I.T.A. NO.313/JODH/2010

SHRI HARI OM MARATHA AND SHRI N. K. SAINI,JJ. .

For the Appellant : Dr. Deepak Sehgal, CIT, D.R.
For the Respondent : Shri Amit Kothari, Advocate

JUDGEMENT

Per N. K., Saini:- This is an appeal filed by the Department against the order dated 15/03/2010 of CIT(A), Udaipur. The only ground raised in this appeal reads as under:-

"On the fact and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs.75,27,253/- by reducing the value of cost of acquisition without considering the value determined by the valuation officer and other supporting evidences."

2. The facts of the case, in brief, are that the assessee had shown Long Term Capital Gain of Rs.15,02,650/- on sale of land at Shastri Nagar, Jodhpur. The said land was purchased before 01/04/1981, therefore, the assessee opted the valuation as on 01/04/1981 on the basis of report of Shri O. P. Srimali, Approved Valuer, who valued the land as on 01/04/1981 @228/- per sq. ft. The Assessing Officer referred the matter to the DVO who determined the value @Rs.36.42 per sq. ft. The Assessing Officer adopted the said value and determined the Long Term Capital Gain at Rs.75,27,253/-.

3. The assessee carried the matter to the learned CIT(A) who deleted the addition by following the decision of ITAT, Jodhpur Bench in the case of Deen Dayal Rathi, Jodhpur vs. Income Tax Officer -3(4), Jodhpur wherein time gap method i.e. the reverse indexation method was applied.

4. Now the Department is in appeal.

5. The learned counsel for the assessee, at the very outset, stated that the issue under consideration is squarely covered vide order dated 4th April, 2013 in the case of Deen Dayal Rathi, Jodhpur vs. Income Tax Officer - 3(4), Jodhpur in I.T.A. No.108/Jod/2013 for the assessment year 2009- 2010. Copy of the order was furnished which is placed on record.

6. In his rival submissions, the learned D.R. although supported the order of the Assessing Officer but could not controvert the aforesaid contention of the learned counsel for the assessee.

7. After considering the submissions of both the parties and the material on record, it is noticed that the present issue is covered vide aforesaid referred to order dated 4th April, 2013 wherein the relevant findings have been given in para 10 of the said order, which reads as under:

"10. Regarding valuation of FMV as on 1.4.81 we have found that the assessee has declared it on the basis of the report of the Registered Valuer who has determined the value of the building at Rs.20,04,207/- and that of the land at Rs 44,25,600/- totalling to Rs.64,29,807/-. There is no dispute regarding this fact. The registered valuer has focused his report on the undisputed sale price of Rs.4,01,00,000/- (in the month of May, 2008) and by taking FMV of the building consisting of basement, ground floor and first floor, has arrived at a depreciated cost of the Building as on 01.04.1981 of Rs.20,04,207/-, which has also been accepted by the AO. Thus, the then cost of construction has been accepted, as given by the Registered Valuer at Rs.34,63,809/-. From this figure only the Registered Valuer (RV) has arrived at the cost of Rs.20,04,207/- as on 1.4.81 and this has been accepted since the building had been demolished by the purchaser by the time the DVO reached the spot. Thus, as per RV the cost of the land comes to Rs.3,66,36,191/-, at the time of its sale. The registered valuer has adopted the decrease in land rate @7 ½% per annum per square foot and has arrived at its FMV as on 1.4.81 at Rs. 44,25,600/-. The area of the land being 9600 sq. ft (80' x 120'). Thus, the total cost of the property in question comes to Rs.64,30 lakhs. The argument of ld. AR that how the AO can accept one part of RV's report and ignore the other part seems to be not only logical but also justified. There cannot be two divergent views about the same report in respect of land and building. If report regarding one is accepted, the other shall have to be accepted unless there are deriving reasons. In the given case, the demolition of the building cannot be such a factor, which can justify one conclusion. On that basis, the report cannot be accepted in part, and rejected in part. In our considered opinion, this action of the AO is not legally justified. Even as per the backward indexation by taking advantage of CBDT Circular No. 636 dated 31.07.1992 the value of the land as on 1.4.1981 would be around the same as determined by the Registered Valuer. The RV's report is annexed at Assessee's paper Book 26 to 32. He has adopted the land rates at Rs. 10/- per sq. ft. and has further increased the value by 15% for location wise advantage and by 10% on account of it being situated on the 200 Feet Wide Road. Thus, he has taken land value at Rs. 12.5 per sq. ft. The sale rate is Rs. 4000/- per sq. ft. The value of the building given by the Registered Valuer and accepted by the AO comes to Rs.34,63,809/-. This amount is out of total sale consideration of Rs.4,01,00,000/- and gives 8.64% of the total value. The value of land as on 1.4.1981 has been claimed by the assessee at Rs.20,04,207/- but the value of the land has been taken at Rs.1,20,000/- as against claimed at Rs.44,25,600/- by the assessee. Admittedly, as per the DVO's report no DLC rate was available as on 1.4.1981. The report of the RV is supported by the backward indexation computed on the basis of cost inflation index. This method of 'Cost-Inflation Index' was introduced for the computation of the capital gains liable to tax. For this purpose reference can be made to CBDT's circular No. 636 dated 31.08.1992. As a measure to offset the effect of inflation, all appreciation in value of capital assets before 1.4.1974 were excluded from tax. The cut-off date was taken as 1.4.1981. Thus, the appreciation in fair market value of capital asset upto 1.4.1981 was taken as a substitute for actual cost of acquisition to offset the impact of inflation upto that date and this has to be increased by applying cost inflation index as may be notified in the official gazette from time to time. This is a further way to square-up the impact of inflation for the period post 1.4.1981. Explanation (v) of Section 48 defines 'cost inflation index' as under :-

"Cost Inflation Index", in relation to previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the official gazette, specify in this benefit". Likewise, para 35.6 of the Circular No. 636 dated 31.08.1992 reads as under:-

"35.6. for the Financial year 1981-82, Cost Inflation Index is 100 and C.I.T. for each subsequent year would be determined in such a way that 75% of the rise in Consumer Price Index for urban non-manual employees would be reflected in the rise in C.I.J......."

The cost inflation index as on 1.4.1981 was 100 and the corresponding figure relating to A.Y. 2009-10 was 582 which induced 75% of the rise in consumer price index. Therefore if the cost inflation index, which gives a statutory formula for determining the fair market value for purposes of computation of capital gains, if applied backward, will result in maximum amount of capital gains liable to tax at 25% of the full scale consideration. In other words, one can calculate the taxable capital gains on the basis of above statutory formula as under :-

This figure is equivalent to cost index figure of 100 as on 1.4.1981. The fair market value as on 1.4.1981 will have to be further increased by 25% as below:-

51,67,525 x 125 = 64,59,407/- 100

Thus, Rs. 64,59,407/- is the amount of FMV as on 1.4.1981 computed as per the notified cost inflation index, which is mandatory and binding for computation of capital gains.

10. The legal angle from which reference by AO u/s 55 A to DVO has been assailed in as much as that before such reference the AO has not opined that the value so claimed by the assessee is less than the FMV of the capital asset, is also found to hold merit which is also supported by various judicial pronouncements. Following decisions will support our above conclusion:

(i) Hibaben Jayantilal Shah vs ITO (2008) 6 DTR 203 (Guj)
(ii) ITO vs. Smt. Lalitaban B. Kapadia (2008) 3 DTR 28 (Mum).
(iii) Ms. Rubab M. Kazerani vs. JCIT (2005) 97 TTJ 698 (TM) (Mum)
(iv) CIT Vs. Arihant Builders (2008) 6 DTR 185 (Raj.).

Hence, we allow this issue in favour of the assessee."

8. So respectfully following the aforesaid referred to order, which was admitted to be applicable to the facts of the present case by both the parties, we do not see any valid ground to interfere with the findings of the CIT(A). Accordingly, we do not see any merit in this appeal of the Department.

9. In the result, the appeal is dismissed.

(Order pronounced in the open court on 10/07/2013)

Appeal dismissed.