Atul G. Puranik Vs. ITO (ITAT Mumbai) – Where the assessee acquired rights in plot in exchange of plot owned by his father, then the market value of the land so received on the date of acquisition will be the cost of acquisition of such land.
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH “A”,MUMBAI
I.T.A.No. 3051/Mum/2010
(A.Y.2006-07)
Shri Atul G. Puranik Vs. Income-tax Officer
ORDER
PER R.S. SYAL, AM:
This appeal by the assessee arises out of the order passed by the CIT (Appeals) on 10-03-2010 in relation to the A.Y. 2006-07. Various grounds raised in this appeal deal with a solitary issue about the charge ability of the income under the head ‘Capital gains’.
2. Briefly stated, the facts of the case, as stated by the Assessing Officer, are that the assessee received a sum of Rs.2.50 crores in the year under consideration on account of sale of land known as Plot No. 83, Sector-18, in Village Site Kamothe-II of 12.5% (Erstwhile Gaothan Expansion Scheme) measuring 7299.41 sq. metres (hereinafter called ‘the Plot’). The Plot was sold by the assessee to M/s. Pathik Construction vide agreement dated 25-08-2005. In the return filed for the assessment year under consideration, the assessee did not offer any income under the head ‘capital gain’ on account of such transfer of the Plot. A note was appended along with the computation of income, reading as under :-
“The assessee’s father owned a plot of agricultural land which was acquired by the Government of Maharashtra in February, 1970 for CIDCQ. The assessee was allotted a plot of land under the 12.5% Gaothan Expansion Scheme by CIDCQ at Village Kamothe-II, Distt. Raigad. The same has been assigned for Rs.2,50,00,000/-. The said original agricultural land was not a capital asset u/s. 2(14)(iii) of the I.T. Act. The said plot from CIDCQ also does not become capital asset u/s.2(14)(iii) and hence the section 45 does not apply to assignment of said plot.”
3. The facts leading to the above referred transaction are that certain lands belonging to the assessee’s father, Late Shri Gangadhar Vishnu Puranik, were acquired by the Govt. of Maharashtra vide Notification dated 03-02-1970 and subsequent Notification dated 28-12-1972 issued u/s. 6 of the Land Acquisition Act, 1884. Compensation was paid to Shri Gangadhar Vishnu Puranik in the period between 1973 to 1975 by the Special Land Acquisition Officer at the rate of Rs. 5 per square meter. The assessee’s father expired in the year 1980. A further claim for addition compensation was made before the Addl. Dist. Judge, Raigad, Alibag. On an examination of witness Shri Ashok Puranik, also one of the co-owners from Puranik family and an Engineer himself, the Add. Distt. Judge, vide his order dated 25.04.2000 awarded compensation at the rate of Rs.16/- per sq. metre for the reason that the lands acquired by the Government from Shri Gangadhar Vishnu Puranik, were acquired by the Puranik family for industrial purposes. It was also noticed that the lands under reference were situated within the extended limits of Panvel Municipal Council . Shri Ashok Puranik deposed before the Addl. Dist. Judge that Puranik family had prepared plans to develop the lands for industrial estate and the lands abutting village Aeudgaon were intended for the establishment of Dhutpapeshwar Industrial Estate and those were already converted into N.A. use prior to 1965. The matter was still further agitated by the legal heirs of the deceased Shri Gangadhar Vishnu Puranik. The Plot under CIDCO 12.5% Scheme was allotted to the assessee in the capacity of legal heir vide agreement dated 08-08-2005 on lease basis. The assessee transferred the leasehold rights of said plot to M/s. Pathik Construction vide agreement 25-8-2005 for a sum of Rs.2.50 crores. In the opinion of the AO, the assessee got the Plot as revised compensation because the original lands acquired by the Govt. had N.A. potential and further such lands were within the extended limits of Panvel Municipal Council. He relied on certain judgments to form an opinion that the original lands acquired were not agricultural lands. Further, since the assessee sold the Plot allotted to him under the 12.5% Scheme for a consideration of Rs.2.50 crores, in the view of the AO, this land was a capital asset and its transfer attracted the provisions of sec. 45.
4. During the course of assessment proceedings, the assessee came out with another reason for not offering any capital gain, by claiming that the cost of acquisition of the Plot was Rs.2,88,35,000/- (i.e. area of the plot 7300 sq. mts. Multiplied with the Market rate prevalent at Rs.3950 per sq. mtr). The AO did not accept this contention as well, because in his opinion the Plot was acquired by the assessee as a matter of additional compensation received in lieu of land acquired by the Govt. belonging to his father in 1972. He held that sec. 49 was attracted and the cost of acquisition was to be taken as the cost at which the land was acquired by the previous owner. In this regard, he noted that the value of the original lands acquired by the Special Land Acquisition Officer was fixed at Rs.10,69,006/-, by valuing it at Rs.6 per sq. mtr. or Rs.4/- per sq. mtr or Rs.3.50 per sq. mtr. depending on the survey numbers. By order of Addl. Judge dated 25-04-2000, the market value of land was revised at Rs.16/- per sq. mtr. For the sake of convenience, the average rate of Rs.5/- per sq. mtr. was taken by him for original compensation of Rs.10,69,006/- and accordingly revised compensation was worked out at Rs.11/- per sq. mtr. at Rs.23,51,813/-.
Deducing 1/5th as assessee’s share, the AO determined the cost of acquisition of the Plot at Rs.4,70,362/- (i.e. Rs.23,51,813/- divided by Rs.5). As the assessee got possession of the Plot from CIDCO vide agreement dated 08-08-2005 and sold the same to M/s. Pathik Construction for a consideration of Rs.2.50 crores, the AO held that capital gain was to be charged as short-term capital gain. It was noticed by him that since the assessee had submitted market rates prevailing for lands at Kamothe-II published by Panvel Nagar Palika from 01-04-2004 to 31-12- 2004 at Rs.3950 per sq. mtr., the AO computed the market value of the Plot at Rs.2,88,35,000/- (Rs.3950 X 7300 sq. mtrs.) as per the provisions of sec. 50C of the I.T. Act. The amount of capital gain was thus worked out as under >
