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  • section 143(3) of the IT Act, 1961 (hereinafter referred to as the Act)
  • INCOME TAX ACT 1961
  • acquisition u/s 55(2) of Income Tax Act, 1961
  • provisions contained in section 55(2)
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
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Acts
  • section 143(3) of the IT Act, 1961 (hereinafter referred to as the Act)
  • INCOME TAX ACT 1961
  • acquisition u/s 55(2) of Income Tax Act, 1961
  • provisions contained in section 55(2)
Smart Summary

Structured Summary of the Tribunal Order (Judicial Member: Kul Bharat)

Factual and Procedural Background

The assessee filed a return of income on 30.07.2010 declaring total income of Rs. 1,61,66,940/-. The case was selected for scrutiny and assessment under section 143(3) of the Income Tax Act, 1961 was completed by order dated 28.02.2013. The Assessing Officer (AO) made additions relating to Long Term Capital Gain (LTCG) and income from other sources, computing total income at Rs. 2,51,28,890/-. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeal. The assessee then filed the present appeal to the Tribunal raising four grounds, all relating to the computation of capital gains for assessment year 2010-11.

Legal Issues Presented

  1. Whether the CIT(A) erred in confirming the AO's computation of Long Term Capital Gain at Rs. 2,43,18,412/- instead of the assessee's declared Long Term Gain of Rs. 1,53,56,462/-.
  2. Whether the provisions of section 50C of the Income Tax Act, 1961 were rightly applied by adopting sale consideration at Rs. 6,12,70,120/- instead of the registered sale consideration of Rs. 6,00,00,000/-.
  3. Whether indexation should have been allowed on Rs. 13,97,120/- paid for acquiring possession of a strip of land for computing LTCG.
  4. Whether the Fair Market Value (FMV) of the asset as on 01.04.1981 ought to be taken as cost of acquisition under section 55(2) of the Act for computing Long Term Capital Gains.

Arguments of the Parties

Assessee's Arguments

  • Ground 2 (sale consideration): The difference between the registered sale consideration (Rs. 6,00,00,000/-) and the value adopted by the Stamp Valuation Authority (Rs. 6,12,70,120/-) was Rs. 12,70,120/-, i.e., 2.11%, which is within tolerable variation. The assessee relied on the Hon'ble Supreme Court decision in C.B. Gautam v. Union of India and on the Coordinate Bench decision in Rahul Construction v. Dy. CIT to argue that no addition should be made when variation is within recognized tolerable limits.
  • Ground 3 (indexation on strip): The assessee contended that the strip of land (83.35 sq. yard) was in its possession since the original purchase and was regularized by Jaipur Nagar Nigam in January 2008. The assessee claimed ownership (including by reference to the Theory of Adverse Possession) from the time of original purchase and relied on Karnataka Board of Wakf v. Govt. of India [2004] 10 SCC 779 to support the contention that possession established ownership; therefore indexation from an earlier date (01.04.1981) should be allowed.
  • Ground 4 (FMV as on 01.04.1981): During assessment proceedings the assessee submitted a letter dated 07.02.2013 conveying FMV on 01.04.1981 at Rs. 110/- per sq. yard supported by a registered sale deed of a nearby area. The assessee argued that the AO was obliged to consider the FMV because the option was exercised before completion of assessment and that FMV should be determined by reference to comparable contemporary instances. The assessee relied on Asstt. CIT v. Rupam Impex [2016] 66 taxmann.com 181 (Trib.) in support of the proposition that income/tax computation must follow the law in force.

Revenue's Arguments

  • Ground 2: The Departmental Representative opposed the assessee's submission that the declared sale consideration should be accepted.
  • Ground 3: The Departmental Representative contended that the strip of land was allotted in 2008, and ownership should be reckoned from that date; the assessee produced no material to show legal ownership prior to regularization by Nagar Nigam or any judicial declaration of ownership by adverse possession. Therefore, the assessee's claim lacked merit.
  • Ground 4: The Departmental Representative submitted that the assessee herself had adopted a value earlier and could not now claim a different position; the CIT(A)'s finding of fact against the assessee was not rebutted by any material.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
C.B. Gautam v. Union of India [1993] 199 ITR 530 / [1992] 65 Taxman 440 (Hon'ble Supreme Court) Recognized a tolerable limit (as referenced by the assessee) for variation between declared sale consideration and valuation (the assessee asserted 15% as recognized by this authority). The assessee relied upon the decision; the Tribunal considered this principle in the context of tolerable variation but ultimately followed the Coordinate Bench's approach (see Rahul Construction) in concluding that the small percentage difference did not justify substitution of the assessee's sale consideration.
Rahul Construction v. Dy. CIT (ITA No. 1543/PN/2007, dated 12-01-2010) (Coordinate Bench) Held that where the difference between the figure shown by the assessee and valuation by Departmental Valuer (DVO) was less than a threshold (in the reported passage less than 10%), the difference may be ignored and the AO should not substitute the assessee's figure. The Tribunal respectfully followed this Coordinate Bench decision and directed the AO to adopt the value declared by the assessee because the difference between the Stamp Valuation Authority's figure and the assessee's declared sale consideration was less than 10% in the present case.
Asstt. CIT v. Harpreet Hotels (P) Ltd. (ITA Nos. 1156-1160/Pn/2000) (Pune Bench of the Tribunal) Referenced by Rahul Construction as an instance where the Tribunal dismissed Revenue's appeal because the difference between assessee and DVO was small (about 10%). Used within the Rahul Construction reasoning (quoted in the order) to support the principle that small valuation differences do not justify substituting the assessee's declared value; relied upon indirectly by the Tribunal in allowing the assessee's ground on sale consideration.
ITO v. Kaaddu Jayghosh Appasaheb (ITA No. 441/Pn/2004) Held (as cited in Rahul Construction) that when the margin between the assessee's value and the Departmental valuer's value was less than 10%, the difference could be ignored. Part of the cluster of authorities relied upon by the Coordinate Bench in Rahul Construction which the Tribunal followed in directing adoption of the assessee's declared sale consideration.
Honest Group of Hotels (P) Ltd. v. CIT (2002) 177 CTR (J&K) 232 (J&K High Court) Referred to in Rahul Construction and other tribunal decisions concerning tolerable valuation differences between assessee and Departmental valuations. Referenced within the Rahul Construction passage; indirectly supported the Tribunal's conclusion on accepting the assessee's declared sale consideration where the difference was small.
Karnataka Board of Wakf v. Govt. of India [2004] 10 SCC 779 (Hon'ble Supreme Court) Relied upon by the assessee in support of the contention that possession (and principles like adverse possession) can be determinative of ownership for certain purposes. The assessee placed reliance on this decision to assert ownership of the strip of land by reason of long possession; the Tribunal nonetheless found that the assessee produced no material evidence to establish ownership prior to allotment/regularization and therefore dismissed the claim related to indexation on the strip.
Asstt. CIT v. Rupam Impex [2016] 66 taxmann.com 181 (Rjt. - Trib.) Invoked by the assessee for the proposition that tax computation must be carried out according to law in force (and implying FMV-based computation where applicable). The assessee relied on this decision to argue for adoption of FMV as on 01.04.1981; the Tribunal acknowledged the submission but, on the facts, directed recomputation by the AO after ascertaining FMV for 01.04.1981 for the portion other than the strip (i.e., allowed the ground in part for statistical purposes).

Court's Reasoning and Analysis

The Tribunal considered each ground relating to computation of capital gains and applied the authorities and facts as follows.

Ground No. 2 — Sale Consideration and Section 50C

  • Fact: Difference between Stamp Valuation Authority value (Rs. 6,12,70,120/-) and the registered sale consideration declared by the assessee (Rs. 6,00,00,000/-) was Rs. 12,70,120/- (2.11%).
  • Legal lens: The assessee relied on C.B. Gautam and Tribunal/Coordinate Bench decisions (e.g., Rahul Construction) recognizing a tolerable variation threshold in valuation disputes.
  • Application: The Tribunal quoted and followed the Coordinate Bench's reasoning in Rahul Construction (which also referred to other Tribunal and High Court decisions indicating that small disparities — often cited as less than 10% — should be ignored because valuation involves estimation).
  • Conclusion: Because the difference was less than 10%, and in view of the quoted coordinate bench authority, the Tribunal directed the AO to adopt the sale consideration declared by the assessee. The ground was allowed.

Ground No. 3 — Indexation on Rs. 13,97,120/- (Strip of Land)

  • Fact: The strip of land (83.35 sq. yard) was regularized in January 2008. The assessee claimed possession since original purchase and sought indexation from 01.04.1981.
  • Assessee's claim: Possession and absence of intrusion/claims, reliance on adverse possession theory and Karnataka Board of Wakf decision to support ownership from earlier date.
  • Revenue's rebuttal: The land was allotted in 2008; no material showing legal ownership prior to regularization; no evidence of declaration of ownership by adverse possession.
  • Assessment of evidence: On specific query, the assessee could not produce material proving ownership prior to allotment. No evidence was produced to establish adverse possession. Contrary evidence existed on record.
  • Conclusion: The Tribunal found the authorities below were correct in rejecting the indexation claim for the strip; absent evidence, it would not interfere. This ground was dismissed.

Ground No. 4 — Fair Market Value as on 01.04.1981 under section 55(2)

  • Fact: The assessee did not consider FMV as on 01.04.1981 in the return but during assessment filed a letter dated 07.02.2013 claiming FMV at Rs. 110/- per sq. yard and produced a registered sale deed of nearby area with calculations supporting that rate.
  • Assessee's position: The option to adopt FMV was exercised before completion of assessment; FMV should be determined by reference to comparable sales; reliance placed on Rupam Impex.
  • Revenue's position: The assessee had adopted a different value earlier and had not rebutted the finding of fact recorded by CIT(A).
  • Tribunal's findings: The AO had adopted indexed cost of acquisition values (Rs. 4,31,940/- for the main land and Rs. 13,97,120/- for the strip). Because the strip's indexation claim was already rejected (Ground 3), the Tribunal did not interfere with the CIT(A)'s finding on the strip. For the remaining portion, the Tribunal found merit in the assessee's contention that FMV can be adopted on the basis of comparable sale instances and recorded the assessee had submitted a working and a registered sale deed supporting FMV at Rs. 110/- per sq. yard.
  • Directive: The Tribunal directed the AO to re-compute the cost of acquisition after ascertaining the FMV of the property as on 01.04.1981 for the portion excluding the strip of land purchased in 2008. The allowance of this ground was stated to be "for statistical purposes."

Holding and Implications

Holding: The appeal is PARTLY ALLOWED.

Direct consequences for the parties

  • On Ground No. 2 (sale consideration / section 50C): The Tribunal directed the AO to adopt the sale consideration as declared by the assessee (i.e., the registered sale consideration) because the difference with the Stamp Valuation Authority's valuation was less than the threshold applied by coordinating authorities; this ground was allowed.
  • On Ground No. 3 (indexation of Rs. 13,97,120/- for the strip): The Tribunal dismissed the claim; indexation was not allowed because the assessee failed to prove ownership prior to regularization/allotment and did not establish adverse possession as a matter of record.
  • On Ground No. 4 (FMV as on 01.04.1981 under section 55(2)): The Tribunal directed the AO to re-compute the cost of acquisition for the portion other than the strip by ascertaining FMV as on 01.04.1981 (the ground was allowed for statistical purposes). The Tribunal did not disturb the CIT(A)'s finding in respect of the strip (already decided under Ground 3).
  • Overall result: Appeal is partly allowed — certain computations to be redone by the AO in accordance with the directions provided by the Tribunal.

Broader implications

The order applies the reasoning of Coordinate Bench authorities on tolerable valuation differences and reiterates that (i) small valuation disparities between an assessee's declared consideration and departmental valuation may be ignored in appropriate cases, and (ii) factual claims (such as ownership or adverse possession) must be supported by material evidence to succeed. The Tribunal did not purport to lay down any novel legal principle beyond following and applying existing authorities; it confined itself to directing recomputation and upholding or dismissing grounds based on the factual matrix and precedent cited.

Result recorded in the original order: "In the result, appeal of the assessee is partly allowed."

    Sita Bai Khetan v. Ito

    ORDER

    Kul Bharat, Judicial Member - The appeal by the assessee is directed against the order of ld. CIT (A)-I, Jaipur dated 30.08.2013 pertaining to assessment year 2010-11. The assessee has raised the following grounds of appeal :—

  • 1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in computing the Long Term Capital Gain at Rs. 2,43,18,412/- against the declared Long Term Gain of Rs. 1,53,56,462/-. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by assessing the Long Term Capital Gain at Rs. 1,53,56,462/- only as declared by the assessee.
  • 2. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in applying the provisions of Section 50C of the IT Act 1961 and adopting the sale consideration at Rs. 6,12,70,120/- against the actual sale consideration of Rs. 6,00,00,000/-. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by taking the sale consideration at Rs. 6,00,00,000/- for computing the Capital Gains.
  • 3. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in not allowing indexation on the amount of Rs. 13.97,120/- paid for acquiring possession of strip of land for computing the long term capital gain. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing appropriate indexation of Rs. 13,97,120/- for computing the Long Term Capital Gain as claimed by the assessee.
  • 4. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in not taking the Fair Market Value of the asset as on 1.4.1981 as cost of acquisition u/s 55(2) of Income Tax Act, 1961 for the purpose of computing the Lon Term Capital Gains. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by taking the Fair Market Value of the asset as on 1.4.1981 as cost of acquisition for computing the Long Term Capital Gains.
  • 2. Briefly stated the facts are that the assessee filed return of income on 30.07.2010 declaring total income of Rs. 1,61,66,940/-. The case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the IT Act, 1961 (hereinafter referred to as the Act) was framed vide order dated 28th February, 2013. While framing the assessment, the AO made addition on account of Long Term Capital Gain and income from other sources. He computed the total income at Rs. 2,51,28,890/-. The assessee aggrieved by this order, preferred an appeal before ld. CIT (A), who after considering the submissions partly allowed the appeal of the assessee.

    3. All these grounds raised in this appeal are related to computation of capital gain by the AO.

    4. Ground No. 2 is with regard to adopting the sale consideration at Rs 6,12,70,120/- against the actual sale consideration of Rs. 6,00,00,000/- adopted by the assessee. The ld. Counsel for the assessee submitted that the difference between the sale consideration of the property as per registered Sale Deed as against the value adopted by the Stamp Valuation Authority was Rs. 12,70,120/- i.e. 2.11%. Since the difference was within the tolerable limits, which is 15% of variation, as recognized by the Hon'ble Supreme Court in the case of C.B. Gautam v. Union of India [1993] 199 ITR 530/[1992] 65 Taxman 440 , no addition should be made. This decision has been followed by the Coordinate Bench in the case of Rahul construction v. Dy. CIT in ITA No. 1543/PN/2007, dated 12-1-2010.

    4.1 On the contrary, the ld. D/R opposed the submissions of the assessee on this issue.

    4.2 We have heard rival contentions and perused the material available on record. We find that the Hon'ble Coordinate Bench in ITA No. 1543/PN/2007 in the case of Rahul Construction (supra) has held as under :-

    " We find that the Pune Bench of the Tribunal in the case of Asstt. CIT v. Harpreet Hotels (P) Ltd. vide ITA Nos. 1156-1160/Pn/2000 and relied on by the learned counsel for the assessee had dismissed the appeal filed by the Revenue where the CIT (A) had deleted the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10 per cent. Similarly, we find that the Pune Bench of the Tribunal in the case of ITO v. Kaaddu Jayghosh Appasaheb, vide ITA No. 441/Pn/2004 for the asst. yr. 1992-93 and relied on by the learned counsel for the assessee following the decision of the J&K High Court in the case of Honest Group of Hotels (P) Ltd. v. CIT (2002) 177 CTR (J&K) 232 had held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent, the difference is liable to be ignored and the addition made by the AO cannot be sustained.

    Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur, we are of the considered opinion that the AO in the instant case is not justified in substituting the sale consideration at Rs. 20,55,000/- as against the actual sale consideration of Rs. 19,00,000 disclosed by the assessee. We, therefore, set aside the order of the CIT (A) and direct the AO to take Rs. 19,00,000/- only as the sale consideration of the property. The grounds raised by the assessee are accordingly allowed."

    In the instant case, the difference between the valuation adopted by the Stamp Valuation Authority and declared by the assessee is less than 10%. Therefore, respectfully following the decision of the Hon'ble Coordinate Bench, we hereby direct the AO to adopt the value as declared by the assessee. This ground of the assessee is allowed.

    5. Ground No. 3 is against confirming the action of the AO in not allowing indexation on the amount of Rs. 13,97,120/- paid for acquiring possession of strip of land for computing the long term capital gain.

    5.1 The ld. Counsel for the assessee submitted that the strip of land measuring 83.35 sq. yard was in possession of the assessee since purchase of the plot of land. The aforementioned strip of land was regularized by Jaipur Nagar Nigam when assessee applied for sub-division of the plot in January, 2008. As the strip of land was in possession of the assessee for the entire period and no claim of whatsoever nature was made on the said strip of land, even by the Theory of Adverse Possession, the assessee was the real owner of the piece of land since beginning i.e. when the original land was purchased by the assessee. The ld. Counsel for the assessee placed reliance on the judgment of the Hon'ble Supreme Court in the case of Karnataka Board of Wakf v. Govt. of India [2004] 10 SCC 779. Since during the entire period of possession of the strip of land by the assessee, there was no intrusion/claim of whatsoever nature, the assessee was the owner of the strip without doubt. In view of this, when the strip of land was in the ownership of the assessee since beginning, therefore cost has to be allowed as deduction with reference to the date since asset was owned by the assessee.

    5.2 On the contrary, the ld. D/R opposed the submissions and submitted that the piece of land was allotted in the year 2008 so the ownership related to the land should be reckoned from that date and not the date as claimed by the assessee. The assessee has not brought on record any material suggesting that the assessee was the legal owner of the strip of land before the same was regularized by Nagar Nigam or by any court of law. Under these facts, the ground raised is devoid of any merit.

    5.3 We have heard rival contentions, perused the material on record and gone through the orders of the authorities below. The assessee is claiming to be the owner of the land even prior to the allotment made by the concerned authority, thus the assessee is claiming indexation since 01..04.1981. On a pointed query, the assessee could not produce any material suggesting that the ownership of the land in question was transferred to the assessee prior to the date when the land was allotted to the assessee. Even in respect of the Theory of Adverse Possession, the assessee has not placed any material on record that the assessee was declared owner by virtue of Theory of Adverse Possession. In our considered view, for claiming to be the owner of the land, the assessee was required to produce necessary evidences. In the absence of evidence, when contrary evidences are on record, we do not see any reason to interfere with the orders of the authorities below. Therefore, this ground of the assessee's appeal is dismissed.

    6. Ground No. 4 in respect of not taking the Fair Market Value of the asset as on 01.04.1981 as cost of acquisition u/s 55(2) of the Act for the purpose of computing the Long Term Capital Gain.

    6.1 The ld. Counsel for the assessee vehemently argued that the authorities below as not justified in not granting the relief. He submitted that during the course of assessment, the assessee has sought to correct the workings filed for computing the capital gains. In the return filed, fair market value as on 1st April, 1981 in terms of section 55(2) was not considered. During the course of assessment proceedings, letter dated 07.02.2013 was filed conveying the fair market value on 1st April, 1981 @ Rs. 110/- per yard. For evidencing the same, a copy of registered sale deed of the nearby area was also submitted. He submitted that the AO was duty bound to consider the fair market value as the option was exercised by assessee before completion of assessment. The working with regard to adoption of the fair market value of the property as on 01.04.1981 was brought to the notice of ld. CIT (A). The ld. CIT (A) dismissed the claim of the assessee by simply stating that the assessee could not establish the value of the plot as on 01.04.1981 and that the cost of acquisition adopted by the AO was shown by the appellant herself. The ld. Counsel submitted that the ld. CIT (A) has misdirected himself in appreciating the legal provisions contained in section 55(2) wherein Fair Market Value of the property can be replaced as on 01.04.1981. This fair market value has to be determined with reference to comparable contemporary instances of nearby location. The ld. CIT (A) has not given any reason for rejecting the comparable instance. He submitted that before the authorities below, letter dated 1st April, 1981 conveying the rate of Rs. 110/- per sq. yard was submitted. He further submitted that it is a settled law that the income liable to be taxed has to be worked out in accordance with the law as in force. In support of the contention, reliance is placed on the Coordinate Bench decision rendered in the case of Asstt. CIT v. Rupam Impex [2016] 66 taxmann.com 181 (Rjt. - Trib.) .

    6.2 On the contrary, the ld. D/R submitted that the assessee herself has adopted the value and she cannot blow hot and cold at the same time. The ld. CIT (A) has given a finding of fact, which is not rebutted by the assessee by placing any material on record.

    6.3 We have heard rival contentions, perused the material on record and gone through the orders of the authorities below. The AO has adopted the value at indexed cost of acquisition as on 01.04.1981 at Rs. 4,31,940/- and in respect of the strip of land, adopted the indexation cost of acquisition at Rs. 13,97,120/-. So far as the indexed cost of acquisition with regard to the strip of land is concerned, in ground no. 3, we have already decided the matter against the assessee. Therefore, we are not inclined to interfere with the finding of ld. CIT (A) on this issue. The submission of the assessee is rejected.

    6.4 With regard to the other portion of land, it is contended by the assessee that the fair market value ought to have adopted @ Rs. 110/- per sq. yard. The working given by the assessee in respect of Fair Market Value at para 3.2 of his submission are as under :—

    "3.2 Before the lower authorities, letter duly conveying the FMV on 1st April, 1981 @ Rs. 110/- per sq. yard was submitted (PB 17). For evidencing the same, a copy of registered sale deed of the said area was also submitted (PB 18-25). Following facts clearly emerged out of the registered sale deed :

      Date of Registration of Sale deed 31 Oct 81 PB : 18
      Area in which property was located Bani Park PB : 18
      Area of the Plot 370.99 sq. mtr PB : 18
      Sale Value of the Plot Rs. 48,940 PB : 25

    Calculation for arriving at the FMV of Rs. 110 per sq. yard is as under :

      Area (A) Sale consideration (B) Value (B/A)
      370.99 sq. mtr. Rs. 48,940 Rs. 131.92 per sq. mtr
      443.33 sq. mtr. Rs 48,940 Rs. 110.39 per sq. mtr.

    1. Sq. Mtr. Is equal to 1.19599 Sq. Yards "

    We find force in the contention of the ld. Counsel for the assessee that Fair Market Value of the property is to be adopted on the basis of comparable sale instances. Therefore, we hereby direct the AO to re-compute the cost of acquisition on the basis after ascertaining the Fair Market Value of the property with reference to 01.04.1981 excluding the strip of land which was purchased in the year 2008. This ground of the appeal of the assessee is allowed for statistical purposes.

    7. In the result, appeal of the assessee is partly allowed.

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    Comments

    Sita Bai Khetan v. Ito
    (Jul 27, 2016)