TaxTMI 
TaxTMI 
2026 (7) TMI 1320
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....se number 11 street C2 Vasant Vihar on the death of his mother, Smt. Kamla Devi Jain on 25.12.1997 and the same was mutated in his name by the DDA on 20.09.1998. 2.1 The learned AO notes the facts in para 3.2. i. of his order that the assessee's Mother was having 400 Sq Yard of land at C-2/11, Vasant Vihar, New Delhi wherein she built a single storey house in 1978. After her death on 25.12.1997, assessee, the sole legal heir, converted it into free hold in his name on 12.08.1999. Later on he entered into Collaboration Agreement with M/s Aditya Developers on 22.12.1999 for the demolition & reconstruction of the single storey property. The property was constructed with rights of Basement, Ground, Second floors and open Terrace above the second floor remaining with the assessee. M/s Aditya builders were given rights over entire First Floor of the building as per the agreement. He further notes that later on, the entire First floor of the property were sold as three parts / units by the Builders. i.e Front Portion of First floor to Smt. Bhagavathi Devi, Back Portion of First Floor to Smt. Nishi Singhal and Back Portion of First floor to Smt.Gauri Shankar. 2.2 In 2018, assesse....
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.... valuer has done calculation backwards from a future date. He has taken value of 2013 document and worked backwards to arrive at the value of 2001 indexation, as a method to calculate cost should only be used forward. With the city expanding rapidly, the properties which were considered as remote decades back have become the properties in the Centre of the city now. Hence taking the present value and working back ward to get the FMV in 2001 will not yield ' fair' value, but only yield artificial value. The ld. AO observes that "5.2.5 The concept of FMV is unambiguous as per the act. The price that the capital asset would fetch, in open market is determined using the circle rate fixed by the government authorities. Since the circle rate gives the minimum value for registration of a property, the registered value of any of the adjoining properties of that of the assessee as on 2001 can also be taken as FMV. 5.2.6 As per Govt rate, in the year 2000, the value of land in Vasant Vihar is Rs. 11550/- sq mt. Considering the CII for those years, the value as on 01.04.2001 comes to Rs. 12118/- only per square meter. This will suffice the requirement of clause i of section ....
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....l examination of the facts of the case and following conclusion is arrived at: (i) Now let us analyse the latest capital gain statement filed by the assessee, in detail: Capital Gain on Sale of Land My Land Share @15 % (being 15% of 334.45 sqm) Or 50.17 sqm @ 7,74,000 per sqm - Rs. 3,88,31,580 (Circle rate of Land) =7,74,000 X 15.17 (ii) The assessee together with the other co-owner has transferred 22.5 % of share of slit floor along with 22.5°% of undivided interest in land to the builder. Assessee has not taken his percentage of share value of the building transferred to the builder while computing his capital gain. Assessee has only taken the land value while arriving at the consideration in the latest computation statement. (iii) Assessee has furnished a valuation report from a registered valuer. However the valuation report can be relied upon only when the FMV of the building could not be ascertainable from any other parameter. There will be variation in the reports submitted by different valuers also. When primary rate itself is available, there is no need to depend upon a valuation report, which is less than the circle rate ad....
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....,00,000 Less: GST Paid to the Builder - Rs. 35,00,000 Less: Indexed cost of acquisition - Rs. 1,50,14,477/- Less : Deduction u/s 54 - Rs. 43,38,637/- Total Capital Gain - Rs. 2,63,70,890/- Out of this, Short Term Capital Gain will be Rs. 28,92,424/- & Long Term Capital Gain will be Rs. 2,34,78,466/-. 4. Then for restricting claim of deduction u/s 54/54F of the Act ld. AO observes 5.6.5 Assessee did not put forward any arguments or furnished any reply in respect of the restriction of deduction u/s 54/54F to one house, in the reply to SCN. However, on Page 27 in para 5.6.2 (iii) learned AO states all the documents furnished by the assessee comprises of land along with residential house having different floors. None of the documents show distinct values for land and building. Since the cost of land and building are inseparable, from the documents furnished by the assessee, FMV of the land as on 01.04.2001 could not be determined from these documents. The assessee has separately shown Rs. 45 lakh as the FMV of the building as on 01.04.2001 in the computation statement and now the issue concerns about FMV of land on 01.04.2001. No document which establishes the FMV of land as on 01.0....
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....inance Act 2014 amendments effective from 01.04.2015, which limit exemption strictly to one residential unit. Based on building plans and usage patterns, the AO concluded the three floors were distinct dwelling units, and allowed exemption only for the Ground Floor, valued at Rs. 6.25 crores. The AO held that only one residential unit qualifies for exemption post-2015, thus disallowed the appellant's exemption claim and revised the long-term capital gains accordingly.' 10. In ground No.1 appellant has claimed that in view of the facts and circumstances of the case and in law, the show cause notice dated 10.08.2022 and the assessment order dated 29.09.2022 passed by National Faceless Assessment Centre ('NFAC')/AO under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (herein referred to as 'Act') and the additions made therein are illegal, bad in law, without jurisdiction and barred by time limitation. 10.1 I have gone through the assessment order, dates of notices issued and the section 143(3) of IT Act, 1961. It is seen that AO has issued notice u/s 143(2) in time as prescribed in IT Act, 1961 and the assessment order is also passed in time frame as on 29.0....
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....1.64 times. As such, the estimation of fair market value made by the valuer is quixotic and done in an unfeasible style. 3. When appellant has the fair market value of properties registered in the year 2001, it is unfair and irrational in taking the value of properties in the year 2014 or 2018 for determining the FMV in 2001. Appellant has taken the fair market value by working backwards. Such calculation of fair market value by going in the past brings out absurd results. 12.2 We cannot use today's price and apply a discounting rate to arrive at a historical FMV. That would give a fictitious, mathematically engineered value, not one actually prevailing on that date. It is to be remembered that FMV is not an arbitrary value - it must reflect the real market worth of the asset as of a specific date, based on facts, evidence, and valuation norms. In the impugned case, there is no any registered value adjacent to the property under consideration for the year 2001. If there are no nearby sale instances, or market sales are unregistered/undisclosed: Circle rate becomes the only official benchmark. 12.3 Circle Rate is the primary rate duly decided by the Govern....
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....pellant has claimed that all these 3 floors are part of one residential unit and claimed deduction u/s 54/54F on all such residential units. 13.5 I have gone through the development plan of the building and I am of the considered opinion that Basement, Ground Floor and Third Floor are distinct units. Basement, Ground Floor, and Third Floor are: 1. Physically separated 2. Possibly with separate entrances, Kitchens and bathrooms 3. Capable of independent use or letting 13.6 These are distinct residential units, not "one" residential house. Appellant has cited case law as CIT v. Gita Duggal (2013) 357 ITR 153 (Del). In the said case law Delhi HC allowed exemption where two floors were part of one single residential house, used together, not independently. But in the impugned case, appellant is in possession of Basement, Ground Floor and Third Floor. Thus, we need to identify the truth that whether they are functionally independent and distinct or not. 13.7 AO has correctly observed from the development plan that all the three floors are distinct and each floor constitutes separate residential unit. Also, appellant has stated that h....
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.... a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. 13.8.3 The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. 13.9 The Hon'ble Karnataka HC in the case of Arun K Thiagarajan vs Commissioner of Income Tax has made it clear that the deduction u/s 54F is available only to one residential house after 01.04.2015. The relevant extract is reproduced as under: 13.9.1 It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. [SEE: DECISION OF THE SUPREME COURT IN 'CIT US. NEW DELHI US. RAM....
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....acts and circumstances of the case and in law, the CIT(A) erred in not appreciating that the action of the assessing officer in travelling beyond the issues specified in the notice issued under section 143(2) for limited scrutiny, was beyond jurisdiction, illegal and the assessment order called for being quashed. 3. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the assessing officer in denying the exemption claimed under section 54 of the Act by varying/ altering both, the cost of construction of the property and determination of the sale consideration. 4. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in rejecting the indexed cost of acquisition of the immovable property (land computed by the appellant based on valuation reports obtained from Government registered valuer - without pointing out any error/ deficiency in such valuation reports and without even referring the valuation to DVO. 4.1. That on the facts and circumstances of the case and in law, the CIT(A) erred in not accepting the indexed cost of acquisition of the immovable....
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.... the building because the appellant could not have transferred the 1" floor of the building as he was never the owner of the 1" floor of the building. 6.4. That without prejudice to the aforesaid, the CIT(A) erred on facts and in law in not appreciating that the land was owned/ held by the appellant since 1999, i.e. for a period of more than two years prior to its transfer to the developer and thus, the same qualified as long term capital asset. The appellant craves leave to add, alter or amend any or all of aforesaid grounds of appeal before or at the time of hearing." 7. On giving thoughtful consideration to the rival submissions and the careful perusal of the impugned orders of the ld. Tax authorities we are of the considered view that as with regard to the issue of non-allowance of exemption u/s 54 of the Act for allegedly assessee acquiring multiple residential units, the assessee cannot be denied benefit of Section 54 as there is nothing to show that though there are multiple floors but the same are not part of one residential property. The construction based on prospective uses by way of separate floors is merely a mode of structuring the property but wh....
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....to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly postretirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in t....
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....540 (Mumbai - Trib.) * Mohammadanif Sultanali Pradhan vs. DCIT: [2020] 114 taxmann.com 508 (Ahd.-Trib.) * Ms. Anita Mahindrakumar Oberai vs. ITO: [2022] 142 taxmann.com 580 (Pun.-Trib.) 9. Therefore, the denial of exemption u/s 54 cannot be sustain in law and corresponding ground deserves to be allowed. 10. Then, with regard to issue of calculation of long term capital gain, having considered the submissions of assessee in the assessment proceedings very apparently assessee has changed the stance and assessing officer has duly taking note of same and has finally concluded in favour of assessee, by making following conclusions in para 5.6.4(iv): (iv) Assessee has shown the cost of construction of first floor of the property which comprises of 22.5% of share in the residential building as Rs. 43,38,6371-. This value is arrived at by the assessee as per circle rates, as detailed in the earlier computations submitted. Now the builder also possesses 22.5 % share in the property. In the absence of any documentary evidence proving the cost of construction, I have to go by the circle rates. So the cost of the building transferred to the builder comes to Rs.....
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.... Less: Indexed Cost of Land & Building as on 31.03.2020 Rs. 87,66,000 x 289/100 = 2,53,33,740 2,53,33,740 C. LTCG 40,66,260 D. Exemption U/s 54 Cost of Construction (Builder certificate ( All units as on 31.03.2020 Basement + Ground floor + Third Floor, Basis valuation report dated 02.09.2022 COC of all units amounts to Rs. 3,25,54,862 2,54,00,000 Net LTCG (C -D) NIL 15. We find that assessing officer has made the computation accepting the cost of super structure of Rs. 45,00,000/- as per valuation report given by Shri V.P. Singh dated 02.08.2018 but the cost of acquisition of the share of land of around 60 sq. yards, as taken in calculation by assessee or 50.70 sq. mtrs., as taken by AO, his calculation, is erroneously taken by Assessing Officer at Rs. 13,860/- per sq. mtrs. on the basis of G....
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....and that in absence of any evidence on record, the report of the registered valuer should have been accepted with regard to fair market value as on 1.4.1981 for the purpose of computing the capital gains. It is seen that the Assessing Officer while rejecting the registered valuer's estimate at Rs. 5800/- per sq mtr has noted that the average rate at which the sales deeds were being executed was Rs. 1160/- per sqmtr. However, it is our considered opinion that valuation done by the empanelled registered valuer of the Income Tax Department would certainly take precedence over a value which the Assessing Officer might adopt on his own without making a reference to the DVO. The fact of the matter remains that the Assessing Officer, during the course of assessment proceedings, did not make any reference to the DVO even though he chose not to accept the rate adopted by the registered valuer. Therefore, in our considered opinion, the Assessing Officer exceeded the powers entrusted to him in this regard by undertaking to compute the fair market value on his own without being supported by the expert knowledge of the DVO. 18. Thus, we are of the considered view that cost of acquisition....