TaxTMI 
TaxTMI 
2025 (3) TMI 143
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....ed for complete scrutiny and notice under section 143(2) and 142(1) were issued alongwith questionnaire, and after taking into consideration the submission filed by the assessee and carrying out the necessary verification/ examination, the assessment proceedings were completed under section 143(3) r.w.s 143(3A) &143(3B) of the Act, wherein the assessed income was determined at Rs. 88,44,429/- after making the disallowance under section 40A(3) of the Act amounting to Rs. 12,09,560/-. 4. Subsequently, the assessment records were called for and examined by the Ld. PCIT, Panchkula and a show cause under section 263 dt. 12/12/2023 was issued by the Ld. PCIT and the contents thereof read as under: "Perusal of assessment record reveals that you had sold a residential property, 139, Masjid Moth, Uday Park, New Delhi, measuring 180 sq.m. for Rs. 5,01,00,000/- during previous year 2017-18 and had declared Long Term Capital Gain of Rs. 49,19,440/- on the same in the ITR. Computation of LTCG as per ITR is as under: Full value of consideration received 5,01,00,000/- Less: Cost of acquisition with indexation 4,51,80,560/- Long Term Capital Gains 49,19,440/- ....
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....h had apparently been prepared for reducing tax liability by computing fair market value at exorbitantly inflated rates. The computation of LTCG was required to be as under: Full value of consideration received 5,01,00,000/- Less: Cost of acquisition with indexation Rs. 57,75,300/-X 272/100 1,57,08,816/- Long Term Capital Gains 3,43,91,184/- Hence, Long Term Capital Gain was under assessed by Rs. 2,94,71,744/-on the basis of material on record. Therefore, the assessment order for AY 2018-19 passed on 08.04.2021 in your case u/s 143(3) of the Income Tax Act, 1961, is proposed to be held as erroneous and prejudicial to the interest of Revenue in terms of Section 263 of I.T. Act, 1961. Accordingly, in view of provisions contained in section 263 of the I.T. Act, 1961, I propose to hold the said assessment order for AY 2018-19 to be erroneous, insofar as it is prejudicial to the interests of revenue in terms of Section 263 of the Income Act, especially as per clause (a) and (b) of Explanation 2 to Sec 263 of the Act, and take suitable remedial action u/s 263 of the Income-tax Act, 1961." 5. In response to the show cause, the asses....
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.... the flat at lowest possible rate by draw system in order to provide affordable house to needy and middle / poor people. The conversion rate of land of DDA land cannot be applied in instant case as our residential is constructed on independent freehold plot & t located in Posh Colony near to ring road and Income tax approved valuer has made valuation on the basis of registered sale deed Doc no 464 Vol 1356 regd on 21/01/998 in which sale of 25% share in land measuring 183 Square Meter and only first floor has been sold for Rs 35 Lakhs before 1-4-2001 and valuer has correctly valued at Rs 1.66 crore & there is no reason to disbelief the valuation done by Income tax Registered valuer. 4. In view of above the calculation of capital at Rs 343,91,184 is not based on correct appreciation of fact and calculating is misleading 5. We also submit that the collector rate is always fixed as minimum rate in order to collect stamp duty and FMV cannot be compared with collector rate. 6. The FMV of construction of house depends upon the quality of construction and collector rate can not applied blankly on all type of construction and your honour shall appreciate the fact....
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....he said property was determined by the State Revenue authorities at Rs. 1,08,00,000/- as on 08.10.2009 for calculating stamp duty on the gift deed. It could not be taken at Rs. 1,66,10,500/- as on 1.4.2001, that is nearly 8 years before. (b) While computing LTCG, the assessee opted to take the cost of acquisition as the fair market value (FMV) of the property as on 01.04.2001. The assessee supported the FMV of Rs 1,66,10,500 by filing a Valuation Report of the property sold from a private approved valuer Sh. ParveshGhai. A reference to the said Valuation Report shows that the FMV of Rs 1,66,10,500 was assessed by the valuer on the basis of a sale instance of another nearby property, i.e, sale deed of property C26, Gulmohar Bagh, New Delhi, dated21.01.1998. However, reference to the Valuation Report shows that the FMVhad been inflated with a view to reduce tax liability on the LTCG. The sale instance/sale deed has not been correctly applied by the valuer for the following reasons and was meant to suppress income from LTCG by inflating the cost of acquisition: Property Sold by Assessee House No. 139, Masjit Moth, Uday Park, New Delhi Descr....
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....ble to the AO which had been made in respect of the property itself. 5. In view of the foregoing, it is held that the assessment order for AY 2018-19 dated 08.04.2021 is erroneous in so far as it is prejudicial to the interests of the revenue as per clauses (a) and (b) of Explanation 2 to Sec 263 of the Income-tax Act, 1961. 6. The assessment order is set aside with the directions to the assessing officer to pass a fresh assessment order after making the requisite inquiries and verifications and giving due opportunity of hearing to the assessee." 7. Against the said findings and directions of the Ld. PCIT, the assessee is in appeal before us. 8. During the course of hearing, the Ld. AR submitted that the assessee has sold a residential house at Delhi. The assessee has taken FMV as on 1-4-2001 as cost of acquisition for the purpose of calculation of capital gain as the property has been acquired before 1-4-2001.The case has been selected under scrutiny U/s 143(2) and the AO has issued various notices U/s 142(1) from 7/2/2020 to 24/03/2021& made extensive enquiries. The AO has made complete enquiry and made addition U/s 40A(3) of Income Tax Act and same has be....
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....nce placed on such conversion rate is misplaced. The assessee has objects to Maximum per square Meter rate of Rs 13860/- as in schedule, no where it is mentioned that such rate is Maximum per square meter. The rate of DDA flats cannot be applicable to other residential house. The DDA allots the flat at lowest possible rate by draw system in order to provide affordable house to needy and middle / poor people. The conversion rate of land of DDA land cannot be applied in instant case as the subject residential house is constructed on independent freehold plot & located in Posh Colony near to ring road. 13. It was submitted that Income tax approved valuer has made valuation on the basis of registered sale deed Doc no 464 Vol 1356 regd on 21/01/998 in which sale of 25% share in land measuring 183 Square Meter and only first floor has been sold for Rs 35 Lakhs before 1-4-2001 and valuer has valued at Rs 1.66 crore & there is no reason to disbelief the valuation done by Income tax Registered valuer. 14. Ld. AR also submitted that the collector rate is always fixed as minimum rate in order to collect stamp duty and FMV cannot be compared with collector rate. Ld. AR submitted that the....
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....purchased this property through a conveyance deed dt. 18/06/1996. In the show cause notice issued under section 263 of the Act, the Ld. PCIT was of the prima facie view that index cost of acquisition as so computed by the assessee has not been properly computed and not properly examined by the AO. She has referred to the valuation report so submitted by the assessee during the course of assessment proceedings and has stated that the valuer manipulated calculation of FMV to reduce LTCG liability. Further she has referred to Schedule of residential land rate issued by the Land and Development Office Delhi vide letter dt. 02/05/2017 and basis the same has held that the FMV of the property as on 01/04/2001 working out to Rs. 57,75,300/-. Besides that, she has mentioned that while executing Gift deed dt. 08/10/2009, the FMV of the property was determined at Rs. 1,08,00,000/- for calculating stamp duty of the gift deed and which should be taken as the FMV for the purpose of determining the Index Cost of Acquisition. However, if we look the final finding of the Ld. PCIT, she has apparently accepted the assessee's contention regarding non-applicability of land rates as per LDO Delhi and ha....
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....uch situation, the assessee has the option to determine the cost of the asset either as per the cost to the previous owner or FMV of the asset as on the first day of April 2001. In the instant case, the assessee has exercised the said option and has determined the cost of acquisition basis the FMV of the asset as on the first day of April 2001. Therefore, where the AO has allowed the assessee to consider the cost of acquisition basis FMV as on the first day of April 2001, we are of the considered view that the order so passed by the AO cannot be held to be erroneous as the same is in consonance with the stated provisions in Sub Section 55(1)(b) of the Act which apparently has skipped the attention of the Ld. PCIT. 21. Further, we refer to the provision of Explanation (iii) to Section 48 which talks about the Index cost of acquisition which has been defined to mean an amount which bears to the cost of acquisition the same proportion of cost of inflation index for the year in which the asset is transferred bears to the cost of inflation index for the first year in which the asset was held by the assessee or for the year beginning the first day of April 2001 whichever is later. ....
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....ty acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee as the case may be. Thus, on account of the deeming fiction contained in section 49(1)(ii ), gains arising on transfer of a capital asset acquired by the assessee under a gift or will would arise. In such a case, the capital gains under section 48 would have to be determined by deducting from the total consideration received by the assessee, inter alia the deemed cost of acquisition. [Para 11] Where the gains are long term capital gains (other than long term capital gains arising to a non-resident from the transfer of shares or debentures of an Indian Company), then, as per the second proviso to section 48 of the Act, the capital gains have to be computed by deducting from the full value of consideration the 'indexed cost of acquisition' and the 'indexed cost of any improvement' instead of deducting the 'cost of acquisition' and 'cost of improvement'. [Para 12] In the instant case, the capital asset in question was originally acquired by the previous owner (daughter) on 29-1-1993 and the same was acquired ....
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....d by the assessee'. Since the expression 'held by the assessee' is not defined under section 48, that expression has to be understood as defined under section 2. Explanation 1(i)(b ) to section 2(42A) provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29-1-1993, as per Explanation 1(i)(b ) to section 2(42A), the assessee is deemed to have held the capital asset from 29-1-1993. By reason of the deemed holding of the asset from 29-1-1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under section 48 by treating that the assessee held the capital asset from 29-1-1993, then, naturally in determining the indexed cost of acquisition under section 48, the assessee must be treated to have held the asset from 29-1-1993 and, accordingly, the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. [Para 17] If the argument of the revenue that the deeming fictio....
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....tion to section 48 that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Explanation 1(i )(b) to section 2(42A). [Para 19] To accept the contention of the revenue that the words used in clause (iii) of the Explanation to section 48 has to be read by ignoring the provisions contained in section 2 runs counter to the entire scheme of the Act. Section 2 expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under section 2. In section 48, the expression 'asset held by the assessee' is not defined and, therefore, in the absence of any intention to the contrary the expression 'asset held by the assessee' in clause (iii) of the Explanation to section 48 has to be construed in consonance with the meaning given in section 2(42A). If the meaning given in section 2(42A) is not adopted in construing the words used in section 48, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the capital gains ....
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....t in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. [Para 23] In the result, that the Tribunal was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. [Para 24]" 23. Further, our reference was drawn to the decision of Hon'ble Punjab & Haryana High Court in case of Rajiv Mehra Vs. CIT (supra) wherein it has been held as under: * Section 47(iii) specifically lays down that any transfer of a capital asset under a gift or will or an irrevocable trust would not be covered by the provisions of section 45(1) and taking into consideration the transfer of capital asset cannot be computed in terms of section 45. Thus, the present transfer of property has to be examined in terms of section 47 which specifically takes into consideration section 47(I) as any ....
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.... earlier settlement already arrived at between the parties was, therefore, a valid family settlement to be noticed for the purpose of computation and computation of capital gains in terms of section 49(1)(i). The cost inflation index is to be calculated with reference to the year 1-4-1981 by treating the acquisition of the property as purchased by the father of the petitioner on 1-4-1963 through registered deed dated 6-6-1963. [Para 32] * Thus, it is found that a family settlement is not required to be compulsorily registered. [Para 33] * A primary condition must be satisfied before a tax is levied on a capital gain. A family arrangement, in the interest of settlement, may involve movement of property or payment of money from one person to another. Several judgments have held that there is no 'transfer' involved in a family arrangement. Therefore, there is no question of capital gains tax index under a family arrangement. [Para 35] * Thus, even though the documents relating to will may not have been accepted by the Tribunal, still the calculation has to be done treating the indexation as on 1-4-1981 and merely because the family settlement was arrived in ....
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....e been done and where such discounting so done by the valuer is excluded, the FMV as on 01/04/2001 will comes to Rs 1,77,22,578/- as against the current FMV of Rs 1,66,10,500/- taken by the assessee. It was accordingly submitted that even where the contention of the Ld. PCIT is taken into consideration, there is no prejudice which is caused to the Revenue as the Ld. PCIT has equally failed to take into consideration the discounting so done by the valuer. It was accordingly submitted that where the AO has accepted the valuation report and has not referred the matter to the valuation officer, he has arrived at the reasonable view that the value so determined is not at variance with the FMV of the property so sold by the assessee and where such an opinion has been formed by the AO after due application of mind, the order so passed by the Ld. AO cannot be held to be erroneous and prejudicial to the interest of the Revenue. 26. We find force in the contention so advanced by the Ld AR as what is relevant for determining the fair market value is the comparative sale instance not just in terms of land area, built up structure, proximity of location but also the ownership rights and inhe....