Sri Munikoti Simhachalam, Visakhapatnam v. The ACIT, Circle-1(1), Visakhapatnam

ITA NO 296 OF 09 MUNIKOTI SIMHACHALAM VIZAG PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.296/VIZAG/2009 ASSESSMENT YEAR: 2004 - 05 MUNIKOTI SIMHACHALAM VISAKHAPATNAM VS. ACIT CIRCLE-1(1) VISAKHAPATNAM (APPELLANT) PAN NO: ARWPM 3170 C (RESPONDENT) APPELLANT BY: SHRI C. KAMESWARA RAO CA RESPONDENT BY: SHRI R.K. SINGH SR. DR ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.04.2009 PASSED BY LEARNED CIT(A) VISAKHAPATNAM AND IT RELATES TO THE ASSESSMENT YEAR 2004-05. 2. FOLLOWING THREE ISSUES ARE CONTESTED BY THE ASSE SSEE IN THIS APPEAL. I) DETERMINATION OF SALE VALUE OF LAND TRANSFERRED TO BUILDER. II) DEDUCTION OF INDEXED COST OF BUILDING III) DEDUCTION UNDER SECTION 54 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE HAD PURCHASED A PLOT ADMEASURING 900 SQ. YARDS LOCATED AT AKKAYAPALEM VISAKHAPATNAM IN THE YEAR 1967 FOR A CONSIDERATION OF RS.4000/- O WHICH IT WAS CLAIMED THAT A TILED HOUSE HAVING A PLINTH AREA OF 6000 SQ. FEET WAS CONSTRUCTED IN THE YEAR 1969. THE ASSESSEE ENTERE D INTO A DEVELOPMENT ITA NO 296 OF 09 MUNIKOTI SIMHACHALAM VIZAG PAGE 2 OF 6 AGREEMENT WITH A BUILDER NAMED M/S PBR CONSTRUCTION S ON 26.4.2002 AND AS PER THE SAID AGREEMENT THE DEVELOPER WOULD CONST RUCT HOUSING FLATS ON THE ENTIRE PLOT. THE ASSESSEE AND THE DEVELOPER WO ULD BE HAVING RIGHT OVER THE PLOT AND BUILT UP AREA AT 40% AND 60% RESPECTI VELY I.E. THE ASSESSEE WOULD CONTINUE TO BE THE OWNER OF UNDIVIDED 360 SQ. YARDS AND THE DEVELOPER WOULD BE ENTITLED TO SELL 540 SQ. FT. OF UNDIVIDED SHARE TO THE PROSPECTIVE BUYERS OF THE FLATS. IN CONSIDERATION OF ALIENATING 540 SQ. YARDS THE ASSESSEE OBTAINED SIX FLATS HAVING AGGRE GATE CONSTRUCTED AREA OF 6300 SQ. FT. THE ASSESSEE OFFERED THE CAPITAL GAIN ON SALE OF 540 SQ. FT DURING THE YEAR UNDER CONSIDERATION. FOR THAT PURP OSE THE ASSESSEE DETERMINED THE SALE VALUE OF PLOT AS EQUIVALENT TO THE SALE VALUE OF SIX FLATS (EXCLUDING THE COST OF SITE) WHICH HE OBTAINED ON EXCHANGE OF THE 60% OF THE PLOT. THE SALE PRICE OF FLAT INCLUDING THE COS T OF SITE WAS RS.492/- PER SQ.FT WHERE AS IT WAS RS.366.66 EXCLUDING THE SIT E VALUE. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT SALE VALUE S HOULD BE DETERMINED BY TAKING THE COST OF FLATS AT RS.492/- PER SQ. FT.(I. E. THE SALE VALUE WHICH INCLUDES THE COST OF SITE) AND ACCORDINGLY DETERMIN ED THE SALE CONSIDERATION. WHILE COMPUTING THE CAPITAL GAIN THE ASSESSEE HAD DEDUCTED THE INDEXED COST OF CONSTRUCTION OF THE BUILDING. THE ASSESSIN G OFFICER DISALLOWED THE SAID CLAIM AS ACCORDING TO HIM THE ASSESSEE HAS FAI LED TO PROVE THE EXISTENCE OF THE BUILDING. FURTHER THE ASSESSEE CLA IMED DEDUCTION UNDER SECTION 54 OF THE ACT FOR THE ENTIRE VALUE OF SIX F LATS. HOWEVER THE ASSESSING OFFICER RESTRICTED THE DEDUCTION TO THE V ALUE OF ONE FLAT ONLY BY FOLLOWING THE DECISION OF SPECIAL BENCH OF ITAT MU MBAI IN THE CASE OF SUSHILA M JHAVERI (107 ITD 327). 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE LEARNED CIT(A). THE FIRST APPELLATE AUTHORITY AFFIRMED THE ORDER OF THE ASSESSING OFFICER (A) IN ADOPTING THE COST OF SIX FLATS AT RS.492/- PER S Q. FT. AND ITA NO 296 OF 09 MUNIKOTI SIMHACHALAM VIZAG PAGE 3 OF 6 (B) IN REJECTING THE CLAIM FOR DEDUCTION OF INDEXED COS T OF CONSTRUCTION OF BUILDING. SINCE THE EXISTENCE OF BUILDING WAS NOT PROVED THE LEARNED CIT(A) ALSO DENIED DEDUCTION UNDER SECTION 54 ALSO. AGGRIEVED BY THE ORDER OF LEARNED CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE DETERMINATION OF THE VALUE OF SIX FLATS RECEIVED BY THE ASSESSEE. THE FACTS REMAIN THAT THE DEVELOPE R HAS AGREED TO DEVELOP THE ENTIRE SITE OF 900 SQ. YARDS. THE ASSESSEE AND THE BUILDER HAVE AGREED TO SHARE THE PLOT AND BUILT UP AREA IN THE RATIO OF 40% AND 60% WHICH MEANS THAT THE ASSESSEE CONTINUES TO BE THE OWNER O F 40% OF 900 SQ. YARDS I.E. UNDIVIDED SHARE OF 360 SQ. YARDS. THE BUILDER WOULD SELL THE PROPORTIONATE SHARE OF 540 SQ. YARDS TO THE PROSPEC TIVE BUYERS. AS PER THE AGREEMENT THE ASSESSEE WOULD GET SIX FLATS IN EXCH ANGE OF 540 SQ. YARDS. ACCORDINGLY THE ASSESSEE GOT SIX FLATS HAVING A BUI LT UP AREA OF 6300 SQ. FT. AND THE UNDIVIDED SITE AREA RELATABLE TO THE SAID S IX FLATS WAS THE 360 SQ. YARD THAT WAS RETAINED BY THE ASSESSEE AS PER THE A GREEMENT. IN THAT CASE THE VALUE OF FLATS HAS TO BE DETERMINED BY AD OPTING THE VALUE RELATABLE TO THE BUILT UP PORTION ONLY. IT IS STATED THAT TH E BUILDER HAS SOLD THE OTHER FLATS AT RS.492/- PER SQ. FT. WHICH INCLUDED THE CO ST OF SITE ALSO. THE COST OF FLAT EXCLUDING THE COST OF SITE WAS RS.366.66 SQ. FT. IN THE INSTANT CASE THERE IS NO REQUIREMENT TO INCLUDE THE COST OF SITE FOR ARRIVING AT THE VALUE OF SIX FLATS FOR THE REASONS DISCUSSED EARLIER. ACCOR DINGLY WE ARE OF THE VIEW THAT THE VALUE OF SIX FLATS SHOULD BE COMPUTED BY A DOPTING THE SALE VALUE AT RS.366.66 I.E. THE VALUE EXCLUDING THE COST OF SIT E. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO COMPUTE THE VALUE AS STATED ABOVE. ITA NO 296 OF 09 MUNIKOTI SIMHACHALAM VIZAG PAGE 4 OF 6 6. THE NEXT ISSUE RELATES TO THE DISPUTE REGARD ING THE DEDUCTION OF INDEXED COST OF BUILDING. ACCORDING TO THE ASSESSE E HE HAD CONSTRUCTED A BUILDING WITH A PLINTH AREA OF 6000 SQ. FT. IN THE YEAR 1969. AS PER THE PROVISIONS OF THE ACT THE ASSESSEE IS ENTITLED TO SUBSTITUTE THE VALUE AS ON 1.4.1981 FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. ACCORDINGLY HE ADOPTED THE VALUE OF BUILDING AS ON 1.4.1981 AT RS. 50/- PER SQ.FT I.E. RS.3.00 LAKHS AND DEDUCTED THE INDEXED COST THERE O F WHILE CALCULATING THE CAPITAL GAIN. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE ASSESSING OFFICER DOUBTED THE EXISTENCE OF BUILDING AND ACCOR DINGLY ASKED THE ASSESSEE TO FURNISH BUILDING PLAN APPROVAL OBTAINED FROM THE MUNICIPAL AUTHORITIES. HOWEVER THE ASSESSEE COULD FILE ONLY A LETTER OBTAINED FROM A NEIGHBOUR IN WHICH IT WAS STATED THAT THE ASSESSEE OWNS A PLOT WITH AN OLD MANDUVA TYPE HOUSE HAVING A PLINTH AREA OF 6000 SQ. FT. AT DOOR NO.45-36-4 AND THE BUILDING WAS CONSTRUCTED IN THE YEAR 1969. IT WAS FURTHER STATED THAT THE OLD BUILDING WAS REMOVED AND AN APARTMENT NAMED GANGA RESIDENCY WAS CONSTRUCTED DURING 2003. THE ASSESSI NG OFFICER DID NOT ACCEPT THE SAID LETTER. FURTHER SINCE THE ASSESSEE COULD NOT PRODUCE A VALID PLAN APPROVAL THE ASSESSING OFFICER REJECTED THE C LAIM FOR DEDUCTION OF INDEXED COST OF BUILDING ALSO. BEFORE THE LEARNED CIT(A) THE ASSESSEE PRODUCED SOME PHOTOGRAPHS OF A BUILDING WHICH DEPIC TED MUNICIPAL DOOR NUMBER 45-36-4. THOUGH THE LEARNED CIT(A) HAS ACCE PTED THE FACT THAT THE EXISTENCE OF BUILDING IS RECORDED IN THE DEVELO PMENT AGREEMENT YET IN THE ABSENCE OF ANY OTHER EVIDENCE IN SUPPORT OF THE SAID CLAIM THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 7. IT IS AN UNDISPUTED FACT THAT THE DEVELOPMENT AGREEMENT ENTERED BETWEEN THE ASSESSEE AND THE BUILDER DOES SPECIFY T HE EXISTENCE OF A BUILDING ON THE SITE. THE NEIGHBOUR OF THE BUILDIN G HAS ALSO CERTIFIED ABOUT THE EXISTENCE OF THE BUILDING AT THAT SITE. THE MO RE IMPORTANT POINT IS THAT ITA NO 296 OF 09 MUNIKOTI SIMHACHALAM VIZAG PAGE 5 OF 6 A DOOR NO.45-36-4 HAS BEEN ALLOTTED AND IT IS A KNO WN FACT THAT DOOR NUMBERS ARE ALLOTTED ONLY TO THE BUILDING STRUCTURE S. THOUGH THE MUNICIPAL PLAN APPROVAL IS AN IMPORTANT PIECE OF EVIDENCE YE T IN OUR VIEW THE EXISTENCE OF THE BUILDING CANNOT BE REJECTED FOR WA NT OF A MUNICIPAL PLAN SINCE THE BUILDING WAS CLAIMED TO HAVE BEEN CONSTRU CTED SEVERAL YEARS BACK. IN ANY CASE FOR THE PURPOSE OF ARRIVING THE CAPITAL GAIN THE VALUE AS ON 1.4.1981 HAS TO BE ADOPTED. HENCE IN OUR VIEW ON E HAS TO DECIDE THE ISSUE OF EXISTENCE OF BUILDING ON THE BASIS OF AVAI LABLE EVIDENCES AND SURROUNDING CIRCUMSTANCES. AS STATED EARLIER THE ASSESSEE HAS PRODUCED A CERTIFICATE FROM A NEIGHBOUR AND THE SAME WAS REJEC TED WITHOUT VERIFICATION. FURTHER A MUNICIPAL DOOR NUMBER HAS BEEN ALLOTTED T O THE BUILDING STRUCTURE. THE DEVELOPMENT AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE BUILDER ALSO STATES ABOUT THE EXISTENCE OF A BUILDI NG. ON A PROPER CONSIDERATION OF THESE EVIDENCES WE ARE OF THE VIE W THAT THERE EXISTED A BUILDING ON THE IMPUGNED SITE. HOWEVER IN OUR VI EW THE ASSESSEE HAS FAILED TO PROVE THAT THE SAID BUILDING WAS HAVING A PLINTH AREA OF 6000 SQ. FT. HENCE WE ARE CONSTRAINED TO ESTIMATE THE COST OF BUILDING AS ON 1.4.1981. ACCORDINGLY WE ESTIMATE THE VALUE OF BUI LDING AS ON 1.4.1981 AT RUPEES ONE LAKH AND IN OUR VIEW THE SAME WOULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO ALLOW THE DEDUCTION OF INDEXED COST OF BUILDING BY TAKING THE VALUE ST ATED ABOVE. 8. THE NEXT ISSUE RELATES TO THE CLAIM FOR DEDU CTION UNDER SECTION 54 OF THE ACT. THE ASSESSEE CLAIMED THE AGGREGATE VALUE OF SIX FLATS AS DEDUCTION UNDER SECTION 54. HOWEVER THE ASSESSING OFFICER RE STRICTED THE DEDUCTION TO THE VALUE OF ONE FLAT. HOWEVER THE LEARNED CIT(A) REJECTED THE CLAIM OF DEDUCTION ITSELF AS HE HAD REJECTED THE CLAIM OF EX ISTENCE OF BUILDING. ITA NO 296 OF 09 MUNIKOTI SIMHACHALAM VIZAG PAGE 6 OF 6 9. IN PARA 7 (SUPRA) WE HAVE ALREADY HELD THAT T HERE EXISTED A BUILDING ON THE IMPUGNED SITE. HENCE THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 54. HOWEVER BY FOLLOWING THE DECISION OF SPECIAL BENCH DECISION IN THE CASE OF SUSHILA M JHAVERI (SUPRA) WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCT THE VALUE OF ONE FLAT UNDER SECTION 54 OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) AND DIRECT TH E ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 54 FOR THE VALUE OF ONE FLAT. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY 201. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:15-02-2011 COPY TO 1 SHRI MUNOKOTI SIMHACHALAM D.NO. 43-5-30 RAILWAY NEW COLONY VISAKHAPATNAM 2 THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-1(1) VISAKHAPATNAM 3 4. THE CIT 1 VISAKHAPATNAM THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM