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In the return filed by the above assessees’, they have claimed cost of acquisition as on 01.04.1981 Rs.231.50 per/sq.ft. for the land and building and computed the capital gains. While making the assessments, the Assessing Officer, inter alia, adopted the cost of acquisition of land at Rs. 11.46 p/sq.ft. based on the sub-registrar’s guideline value and re-worked the indexed cost of acquisition. Further, in respect of cost of the building, the Assessing Officer referred the property to the Valuation Officer and adopted the value determined by the Assistant Valuation Officer and re-worked the indexed cost of acquisition and then determined the long term capital gain in the respective assessee’s hands. Aggrieved, the assessees’ filed appeals before the CIT(A). The CIT(A) dismissed the appeals. Aggrieved against those orders,the assessee is in appeal before Tribunal.

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Section 45 of the Income Tax Act, 1961 – Capital Gain – It is proper to adopt the value of the land and building on the basis of rent capitalisation method as the property was rented out.

Facts: Assessees’ have claimed cost of acquisition as on 01.04.1981 Rs.231.50 per/sq.ft. for the land and building and computed the capital gains. While making the assessments, AO adopted the cost of acquisition of land at Rs. 11.46 p/sq.ft. based on the sub-registrar’s guideline value and re-worked the indexed cost of acquisition. Further, in respect of cost of the building, AO referred the property to the Valuation Officer and adopted the value determined by the Assistant Valuation Officer and re-worked the indexed cost of acquisition and then determined the long term capital gain in the respective assessee’s hands. Aggrieved, the assessees’ filed appeals before the CIT(A). The CIT(A) dismissed the appeals. Being aggrieved, assessee’s went on appeal before Tribunal.

Held, that while computing capital gains, the assessees’ have adopted Rs. 231.50 per sq.ft. as the value of the property as on 01.04.1981 and worked out the indexed cost of acquisition. When AO proposed to assessee the value of the land adopting the value shown by the registration authority and adopt the value of the super structure as per the valuation officer’s report, the assessee submitted that the impugned property was given on rent for Rs. 4,000/- per month with a rental advance of Rs. 2,00,000/- and therefore, it is proper to adopt the value on rent capitalisation method as per the provisions of the Wealth Tax Act. However, the AO did not agree with assessees’ plea and proceeded to compute the capital gains based on the value shown by the stamp authorities and the valuation officer. Assessee pleads that the guideline value does not reflect the market value and by the time the valuation officer went for inspection, the property was already demolished and hence the valuation made by him cannot be considered as a scientific one. On these facts and circumstances of the case, we find merit in the submissions of the assessee. The existence of rental agreement, the receipt of rent and rental advance is not disputed. Therefore,the value of the land and building should be determined on the basis of rent capitalisation method. The assessee has quantified the value at Rs. 8,28,750/-, which may be rounded off to Rs. 10 lakhs. Therefore, we direct the AO to adopt Rs. 10 lakhs towards the cost of acquisition for the land and building as on 01.04.1981 and proceed to determine the cost of indexation accordingly, for the determination of capital gains in the respective assessee’s hand. In the result, each of the assessee’s appeal is treated as partly allowed. – ROSALIN VASANTHI (R.) (SMT.) Vs. ITO [2020] 80 ITR (TRIB) 525 (ITAT-CHENNAI)
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