The issue under consideration is whether the A.O. is correct in rejecting the valuation report obtained by the assessee?
In the present case, assessee had sold its land and building. Assessee had taken the cost of acquisition for land as per valuation report as at 1-4-1981 as against the book value. AO rejected the valuation report stating that it was without any basis and had taken the cost of the land as per the audited balance sheet for the purpose of arriving at the indexed cost of land.
ITAT state that assessee has been given an option according to the provisions of section 55 (2) (b) of the income tax act to adopt the fair market value as on 1/4/1981 by submitting the valuation report from an approved valuer to substitute in option to the cost of acquisition of the asset. Therefore, this is a beneficial provision. The learned assessing officer has not put on record any evidence to show that the valuation report obtained by the assessee is devoid of any merit or the prevailing rate as on that date on 01/04/1981 of the similar property were less. In view of this, the rejection of the valuation report by the learned assessing officer cannot be accepted. Hence, the appeal filed by the revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal is filed by the revenue against the order of the ld CIT (A)-IV, New Delhi dated 26.05.2014 for the Assessment Year 2008-09.
2. The revenue has raised the following grounds of appeal:-
“1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in directing the AO to take the valuation of land as on 01.04.1981 as per approved valuer’s report because the assessee has also acquired some land after 01.04.81. Therefore by taking valuation of land as per approved valuer’s report means that the land purchased in 1993 has not been distinguished for indexation purpose. When this value showed very huge appreciation of property within 3 to 6 years, the AO was fully justified in rejecting the report prepared at the behest of the assessee and. calculating the capital gain after providing for indexation at the cost price.
2. Deleting the addition of Rs.2,33,77,352/- made as short term capital gain when (A) the assets on which capital gain arose is on depreciable assets for which the issue involved was computation of capital gain which had to be computed in the manner prescribed under section 50 and (B) capital gain tax would be charged as if such capital gain had arisen out of a short term capital asset.
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing off this appeal.”
3. The brief facts of the case show that the business of the assessee company was to manufacture of steel and PVC pipes at it works at Ghaziabad. During the year under consideration the assessee company has sold a part of land and Factory shed (immovable property) consisting of land and building on 12/03/2008 INR 4,18,37,00,000 and INR 9,09,45,000/–. The assessee company filed its return of income on 27/2/2010 declaring total income of INR 12,09.46,810/-. In its return of income, the company had shown Rs 11,77,91,426 as long-term capital gain from sale of land and Rs Nil as short-term capital gain from sale of building/factory shed. Thereafter the case was assessed u/s 143 (3) on 23/10/2009 on income of INR 5,33,93,280/–.
4. Subsequently the case of the assessee was reopened by issuing notice u/s 148 of the act on 29/12/2011 after recording the reasons. The assessee submitted that the original return filed u/s 139 (1) may be treated as return filed in response to notice u/s 148 of the income tax act. Subsequently a show cause notice was issued as to why the addition on account of short term capital gain arising on sale of land and building of INR 541,500,000 should not be taxed against the long-term capital gain shown by the assessee company.
5. The assessee objected to the same and stated that it is not correct to include land and building in the same block of assets and consider the transfer as short-term capital gain. Assessee also submitted that it has never claimed appreciation on the land however; the answer of the assessee on the issue of depreciation of building was silent.
6. Learned assessing officer noted that assessee company had sold its land and building shed to M/s Bhushan steels Ltd as per sale deed dated 12/03/2008 for INR 101050000/– admeasuring 424490 m² along with building and on the same date of INR 183700000/– admeasuring 44535 0 m² along with building. Further depreciation has not been provided on factory building, as the same was not used throughout the year. Further the company had decided to sell factory building and freehold land vide agreement to sale dated 12/3/2008 to the same party for INR 313750000/–. Towards the sale the assessee company has received INR 1 56875000/– and remaining balance was outstanding. It was further noted that assessee has shown long-term capital gain for the sale of land and building at Rs. 117791426/–. Assessee has also worked out the long-term capital gain on factory building situated in this premises on which the assessee company has been claiming depreciation regularly. The written down value of the building was found at Rs. 6698248/–. The learned AO held that since factory building is the capital asset on which only short-term capital gain would arise on transfer of it as per provision of section 50 of the Act. The assessee company has also taken the cost of acquisition for land at as per valuation report as at 1-4-1981 of INR 9102600/– as against INR 390954/– being the book value. He further held that the perusal of the valuation report furnished in support of fair market value as at 1-4-1981 being cost of acquisition of land, revealed that the valuer has valued the cost of land at INR 9 102600/– which is not acceptable. Accordingly he computed the long-term capital gain on sale of land at Rs. 252520244/– and granted exemption under section 54D of INR 100000000/– and net taxable long-term capital gain was computed at INR 1 52520244/–. Against this the assessee has shown the long-term capital gain of Rs 117791426/– and therefore the addition on account of the long-term capital gain on sale of land was made of INR 34728818/–. With respect to the short-term capital gain on sale of building he considered the sale value at INR 3 0075600/– and computed the short-term capital gain thereon of INR 2 3377352/– accordingly the assessment order was passed on 30/3/2013 under section 148 read with section 143 (3) of the act.
7. Assessee aggrieved with the order of the learned assessing officer has challenged the same before the learned CIT – A. The learned CIT – A upheld the taxation of INR 2 3377352/– on the sale of building and factory shed as short-term capital gain as the assessee company has been claiming depreciation regularly in the books of accounts and the net value of building was shown at rupees 6698248/– on 31/3/2008. He held that factory building is a depreciable asset on which the appellant has been claiming depreciation. This issue has not been agitated by the assessee before us and therefore it is now concluded. However, the revenue has raised this ground as per ground number 2 of appeal.
8. On the issue of inclusion of stamp duty of INR 1 0105000/– in the amount of sale consideration he held that appellant has paid the stamp duty as per the sale agreement and therefore according to the provisions of section 48 the expenditure incurred wholly and exclusively in connection with the transfer of the capital asset the assessee deserves the deduction of the above amount. Therefore, he allowed the claim of the assessee. On this issue, also revenue is not in appeal before us.
9. On the issue of the action of the learned assessing officer in taking the cost of the land as per the audited balance sheet for the purpose of arriving at the indexed cost of land and ignoring the approved valuer’s valuation of land asset 1/4/1981, he referred to the provisions of section 55 (2) (B) and held that the above section makes it clear that where asset was acquired before the 1st Day of April 1981, the cost of acquisition of the asset will be the cost of acquisition of the asset to the assessee or the fair market value of that asset as on 1st Day of April 1981, at the option of the assessee. He further held that the option is with the assessee to opt for the fair market value as on 1/4/1981 by submitting the valuation report from an approved valuer. The act does not provide option to the assessing Officer to not to accept the valuation report regarding the fair market value unless he is able to prove by bringing evidence on record that the valuation report is not correct. He further held that there is no dispute that the land in question was acquired by the appellant prior to 1/4/1981. In view of this, he held that the AO was not justified in rejecting the valuation report of approved valuer showing the value of land as on 1/4/1981 and therefore he allowed the appeal of the assessee on this ground. The revenue is aggrieved with the same and is in appeal before us.
10. He further held that though the sale of building is considered as short-term capital gain u/s 50 of the act but it would be charged to tax as long term capital gain as per concessional rates.
11. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that there is an unusual appreciation shown in property within 3 to 6 years and therefore the assessing officer was fully justified in rejecting the valuation report shown by the assessee as the cost of acquisition determining far market value of property as at 1/4/1981. He further stated that the grounds of appeal state that taking the valuation of land as per approved valuer’s report means that the land purchased in 1993 has not been distinguished for taxation purposes. He therefore submitted that the order of the learned CIT – A is erroneous. This was argument with respect to ground number 1 of the appeal.
12. For Ground no 2 ld DR relied up on the order of the ld AO.
13. The learned authorised representative relied upon the order of the learned CIT – A with respect to ground number 1 of the appeal of the assessing officer
14. The ld AR , With respect to ground number 2 of the appeal of the assessee he submitted that as per para number 5.4.2 of the order of the learned CIT –A the above addition has been confirmed and therefore there is no grievance of the revenue. He further submitted that issue is not squarely covered by the decision of the honourable Supreme Court in case of CIT vs. V.S Dempo Co Ltd 74 taxmann.com 15 (SC).
15. We have carefully considered the rival contention and perused the orders of the lower authorities. Brief facts of the case are that the business of the appellant Company was to manufacture of steel and P.V.C. pipes at its works at Ghaziabad (UP). The appellant company filed its return of income for the assessment year 2008-2009 declaring the total income at Rs. 12,09,46,810. The appellant company sold part of the immovable property consisting of land and building on 12th March, 2008 for Rs. 18,37,00,000 and Rs.9,09,45,000, respectively. The appellant in its return of income had shown Rs.11,77,91,426 as Long Term Capital Gain from sale of land and ‘Nil as Short Term Capital Gain from sale of building /shed. The notice under section 148/143(3) of the Income Tax Act, 1961 dated 29th December, 2011 was served upon the appellant. The assessment was completed by the Assistant Commissioner of Income-Tax on 30.03.2012 under section 143(3) of the Act at a total income of Rs. 17,90,52,975 after making additions on account of short term capital gains of Rs.2,33,77,352 and Rs.3,47,28,818 on account of long term capital gains. The sale deeds in question were for composite sale of land and building (i.e., sale deed did not mention the break-up of consideration for land and building separately) for Rs. 18,37,00,000 and Rs.9,09,45,000. The dispute between the appellant company and the Assessing Officer is three folds; one related to the apportionment of sale price of the two sale deeds between land component and the building and second related to non consideration of the fair market value (FMV) of land as on 1-4-1981 as per the approved valuer’s report and lastly inclusion of stamp duty paid by the appellant as part of sale consideration. The learned CIT – A has dealt with the whole issue as per ground number 4 of the appeal at para number 7 of his order. The only grievance of the learned assessing officer is that that assessee should not have been granted the deduction of the valuation of the land as on 01/04/1981 at INR 9 102600/– wherein the valuer has taken the land at the rate of INR 1 30/– per square metre. The learned assessing officer has rejected the valuation report stating that it is without any basis. The learned CIT – A has held that assessee has been given an option according to the provisions of section 55 (2) (b) of the income tax act to adopt the fair market value as on 1/4/1981 by submitting the valuation report from an approved valuer to substitute in option to the cost of acquisition of the asset. Therefore, this is a beneficial provision. The learned assessing officer has not put on record any evidence to show that the valuation report obtained by the assessee is devoid of any merit or the prevailing rate as on that date on 01/04/1981 of the similar property were less than INR 1 30/–per square meter. No such evidences have been shown to us or before the learned CIT – A. In view of this, the rejection of the valuation report by the learned assessing officer cannot be accepted. Even otherwise in the grounds of appeal the learned AO has raised an issue that taking the valuation of land as per approved valuer’s report means that the land purchased in 1993 has not been distinguished for the taxation purposes separately. However, no evidence has been produced before us that the impugned land sold by the assessee is acquired post 1 /4/1981. In view of this ground number 1 of the appeal is dismissed.
16. The second ground of appeal is against treatment given by the learned CIT – A of rupees to 3377352/– by admitting the additional ground holding that same is chargeable to tax as per the provisions of section 112 of the income tax act. The above issue now is squarely covered by the decision of the honourable Supreme Court in Commissioner of income tax vs VS Dempo Co Ltd 387 ITR 354 wherein it has been held that section 50 of the income tax act is a special provision for computing the capital gain in the case of depreciable asset is only restricted for the purpose of the provisions of section 48 of section 49 of the income tax act specifically. It has nothing to do with the exemption that is provided in totally different provisions. The learned CIT – A while deciding the issue in para number 5.4.3 has relied upon the decision of the coordinate bench and granted relief to the assessee. The learned departmental representative could not point out any infirmity in the order of the learned CIT – A. In view of this ground number 2 of the appeal of the AO is dismissed.
17. Accordingly, appeal of the learned assessing officer is dismissed.
Order pronounced in the open court on 05/09/2019.