TaxTMI 
TaxTMI 
2021 (7) TMI 247
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....n taken by the assessee in his return of income. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of assessing officer in making addition of Rs. 1,20,95,753/- on account of cost of indexation claimed by the assessee by adopting cost of indexation at Rs. 19,45,130/- instead of Rs. 1,40,40,883/- claimed by the assessee. 3. It is therefore prayed that the additions made by Assessing Officer and confirmed by CIT(Appeals) may please be deleted. 4. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal." 3. The relevant material facts, as culled out from the material on record, are as follows. The return of income for the A.Y 2013-14 was filed by assessee on 30.03.2014 showing total income at Rs. 34,75,330/-. The assessee`s case was selected for scrutiny under CASS. The notice U/s 143(2) of the I.T Act dated 04.09.2014 was issued and duly served upon the assessee. Detailed questionnaire along with notice u/s 129 and 142(1) dated 21.10.2015 was issued and duly served upon the assessee. In response to the above said notices, the asses....
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....ficer, Ward 2(3)(3), Surat in the case of Shri Prafulchand Baichandbhai Patel who was one of the co-sellers of the land in question. In the said report, the valuation of the property has been made as under: Valuation as on 01.11.2012 Rs. 4,77,32,590/- Valuation as on 01.04.1981 Rs. 5,08,750/- Considering the above, I do propose to recalculate the Long Term Capital Gain for the AY under consideration as under: Particulars Total Consideration Assessee's share Full value of consideration Rs. 4,77,32,500/- Rs. 2,14,20,000/- Less: Indexed Cost of acquisition Rs. 43,34,550/- Rs. 19,45,130/- (508750 x 852/100) LTCG Rs. 1,94,74,870/- Less: Deduction u/s 54B Rs. 39,09,117/- Chargeable capital gain Rs. 1,55,65,753/- Your explanation/objection, if any with respect to the proposed calculation should reach, to the undersigned by 28/03/2016. Kindly note that as the assessment proceedings are getting time barred by 31.03.2016, no adjournment will be granted. In case no reply or part reply is submitted before the undersigned, it will be held that you have no explanation with regard to the issues raised as above and assessment will be made on the ....
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....deed dated 07.11.2012. It is pertinent to note that the sellers have also received Rs. 50,00,000/- at the time of Sale agreement through Account payee cheques and hence as a matter of fact, it is never possible by any law for the assessee to demand more Sale consideration from the buyer subsequent to Sale agreement and receipt of substantial advance of Rs. 50,00,000/- just because the jantri rate has increased and hence the assessee is abide by law to carry his performance of contract by the terms of Sale agreement and even as per the Indian Contract Act, 1872. Thus, by executing the Sale deed, the assessee has only completed the contractual obligation imposed upon it by virtue of the sale agreement, Since the process of sale has been initiated from the date of sale agreement, the character of the transaction vis-a-vis Income tax should be determined on the basis of the conditions that prevailed on the date the transaction was initially entered into. Accordingly, the applicability of the provisions of section 50C should be looked at only on the date of sale agreement. Therefore, the long term capital gain offered by the assessee in his return of income should be considered and addi....
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.... assessee submitted before the A.O. that the property was referred to the DVO by ITO, Ward-2(3)(3), Surat in the case of Prafulchand B. Patel, one of the coowners of the land and the DVO has calculated the value of the property at Rs. 4,77,32,590/-. The AO adopted the value as per the DVO's report and recalculated the long term capital gain (LTCG) at Rs. 1,55,65,753/- and made addition. 10. In the return of income filed, the assessee had shown his share in the sales consideration at Rs. 1,79,50,000/- and after deducting the cost of indexation and deduction u/s 54B of the Act, the net long term capital gain (LTCG) was shown at Rs. nil. We note that AO has taken fair market value (FMV) as on 01/04/1981, at Rs. 5,08,750/- @ Rs. 114.30 per sq.meter. The Ld Counsel submitted that the AO has erroneously adopted the report of the Valuation Officer though he had relied on the report of the government approved valuer who is an expert for valuation of the agricultural land (Category-11 valuer) and he is the only qualified person for proper valuation of the agricultural property. It was contended that the valuation report by the DVO who appears to be a category-1 valuer is not qualified ....
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....and the sale consideration taken by the assessee in his return of income. The working of addition of Rs. 34,70,000/- u/s 50C of the Act can be tabulated as below: Particulars Amount (In Rs) Share of value of deemed sale consideration of the assessee as per the valuation report of the DVO, Surat.(Rs. 4,77,32,590/- * 44.875%) (A) 2,14,20,000/- Less: Sale Consideration as per computation of Income filed by the assessee (Rs. 4,00,00,000/- * 44.875%) (B) 1,79,50,000/- Addition u/s 50C (A-B) 34,70,000/- It is the contention of the Ld.Counsel that assessee has entered into an agreement of sale for land not during A.Y. 2013-14 but during F.Y. 2010-2011 relevant to A.Y. 2011-12 by executing "Agreement to Sell" made on 29.09.2010. The substantial payment for the said sale of land was received by the assessee in the year FY 2010-11 i.e. approx. 54.20% and the sale deed was executed during A.Y. 2013-2014 i.e. during the year under consideration and the capital gain was computed in the return of income (ROI) considering the Sale consideration at Rs. 1,79,50,000/- as per Sale deed. Although in meanwhile, the jantri rate has increased but the assessee was bound by the pr....
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....or the assessee to demand more sale consideration from the buyer subsequent to sale Agreement and receipt of substantial advance of Rs. 50,00,000/- just because the Jantri rate has increased and hence the assessee is abide by the law to carry his performance of contract by the terms of Sale Agreement and even as per the Indian Contract Act, 1872. Thus, by executing the Sale Deed, the assessee has only completed the contractual obligation imposed upon it by virtue of the Sale Agreement. Since the process of sale has been initiated from the date of Sale Agreement, the character of the transaction vis-a-vis Section 50C of the Income tax Act should also be determined on the basis of the conditions that prevailed on the date the transaction was initially entered into. Accordingly, the applicability of the provisions of section 50C should be looked at only on the date of Agreement to Sell i.e. 29.09.2010. According to the Jantri rate on that date, the stamp duty valuation is less than the sale consideration under the sale deed and hence no addition u/s 50C is required to be made as per proviso to Section 50C of the Act. Although the said amendment is effective from 01.04.2017, however i....
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....assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer". The trouble, however, is that while the sale consideration is fixed at the point of time when agreement to sell is entered into, there is sometimes considerable gap in parties agreeing to a transaction (i.e. agreement to sell) and the actual execution of the transaction (i.e. sale deed), and yet, it is the value as on the date of execution of sale deed which is recognized by Section 50C for the purpose of computing the capital gain because that is what is relevant for the purpose of computing stamp duty for registration of sale deed. The very comparison between the value as per sale deed and the value as per stamp duty valuation, accordingly, ceases to be devoid of a rational basis because these two....
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....take care of such a situation. 6.2 It is therefore proposed to insert the following provisions in section 50C: (4)Where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the value referred to in sub- section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (5)The provisions of sub-section (4) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before a date of agreement for transfer of the asset. [6] True to the work ethos of the current Government, it was the first time that within four months of the Tax Simplification Committee being notified, not only the first report of the Committee was submitted, but the Government also walked the talk by ensuring that the several statutory amendments, based on recommendations of this report, were introduced in the Parliament. So far as Section 50 C is concerned, the Finance Act 2016, with effect from 1st April 2017, ins....
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....yee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property. 30 These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years. [7] While the Government has thus recognized the genuine and intended hardship in the cases in which the date of agreement to sell is prior to the date of sale, and introduced welcome amendments to the statue to take the remedial measures, this brings no relief to the assessee before me as the amendment is introduced only with prospective effect from 1st April 2017. There cannot be any dispute that this amendment in the scheme of Section 50C has been made to remove an incongruity, resulting in undue hardship to the assessee, as is evident from the observation in Easwar Committee report to the effect that "The (then prevailing) provisions of section 50C do not provide any relief where the seller has entered into an agreement to sell the asset much before the actual date of transfer of the immovable property and the sale consideration has been fixed in ....
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....viso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." [8]Their Lordships were pleased to hold that this reasoning and rationale of this decision "merits acceptance". The same principle, when applied in the present context, leads to the conclusion that the present amendment, being an amendment to remove an apparent incongruity which resulted in undue hardships to the taxpayers, should be treated as retrospective in effect. Quite clearly therefore, even when the statute does not specifically state so, such amendments, in the light of the detailed discussions above, can only be treated as retrospective and effective from the date related statutory provisions was introduced. Viewed thus, the proviso to Section 50 C should also be treated as curative in nature and with retrospective effect from 1st April 2003, i.e. the date effective from which Section 50C was introduced. While the Government must be complimented for the unparalleled swiftness with which the Easwar Committee recommendations, as accepted by the Govern....
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....and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand visa- vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious ....
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.... existed at that point of time. In case the assessee is not content with this value being adopted under section 50C, he will be at liberty to seek the matter being referred to the DVO for valuation, again as on 29.6.2005, of the said property. As a corollary thereto, the subsequent developments in respect of the property sold (e.g. the conversion of use of land) are to be ignored. It is on this basis that the capital gains will be recomputed. With these directions, the matter stands restored to the file of the Assessing Officer for adjudication de novo, after giving an opportunity of hearing to the assessee and by way of a speaking order. I order so. [10] As I part with the matter, I may make one more observation. The amendment in Section 50C was brought in to provide relief to the assessee in a situation in which the stamp duty valuation of a property has risen between the date of execution of agreement to sell and execution of sale deed, as is the norm rather than exception, but the real estate market is now traversing through a difficult phase and there can be situations in which there is a fall in the stamp duty valuation rates with the passage of time. Such a situation has a....
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....is concerned, the working of addition of Rs. 1,20,95,753/- on account of disallowance of cost of indexation claimed by the assesse is tabulated as under: Particulars Amount in Rs Indexed Cost of acquisition as considered by the AO: Total Value as on 01.04.1981 (as per DVO's valuation) Rs. 5,08,750/- Total Indexed Cost of (Rs. 5,08,750*852/100)=Rs. 43,34,550/- (assessee's share 44.875% Rs. 19,45,130/-) (A) 19,45,130/- Indexed Cost as claimed by the assessee : (Rs. 16,47,991*852/100) (B) 1,40,40,883/- Addition(A-B) 1,20,95,753/- Learned Counsel submitted that the land for comparable sale instance relied by the DVO in his report were of such land which were far from the assessee's land and the land of the assessee was in much better locational advantage having approach roads from the main road and even the DVO has accepted the said fact. The land is approachable by all the types of surface transport facilities and means of communication facilities. It is further submitted that having approach from the main road on the front side, the growth and potentiality of the assessee's land was quite high even in the year 1981. Therefore, the fair market value estimated a....
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.... 1961 gives an option to the assessee to substitute the fair market value as on 01.04.1981 for cost of acquisition. Now section 2(22B) of the Income tax Act,1961 defines "Fair Market Value", in relation to a capital asset as "the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date" In the present case, the DVO as well as the AO has compared some few sale instances which may be construed to be the "transaction value" at that time which is entirely different from the "fair market value" required as per law because fair market value is considered from factors like location, utility & frontage, future NA potential, surrounding development and prevailing market rate etc. which is not the transaction value. Further, it is submitted that in a well regulated market as present in 2021, the "fair market value" can be reasonably be near around "transaction value" in few sale instances because the market is now organized and buyer and the seller both are informed due to penetration of internet and social network and there is transparency because of laws like RERA etc. However this was not the scenario in 1981, when the stamp duty on immovable p....
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....rding to sale deed Rs. 2500 comes to one Sq Meter and applying above method Rs. 226.70 per Sq. Mtr as on 01.04.1981 Form the above it is obvious that the Valuation Officer has only relied upon the instances of sale price prevalent in the neighborhood in the near about dates of 01.04.1981. No other factors were considered to determine the value of the asset as on 01.04.1981. While as the registered valuer has examined the following relevant facts, which is important to estimate the market value of the land. (i) The land has close proximity to Ahmedabad City and is within the limits of Ahmedabad Urban Development Authority. (ii) The area is a fast developing area surrounded by various housing societies. (iii) Amenities like roads, water supply, drainage and electricity etc were existing. (iv) The area was well connected with transport facilities. 13. Considering the facts and the circumstances of this case we are of the considered view that the valuation report of the registered valuer is quite reasonable and therefore decide the issue in the favour of the assessee. It is ordered accordingly" 19. The ld Counsel pointed out that if the method of valuation referred in the ....
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....f Registered Valuer report of B. H. Patel. We find that there are three methods of valuation of land first one relates to sale instances multiplied by 11.94 factors, which is based on Hon`ble Supreme Court and Hon`ble High Court judgements. Second method is to consider increase in agricultural land price per month one percent. Third method is based on reverse method per year reduction of 10% of Jantri rate/Circle rates. The Government Registered Valuer of the assessee has based his valuation report on the average out of these three method for valuation of land, which in our opinion is correct method to be considered, in the case, where no specific sale instances of relevant period are available. The DVO has considered at Rs. 600 per sq. meter land price as on 01.04.1981 as against the average of three method at Rs. 833 per sq. meter. Therefore, we are of the view that the Registered Valuer has quite considerate in taking rate at 600 per sq. meter as against Rs. 833 being average rate. This view is further supported by the decision of Ahmedabad Tribunal in the case of Shri Madhusudan P. Patel v. ITO Ward-3 Gandhinagar dated 05.04.2013 (supra) wherein the Co-ordinate Bench of Tribu....