ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur , , IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER . I.T.A.No.216 Vizag 2012 ( Assessment Year: 2009-10) ITO, Ward-1(2), Padarti Venkata Rama Guntur Chandra Rao, Vs. Guntur [PAN: ADKPP6426G] ( Appellant) ( Respondent) Appellant by : Shri M.N. Murthy Naik,DR Respondent by : Shri G.V.N. Hari, AR Date of hearing : 29.07.2016 Date of Pronouncement : 16.09.2016 O R D E R PER G. MANJUNATHA, Accountant Member: This appeal filed by revenue is directed against order of CIT(A), Guntur dated 3.4.2010 and it pertains to assessment year 2009-10. 1 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur 2. brief facts of case are that assessee is individual deriving income from house property and capital gains filed his return of income for assessment year 2009-10 on 17.7.2009 admitting total income of ` 4,81,480 -. return was processed u s 143(1) of Income Tax Act, 1961 (hereinafter called as 'the Act') on 1.12.2010. Subsequently, case has been selected for scrutiny under CASS and accordingly, notice u s 142(1) of Act and 143(2) of Act were issued. In response to notices, authorized representative of assessee appeared from time to time and furnished relevant information. During course of assessment proceedings, A.O. noticed that assessee has sold immovable property and computed long term capital gain. To ascertain correctness of computation of long term capital gain, A.O. issued show cause notice and asked to furnish details of properties and mode of computation of long term capital gain. In response to show cause notice, assessee has filed letter and submitted that he had sold immovable property consisting of land admeasuring 489 sq.yd. along with building consisting of 4 floors measuring 12620 sq.ft. for consideration of ` 1,50,00,000 -. assessee further submitted that he had acquired property by way of partition deed dated 28.5.2007 from his father, in turn his father has acquired property prior to 2 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur 1.4.1981. Since, he had acquired right over property by way of one of mode referred to in section 49(1) of Act, he had adopted fair market value of property as on 1.4.2001 and computed cost of acquisition by applying indexation from 1.4.1981 to ascertain cost of acquisition of property. assessee further submitted that he has obtained certificate from registered valuer, to ascertain fair market value of property as on 1.4.1981 and based on such certificate adopted value and computed long term capital gain by applying indexation as per provisions of section 49(1) of Act and computed long term capital gain of ` 4,81,480 -. 3. A.O., during course of assessment proceedings, to ascertain value of both site and construction as on 1.4.1981, addressed letter to sub registrar, Guntur calling for information u s 133(6) of Act and S.R.O. has furnished fair market value of both land and structure as on 1.4.1981. A.O., on perusal of sale deed dated 30.4.2008, noticed that though sale consideration received as result of transfer of ` 1.5 crores, stamp duty authority have fixed fair market value of property as on date of transfer at ` 1,95,35,000 -, therefore, issued show cause notice and asked to explain why stamp duty value fixed by sub registrar for purpose of determination of stamp duty shall not be adopted as full 3 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur value of consideration received as result of transfer for purpose of computation of long term capital gains. In response to show cause notice, assessee has filed his letter dated 15.12.2011 and stated that he had invested part of sale consideration for purchase of property and claimed exemption u s 54 of Act, however, failed to give any explanation with regard to application of deemed consideration under provisions of section 50C of Act. 4. A.O. after considering explanation of assessee computed long term capital gain by adopting deemed consideration of ` 1,95,35,000 - for purpose of determination of capital gains. While doing so, A.O. observed that assessee has acquired right over property by way of one of mode specified u s 49(1) of Act, accordingly benefit of indexation shall be allowed from date assessee owned asset. In present case on hand, assessee has got right over property by way of partition deed dated 28.5.2007 and accordingly benefit of indexation is available from assessment year 2008-09. As regards fair market value of property, A.O. observed that though assessee has obtained certificate from registered valuer, value adopted by assessee towards cost of acquisition of property as on 1.4.1981 is without any basis. A.O. further held that SRO has furnished certificate, wherein fair 4 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur market value of property as on 1.4.1981 towards site is fixed at ` 150 p.sq.yd. and towards structure with RCC roof was fixed at ` 34.10 p.sq.yd. Since value adopted by assessee is not supported by any valid evidences, rejected cost of acquisition adopted by assessee and adopted SRO value and determined cost of acquisition by applying indexation benefit from assessment year 2008-09 and re-computed long term capital gain of ` 1,89,42,855 -. 5. Aggrieved by assessment order, assessee preferred appeal before CIT(A). Before CIT(A), assessee reiterated submissions made before A.O. assessee further submitted that A.O. was erred in adopting fair market value of property based on SRO certificate which is circle rate fixed for purpose of determining stamp duty payable on transfer of property. assessee further submitted that assessing officer ought to have adopted fair market value given by approved valuer which was duly filed during course of assessment. It is also further submitted that approved valuer s report contains detailed abstract of construction after thorough inspection of said building construction, therefore, there is no reason for A.O. to disbelieve certificate issued by registered valuer to adopt SRO value. As regards indexation benefit, assessee submitted that he had acquired right over 5 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur property by way of one of modes specified in section 49(1) of Act and accordingly applied indexation benefit from year in which asset was held by previous owner. assessee further submitted that he had acquired property by way of partition deed on 28.5.2007 and said property has been acquired by his father prior to 1.4.1981. As per provisions of Act, when assessee got right over property by way of any mode specified u s 49(1) of Act, when asset was acquired by assessee or previous owner before 1.4.1981, then assessee at his option can adopt cost to previous owner or fair market value of property as on 1.4.1981 whichever is higher. In present case on hand, since property was acquired before 1981, he had adopted fair market value of property as on 1.4.1981, based on valuation certificate issued by registered valuer. Therefore, A.O. was not correct in adopting circle rate fixed by stamp duty authorities for purpose of determination of stamp duty to compute cost of acquisition of property. 6. CIT(A) after considering explanations of assessee held that there is some force in contention of assessee with regard to incorporation of cost inflation index with respect to said property as on 1.4.1981 as base year instead of adopting assessment year 2008- 09 as base year erroneously by A.O., since expression held by 6 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur assessee is not defined u s 48 of Act. expression has to be considered as defined under explanation 1(i)(b) of section 2 of Act. object of giving relief to assessee by allowing indexation is with view to offset effect of inflation. CIT(A) further held that as per circular no.636 dated 31.8.1992 issued by CBDT, fair method of allowing relief by way of indexation is to link it to period of holding of asset. said circular further provided that cost of acquisition and cost of improvement has to be inflated to arrive at indexed cost of acquisition and indexed cost of improvement and then deduct same from sale consideration to arrive at long term capital gain. If indexation is linked to period of holding asset and in case of assessee covered u s 49(1) of Act, period of holding of asset has to be determined by including period for which, said asset was held by previous owner, then obviously in arriving at indexation, first year in which said asset was held by previous owner would be first year for which said asset was held by assessee. With these observations, directed A.O. to adopt indexation from year in which asset was held by previous owner or from 1.4.1981, whichever is beneficial to assessee. As regards cost of acquisition of property, CIT(A) held that assessee has adopted cost of acquisition of property as on 1.4.1981, 7 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur based on valuation report issued by approved valuer. assessee has substantiated fair market value of property as on 1.4.1981 with valuer s report, whereas A.O. has adopted SRO value fixed by stamp duty authorities for purpose of determination of stamp duty without any basis, with these observations, directed A.O. to substitute fair market value of property as on 1.4.1981, as per approved valuer s report as against SRO value adopted by A.O. Aggrieved by CIT(A) order, revenue is in appeal before us. 7. Ld. D.R. submitted that Ld. CIT(A) erred in directing A.O. to adopt value of property as on 1.4.1981 as per report of registered valuer as fair market value for determining cost of acquisition in place of value computed by A.O. as per guidance value rates obtained from SRO. Ld. D.R. further submitted that CIT(A) erred in placing reliance on decision of ITAT, Mumbai in case of Pratap M. Indulkar in ITA No.1142 Mum 2010 which dealt with legality of reference to valuation officer u s 55A of Act, which is not relevant to facts of assessee s case. D.R. further submitted that as regards indexed cost of acquisition, CIT(A) erred in directing A.O. to adopt indexation benefit from first year in which asset was held by previous owner which is contrary to specific provisions of 8 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur explanation (iii) to section 48 of Act, where it has provided that indexation should be made from first year in which asset was held by assessee. D.R. further submitted that CIT(A) ought not to have relied on explanation 1(i)(b) to section 2(42A) for construction of expression first year in which asset was held by assessee, as said explanation is solely meant for reckoning period for which asset is held by assessee, for purpose of determining whether asset is short term capital asset or long term capital asset. 8. On other hand, Ld. A.R. for assessee strongly supported order of CIT(A). A.R. further submitted that A.O. was erred in adopting market value of property as fair market value of property as on 1.4.1981, as fair market value of property is much more than SRO value fixed by stamp duty authority for purpose of determination of stamp duty. A.R. further submitted that legislature has expressly drawn distinction between two phrases full value of consideration and fair market value in context of computation of cost of acquisition of property and determination of full value of consideration, as result of transfer of capital asset . A.O. was erred in considering full value of consideration as result of transfer to substitute fair market value of 9 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur property for determining cost of acquisition of property. In support of his argument relied upon decision of Hon ble High Court of Karnataka in case of N. Govindaraju Vs. ITO (2015) 377 ITR 243. As regards indexed cost of acquisition, A.R. submitted that A.O. was erred in applying indexation benefit from date in which asset was held by assessee. As per provisions of section 49(1) of Act, when assessee becomes owner of property by way of inheritance or succession, assessee is eligible for indexation benefit from date when asset was first acquired by previous owner. In present case, assessee got right over property by way of partition deed in year 2007-08, which was acquired by his father before 1.4.1981, therefore, assessee has rightly computed indexation benefit from 1.4.1981. To support his argument relied upon decision of Hon ble High Court of Mumbai in case of CIT Vs. Majula J. Shah (2013) 355 ITR 474. 9. We have heard both parties, perused materials available on record and gone through orders of authorities below. first issue that came up for our consideration is cost of acquisition of property. assessee has adopted cost of acquisition of property as on 1.4.1981 based on certificate of registered valuer. A.O. has determined cost of acquisition of property based on SRO 10 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur value of property fixed by State Government for purpose of determination of stamp duty. A.O. was of opinion that cost of acquisition adopted by assessee based on registered valuer certificate is not in accordance with provisions of section 48 & 49 of Act. According to A.O., when asset is acquired by assessee by way of one of mode specified u s 49(1) of Act, assessee can either adopt cost to previous owner or fair market value of property as on 1.4.1981. According to A.O., fair market value of property as on 1.4.1981 is as per SRO value. 10. It is contention of assessee that he has adopted fair market value of property based on certificate of registered valuer. assessee further contended that A.O. was not correct in applying SRO value as fair market value of property, as SRO value fixed by State Government is not correct market value of property. A.O. was erred in equating with full value of consideration as result of transfer to fair market value of property for purpose of computation of cost of acquisition. We find force in argument of assessee for reason that A.O. was erred in adopting SRO value to substitute fair market value of property for purpose of computation of cost of acquisition of property. Section 48 of Act deals with mode of computation of 11 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur income chargeable under head capital gains and in that context full value of consideration would mean consideration or price received as result of transfer of capital asset. It is different from fair market value of property, which phrase is used in section 45(2) of Act relating to capital gains and section 55(3)(b) in relation to cost of acquisition. 11. legislature has expressly drawn distinction between two phrases full value of consideration and fair market value . former would be price received on transfer of capital asset and later would be price of capital asset would ordinarily petch on sale in open market on relevant date. In present case on hand, assessee has adopted fair market value of property as on 1.4.1981 as cost of acquisition which is based on certificate issued by registered valuer. A.O. without assigning any reasons disbelieved registered valuer s report and adopted SRO value of property for purpose of determination of computation of cost of acquisition, when Act specifically provides powers to A.O. under provisions of section 55(2) of Act, to refer valuation of property to valuation officer, when he is of opinion that fair market value of property adopted by assessee is higher than fair market value of property. A.O., without exercising option of referring 12 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur matter to valuation officer, simply adopted SRO value which is fixed in different context to determine cost of acquisition of property. Therefore, we are of opinion that A.O. was erred in adopting SRO value to substitute fair market value adopted by assessee, which is based on registered valuer certificate. 12. Now it is pertinent to discuss here case law relied upon by assessee. assessee has relied upon decision of Hon ble Karnataka High Court in case of N. Govindaraju Vs. ITO & Anr. 377 ITR 243, wherein Hon ble High Court under similar circumstances held as under: Section 48 of Act deals with 'Mode of Computation' of income chargeable under 'Capital gains' and in that context 'full value of consideration' would mean consideration or price received as result of transfer of capital asset. It is different from 'fair market value' of property, which phrase is used in section 45(2) [relating to capital gains] and section 55(2)(b) [relating to cost of acquisition]. (para 44) legislature has expressly drawn distinction between two phrases: 'full value of consideration' and 'fair market value former would be price received on transfer of capital asset and latter would be price that capital asset would ordinarily fetch on sale in open market on relevant date. (para 47) Assessee had provided reasons for determining Rs.225 - per sq. ft. as fair market value of property by producing relevant material, including valuation report of registered valuer, which all have been ignored while arriving at price of Rs 84 - per sq. ft. Assessing Officer assessed value of property as on 1.4.1981 on basis of sale deeds of some nearby properties registered for such price in year 1981 and thus, arrived at that figure. In our opinion, same cannot be proper mode of arriving at 'fair market value' of property in question as on 1.4.1981, for purpose of determining 'Capital gains' under Act. (para 48) 13 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur Tribunal was not justified in arriving at fair market value of property in question as on 1.4.1981 without taking into consideration material on record, including valuation report filed by assessee. matter thus requires to be remanded to Assessing Officer for determination of fair market value of property in question in accordance with law and in light of observations made hereinabove. (para 51) 13. CIT(A) after considering relevant details has rightly directed A.O. to substitute value adopted by assessee as fair market value of property as on 1.4.1981 to compute cost of acquisition. We do not find any reasons to interfere with CIT(A) order. Hence, we inclined to upheld CIT(A) order and reject ground raised by revenue. 14. next issue that came up for our consideration is benefit of indexation. facts relating to issue are that assessee has sold property which he had acquired by way of partition deed in year 2007-08. assessee claims that he got right over property by way of partition deed, which was acquired by his father prior to 1.4.1981. assessee further submitted that as per provisions of section 49(1) of Act, when he got right over asset by way of any modes specified u s 49(1) of Act, cost of acquisition of asset shall be deemed to be cost for which previous owner of property acquired it as increased by cost of any improvement of asset incurred or born by previous owner or assessee as 14 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur case may be. Since, he got right over property by way of inheritance or succession, as per provisions of Act, he has adopted fair market value of property as on 1.4.1981 and applied indexation benefit from date asset was first held by previous owner and computed long term capital gain. A.O. was of opinion that when assessee is owner of property by way of any one of mode specified u s 49(1) of Act, then indexation benefit should be allowed from date asset first held by assessee. A.O. further was of opinion that assessee has got right over property by way of inheritance succession through partition deed dated 28.5.2007 which pertains to assessment year 2008-09 and accordingly, assessee is eligible to claim benefit of indexation from assessment year 2008- 09 onwards. 15. We do not find any merits in findings of A.O., for reason that when asset was acquired under any circumstances given by section 49(1) of Act, for purpose of reckoning period of holding, period of holding of asset by previous owner is considered to compute period of holding whether it is long term or short term. In similar way, when assessee got right over property by any of modes specified u s 49(1) of Act, obviously assessee is eligible for benefit of indexation from period 15 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur asset was first held by previous owner, but not period from which asset was held by assessee. This view was upheld by Hon ble Bombay High Court, in case of CIT Vs. Manjula J. Shah (supra), wherein Hon ble High Court held that indexed cost of acquisition has to be computed with reference to year in which previous owner first held asset and not year in which assessee became owner of asset. similar view is given by Hon ble High Court of Delhi, in case of Arun Sangle Trust Vs. CIT (2012) 205 Taxman 456 and also Hon ble High Court of Gujarat, in case of CIT Vs. Gowtam Manubhai Amin (2013) 218 Taxman 319. 16. In present case on hand, assessee got right over property by way of inheritance through partition deed which was acquired by his father prior to 1.4.1981. When assessee got right over property by any of mode specified u s 49(1) of Act, then for purpose of computation of indexed cost of acquisition, period of holding of previous owner has to be considered. CIT(A) after considering relevant details rightly held that assessee is eligible for indexation benefit from period asset was first held by previous owner or 1.4.1981 whichever is later as per provisions of section 49(1) of Act. We do not see any reasons to interfere with order of CIT(A). 16 ITA No.216 Vizag 2012 Padarti Venkata Rama Chandra Rao, Guntur Hence, we inclined to uphold CIT(A) order and reject ground raised by revenue. 17. In result, appeal filed by revenue is dismissed. above order was pronounced in open court on 16th Sept 16. Sd - Sd - (V. DURGA RAO) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Visakhapatnam: ' Dated : 16.09.2016 VG SPS ) Copy of order forwarded to:- 1. Appellant ITO, Ward-1(2), Guntur 2. Respondent Padarti Venkata Rama Chandra Rao, 21-11-31, Gantalammachettu Street, Chowtra, Guntur 3. CIT, Guntur 4. + ( ) CIT (A), Guntur 5. DR, ITAT, Visakhapatnam 6. Guard file BY ORDER True Copy 1 2 . (Sr.Private Secretary) ITAT, VISAKHAPATNAM 17 ITO, Ward-1(2), Guntur v. Padarti Venkata Rama