, we find that the Visakhapatnam Bench of the Tribunal in the case of Siva Parvathi & Ors. v. ITO (supra), held as follows:- "Both the parties to the sale deed have confirmed that they have entered into a sale agreement in August, 2001, i.e., the submission of the vendors that the sale agreement was misplaced was also confirmed by the buyer of the property by way of an affidavit executed by its managing director. The parties could have entered into a sale agreement is supported by the fact that the vendors have received part-payment of the total consideration way back in August, 2001 itself. The details of said receipts ar....
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.... of s. 50C cannot be applied to the sale agreement as the said section was not available in the statute book at the time the transaction was initially entered into. Even otherwise, there is no suppression of actual consideration. Consequently, since the final registration of the sale is only in fulfilment of the contractual obligation, the logical conclusion is that the provisions which do not apply at the time of entering into the transaction initially would not also apply at the time the transaction is completed.-K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC), CIT Vs. Nirmal Textiles (1996) 136 CTR (Guj) 148 : (1997) 224 ITR 378 (Guj), Neville De Noranha vs. Asst.CIT (2008) 1-15 TTJ (Kol) 390 : (2008) 5 DTR (Kol)(Trib) 389 and CIT.vs. Laxman.Singh (1985) 49 CTR (Raj) 50 : (1986) 159 ITR 983 (Raj) relied on. (Paras 8.8 & 8.10 ) Conclusion : Sec. 50C cannot be applied to the sale agreement entered into before introduction of said section i.e., before 1st April, 2003 especially when delay in registration of sale deed is sufficiently explained and there is no suppression of actual consideration. 6.12 In the case of K.Satya Srinivas & K.....