Brief of the Case
ITAT Hyderabad held In the case of Shri Mohd. Imran Baig & others vs. ITO that it is now settled in favour of the assessee by the decisions of the Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shantilal Motilal V/s. CIT (365 ITR 389) as well as decisions of the coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters Visakhapatnam V/s. ACIT and Moole Rami Reddy V/s. ITO (ITA No.311/Vizag/2010 dated 10.12.2010) that the value of property as per stamp duty valuation as per deeming provision u/s 50C as on the date of agreement of sale has to be considered for the purpose of computation of capital gains.
Facts of the Case
The assessees herein are all family members of two brothers, Shri Mohd. Zia Baig and Shri Abdul Arif Baig. The family members of Shri Mohd. Zia Baig and Shri Abdul Arif Baig, owned adjacent immovable properties at Road No.3 Banjara Hills, Hyderabad and the shares of all the assessees in the properties are specified. They sold their properties together for a sale consideration of Rs.3,35,60,000 and Rs.3,54,40,000 both dated 6.3.2006. The sale consideration was shared by the co-owners in the ratio of their land ownership. The assessees computed long term capital gains from the above transaction on the sale consideration received by them and arrived at the long term capital gains in the hands of each of these assessees.
Subsequently, it came to the notice of the Department that the market value of the property in the above transaction was adopted at Rs.4,50,62,000 by the Sub-Registrar office (SRO) for the purposes of payment of stamp duty at the time of registration. Observing that the capital gains should have been computed adopting the deemed consideration of Rs.4,50,62,000 as per the provisions of S.50C , the Assessing Officer held that proportionate deemed consideration has to be brought to tax. Since the assessee failed to adopt the deemed consideration as per the provisions of S.50C, he held that the capital gains was short admitted.
In view of the same, the Assessing Officer formed an opinion that there was reason to believe that income chargeable to tax has escaped assessment within the meaning of S.147. Therefore notices under S.148 were issued to all the assessees in response to which the assessees have filed their returns of income, admitting the same incomes, which were admitted in the original returns of income. The Assessing Officer, however, rejected the objections of the assessee and proceeded to compute the long term capital gains by invoking the provisions of S.50C. Since the assessees objected to the adoption of SRO value as Fair Market Value of the properties, he made a reference to the DVO of the Income-tax Department for ascertaining the Fair Market Value of the property as on the date of transfer. The DVO, after inspection of the property and verification of the relevant documents proceeded to estimate the market value of the property at Rs.4,51,71,285 and a show cause was accordingly issued to the assessees.
After forwarding the copy of the order of the DVO to the assessees, the Assessing Officer proposed to adopt the Fair Market Value at Rs.4,50,70,285 as adopted by the SRO for stamp duty purposes. The assessees again filed their objections. The Assessing Officer, however, was not convinced with the contentions of the assessee and adopting the Fair Market Value at Rs.4,50,62,000 as deemed total consideration for the sale of the property, computed the capital gains accordingly in the hands of all the other co-owners.
Contention of the Assessee
The ld counsel of the assessee submitted that remission being capital receipt, cannot be considered as income of the assessee even for the purpose of book profits u/s 115JB of the Act. In support of his contention, he has relied upon the decision of the Mumbai Bench of the Tribunal in the case of M/s.Shivalik Venture Pvt. Ltd. vs. DCIT in ITA No.2008/Mum/2012 dated 19/8/2015 as well as the decision of the Jaipur Bench of the Tribunal in the case of ACIT vs. Shree Cement Ltd. in ITA Nos.614, 615 & 635/JP/2010 dated 9/9/2011.
The learned AR of the assessee has also relied on the judgment of the Hon’ble Andhra Pradesh High Court in the case of CIT vs. Nagarjuna Fertilizers & Chemicals Ltd. in ITTA No.100 of 2003 dated 23/9/2014 and submitted that when the assessee has the disclosed the fact of capital receipt in the notes to accounts, then said amount shall be excluded from the profit and loss account for the purpose of book profits u/s 115JB.
The learned AR of the assessee has submitted that even if the said amount is shown by the assessee in the P&L A/c when the assessee has disclosed the nature of receipt in the notes to the accounts, then the effect of said disclosure in the notes to the accounts will be that the said amount should not be considered as part of P&L A/c of the assessee as per the provisions of Schedule VI of the Companies Act.
Contention of the Revenue
The ld counsel of the revenue submitted that this amount has been credited by the assessee in the P&L A/c. The assessee has not disputed that the accounts of the assessee are prepared as per the provisions of Schedule VI of the Companies Act. Therefore, the AO has no power to tinker with the P&L A/c prepared by the assessee as per Schedule VI of the Companies Act except the adjustment as permitted under the Explanation to sec.115JB. He has relied upon the orders of the authorities below.
Held by CIT (A)
According to the assessees, the SRO value of the property as on the date of agreement has to be considered and not as on the date of the transfer of the property. In support of the contention that this provision is applicable to the case of the assessee, reliance was placed upon the judgment of Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shanti Lal V/s. CIT (2014) 365 ITR 389 (SC) for the proposition that the SRO value as on the date of agreement is to be considered. The CIT (A) however, distinguished the said judgment, stating that the issue in the cited case was to determine the date of transfer for the purposes of S.54, whereas in the assessee’s case, the issue is whether value adopted by the SRO in the sale deed is correct and acceptable under S.50C. She observed that in the event of an objection having been made against the SRO’s value before the Assessing Officer, the Act provides for a reference to the DVO for determination of the fair market value and for this purpose, the date of transfer is irrelevant. She further observed that the assessees who themselves have rejected the correctness of the SRO’s rate as per sale deed, have now sought adoption of the SRO rate on one or the other dates as per convenience.
As regards the merits of the valuation by the DVO, the CIT (A) rejected the assessee’s contention that the SRO value for commercial property cannot be applied to a residential property. Even with regard to the irregular shape of land and the lack of direct access to main road and such other aspects of the said property, contentions of the assessee were rejected by holding that the alleged negative aspects were apparently negligible enough to be ignored by the purchaser to offer a price that was much higher than the SRO rate, as contended by the assessee. Thus, the assessment order was confirmed by the CIT (A).
Held by ITAT
We find that the assessees have contended to have entered into an MOU with the purchaser on 20.5.2005. However, the said document has not been produced either before the authorities below or before us. The only evidence in support of this contention is the recital in the registered sale deeds dated 6.3.2006. The assessee has failed to produce copy of the MOU either before the authorities below or before us. We, therefore, directed the assessee to produce before us evidence of entering into the MOU on 20.5.2005 or at least receiving the advances as on the date of MOU.
Whether the date of agreement or the date of execution of sale deed has to be considered for the purpose of adopting the SRO value under S.50C
This issue is now settled in favour of the assessee by the decisions of the Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shantilal Motilal V/s. CIT (365 ITR 389) as well as decisions of the coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters Visakhapatnam V/s. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22.6.2010) and Moole Rami Reddy V/s. ITO (ITA No.311/Vizag/2010 dated 10.12.2010). It is therefore, now settled that the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains.
A transaction involving such immovable property in such prime locality of the city of Hyderabad and involving such financial implications would definitely not take place overnight. The purchaser would require time to verify the legal and clear title of the owners and also about the encumbrances on the property before proceeding to make the payment and get the sale deeds executed. All this would consume time and money. For this purpose, they would have negotiated with the owners about the sale consideration before embarking on this exercise, Therefore, it cannot be said that the transaction has been agreed to as well as executed on the same date. Thus, there had to be an agreement to sell, either oral or in writing. But what is such date is the question before us and this date attains importance because it would determine the SRO value to be taken into consideration for computation of capital gains. In the case before us, it is only the recitals in the sale deed about the MOU dated 20.5.2005 and no other document. The advance of Rs.60,000/- is allegedly in cash with no evidence in support of the same. Even the certificate of the SRO for market value as on 20.5.2005 is dated 3.11.2011 which is after the filing of the return of income by the respective assessees, but before the issuance of notice under S.148 dated 1.3.2013 for initiation of re-assessment proceedings Since no concrete material is filed before us in support of the MOU dated 20.5.2005, we are not inclined to accept the same, particularly, since there was a revision of guideline values of the properties in 2006. The SRO has taken the revised guideline value and the date on which such revision has taken place also is not available on record.
There cannot be any dispute that the nature of the property on the date of transfer/sale is to be considered. As pointed out by the learned counsel for the assessee, the encumbrance certificate mentions the property as residential property, but as rightly held by the CIT (A), Encumbrance Certificate merely reflects the registration of the documents and no more can be read into this description. But the learned counsel for the assessee had also relied upon the GO(Ms) No.574 M.A. dated 25.8.21980 and the letter dated 26.3.2013 issued by the Director(Planning), HMDA certifying that Road No.3, Banjara Hills, near Sultan-Ul-Uloom Engineering College, as earmarked for residential use, as per the above G.O. We find that none of the authorities below have commented adversely about this document, but in fact have remained silent on the same. This letter issued by the concerned relevant authority is relevant to determine the nature of the property.
It is also a fact that even in a residential zone, one may put a property to commercial use by which it would fetch commercial value when sold. But in the case before us, there is no such allegation by the revenue. But, in fact, the contention of the assessee that the property remained as it is even after eight years of sale also confirms this position, as no person would keep such a property idle when there was ample development potential. The above fact of the land remaining as it is has not been controverted by the authorities below. Therefore, for want of any evidence to the contrary, we hold that the property in question was in residential zone on the date of transfer and therefore, the SRO value for residential property as on 6.3.2006 or the sale consideration received by the assessee whichever is higher is to be adopted under S.50C. Assessing Officer is directed to compute the capital gains in the hands of the respective assessees accordingly.
Accordingly, all the appeals partly allowed.