Mahesh Chand Jain, Gurgaon vs Assessee

Assessee by : Sh. Satyam Sethi & Sh. A.T. Panda, Advocates Department by : Sh. P. Dam Kanunjha, Sr. DR.

Date of Hearing : 25-3-2015 Date of Order : 27-3-2015

ORDER

PER H.S. SIDHU : JM The Assessee has filed the present appeal against the

impugned order dated 18/10/2011 passed by the Commissioner of

Income Tax (Appeals)-XXVI, New Delhi pertaining to the assessment

year 2008-09.

2. The following grounds have been raised in the Assessee's

appeal.

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ITA NO. 203/DEL/2012

"1. That on the facts and circumstances of the case and in

law, the Commissioner of Income-tax (Appeals)-XXVI, New

Delhi [briefly "the CIT(A)"] has erred in upholding the

assessment of total income at Rs.22,44,5701-. The assessee

denies his liability to be assessed at the income

ofRs.22,44,570/-.

2. That on the facts and circumstances of the case and in

law, the CIT(A) has erred in holding that long term capital gain

on sale of plot No.65-B, Roop Nagar Industrial Estate loni (UP)

was rightly computed at Rs.17, 73,417/-.

3. That on the facts and circumstances of the case and in

law, the CIT(A) has erred in not appreciating that value

determined by the AVO of plot No.65-B, Roop Nagar Industrial

Estate loni (UP), which was a tenanted property and was sold

to the person who was in actual control & possession thereof

was not properly an correctly determined.

4. That on the facts and circumstances of the case and in

law, the value of plot No.65-B, Roop Nagar Industrial Estate

loni (UP) determined at Rs.28,24,100/- did not represent fair

market value more so because it was a case of distress sale.

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ITA NO. 203/DEL/2012

5. That on the facts and circumstances of the case and in

law, the CIT(A) has erred in not considering the submissions in

proper perspective.

That the Assessee craves leave to add, alter, amend or

vary any of the ground either at or before the hearing of the

appeal."

3. The brief facts of the case are that the assessee filed his return

of income on 27.09.2008/ declaring a total income of Rs. 4,71,150/-.

The case was processed u/s 143(1) and subsequently was selected

for scrutiny on the basis of the receipt of AIR information. Thereafter

notice u/s 143(2) was issued on 13.08.2009 through speed post. In

response to the same the AR of the assessee attended the

proceedings and filed the details. According to the AIR information/

the assessee sold an immovable property at Rs.31,32,000/- and the

same made available to the assessee by the Assessing Officer. On

perusal of the sale deed furnished by the AR during the course of

the assessment proceedings/ it was observed by the Assessing

Officer that the assessee sold the property at Rs.10,25,000/-

whereas according to the Govt. circle the value of rate the property

was Rs.38,56,000/-. After taking into consideration the sale value at

Rs.10,25,000/-the assessee in his computation calculated a capital

loss at Rs.25,683/-. Therefore, the Assessing Officer considered the

3 ITA NO. 203/DEL/2012

sale value at Rs.38,56,000/- in concurrence to the provisions laid in

section 50C of the IT Act/ 1961. In compliance to the request made

by the A.O. vide letter dated 02.08.2010 the Assessing Officer

referred the property to the AVO, Meerut vide letter dated

09.08.2010/ u/s 50C(2) to determine the fair market value of the

property. Vide report dated 13.12.2010, the AVO determined the fair

market value of the property in question at Rs.28,24,100/-

.Thereafter on 16.12.2010/ the copy of the valuation report was

forwarded to the assessee to offer his objections/comments. Vide

letter dated 20.12.2010, the assessee did not accept the AVO's

valuation of property at Rs.28,24,100/- and raised certain objections

mainly on two grounds/ firstly it was on the ground that the AVO

adopted a detailed measurement method instead of rent

capitalization method and secondly, the property was sold in

distress. These objections were reproduced by the A.O. in the

assessment order dated 28.12.2010. The objections raised by the

assessee were considered and vide letter dated 20.12.2010 the

Assessing Officer rejected the same. In the same letter, the A.O.

show caused the assessee as to why the proposed valuation of

Rs.28,24,100/- should not be taken as sale consideration for

calculating the capital gains. Through the assessee appeared on

22.12.2010, no reply to the said shown cause was forwarded to the

Assessing Officer. Therefore, as the issue is within the ambit of

4 ITA NO. 203/DEL/2012

section 50C and on request of the assessee u/s. 50C(2), the

Assessing Officer referred the property to the AVO and adopted the

value reported by the AVO for calculation of capital gains rather

than adopting the value of stamp valuation Authority and re-

computed the long term capital gains resulting in an addition of

Rs.17,73,417/- (AVO'S Valuation of property at Rs.28,24,100/- minus

Index cost of acquisition as given by the assessee) as against

Rs.4,71,150/.

4. Aggrieved by the aforesaid assessment order, the assessee

preferred an appeal before the Ld. CIT(A), who vide impugned

order dated 18.10.2011 has dismissed the appeal of the assessee.

5. Against the order dated 18.10.2011 of the Ld. CIT(A) assessee

is in appeal before the Tribunal.

6. Ld. Counsel of the assessee has reiterated the grounds of

appeal and stated that it is res-integra that rent capitalization

method is one of the recognized methods of valuing immovable

property. Valuation of property is an issue that is relevant not only

for the purposes of computation of capital gain but also for the

purposes of levy of wealth tax, compulsory acquisition of property

and pre-emptive purchase of properties. He also stated that the

Hon'ble Jurisdictional High court in the case of CIT vs. New India

Construction Co. (1980) 123 ITR 68 has considered the issue of

5 ITA NO. 203/DEL/2012

appropriate method of valuation in case of tenanted property. In

this case, transferor sold a first floor of a building situated in

Connaught Place which was in the occupation of three tenants for

the sum of Rs. 2,20,000/-. The transferee was also given right to

effect construction above the first floor. After the sale, the

transferee obtained vacant possession for tenant by paying certain

amount to each of the tenant and also got the user of property

converted from residential to commercial. Based upon the report of

Valuation Officer, who on the basis of land and building method

determined the fair market value at Rs. 11,41,900/-, acquisition

proceeding under section 269C were initiated. On appeal, the

Tribunal quashed the acquisition observing that a building with

vacant possession and a building with tenants were two different

things altogether. Upholding the order of the Tribunal, the Hon'ble

Court has observed that :-

"The fair market value of the property on the basis of

cost of land and building method would have been

relevant if it was self occupied by the transferor and he

was in a position to hand over the vacant possession

thereof to the transferee."

6.1 Ld. Counsel of the assessee further submitted that the present

issue in dispute is covered by the Jurisdictional High Court decision

6 ITA NO. 203/DEL/2012

as aforesaid and hence, the present case may be decided on the

similar lines. He also submitted that the reason that for rent

capitalization method to be applied, a small proportion of the

property must be self occupied is devoid of any merit. He also

stated that in the case of CIT vs. New India Construction (Supra) it

was held that where rent capitalization method was adopted to

value the respective properties, the premises were fully tenanted.

Therefore, the conclusion of the Valuation Officer that has been

endorsed by the AO that for rent capitalization method can be

applied where small proportion of the property is self occupied is

against the legal possession because the method has regularly been

applied to fully tenanted premises.

7. On the contrary, Ld. DR has relied upon the order of the

authorities below and requested that the same may be upheld.

8. We have heard both parties and perused the relevant record

available with us especially the orders of the revenue authorities.

We find that in this case according to the AIR information/ the

assessee sold an immovable property at Rs.31,32,000/- and the

same made available to the assessee by the Assessing Officer. On

perusal of the sale deed furnished by the AR during the course of

the assessment proceedings/ it was observed by the Assessing

Officer that the assessee sold the property at Rs.10,25,000/-

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ITA NO. 203/DEL/2012

whereas according to the Govt. circle the value of rate the property

was Rs.38,56,000/-. After taking into consideration the sale value at

Rs.10,25,000/-the assessee in his computation calculated a capital

loss at Rs.25,683/-. Therefore, the Assessing Officer considered the

sale value at Rs.38,56,000/- in concurrence to the provisions laid in

section 50C of the IT Act/ 1961. In compliance to the request made

by the A.O. vide letter dated 02.08.2010 the Assessing Officer

referred the property to the AVO, Meerut vide letter dated

09.08.2010/ u/s 50C(2) to determine the fair market value of the

property. Vide report dated 13.12.2010, the AVO determined the fair

market value of the property in question at Rs.28,24,100/-

.Thereafter on 16.12.2010/ the copy of the valuation report was

forwarded to the assessee to offer his objections/comments. Vide

letter dated 20.12.2010, the assessee did not accept the AVO's

valuation of property at Rs.28,24,100/- and raised certain objections

mainly on two grounds/ firstly it was on the ground that the AVO

adopted a detailed measurement method instead of rent

capitalization method and secondly, the property was sold in

distress. These objections were reproduced by the A.O. in the

assessment order dated 28.12.2010. The objections raised by the

assessee were considered and vide letter dated 20.12.2010 the

Assessing Officer rejected the same. In the same letter, the A.O.

show caused the assessee as to why the proposed valuation of

8 ITA NO. 203/DEL/2012

Rs.28,24,100/- should not be taken as sale consideration for

calculating the capital gains. Through the assessee appeared on

22.12.2010, no reply to the said shown cause was forwarded to the

Assessing Officer. Therefore, as the issue is within the ambit of

section 50C and on request of the assessee u/s. 50C(2), the

Assessing Officer referred the property to the AVO and adopted the

value reported by the AVO for calculation of capital gains rather

than adopting the value of stamp valuation Authority and re-

computed the long term capital gains resulting in an addition of

Rs.17,73,417/- (AVO'S Valuation of property at Rs.28,24,100/- minus

Index cost of acquisition as given by the assessee) as against

Rs.4,71,150/. Thereafter, on appeal before the Ld. CIT(A), who vide

his order 18.10.2011 has confirmed the order of the AO and

dismissed the appeal of the assessee. During the hearing before

us, Ld. Counsel of the assessee has filed a Paper Bok containing the

various decision of the Hon'ble High Courts, especially the

Jurisdictional High Court in the case of CIT vs. New India

Construction Co. (1980) 123 ITR 68 (Del.) and stated that the

present case may be decided in accordance with the decision of the

Hon'ble Jurisdictional High Court in the case of CIT vs. New India

Construction Co. (Supra), as the facts and circumstance of the

present case are similar to that case. We have perused the

judgment of the Hon'ble Jurisdictional High Court in the case of CIT

9 ITA NO. 203/DEL/2012

vs. New India Construction Co. (Supra), and therefore, we are of the

view that in the interest of justice, the present issues in dispute are

required thorough examination at the level of the Assessing Officer,

hence, we quash the order of the Ld. CIT(A) and remit back the

issues in dispute, to the file of the Assessing Officer, with the

direction to decide the present issues in dispute, in accordance with

the aforesaid directions of the Hon'ble Jurisdictional High Court

delivered in the case of CIT vs. New India Construction Co. (1980)

123 ITR 68 (Del.), after giving adequate opportunity of being heard

to the assessee.

9. In the result, the Appeal filed by the assessee stands allowed for statistical purposes.

Order pronounced in the Open Court on 27/3/2015.

Sd/- Sd/-

[N.K. SAINI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date 27/3/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Assessee-

2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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