Tax Liability on Capital Gains Arises in Year of Possession, Not Occupancy Certificate

Sri Alagappa Muthiah (HUF) Vs DCIT (ITAT Bangalore)

Conclusion: Liability to capital gains had not arisen in the assessment year 2017-18 as occupancy certificate was received on 01/02/2017 for commercial portion and 17/03/2017 for residential portion but in the assessment year 2018-19 on receipt of possession.

Held: Assessee-HUF co-owned 6 acres 23.2 guntas of land in Hebbal Village had entered into a Development Agreement, resulting in the development of his property into commercial and residential units, including the entire commercial unit and 6 apartments. Assessee acknowledged a capital gain of Rs.14,60,95,303 for assessment year (AY) 2018-19 and agreed to file for AY 2017-18 with a differential gain of Rs.27,35,99,751. However, assessee later withdrew this acknowledgment  and argued that the capital gains liability should be considered for AY 2018-19 since the property was possessed on 08/05/2017. The property was valued at Rs. 89,15,48,164 by a registered valuer. Following a notice under Section 153C, assessee filed a return declaring capital gains of Rs. 27,14,43,062 based on a registered valuer’s report. SO determined that the capital gains should be attributed to AY 2017-18, using occupancy certificates from early 2017. AO recalculated the capital gains to Rs. 120,03,46,357 and adjusted the cost of acquisition from Rs. 750 to Rs. 140 per sq.ft. The main issue in the appeal was whether the capital gains should be taxed in AY 2017-18 or AY 2018-19. Assessee contended that capital gains should be recognized in AY 2018-19, referring to the possession letter and not based on the date of the occupancy certificate. It was held by Tribunal that the capital gains were taxed in AY 2017-18 based on the occupancy certificate dated 17.03.2017. Assessee argued that Section 45(5A), introduced on 01.04.2018, should be applied, which mandates that capital gains be taxed in the year when the completion certificate was issued. However, the bench found that Section 45(5A) could not be applied retrospectively for AY 2017-18. It accepted the possession letter dated 08.05.2017 and ruled that the capital gains should be taxed in AY 2018-19.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These cross appeals for the assessment year 2017-18 in respect of different assessees are directed against different orders of CIT(A) both are common dated 29.2.2024.

2. The issue in both the appeals of assessee and revenue are common. Now we consider the grounds in assessee’s appeal, which is with regard to assessment year in which capital gain to be taxed arising out of impugned transaction.

3. Facts of the case are that Alagappa Annamalai [HUF] and Alagappa Muthiah [HUF] are co-owners of land measuring 6 Acres 23.2 guntas of Hebbal Village Kasaba Hobli, Bangalore North Taluk. These persons entered into 2 Development Agreements both dated 10/02/2011. Under these Development agreements the properties belonging to these two persons were being developed into both residential as well as commercial units. These 2 persons were allotted the entire commercial unit and 6 apartment units in the residential units. The details of the undivided interest in the land and built-up area shared between the developers and these 2 persons are as under :-

Landowners and Developers share in the Land in the Project as Per JDA

Landowners and Developers share in the Constructed Area in the Project as Per JDA

3.1 There was a search conducted in the case of Sri Alagappa Annamalai on 04/07/2019, which was concluded on 03/09/2019. A sworn statement was recorded from Sri Alagappa Annamalai on 04/07/2019 and 05/07/2019. In course of the statement Sri Alagappa Annamalai stated in answer to Q.No.33 as under :-

“Q.No.33 Under the circumstances, why has the Capital gain on account of the above outlined in Q.38. Transaction not been computed for AY 17-18.

Ans. As I already stated in the absence of OC and construction details, we have offered the capital gains in the year in which possession was given to me. Further, I would like to state that I have offered Long Term Capital gain of Rs.14,60,95,303 in my return of income filed for the A.Y. 2018-19 filed in the status of HUF. Having understood that the OC has been issued in the FY 2016-17 and after going through the details of cost of construction provided by M/s. Millenia Realtors Pvt. Ltd., I agree to recompute the Capital Gains and undertake to file returns admitting the differential capital gains of Rs.27,35,99,751 [being the difference between Rs.41,967,95,044 and Rs.14,60,95,303] for the AY 2017-18 and permit me to pay the balance tax in instalments. I hereby submit that the omission to offer the capital gains in the AY 17-18 was not wilful but due to lack of details from Millenia Realtors Pvt. Ltd and the same may be considered leniently”.

3.2 Similar statement was recorded u/s.131 of the Act from Sri Alagappa Muthiah on 05/07/2019. In course of the statement Sri Alagappa Muthiah stated in answer to Q.No.36 as under :-

“Q.No.36. Do you have anything further to say ?

Ans. I have offered Long Term Capital gains of Rs.14,60,95,303 in my return of AY 2018-19. Having understood that the OC has been issued in the FY 2016-17, I agree to file returns admitting the differential capital gains of Rs.27,35,99,751 [being the difference between Rs.41,96,95,044.50 and Rs.14,60,95,303 in the AY 2017-18 and permit me to pay the balance tax in instalment. I hereby submit that the omission to offer the capital gains in the AY 17-18 was not wilful but due to lack of details from Millenia Realtors Pvt. Ltd., and the same may be considered leniently”.

3.3 Thereafter Sri Alagappa Annamalai retracted the statement vide letter dated 04/02/2020 filed before DDIT [Inv.], Unit-3[4], Bengaluru along with an Affidavit. The retraction was also filed before the A.O. vide letter dated 06/02/2020 along with another Affidavit [See pages 34 to 42 of Paper book in ITA 776/Bang/2024.

3.4 Thereafter Sri Alagappa Muthiah retracted the statement vide letter dated 04/02/2020 filed before DDIT [Inv.], Unit-3[4], Bengaluru along with an Affidavit. The retraction was also filed before the A.O. vide letter dated 06/02/2020 along with another Affidavit.

3.5 Thus, the retraction has been filed within 6 months from the date of search. In the retraction Sri Alagappa Annamalai and Sri Alagappa Muthiah stated that the admission made at the time of search was erroneous and on account of severe mental strain, stress and fatigue. They stated that the possession of the properties was received by them after development on 08/05/2017 and accordingly the liability to capital gains arose for the assessment year 2018-19 and not for the assessment year 2017-18 as admitted in their earlier statements. They also explained that they had engaged a registered Valuer to determine the value of the property received by them after development and the said value was as under:-

3.6 Accordingly, they stated that they would be offering capital gains for the assessment year 2018-19 on the above basis in course of assessment proceedings after receipt of notice.

3.7 Both these persons had accordingly filed returns in response to notice u/s.153C of the Act offering capital gains by adopting the value determined by the registered valuer. Sri Alagappa Annamalai and Sri Alagappa Muthiah offered capital gains of Rs. 27,14,43,062/- each. The relevant computation is as under :-

3.8 In the assessment proceedings, the A.O. held that the liability to capital gains arises for the assessment year 2017-18 as occupancy certificate was received on 01/02/2017 for commercial portion and 17/03/2017 for residential portion. On the other-hand both these persons contended that the liability to capital gains arose for the assessment year 2018-19 on receipt of possession vide letter dated 08/05/2017.

3.9 In the assessment order, the A.O. also varied the computation of capital gains by adopting the full value of consideration at Rs. 120,03,46,357/- based on the details furnished by the Developer vide letter dated 07/01/2022. While doing so the A.O. has taken the cost of construction reported by the Developer of Rs.4,597 per sft for the commercial portion and Rs.3,750 per sft. for the residential portion.

3.10 That apart, the A.O. has also varied the cost of acquisition, which was claimed by the appellant at Rs.750 per sft. based on the guideline value published by the Sub-Registrar vide Notification No. RD 325 MUNOMU 98, Bangalore dated 03/12/1998 wherein, the market value for Bellary Road was specified at Rs.1,500 per sft. However, the A.O. adopted the market value based on Notification published for Bangalore Rural District vide Notification No. RD 548 MUNOMU 98, Bangalore dated 03/12/1998. which is Rs.140 per sft. It is submitted that vide reply filed on 23/03/2022, it was pointed out by Sri Alagappa Annamalai that their property was part of the Bangalore Urban Agglomeration i.e., Bangalore Urban District even before 01/04/2001. A copy of the Tax paid receiptdated 16/08/2000 reflecting the katha No.69/458/69 wherein the taxes have been paid to City Municipal Counsil, Byataranayapura as well as a document showing the land and building taxes paid on 2000-01 with the same katha was also furnished. In terms of the said notification the appellant was entitled to adopt Rs.1,500 / Rs.2,000 per sft. for residential / commercial units whereas the appellant adopted Rs.750 per sft on conservative basis.

ISSUES – Assessees’ Appeals :

ITA Nos.775 & 776/Bang/2024 (AY 2017-18):

4. The grounds in these appeals are common. We will take up the grounds in ITA No.775/Bang/2024 in the case of Sri Alagappa Muthiah (HUF) (AY 2017-18) as follows:

1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in upholding the assessment of capital gains arising on the transfer of the Developers share in land in terms of the Joint Development agreement dated 10/02/2011 entered into between Appellant and his brother Sri A L Annamalai with the Developer M/S Millenia Realtors Pvt Ltd dated 10/02/201 1 as liable for assessment for the assessment year 2017-18 under appeal mainly relying upon the fact that the occupancy certificate for the property developed was received during the year under appeal under the facts and in the circumstances of the Appellant’s case.

3. The learned CIT[A] ought to have appreciated that the Appellant had taken possession of his share of the built-up area only on 08/05/2017, which is also supported by irrefutable documentary evidence and accordingly, the Appellant had rightly considered that the transfer occurred during the assessment year 2018-19 for which the Appellant had duly computed and offered capital gains tax and therefore, the assessment of capital gains for the assessment year 2019-18 is not justified, considering the facts of the Appellant’s case and ratio of judicial precedents relied upon in course of the appellate proceedings.

4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the Appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs

4.1 The first common ground with regard to year of accessibility of capital gain whether it is in assessment year 2017-18 or 2018­19. In the assessment proceedings, the A.O. held that the liability to capital gains arises for the assessment year 2017-18 as occupancy certificate was received on 01/02/2017 for commercial portion and 17/03/2017 for residential portion

5. The only issue in assessee appeal is the year of taxation of capital gains i.e., assessment year 2017-18 or 2018-19. In so far as the said contention is concerned, the appellant relies upon the possession letter dated 08/05/2017 under which the appellant received possession of the commercial as well as residential area simultaneous on repayment of the deposits to the developers. It is the appellant’s case the transfer is completed only upon the receipt of possession and there is no justification to take the date of occupancy certificate as a date of transfer. Provisions of section 45[5A] inserted by the Finance Act, 2017 w.e.f. 01/04/2018 would not apply since the date of occupancy certificate is prior to 31/03/2017. It is only after Section 45[5A] of the Act, has been inserted that the date of occupancy certificate is relevant for determining the taxation of capital gains. The appellant has relied upon the decision of the Hon’ble ITAT in the case of N.A. Harris in ITA No.988/Bang/2018 dated 15/02/2021 specifically para [33] on page 200 to 202. Appellant also relies upon the decision of the Hon’ble ITAT, Bangalore in the case of N. G. Balu Reddy in ITA 651/Bang/2020 dated 21/12/and the decision of the Hon’ble ITAT, Bangalore in the case of Sri Dinesh Devaraj Ranka in ITA No.2786/Bang/2017 dated 13/03/2023 [See page 254 to 274 of the Paper book in ITA No.776/Bang/2024] wherein the taxation of capital gains on receipt of possessions by the landowners has been accepted.

5.1 The assessees had also furnished a copy of its katha after development, as undertaken before the Hon’ble Bench vide a separate memo filed on 02/08/2024.

6. On the other-hand both ld. D.R. contended that the liability to capital gains arose for the assessment year 2018-19 on receipt of possession vide letter dated 08/05/2017.

7. We have carefully gone through the case records. The reason for taxing the capital gain arise out of the transfer of impugned property is that assessee obtained the occupational certificate from BBMP i.e. on 17.3.2017 in respect of RMZ, Latitude during the financial year 2016-17. Accordingly, the capital gain was charged to income tax in the assessment year 2017-18. However, contention of ld. A.R. is that section 45(5A) was introduced by Finance Act, 2017 w.e.f. 1.4.2018 placed on record at paper book-I page no.143 to 145 and the said provisions applicable where the capital gain arises to an assessee, being an individual or HUF, from the transfer of capital asset, being land and building or both, under a specified agreement, the capital gain shall be chargeable to income tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. Being so, the provisions of section 45(5A) of the Act cannot be applied to a present assessee as the said law is applicable from the assessment year 2018-19 and not to the assessment year 2017-18. Further, we note that the section 45(5A) of the Act cannot be applied retrospectively as applied by the ld. We also note that the assessee taken possession of property from developer vide letter reference VKT/LND/591 dated 8.5.2017 which is placed on record at page 146 to 150 of assessee paper book-I. The ld. AO not accepted the said letter of the allocation of possession to assessee by alleging that there could be manipulation between the parties concerned in procuring that letter. In our opinion, the ld. AO without bringing any material on record cannot hold that the assessee has manipulated said letter of delivery of possession of built-up area with the collusion with the builder Millennia Realtors Pvt. Ltd. There is no basis for such allegation. Further, the parties to the transfer of impugned property mutually agreed to hand over the delivery of the possession vide the said letter and it is to be accepted as true unless it is proved otherwise. In view of this, we are not in a position to uphold the contention of the departmental representative that the assessee has taken up the possession of the built-up area of the property in the AY 2017-18. Accordingly, on the basis of occupancy certificate of the project which has been received from the BBMP vide certificate dt. 17.2.2017, i.e. financial year 2017-18 and relevant AY which falls under AY 2018-19 and the capital gain arising out of impugned transactions to be taxed in the AY 2018-19. For this purpose, we rely on the order of the coordinate bench in the case of N.A. Haris in ITA No.988/Bang/2018 dated 15.2.2021 wherein held as under:

“33. As per this clause No.7, the time limit to complete the project is five years. In the assessment year 2005-2006 nothing moved towards the construction of the schedule property. Thus, in the financial year 2004-2005 relevant to assessment year 2005-2006, the transferee had neither performed nor was it willing to perform its obligation under the JDA. Being so, the argument of the learned AR that the capital gains are to be taxed in the present case in the assessment year 2005-2006 is not tenable. This is so because the transferee not adhered to complete any act as mentioned in JDA. The transferee only made payment of refundable deposit of Rs.10 crore by 08.01.2004 and other necessary permission so as to commence the construction not at all commenced and there was no progress in the development of property in the assessment year 2005-2006. The Municipal sanction for development was obtained subsequently, which is utmost important for the implementation of the JDA. Without sanctioning of the building plan, the very genesis of the agreement fails. To enable the execution of the JDA, firstly, plan is to be approved by the competent authority. Since no building plan in the assessment year 2005-2006 was approved or produced before us, we cannot hold that the transfer took place in the assessment year 2005-2006. Nothing is brought on record by the assessee to show that there was a development activity in the impugned project during the assessment year 2005-2006 and any cost of construction was incurred by the builder. It is to be inferred that no amount of investment by the developer in the construction activity during the assessment year 2005-2006. Hence, we are of the opinion that transferee was not willing to perform his part of obligations as stipulated in the JDA, in the assessment year 2005-2006 within the meaning as expressed in section 53A of the Transfer of Property Act. As such, the contractual obligation of the developer was not met with in the assessment year 20052006. Being so, the conditions laid down in section 2(47)(v) of the I.T. Act cannot be invoked so as to bring the capital gains into tax in the assessment year 2005­2006 and thus the very foundation of the assessee’s case is devoid of merits and not tenable and more so there is a specific clause in the JDA as enumerated earlier that the assessee is only permitted to give licence to the vendee to develop the Schedule Property and the legal ownership remains with the assessee and there cannot be any transfer in the assessment year 2005­2006 and it has rightly brought into taxation by the A.O. in the assessment year 2012-2013 as in the assessment year 2012-2013, the assessee received duly developed and constructed area into his possession coming into his share. Accordingly, we are not in agreement with the argument of the learned AR that the transfer took place in the assessment year 2005-2006 and has been rightly brought to tax by the AO in the year 2012-2013, since the assessment in the year 2012-2013 the assessee received duly developed and constructed area into his possession out of his share of constructed area. Thus, the additional ground raised by the assessee is dismissed.”

7.1 In view of the above, we hold that the capital gain arising out of the impugned property vide JDA dated 10.02.2011 to be taxed in the assessment year 2018-19 only. Ordered accordingly.

8. In the result, both the appeals of the assessees in ITA Nos.775 & 776/Bang/2024 are allowed.

9. Now we will take up revenue’s appeals in ITA Nos.954 & 955/Bang/2024 for the AY 2017-18. The grounds are common in both appeals. The revenue filed revised grounds which are as follows:

1. ‘Whether on the facts and in circumstances of the case, Ld. CIT(A) was in right of allowing the appeal of the assessee by arriving at the sale consideration of Rs.93,80,19,968/- instead of which Rs.120,03,46,357/- was ascertained as per section 45 of the Income Tax Act,1961 which is also the value of the constructed area received by the landowner in the developed project”.

2. “Whether on the facts and in circumstances of the case, Ld. CIT(A) was in right of allowing the appeal of the assessee by arriving at the sale consideration of Rs. 93,80,19,968/- whereas in response to notice u/s 133(6) by the AO, the developer M/S Millennia Realtors Private Limited has confirmed the cost of construction and the sale consideration is accurately ascertainable at Rs.120,03,46,357/-.”

3. “Whether on the facts and in circumstances of the case, Ld. CIT(A) was in right of allowing the appeal of the assessee by adopting the cost of acquisition at the rate of 750/- per sq. ft as on 01.04.2001 instead of Rs. 140/- as on 01.04.1981 as the assessee has inherited the property an as per the provisions of section 55 of the IT Act, 1961 where the capital asset became the property of the assessee before the 1st day of April 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1s^t day of April 1981 at the option of the assessee in accordance with Finance Act, 2017 instead of as on 01.04.2001 as held by Ld. CIT (A)”

9.1 These revenue appeals are infructuous in view of our findings in assessees’ appeals for assessment year 2017-18 in case of those assessees. However, we will adjudicate the grounds raised by the revenue in these appeals for the purpose of completion of adjudication of these appeals.

10. Facts of the issue are that The department has raised grounds on two issues with regard to the relief granted by CIT[Appeals] on full value of consideration and cost of acquisition.

Issue 1 – Full value of consideration :

10.1. The learned CIT[A] determined the full value of consideration for transfer of the undivided interest land to the developer at Rs.93,80,19,968/- as against Rs.120,03,46,357/- taken by the Assessing Officer. It is relevant to point out that the appellant had adopted the consideration at Rs.89,15,48,116/-. The CIT[A] findings are at para [7] at pages 19 to 34 of the appellate order. The CIT[A] found the following :-

(1) The full value of consideration of Rs.120,03,46,357/-, worked out by the A.O. includes the following, which cannot form part of the cost of construction / is inconsistent with valuation :-

(a) Cost of land at Rs.13,62,53,443/- has been included in the cost of construction adopted for the commercial portion;

(b) Finance Cost of Rs. 25,71,12,635/- for commercial and Rs.1.25 Crores for residential property is exorbitant considering the total cost of construction to the project;

(c) Administrative cost of Rs.3,02,31,991/- for commercial and Rs.1.25,23,028/- for residential property should not have been adopted.

(2) It is also required to be noted here that the appellant has placed the correspondences with the DVO who was asked to value the property. After several correspondences with the DVO [which are placed at page 31 to 77 of the Paper book in ITA 955/Bang/2024 – Departmental Appeal], the DVO asked the appellant to correspond with the assessing Officer in future [See page 78 of the Paper book]. Thereafter the appellant obtained copy of the DVO report [placed at page 83 to 87 of the Paper book], the DVO has stated that he was unable to arrive at the valuation in the absence of any bills and vouchers given by the Developer. He also referred to a single unsigned sheet given by the Developers without support of bills and vouchers or structural drawings that has been furnished. The DVO stated that the valuation report submitted by the assessee appears to be under­estimated. However, no reasons for the same have been stated. This aspect of the matter has also been noted by the learned CIT[A] in para [7.7] of the appellate order [page 30 of the appellate order].

(3) Reliance was also placed by the appellant on the decision of the Hon’ble Karnataka High Court in the case of Shankar Vittal Motor Company in ITA 653/2016 dated 01/12/2021 [copy placed at pages 110 to 133 of the Paper book in ITA 955/Bang/2024 ] as well as the decision of the jurisdictional High Court in the case of Smt. Sarojini M. Kushe P.V.S.Beedies P. Ltd in ITA 475/2016 dated 01/12/2021 [See page 170 to 178 of the Paper book in ITA 955/Bang/2024]. In the aforesaid cases it has been held that the cost of construction given by the developer which is not supported by any particulars cannot be taken as full value of consideration. The Hon’ble High Court has held that section 50D of the Act, would be applicable and accordingly, the full value of consideration should be computed on the basis of guideline value of land or building that is transferred / received on development. Thereafter the CIT [A] has noticed that the appellant has transferred 1,94,368 sft. of land to the developer. The said land has been valued at Rs.4,826 per sft. after deriving the same by reducing the guideline value of the building from the guideline value of the super built-up area [See page 193 of the Paper Book ITA No.955/Bang/2024]. This is because the super built-up area includes both undivided interest in land as well as the built-up area. In this manner the learned CIT[A] has held that the deemed value of consideration for the transfer of the undivided share of land in the project pertaining to the developer share was Rs.93,80,19,968/-.

11. We have heard both the parties and perused the materials available on record. The ld. AO computed the consideration relying upon the letter given by the developer mentioning cost of construction by including the following:

(a) Cost of land at Rs.13,62,53,443/- has been included in the cost of construction adopted for the commercial portion;

(b) Finance Cost of Rs. 25,71,12,635/- for commercial and Rs.1.25 Crores for residential property is exorbitant considering the total cost of construction to the project;

(c) Administrative cost of Rs.3,02,31,991/- for commercial and Rs.1.25,23,028/- for residential property should not have been adopted.

11.1 However, the said cot of construction has been disputed by the assessee before ld. CIT(A). The ld. CIT(A) directed to include these above items from the cost of construction for determining the full value of consideration received by the assessee.

11.2 In our opinion, the method adopted by ld. AO for determining the consideration of the impugned transfer of property is not correct. There is no basis for inclusion of above cost for determining the consideration received by the landlord.

11.3 However, there is a most appropriate judgement applicable to the facts of present case which came before Hon’ble High Court in the case of Shankar Vittal Motor Company Ltd. and others in ITA No.653 of 2016 /w ITA No.11/2017 dated 1.12.2021 wherein held as under:

11.3 Further, same view has been taken by Hon’ble Karnataka High Court in the case of Smt. Sarojini M. Kushe in ITA No.475 of 2016 dated 15.12.2021 wherein held as under:

“15. It was argued by the learned counsel for the assessee that when the scheme of the Act does not contemplate the method of computation, no capital gains could be computed, placing reliance o B.C. Srinivasa Setty supra. It appears to overcome this aspect, a machinery provision has been introduced by way of Section 50D of the Act. Though the said provision has come into effect from 1.4.2013, it certainly throws some light on the mode of computation under section 48 of the Act. In the circumstances, we are of the considered opinion that the guidance value of the land or the guidance value of the building would be appropriate mode t determine the full value of consideration in the case of a transfer where consideration for the transfer of a capital asset is not attributable or determinable. Hence, guidance value adopted by the Tribunal cannot be faulted with.”

11.4 We find that the ld. CIT(A) has followed the above judgements to determine the full value of consideration received by the assessee, which is SRS value as held by the above judgements. We do not find any infirmity in the above findings of ld. CIT(A). Accordingly, ground nos.1 & 2 raised by the revenue in its appeals are dismissed.

Issue 2 in revenue’s appeals – cost of acquisition :

12. While computing the capital gains in the assessment order, the learned A.O. has adopted the cost of acquisition at Rs.140 per sft. in the manner explained above. The findings of the learned CIT[A] is at para [8] at pages 34 to 38 of the appellate order.

12.1 It was contended by the appellant that the guideline value adopted by the learned A.O. was erroneous considering the location of its project. As explained above, the appellant property was situated at Bangalore Urban District and the relevant entry for the appellant’s property would be Bellary Road for which the appellant had relied on a notification published by the Sub-Registrar vide Notification No. RD 325 MUNOMU 98, Bangalore dated 03/12/1998 wherein, the market value for Bellary Road was specified at Rs.1,500 per sft. [See page 188 of Paper book in ITA 955/Bang/2024]. The appellant explained that it had adopted a conservative approach by taking only a sum of Rs.750 per sft. as on 01/04/2001 though he was entitled to adopt a much higher value.

12.2 The learned CIT[A] has duly considered the submissions of the appellant had held vide para [8.3] at page 38 of the appellate order that the guideline value was in fact Rs.750 per sft. and has directed the learned A.O. to adopt the value of Rs.750 per sft. as the cost of land as on 01.04.2001. The AO erred in taking Rs. 140 per sft which is the value prescribed for properties in Bangalore Rural and not on Bellary Road.

13. We have heard both the parties and perused the materials available on record. As per section 55 of the Act as applicable to the assessment year under consideration, which provides that for the computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of asset and also cost of improvement, if any. However, for computing the capital gains in respect of an asset acquired before 1^st April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1.4.2001 or actual cost of asset as cost of acquisition.

In the present case, the ld. AO has based the adoption of the value at Rs.140/- p.sq.ft. which is based on the entry no.19, under Kasaba Hobli as per the entry “Hebbala”, which applies to a Gramathana/Industrial site. Said value was adopted by ld. AO on notification No. RD 548 Munomu 98, dated 3.12.1998 issued by Government of Karnataka in exercise of power under section 45(B)(3) of the Karnataka Stamps Act 1957, which applies to immovable property situated in the Bangalore Rural district. However, the ld. CIT(A) based his conclusion fixing the value at Rs.750/- sq.ft. on another notification RD 325 Munomu 98 dated 3.12.1998 issued by Government of Karnataka in exercise of power under section 45(B)(3) of the Karnataka Stamps Act 1957, which applies to immovable property situated in the Bangalore Urban district. The present property considered for taxing the capital gain is located on Bellary road as seen from the JDA dated 10.1.2011. Being so, the ld. CIT(A) considered the value at Rs.750/- sq.ft. which is very reasonable and same is confirmed and this ground of appeal of the revenue is dismissed in both the appeals.

14. In the result, both the appeals of the assessees are allowed and revenue appeals are dismissed.

Order pronounced in the open court on 12^th Aug, 2024