Ahmedabad Ice & Cold Storage Pvt.Ltd.,, Ahmedabad v. The Income tax Officer,Ward-1(1),, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND BHAVNESH SAINI JUDICIAL MEMBER) ITA NO.403/AHD/2009 [ASSTT. YEAR : 2004-2005] AHMEDABAD ICE & COLD STORAGE PVT. LTD. INDUSTRY HOUSE B/H. NATRAJ THEATRE ASHRAM ROAD AHMEDABAD. VS. ITO WARD-1(1) AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR REVENUE BY : SHRI K. MADHUSUDAN O R D E R PER G.D. AGARWAL VICE-PRESIDENT : THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (A)-VI AHMEDABAD DATED 14.11.2008 ARISING OUT OF THE ORDER OF THE AS SESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. IN THIS APPEAL BY THE ASSESSEE THE FOLLOWING GR OUNDS ARE RAISED: 1. THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON F ACTS IN NOT ADMITTING ADDITIONAL EVIDENCE PLACED BY THE APPELLA NT UNDER RULE 46A OF THE ACT. THD LD.CIT(A) HAS ERRED IN NOT APPRECIATI NG THE CIRCUMSTANCES THAT PREVENTED THE APPELLANT FROM PRODUCING THEN NE CESSARY DOCUMENTARY EVIDENCE AT THE TIME OF THE ASSESSMENT PROCEEDINGS. THE LD.CIT(A) OUGHT TO HAVE ADMITTED THE ADDITIONAL EVI DENCE SINCE NON- ADMISSION OF THE SAME IS IN VIOLATION OF THE PRINCI PLES OF NATURAL JUSTICE. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN CONFIRMING ACTION OF THE AO IN TAKING THE SALE CONSIDERATION O F THE PROPERTY AT RS.1 81 50 600/- ON THE BASIS OF THE REPORT OF THE DVO AND FURTHER IN COMPUTING LONG TERM CAPITAL GAIN ON THE BASIS OF TH E SAID REPORT. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT APPRECIATIN G THE CIRCUMSTANCES SITUATION AND THE LOCATION THAT DETERMINED THE SALE PRICE OF THE PROPERTY. LD. CIT(A) OUGHT TO HAVE ACCEPTED THE SALE CONSIDER ATION OF THE PROPERTY AS PER THE REPORT OF THE GOVERNMENT APPROVED VALUER AND COMPUTATION OF LONG TERM CAPITAL GAIN ON THE BASIS OF THE SAME. ITA NO.403/AHD/2009 -2- 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT ADJUDICATING THE ISSUE OF APPLICABILITY OF THE PROVISIONS OF SEC TION 50C OF THE ACT BUT HAS SIMPLY FORWARDED THE OBJECTIONS RAISED BY THE A PPELLANT TO THE AO AND WITHOUT GIVING ANY INDEPENDENT ADJUDICATION HAS CONFIRMED THE SALE CONSIDERATION COMPUTED BY AO BY APPLYING PROVISIONS OF SECTION 50C OF THE ACT. LD.CIT(A) OUGHT TO HAVE CONSIDERED THE VA RIOUS SUBMISSIONS EVIDENCES AND CASE LAW RELIED UPON BY THE APPELLANT AND QUASHED THE APPLICATION OF PROVISIONS OF SECTION 50C OF THE ACT . 4. LEVY OF INTEREST UNDER SECTION 234B & 234C OF TH E ACT IS NOT JUSTIFIED. 5. INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 3. AT THE TIME OF HEARING BEFORE US NO ARGUMENTS W ERE ADVANCED IN SUPPORT OF GROUND NO.1 THEREFORE WE TREAT THE GROUND NO.1 AS NOT PRESSED AND ACCORDINGLY THE SAME IS REJECTED. THE GROUND NOS.2 AND 3 ARE WITH REGARD TO THE COMPUTATION OF CAPITAL GAIN. 4. THE FACTS OF THE CASE ARE THAT THE DURING THE YE AR UNDER CONSIDERATION THE ASSESSEE SOLD 5567 SQUARE YARDS OF THE LAND SITUATE D AT VILL RAJPUR-HIRPUR TAL. CITY DIST. AHMEDABAD SURVEY NO.9 FP 25 PAIKI. TH E BANAKHAT (AGREEMENT TO SELL) WAS REGISTERED ON 3-11-2003. THE AO WAS OF T HE OPINION THAT THE ASSESSEE HAS UNDERVALUED THE PROPERTY TO AVOID STAMP DUTY AS WELL AS TAX ARISING ON LONG TERM CAPITAL GAIN. HE THEREFORE CONDUCTED THE INQU IRY FROM SUB-REGISTRAR OFFICE AT AHMEDABAD WITH REGARD TO THE PREVAILING PRICE OF THE LAND IN SUCH AREA. THE SUB-REGISTRAR INTIMATED THAT THE PREVAILING PRICE O F THE LAND IN THAT AREA WAS AT RS.3 500/- PER SQUARE METER. ACCORDINGLY FAIR MAR KET VALUE (FMV FOR SHORT) OF THE LAND WAS DETERMINED AT RS.1 62 90 960/- ( 46 54.36 SQ.MT. X 3500 PER SQUARE METER) . THEREAFTER THE AO REFERRED THE MA TTER TO THE DEPARTMENTAL VALUATION OFFICER FOR ASCERTAINING THE FMV OF THE L AND WHO VIDE LETTER DATED 6-12-2006 DETERMINED THE FMV OF THE LAND AT RS.1 81 50 600/-. THE AO ALSO REFERRED TO SECTION 50C OF THE IT ACT AND THEN FINA LLY DETERMINED THE CAPITAL GAIN BY ADOPTING THE SALE CONSIDERATION AT RS.1 81 50 600/-. ON APPEAL THE CIT(A) SUSTAINED THE ORDER OF THE AO HENCE THIS AP PEAL OF THE ASSESSEE. ITA NO.403/AHD/2009 -3- 5. AT THE TIME OF HEARING BEFORE US IT IS STATED B Y THE LEARNED COUNSEL THAT SECTION 50C AS IT STOOD IN THE RELEVANT ASSESSMENT YEAR WOULD BE APPLICABLE ONLY IF THE SALE DEED IS EXECUTED AND ITS VALUE IS ASSESSED FOR THE PURPOSE OF STAMP DUTY; THAT SECTION 50C WAS AMENDED BY FINANCE NO.2 ACT OF 2009 W.E.F. 1-10-2009 AND AFTER THIS AMENDMENT THE VALUE AS ASS ESSABLE FOR THE PURPOSE OF STAMP DUTY CAN ALSO BE APPLIED. THUS IN THE RELEV ANT ASSESSMENT YEAR ONLY IF THE STAMP DUTY AUTHORITY HAS ASSESSED THE VALUE FOR THE PURPOSE OF PAYMENT OF STAMP DUTY THEN ONLY SECTION 50C WOULD BE APPLICABL E. IT IS UNDISPUTED THAT THE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION NO S ALE DEED WAS EXECUTED BUT ONLY AN AGREEMENT TO SELL WAS EXECUTED WHICH WAS RE GISTERED. HE ALSO POINTED OUT THAT THE PROPERTY IS IN A DISPUTED AREA AND AS PER THE GUJARAT PROHIBITION OF TRANSFER OF IMMOVABLE PROPERTY AND PROVISION FOR PR OTECTION OF TENANTS FROM EVICTION FROM PREMISES IN DISTURBED AREAS ACT 1986 (THE DISTURBED AREAS ACT FOR SHORT) PROPERTY IN SUCH AREA CANNOT BE TR ANSFERRED WITHOUT THE PERMISSION OF THE STATE GOVERNMENT. HE ALSO POINTE D OUT THAT ULTIMATELY IN THIS CASE THE DEPUTY COLLECTOR AHMEDABAD HAD REFUSED T HE PERMISSION FOR THE TRANSFER OF THE PROPERTY. THAT THE ASSESSEE HAS OF FERED THE CAPITAL GAIN BECAUSE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE E NTERED INTO AN AGREEMENT TO SELL AND HAS RECEIVED THE SALE CONSIDERATION. IN S UPPORT OF HIS CONTENTION THAT SECTION 50C WOULD NOT BE APPLICABLE WHERE THE SALE DEED IS NOT EXECUTED HE RELIED UPON THE FOLLOWING DECISIONS: I) CARLTON HOTEL P. LTD. VS. ACIT 122 TTJ 515 (LUCK-I TAT) II) NAVNEET KUMAR THAKKAR VS. ITO 110 ITD 525 (JODH) ( SMC); THAT EXCEPT THE DEEMING PROVISION OF SECTION 50C C APITAL GAIN IS TO BE COMPUTED AS PER SECTION 48 OF THE I.T.ACT. AS PER SECTION 48 CAPITAL GAIN SHALL BE COMPUTED ON THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF TRANSFER OF CAPITAL ASSETS. THAT FOR THE PURPOSE OF LEVY OF CAPITAL GAIN FMV OF THE ASSET IS NOT RELEVANT. IT IS NOT THE CA SE OF THE REVENUE THAT THE ASSESSEE RECEIVED ANY AMOUNT OVER AND ABOVE THE SUM OF RS.24 LAKHS AS ITA NO.403/AHD/2009 -4- MENTIONED IN THE BANAKHAT . THAT EVEN WHEN THERE WAS A PROVISION FOR APPLYIN G THE FMV FOR COMPUTING THE CAPITAL GAIN THE HONBLE APEX COURT IN THE CASE OF VARGHESE (K.P.) V. INCOME-TAX OFFICER 131 ITR 597 HAS TAKEN THE VIEW THAT UNLESS THE ASSESSEE HAS RECEIVED SOME AMOUNT OVER A ND ABOVE THE SALE CONSIDERATION SHOWN BY THE ASSESSEE THE CAPITAL TA X CANNOT BE LEVIED ON FMV. HE THEREFORE SUBMITTED THAT THERE WAS NO JUSTIFICAT ION FOR COMPUTING THE CAPITAL GAIN ON THE FMV OF THE LAND. HE ALSO SUBMITTED THA T IN FACT THE FMV OF THE LAND DETERMINED BY THE DVO IS INCORRECT BECAUSE THE LAND IS IN DISTURBED AREA WHERE THE TRANSFER OF THE LAND IS PROHIBITED AS PER THE THE DISTURBED AREAS ACT AND MOREOVER EVEN THE DEPUTY COLLECTOR HAS NOT PER MITTED THE TRANSFER OF THE LAND IN DISPUTED AREA. HE THEREFORE SUBMITTED THAT THE CAPITAL GAINS AS COMPUTED BY THE ASSESSEE MAY BE ACCEPTED. 6. THE LEARNED DR ON THE OTHER HAND STATED THAT T HE AO DID NOT APPLY SECTION 50C BUT HE ONLY REFERRED THE PROVISIONS OF SECTION 50C TO SUPPORT HIS VIEW OF ADOPTING FMV FOR COMPUTING THE CAPITAL GAIN IN RESPECT OF THE SALE OF THE PROPERTY UNDER CONSIDERATION. HE FURTHER SUBMI TTED THAT THE ASSESSEE NOT ONLY EXECUTED THE AGREEMENT TO SELL BUT ALSO HANDED OVER THE POSSESSION OF THE PROPERTY TO THE BUYER AND HAS ALSO GIVEN THE POWER OF ATTORNEY IN FAVOUR OF THE BUYER. THE BUYER HAS CONSTRUCTED THE BUILDING ON T HE ABOVE PLOT OF LAND AND ALSO SOLD THE FLATS IN THE SAID BUILDING. HE FURTH ER SUBMITTED THAT THE SALE CONSIDERATION WAS GROSSLY UNDERVALUED BY THE ASSESS EE AND IN SUCH CIRCUMSTANCES THE AO HAD NO OPTION BUT TO LEVY CAP ITAL GAIN ON THE FMV. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. SECTION 48 PROVIDES THE MODE OF COMPUTATION O F CAPITAL GAIN WHICH READS AS UNDER: THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAIN S' SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPI TAL ASSET THE FOLLOWING AMOUNTS NAMELY:-- ITA NO.403/AHD/2009 -5- (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: 8. FROM THE ABOVE IT IS EVIDENT THAT FOR COMPUTING CAPITAL GAIN FOUR ITEMS WOULD BE RELEVANT VIZ. I) FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUED TO THE ASSESSEE ON THE TRANSFER OF CAPITAL ASSET; II) EXPENDITURE INCURRED IN CONNECTION WITH SUCH TRANSF ER; III) COST OF ACQUISITION OF THE ASSET; IV) COST OF ANY IMPROVEMENT TO THE CAPITAL ASSETS TO DETERMINE THE CAPITAL GAIN FROM THE ITEM NO.(I) ITEM NO.(II) TO (IV) ARE TO BE DEDUCTED. FROM THE ABOVE IT IS EVIDENT THAT FOR D ETERMINING THE CAPITAL GAIN FMV OF THE CAPITAL ASSET IS NOT RELEVANT. IF THE R EVENUE FINDS THAT THE ASSESSEE HAS CLAIMED TO HAVE TRANSFERRED A CAPITAL ASSET AT A PRICE MUCH BELOW THE FMV OF THE LAND THEY CAN MAKE AN INVESTIGATION SO AS T O ASCERTAIN WHETHER THE ASSESSEE HAS RECEIVED ANY AMOUNT OVER AND ABOVE WHA T WAS RECORDED IN THE SALE DEED. UNLESS AND UNTIL THERE IS ANY EVIDENCE OF RE CEIPT OR ACCRUAL OF ANY AMOUNT OVER AND ABOVE THE SALE CONSIDERATION SHOWN IN THE DOCUMENTS THE REVENUE CANNOT LEVY THE CAPITAL GAIN ON THE BASIS O F MARKET VALUE OF THE CAPITAL ASSETS. NOW WE COME TO THE SECTION 50C. SECTION 5 0C AS IT STOOD AT THE RELEVANT TIME READS AS UNDER: (1) WHERE THE CONSIDERATION RECEIVED OR ACCRUING A S A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET BEING L AND OR BUILDING OR BOTH IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY ANY AUTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRE D TO AS THE STAMP VALUATION AUTHORITY) FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER THE VALUE SO ADOPTED OR A SSESSED SHALL FOR THE PURPOSES OF SECTION 48 BE DEEMED TO BE THE FUL L VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF S UCH TRANSFER. 9. FROM THE ABOVE IT IS EVIDENT THAT FOR APPLYING THE SECTION 50C THE AO HAS TO DETERMINE THE FOLLOWING ITEMS: ITA NO.403/AHD/2009 -6- I) CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF TR ANSFER OF CAPITAL ASSETS; II) VALUE ADOPTED OR ASSESSED BY THE STAMP VALUATION AU THORITY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER. IF ITEM NO.2 ABOVE I.E. VALUE OF THE ASSETS FOR THE PURPOSE OF STAMP DUTY IN RESPECT OF SUCH TRANSFER OF THE CAPITAL ASSET IS M ORE THAN THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE TRANSFER OF SUCH A SSETS SECTION 50C WOULD PERMIT THE AO TO ADOPT THE STAMP DUTY VALUATION AS THE VALUE OF CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF SUCH TRANSFER. HOWEVER WHAT IS REQUIRED FOR APPLICABILITY OF SECTION 50C IS THE VALUE ADOPTED OR ASSESSED BY STAMP AUTHORITY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER. THE STAMP VALUATION AUTHORITY WOULD BE REQUIRED TO ADOPT OR ASSESS THE VALUE FOR THE PAYMENT OF STAMP DUTY ONLY WHEN THE DOCUMEN T FOR TRANSFER OF SUCH ASSET IS PRODUCED BEFORE HIM FOR REGISTRATION. IN THE CASE UNDER APPEAL BEFORE US ADMITTEDLY NO SALE DEED WAS EXECUTED AND THEREF ORE NO DOCUMENT WAS PRODUCED BEFORE THE STAMP DUTY AUTHORITY FOR DETERM INATION OF STAMP DUTY IN RESPECT OF SUCH DOCUMNT. THEREFORE IN OUR OPINION SECTION 50C WOULD NOT BE APPLICABLE. THE SAME VIEW IS TAKEN BY VARIOUS BENC HES OF THE ITAT IN THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL AND RE FERRED TO ABOVE. IN VIEW OF THE ABOVE WE ARE OF THE OPINION THAT THERE WAS NO JUSTIFICATION FOR LEVY OF CAPITAL GAIN ON THE BASIS OF THE FMV OF THE LAND. WE THEREFORE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT AND DI RECT THE AO TO COMPUTE THE CAPITAL GAIN BY TAKING THE SALE CONSIDERATION AT RS .24 00 000/- AS MENTIONED IN THE BANAKHAT (AGREEMENT TO SELL). THE GROUND NOS.2 AND 3 OF THE ASSESSEES APPEAL ARE ALLOWED. 10. GROUND NO.4 IS AGAINST CHARGING OF INTEREST UND ER SECTION 234B AND 234C WHICH THE LEARNED COUNSEL FOR THE ASSESSEE ADM ITTED TO BE CONSEQUENTIAL IN NATURE. THE AO IS ACCORDINGLY DIRECTED TO WORK OUT THE IMPUGNED INTEREST ON FINAL DETERMINATION OF THE INCOME AFTER GIVING EFFE CT TO OUR ABOVE ORDER. ITA NO.403/AHD/2009 -7- 11. GROUND NO.5 REGARDING INITIATION OF PENALTY UND ER SECTION 271(1)(C) OF THE ACT IS PREMATURE AT THIS STAGE THE SAME IS ACC ORDINGLY DISMISSED. 12. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH FEBRUARY 2011. SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 04-02-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD