Ved Kumari Subhash Chander Vs ITO (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal heard the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals)-2, Gurgaon for Assessment Year 2011-12. The dispute concerned the determination of the fair market value (FMV) of a residential property as on 1 April 1981 for computing long-term capital gains. The assessee also challenged the computation of capital gains based on the reduced FMV adopted by the Assessing Officer.
During the relevant year, the assessee, along with four other co-owners, sold a residential property situated at Maya Bungalow, Mithakhali, Ahmedabad for ₹9 crore. The assessee’s share of the sale consideration was ₹1.80 crore. After deducting brokerage and adopting the fair market value as on 1 April 1981 on the basis of a registered valuer’s report, the assessee computed indexed cost of acquisition at ₹77,48,905 and long-term capital gain at ₹1,01,61,095. The entire capital gain was claimed as exempt under Section 54 on account of investment in a residential flat in Mumbai.
The Assessing Officer observed that the registered valuer had adopted the land value at ₹5,800 per square metre, whereas the average rate reflected in the sale instances referred to in Annexure ‘A’ of the valuation report was ₹1,160 per square metre. The Assessing Officer issued a show cause notice proposing adoption of the lower rate. Although the assessee submitted that the registered valuer had adopted the higher value because the market value exceeded the circle rate, the Assessing Officer rejected the explanation. He adopted the land value at ₹1,160 per square metre, reduced the cost of construction from ₹1,800 per square metre to ₹1,000 per square metre based on Ahmedabad Urban Development Authority rates, recomputed the indexed cost of acquisition at ₹18,18,112 and determined the taxable long-term capital gain at ₹1,61,81,888. The Assessing Officer also initially restricted the exemption under Section 54 on the ground that the Mumbai property had three co-owners and allowed exemption only to the extent of one-third of the investment.
