Value recorded
in registered sale deed cannot be sole basis for determining FMV
Consideration as shown in the Registered Sale Deed cannot
be equated with ‘Fair Market Value’, as defined in the Act u/s 2(22B) of the
Act. /Therefore, adoption of average value of land at Rs. 27,030/- per acre as
on 1.4.1981, as ‘Fair Market Value’ of the land in question, for the purpose of
computation of capital gains, is not legally and factually tenable. ‘Fair
Market Value’ represents the price that a seller is willing to accept and a
buyer is willing to pay in the open market. The price or sale consideration as
specified in the Registered Sale Deed of an asset in India represents the price
or sale consideration negotiated or determined not in the open market but in
the parallel operating market where such transactions crystallized in a
clandestine manner. In view of this, sale consideration of an asset, as
recorded in the Registered Sale Deed is generally understated and, hence,
cannot he taken as ‘Fair Market Value’ as on 1.4.1981 for the purpose of computation
of ‘Capital Gains’.
The ITAT, Chandigarh ‘B’ Bench in the case of Smt.
Baljinder Kaur (supra) held that it is well settled that the concept
of ‘Fair Market Value’ envisages existence of a hypothetical seller and a
hypothetical buyer in a hypothetical market. Therefore, intrinsically speaking,
the determination of ‘Fair Market Value’ of a capital asset as on 1st April,
1981 would involve an element of estimation based on relevant factors. An
‘Agreement to Sell’ is a relevant factor in determination of ‘Fair Market
Value’, as on 1.4.1981, in the present appeal.
IN THE ITAT CHANDIGARH BENCH ‘B’
Manjit Singh
v.
Deputy Commissioner of Income-tax
IT APPEAL NO. 1037 (CHD.) OF 2011
[ASSESSMENT YEAR 2008-09]
SEPTEMBER 28, 2012
ORDER
Mehar Singh, Accountant Member – The present appeal filed by the
assessee is directed against the order dated 07.09.2011 passed by the ld.
CIT(A) u/s 250(6) of the Income-tax Act,1961 (in short ‘the Act’).
2. In this appeal, the assessee has raised the following Grounds of Appeal:
’1. That the ld. CIT(A)-I, Ludhiana has erred in
confirming the addition made by the Assessing Officer under the head long term capital
gain by adopting the fair market value of land as on 1.4.1981 at Rs. 27,030/-
per acre against Rs. 5 lacs per acre adopted by the assessee.
2. That the ld. CIT(A)-I, Ludhina has jailed
to ignore the documentary evidence in the shape of certificate from the Patwari
as well as Tehsilder which was based on field enquiries by the Partwari and
rejection of that report of the Tehsildar/Patwari by the CIT(A) was not proper.
3. That the CIT(A) has erred in not
considering the reply filed by the Tehsildar who had responded to enquiries
made by the Assessing Officer u/s 133(6) and gave the Fair Market Value of the
land as on 1.4.1981 after making detailed enquiries from the various prominent
person viz Nambardars/Sarpanchs who confirmed the market rate of Rs. 5 lacs per
acre.
4. That the CIT(A) has failed to appreciate
that fair market value of land and registry value are different as in the case
of assessee himself the sale was made for Rs. 43,25,000/- per acre and circle
rate was Rs. 5 lacs per acre and, thus, if fair market value has been declared
at Rs.43,25,000/- per acre then the same basis should have been adopted as cost
of acquisition as on 1.4.1981, based on fair market value. Titus, the
contradictory stand have been confirmed by the CIT(A) against the facts and
circumstances of the case.
5. Notwithstanding the above ground of appeal
the Assessing Officer having already accepted fair market value of the land in
the same area @ Rs. 1.80,000/- per acre, which was located deep inside the
Village having odd shape and other defects, and the land sold under
consideration being situated on the main road having better location, size and
shape, the rate should have adopted for higher than the Rs. 1,80, 000/- per
acre as accepted by the Assessing Officer u/s 143(3) of the Act for the
Assessment Year 2005-2006.
6. The CIT(A) has not been able to rebut the
identical case of Shri Abdul Rashid Rather of Amritsar Bench as cited before
him and under detailed submissions as made before him.
7. That the Appellant craves leave to add or
amend he grounds of appeal before the appeal is finally heard or disposed off.”
3. In the course of present appellate proceedings, before the Bench, ld.
‘AR’ contended that the grounds of appeal revolve around non-adoption of circle
rate of Rs. 5 lacs per acre as Fair Market Value as on 01.04.1981, for the
purpose of computation of capital gains by the AO and upholding the findings of
the AO by CIT(A). Ld. ‘AR’ referred to various pages of the Paper Book, such as
pages from 50 to 62, 39. Ld. ‘AR’ also placed reliance on the decision of the
Amritsar Bench in the case of Abdul Rashid v. ITO in IT Appeal
No. 104/ASR/2009, A.Y. 2004-05 dated 23.7.2009. Ld. ‘AR’ also placed reliance
on the decision of the Chandigarh Bench in Dy. CIT v Smt.Baljindcr
Kaur [2009] 29 SOT 8 (CHD) (URO). Ld. ‘AR’ also filed written submissions
in the form of synopsis. A bare perusal of the synopsis reveals that assessee
appellant is aggrieved by the order passed by the AO and upheld by the CIT(A)
in adopting Fair Market Value of the asset as on 1.4.1981 at Rs. 27,030/- per
acre. Ld. ‘AR’ contended that CIT(A) accepted the rate of Rs. 43.25 lacs per
acre as sale rate, as disclosed on the basis of one agreement in respect of
land, seized from the premises of Shri G.K. Colonizer against circle rate of
Rs. 5 lacs, but ignored the adoption of Rs. 5 lacs as Fair Market Value of the
same land as on 1.4.1981. The appellant has adopted Fair Market Value of the
land as on 1.4.1981 on the basis of certificate of Halka Patwari, as endorsed
by the Tehsildar, issued on the basis of enquiries conducted from the field
staff, various Sarpanches and Panchayat members, with their signature appended
thereon. Ld. ‘AR’ further pointed out that the Fair Market Value of the land
vis-a-vis sale consideration as recorded in Registered Sale Deed cannot be the
same. Relevant part of the brief synopsis is reproduced hereunder :
“2.The facts in brief are that the assessee is an
agriculturist and had sold some land to G.K. Colonizers and during the course
of search on G.K. Group of cases, one agreement was seized from where, it came
to the notice of the department that the assessee had sold agricultural land at
the rate of Rs. 43.25 lacs per acre, against the circle rate of Rs. 5 lacs per
acre and the assessee accepted that rate of sale as per agreement and filed the
return of income and adopted the sale rate as per agreement.
3. For the justification of land rate as on 1.4.1981, the
assessee filed the certificate from the Revenue Officer, wherein he had
certified the “Fair Market Value of the land at Rs. 5 lacs per acre as on
1.4.1981 and the evidence of the same had been enclosed in the paper book at
page 11.
4. Not satisfied with that certificate, the AO made
enquiries from the Tehsildar for ‘fair market value.’ of land as on 1.4.1981and
that letter has been reproduced by the Assessing Officer in the assessment
order. The Tehsildar made detailed enquiries from the Nambardar, Patwari,
Sarpanches of Villages and gave a exhaustive report as per copy placed at pages
12 to 17 of the paper book. The report is very exhaustive.”
4. Ld. ‘AR’ pointed out that the C1T(A), cannot adopt contradictory approach,
in the adoption of the Fair Market Value of the land, as on 1.4.1981, ignoring
the sale consideration of Rs. 43.25 lacs per acre, of the said land, disclosed
by the assessee, as recorded in the Agreement, seized in the course of search
operation, as full value of consideration u/s 48 of the Act. It was, further,
pointed out by the ld. ‘AR’ that the department has already accepted Rs.
1,80,000/- per acre as Fair Market Value of the land as on 1.4.1981 located in
the same village and at an adverse location for the assessment year 2005-06.
Ld. ‘AR’ also analyzed the finding of the CIT(A) in the written synopsis and
the same are reproduced as under:
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“Finding of
the CIT (A)
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Assessee’s
reply
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The CIT (A)
has stated that the reason given by the assessee appears to he logical but
then, he has stated that the enquiries made by Telisildar is on the basis of
report of halka Patwar based upon some verbal enquiries from resident of the
area, which according to the CIT(A) is not correct
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The Revenue
Officer is entrusted with the task of determining the value of land and the
fact that on the basis of enquiries made it/s 133 (6), the field enquiries
were made, which are part of the report of the Tehsildar, certifies beyond,
any doubt, about fair market value at Rs. 5 lacs per acre as on 1.4.1981 and,
therefore, the findings of the CIT are not correct. The Revenue Officer as
per the judgment of the Amritsar Bench of the ITAT is the final authority in
determining the value of the property and not the AO. The enquiries arc
detailed and even the CIT (A) has mentioned that reason, given by assessee,
are logical
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As per
CIT(A), the registered documents has to be considered.
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We have
demonstrated, firstly, that on the basis of compensation being paid to
farmers, which is much higher than the registered rate, no reliance could he
placed on such finding of the CIT (A). Then, there is a difference in wording
in section 55(2)(b)(ii) and on other sections, CIT (A) has not been able to
find any fault in explanation of assessee, coupled with the documentary
evidences
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The CIT(A)
has stated that the Sale value was on the basis of Agreement to sell and as
such The same basis had to be adopted For determining the cost.
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The CIT(A)
has failed to consider that if the sale value is being taken into
consideration, much more than the circle rate and, accordingly, for determining
the ‘Fair Market Value’ as on 1.4.1981, the same kind of consideration had to
be adopted as in the case of Shri Abdul Rashid by the Amritsar Bench of the
ITAT. The CIT(A) has failed to consider that sale consideration adopted much
more than the circle rate.
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The CIT has
stated that language of section (2)(b) (ii) was not intended to have
different meaning for the purposes of calculation of capital gain and, as
such, that documentary evidence has to be taken into consideration in
determining the fair market value (ii) has to be given meaning as per
section only.
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The CIT has
failed to consider that the enquiries made from the 55 Revenue department u/s
133 (3) has clearly brought out the rate which is more than the registered
sale consideration. Further the language in section 55(2)(b)iii) has to be
given meaning as per section only.
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The CIT has
not disputed that the rate of Rs. 1,80,000/- had been adopted for A.Y.
2005-06 And according to CIT, the same is not binding upon the AO for A.Y.
2008-09.
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The CIT (A)
has failed to consider die fact that the facts and circumstances were same
and the rate of Rs. 1,80,000/- was of the land in the same village but was in
remote location and the land of the assessee is also in the same area but
much better located. The CIT(A) has only sidetracked the issue. There also
the department wanted to apply the rate of Rs.43.25 lacs per acre and then on
the basis of consistency, as per the judgment of jurisdictional High Court,
which we have cited in the judgment set, the finding of the CIT(A) is
erroneous. “
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5. Ld. ‘DR’ on the other hand, supported the findings of the lower
authorities and placed reliance thereon.
6. We have carefully perused the rival submissions, facts of the case and the
judicial precedents, relied upon by the parties. During the course of
assessment proceedings, AO found that assessee had sold land and computed long
term capital gain thereon, by adopting the ‘Fair Market Value’ of the land, as
on 1.4.1981, at Rs.5 lacs per acre, on the basis of certificate issued by the
Patwari on the basis of local enquiries. In the course of assessment
proceedings, Patwari Shri Gurvinder Singh S/o Shri Banta Singh, appeared before
the AO, on 9.11.2010, and explained that he had enquired from prominent persons
of the area about Fair Market Value of the land, situated on the main Rahon
Road, as prevailing during the year 1980-81 and accordingly, on the basis of
such enquiries, issued the certificate specifying the market value of the land
as Rs.5 lacs per acre. The AO, with a view to verifying the veracity of the
said certificate, requisitioned certain details and made: enquiry u/s 133(6) of
the Act, in assessee’s case, from the Tehsildar (East) Ludhiana, vide letter
dated 13.12.2010. Tehsildar, vide letter dated 20.12.2010, intimated that
average value of the land of Shri Manjit Singh S/o Tirath Singh, resident of
Village Meharban is Rs.27,030/- per acre. He, further, informed that Shri Mohan
Singh S/o Shri Budh Singh, S/o Shri Attar Singh had sold 16 kanal 2 marla of
his land to M/s Amar Industries Ltd. @ Rs. 54,300/- per acre. Tehsildar,
further, stated that as per report of the field-staff, enquiry from the
Sarpanch and the eminent personnels of the village, revealed that in the year
1980-81, rate of agricultural land on the main Rahon Road was approximately
Rs.5 lacs per acre.
7. The assessee and his brother, sold land measuring 58 kanal 5 ½ marla,
situated at main Rahon Road, Ludhiana, for net consideration of Rs.
3,11,88,214/-. As the land was owned jointly by the assessee and his brother,
sale consideration to the share of the assessee is worked out at Rs.
1,55,94,107/-. As the land was acquired prior to 1.4.1981, the long term
capital gain was computed by considering Fair Market Value of the land in terms
of provisions of section 55(2)(b)(i) of the Act. The ld. ‘AR’, placed reliance,
on the decision in CIT v. Ajax Products Ltd. [1965] 55 ITR 741
(SC), Smt. Tarulata Shyam v CIT [1977] 108 ITR 345 (SC) and Keshavji
Ravji & Co. v CIT [1990] 183 ITR 1 and contended that plain
language used in a statute, should be interpreted as it is, without importing
anything extraneous, with a view to giving full effect, to the legislative
intent. Such judgments were cited by the assessee, before AO, to support his
contentions, in respect of the interpretation of the provisions of section 45
read with 48, 55 and 55A of the Act. The assessee, further, placed strong
reliance on the principle of consistency by citing the decision before AO in
the case of CIT v. Leader Valves Ltd. [2007] 295 ITR 273 (Punj.
& Har.); CIT v Dalmia Dadri Cement Ltd. [1970] 77 ITR 410
(Punj. & Har.); Radhasoami Satsang v CIT [1992] 193 ITR 321, Berger
Paints v. CIT [2004] 266 ITR 99; Dy. CIT v. United
Vanaspati Ltd. [2004] 88 ITD 313 (Chd.)(TM) and CIT v. Arthur
Anderson & Co. [2009] 318 ITR 229 (Bom.). The assessee contended before
AO that having regard to the principle of consistency, as enunciated in the
abovesaid decisions, equity demands that ‘Fair Market Value’ of the land, as on
1.4.1981 be determined having regard to the full value of consideration as
adopted at Rs. 43,25,000/- per acre vis-a-vis the circle rate of the same land,
in that year at Rs.5 lacs per acre, for computing stamp duty, as the appellant
had disclosed and AO adopted full value of sale consideration of the land in
question, for the purpose of section 48 of the Act at Rs. 43,25,000/- per acre.
7(i) It is, further, argued that circle rate is the
guiding factor for computing stamp duty, for the purpose of registry. Such
factum validly confirms that registry rate has no relevance with the market
rate or ‘Fair Market Value’ of asset/land. By following the same proposition,
it can be reasonably concluded that registries, during the period 1.4.1980 to
31.1.1981, were made at quite lower rates, as compared to the market rates, as
pointed out by the assessee, before AO. The explanation filed by the assessee
did not find favour with the AO and he adopted average rate of land at Rs.
27,030/-, as the ‘fair Market Value’ of the land as on 1.4.1981, for the
purpose of computing the capital gain, in this case. The AO, observed that
assessee has not brought on record any comparable instance, for the purpose of
adoption of ‘Fair Market Value’ at Rs.5 lacs per acre of the land in question,
as on 1.4.1981. The AO, adopted average rate of land, as reported by the
Tehsildar. However, in the same some communication, the Tehsildar has reported
the rate of agricultural land, on the main Rahon Road, approximately at Rs.5
lacs per acre. Thus, AO, has adopted contents of the communication of the
Tehsildar only in part and, thus, ignored the remaining contents of the same.
It is, thus, evident that the AO, adopted the average sale rate of the land in
that area, on the basis of registered sale deeds as ‘Fair Market Value’ of the
land in question, for the purpose of computation of capital gains
8. The CIT(A), upheld the finding of the AO, as is evident from paras 15
& 16 of the order, as reproduced hereunder :
“15. I have considered the AO’s basis for adopting fair
market value at Rs. 27,030/- as against Rs. 5,00,000/- claimed by the assessee
and the AR’s arguments on the issue. The appellants claim rests on the
certificate issued by the patwari, which in turn is based upon verbal enquiries
conducted by him to arrive at the fair market value as on 1.4.1981. Secondly
the appellant relies heavily on the acceptance of the fair market value by the
Assessing Officer in the case of the assessee for A.Y. 2005-06 at Rs.
1,80,000/- per, acre. The AR’s contention is that once the value claimed on the
basis of patwari’s certificate has been accepted, fair market value claimed on
the basis of same principle should logically be accepted for the year under
consideration. The reasoning given by the AR, on the face of it, appears
logical but if one digs little deeper it becomes apparent that even for A.Y.
2005-06 the AO did not examine this issue in it entirety as the certificate of
the patwari is based upon some verbal enquiries conducted by him from the
residents of the area wherein they speculated as to what could have been the
fair market value of the land 25 years ago. This kind of exercise is nothing
but a farce as the revenue officials are in possession of documents which
clearly evidence the fair market value as on the said date. The Tehsildar in
his report given to the AO has clearly brought on record few sales instances to
arrive at the average rate of Rs. 27,030/-. I do not understand as to where was
the need to go around and make verbal enquiries about the value of land 25 year
ago when clear documentary evidence was available with the said authority. The
AR’s claim that registered value or the value for the purpose of stamp duty
does not represent the fair market value is not acceptable because it leads you
from position of certainty ax contained in the registered document to complete
uncertainty and unverifiability as expressed in the report based upon verbal
opinions. The AR has claimed that the assessee adopted sale consideration at
Rs. 43,25,000/- per acre as against circle rate of Rs. 5,00,000/- per acre
which means that the fair market value was different from the circle rate. Here
it needs to be kept in mind that the sale value adopted by the assessee is on
account of documents found and seized during the course of search operation and
there was no option but to adopt this value as it happen to be the actual sale
consideration and was based upon a documentary evidence. The language in
section 55 (2)(b)(ii) was not intended to have different values for the purpose
of calculation of the capital gain and the intention was not to place reliance
on any evidence other than documentary evidence in determining the fair market
value. It needs to be appreciated that the assessee would have proceeded to
adopt ‘ the registered sale price as sale consideration had there been no
search action in his case leading to discovery of actual sale consideration. In
the circumstances, the assessee cannot turn back and rely on generally
prevalent practice in real estate transactions to suppress the actual sale
consideration and rubbish the evidentiary value of registered sale price as
reported by revenue authorities. Therefore I do not find any merit in AR’s
argument on the issue.
16. The AR has also raised the issue of consistency on
the ground that for A.Y. 2005-06 the AO had accepted the certificate of the
Patwari in determining the fair market value of asset sold. The action of the
AO in accepting Patwari’s report on the basis of verbal enquiries allegedly
conducted by him for A.Y. 2005-06 is erroneous and therefore can not be
accepted to be binding upon the AO for A.Y. 2008-09. The detailed reasons for
holding the said certificate as erroneous have been detailed in para 5 of this order.
As such the addition made by the AO by adopting the fair market value of land
sold at Rs. 27,030/- is confirmed.”
9. We feel it essential, to refer to the relevant provisions of the Act, on
the issue in question. The relevant provisions in the matter are reproduced
hereunder :
“45. (1)] Any profits or gains arising from the transfer
of a capital asset effected in the previous year shall, save as otherwise
provided in sections [54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H], be
chargeable to income-tax under the head “Capital gains”, and shall be deemed to
he the income of the previous year in which the transfer took place…………..
48. The income chargeable under the head “Capital gains”
shall be computed, by deducting from the full value of the consideration
received or accruing as a result of the transfer of the capital asset the
following amounts, namely :—
(i) expenditure incurred wholly and
exclusively in connection with such transfer;
(ii) thecost of acquisition of the
asset and the cost of any improvement thereto:
“55(2)(b(i)) in relation to any other
capital asset,—]
(i) where the capital asset became the
property of the assessee before the [1st day of April, [1981]], means the cost
of acquisition of the asset to the assessee or the fair market value of the
asset on the [1st day of April, [1981]], at the option of the assessee ;
55A. With a view to ascertaining the fair market value of
a capital asset for the purposes of this Chapter, the [Assessing] Officer may
refer the valuation of capital asset to a Valuation Officer—
(a) in a case where the value of the asset
as claimed by the assessee is in accordance with the estimate made by a
registered valuer, if the [Assessing] Officer is of opinion that the value so
claimed is less than its fair market value ;
(b) in any other case, if the [Assessing]
Officer is of opinion—
(i) that the fair market value of the asset
exceeds the value of the asset as claimed by the assessee by more than such
percentage of the value of the asset as so claimed or by more than such amount
as may be prescribed in this behalf; or
(ii) that having regard to the nature of the
asset and other relevant circumstances, it is necessary so to do,
and where any such reference is made, the provisions of
sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of
sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of
section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957
(27 of 1957), shall with the necessary modifications, apply in relation to such
reference as they apply in relation to a reference made by the [Assessing]
Officer under sub-section (1) of section 16A of that Act.”
10. Ld. CIT(A), in his appellate order observed that he had considered the
basis for adoption of ‘Fair Market Value’ at Rs. 27,030/-, as against Rs. 5
lacs claimed by the appellant having regard to submission made by the ld. ‘AR’,
on the issue. The claim of the appellant, for adoption of Rs.5 lacs as ‘Fair
Market Value’ per acre, as on 1.4.1981, is based on the certificate issued by
the Patwari, in the light of enquiries conducted by him. The appellant also
placed reliance on ‘Fair Market Value’ as accepted by the AO, in assessee’s
case for the assessment year 2005-06, at Rs. 1,80,000/- while completing
assessment u/s 143(3) of the Act. The contention of the appellant was rejected
by the CIT(A), on the ground that the AO, while completing the assessment u/s
143(3), for the assessment year 2005-06, failed to examine the issue, in its
entirety, as the certificate of the Patwari is based upon some verbal
enquiries, conducted from the residents of the area, with a view to
ascertaining the ‘Fair Market Value’ of the asset, as on 1.4.1981. Ld. CIT(A),
dubbed such mode of enquiry conducted by the Patwari, as a farce, as the
revenue officials are not in possession of documents, which clearly evidence
the ‘Fair Market Value’ of the land as on 1.4.1981. The Tehsildar, in his
report, submitted to the AO, pointed out few sales instances to arrive at the
average rate of Rs. 27,030/-. Ld. CIT(A) has equated the average rate of
Rs.27,030/- as ‘Fair Market Value’ as on 1.1.1981 of the said land. It is
pointed out that sale instances, on the basis of the Registered Sale Deeds
cannot be construed as the ‘Fair Market Value’ as defined u/s 2(22B) of the
Act. This factum is proved in the assessee’s own case by the Registered Sale
Deed, dated 14.3.2005, specifying the sale consideration at Rs. 4,50,000/- of
the land measuring 4 Kanal 10 Marla, sold by the appellant, whereas in the
course of search operations, appellant agreement to sell of the same land,
records sale consideration at Rs. 43,25,000/- per acre i.e. Rs. 5,40,000/- per
kanal. However, as per Registered Sale Deed, the sale rate is worked out at Rs.
1 lakh per ‘kanal’. Therefore, there is invariably a wide gap between the sale
consideration, as shown in the Registered Sale Deed vis-a-vis sale
consideration as recorded in the ‘Agreement to Sell’. It is, in view of this
hard fact, the legislature introduced the provisions of section 50C of the Act,
as special provision for full value of consideration, in certain cases,
whereby, for the purpose of section 48 of the Act, full value of consideration
received or accruing as a result of transfer of the asset, the value adopted or
assessed or assessable by any authority of the State Government for the purpose
of payment of stamp duty, in respect of transfer, is deemed, as the full value
of consideration, for the purpose of section 48 of the Act. The average rate at
Rs.27,030/-, as on 1.4.1981, adopted by the AO and upheld by the CIT(A),is the
average rate of the Registered Sale Deeds, which cannot be construed as ‘Fair
Market Value’, within the meaning of provisions of section 2(22B) of the Act.
The contention before CIT(A) that the sale consideration, as specified in the
Agreement to Sell at Rs. 43.25 lacs per acre, as against circle rate of Rs. 5
lacs per acre, establishes that ‘Fair Market Value’ of the land is different
from its circle rate. However, this contention of the assessee did not find
favour with the CIT(A), on the ground that the assessee had no option but to
declare the said sale consideration of Rs. 43.25 lacs as mentioned in the Sale
Agreement, in view of the seizure of the said document. Further, the CIT(A), is
of the opinion that contents of the seized documents cannot be taken as
evidence for the purpose of determination of ‘Fair Market Value”, for the
purpose of charging capital gains tax. Such rejection of the contentions raised
by the appellant is not legally and factually tenable, as the revenue can not
resort to principle of approbation and reprobation, in respect of the same
transaction pertaining to the land in question. The interpretation of the
CIT(A) of the provisions of section 55(2)(b)(i), that in terms of such
provisions, it is never intended to have different values, for the purpose of
calculation of capital gains and the intention was not to place reliance on any
evidences, other than the documentary evidence in determining the ‘Fair Market
Value’, is not in consonance with the legislative intent contained in such
provisions. The Fair Market Value, as contemplated u/s 2(22B) r.w.s.
55(2)(b)(i), may be different than the sale consideration, as recorded in the
Registered Sale Deed. The definition of ‘Fair Market Value’, as provided u/s
2(22B) of the Act is reproduced hereunder:
“2(22B) ‘fair market value “, in relation to a capital
asset, means—
(i) the price that the capital asset
would ordinarily fetch on sale in the open market on the relevant date; and
(ii) where the price referred to in
sub-clause (i) is not ascertainable, such price as may be determined in
accordance with the rules made under this Act;]’
11. The CIT(A), further, observed that assessee would have proceeded to adopt
the price as recorded in the Registered Sale Deed, as full value of
consideration of the land, had there been no search action in his case, leading
to discovery of actual sale consideration, as specified in the ‘Agreement to
Sell’. The ld. CIT(A), further, observed that in the circumstances, the
assessee cannot turn back and rely on generally prevalent practice, in real
estate transactions, to support the actual sale consideration and rubbish the
evidentiary value of registered sale price, reported by the revenue
authorities. The line of argument and logic, adopted by the CIT(A), does not
stand the test of rationality and, hence, not tenable in the light of the sale
consideration of Rs. 43.25 lacs per acre, as adopted by the AO, as full value of
consideration of the land sold by the appellant, while computing capital gains.
The appellant is not relying on prevalent practice in real estate transactions,
as construed by the ld. CIT(A), but his contention is founded on the sale
consideration, as recorded in the sale agreement at Rs.43.25 lacs per acre,
which cannot be construed, as sale consideration founded on practice in real
estate transactions. In a nutshell, CIT(A), concluded that ‘Fair Market Value’
is synonymous and equal to the average rate of the sale consideration, as
specified in the Registered Sale Deeds, ignoring the definition of ‘Fair Market
Value’ as provided u/s 2(22B) of the Act, as reproduced above and the impact of
actual sale consideration recorded at Rs. 43.25 lacs in the seized ‘Agreement
to Sell’. The ld. CIT(A), also disregarded the principle of consistency as
espoused by the appellant before him, in the context of assessment year
2005-06.
12. We have perused the impugned assessment order, for the assessment year
2005-06 passed u/s 143(3) of the Act,, wherein, after detailed discussions and
application of mind, the AO has adopted ‘Fair Market Value’ of the land, as on
1.4.1981, at Rs. 1,80,000/- per acre. Therefore, the logic and rationale, as
adopted by the CIT(A),in rejecting the contentions and explanation of the
appellant, does not stand to legal and factual position and the rule of
consistency.
13. In this context, it is pertinent to reproduce the certificate issued by
the Tehsildar, Ludhiana (East) as annexed at page 12 of the Paper Book (English
Translation):
(True Translation for Punjabi to English)
“From:
The Tehsildar,
Ludhiana (East)
To
Dy. Commissioner of Income Tax,
Circle 3, Old Red Cross Building,
Udham Singh Nagar, Ludhiana
No.1 Spl/Reader Dated 20.12.10.
Sub : Calling the information u/s 133(6) of the
Income-tax Act, 1961 in the case of Sh. Manjit Singh for AY 2008-09 (relevant
to financial year 2007-08)
Reference: with reference to your office letter No.
DCIT/Cir-III/Ldh/2010-11/2728 dated 13.12.2010
With reference to the information demanded vide your
above referred letter regarding the agri. land of Sh. Manjit Singh S/o Tirath
Singh resident of Village Meherban, report from the field-staff has been
obtained, vide which the average price of the agricultural land in the area
works out to be Rs. 27030/-and 18/- paise per acre for the year 1980-81 based
on the report of mutations. The report of the field-staff for the year 1980-81
contains data related to the agricultural land for which mutations were made.
Further, as per wasika No. 4312 dated 14.11.80 Sh. Mohan Singh S/o Budh Singh
s/o Attar Singh sold agricultural land area measuring 16 kanal 2 marla at the
rate of Rs. 54300/- per acre to M/s Amar Industry. Ludhiana. As per the report
of the fields-staff, the market price of agricultural land situated on the main
Rahon Road is verified as about Rs. 500,000/-per acre during the year 1980-81
as per the inquiries made from the village Sarpanch. and prominent citizens.
The information is submitted for further necessary action.
Sd/-
Tehsildar
Ludhiana
(East)”
14. A bare perusal of the certificate issued by the Tehsildar, as reproduced
above clearly reveals that average price of agriculture land in the area, has
been worked out at Rs.27,030/- per acre during the year 1980-81, based on the
report of mutations. Thus, the average price of agricultural land in the area
has been worked out by the Tehsildar, on the basis of sale consideration as
recorded in the mutations. However, Tehsildr has mentioned in the same letter,
the market price of the agricultural land, situated on the main Rahon Road at
Rs. 5 lacs per acre, during the year 1980-81, as per enquiries made from
Village Sarpanch and prominent citizens.: It needs to be mentioned here that
the sale instances, as recorded in the respective Sale Deeds, on the basis of
which Tehsildar worked out the average price of agricultural land at Rs.
27,030/-, pertains to the agricultural land situated in the area. However,
Tehsildar has specifically mentioned location of the land as situated at the
main Rahon Road, whereby market price of agricultural land has been verified at
Rs. 5 lacs per acre. Therefore, there is a marked difference in the location of
agricultural land situated in the area and the impugned land situated at main
Rahon Road, consequently leading to different market rate of land at different
locations.
15. The document seized in the course of search operation u/s 132(1) of the
Act, can be used as an evidence, even in a situation where the search has been
held as illegal by the competent Court. In view of this, the revenue is
competent to use that contents of the seized documents in its favour, on the
basis of such documents seized in the course of illegal search. Similarly, assessee
is also competent to use the same, to support his contentions, wherever need
it.
16. The assessee appellant placed reliance on the interpretation of the
statutory provisions and the principle of consistency. In this context, it is
pertinent to mention here that principle of consistency can be invoked if the
facts and circumstances, as prevailing in various assessment years, are
identical. However, generally the principle of res judicata is not
applicable, to the income tax proceedings. In the present case, sale
consideration, as adopted by the assessee, on the basis of seized ‘Agreement to
Sell’ at Rs. 43.25 lacs per acre, as the full value of sale consideration,
cannot be ignored, in the context of determination of the ‘Fair Market Value’
of the same land, as on 1.4.1981.
17. Ld. ‘AR’ placed reliance on the decision of the ITAT, Amritsar Bench in
the case of Abdul Rashid (supra) and decision of the Chandigarh
Bench in the case of Smt. Baljinder Kaur (supra). A bare perusal
of the same reveals that assessee gets support from such decisions, in respect
of contention raised by the appellant, in the matter of adoption ‘Fair Market
Value’ of the land in question as on 1.4.1981. The relevant part of the
decision of the Chandigarh Bench is reproduced hereunder :
“Capital gains—Cost of acquisition—Fair market value as
on 1st April, 1981—In terms of an agreement to sell dt. 6th Feb., 1981, with
one Z, assessee had agreed to sell a portion of the impugned land at the rate
of Rs. 11.50 lacs per acre—Though that agreement did not materialize, it
supports the fair market value adopted by the assessee—Second primary evidence
is the report of the registered valuer wherein also the value of the land has been
estimated @ Rs. 11.50 lacs per acre—This rate is adopted on the basis of a sale
deed of a comparable property located in the vicinity of assessee’s
land-Comparable instance considered by the registered valuer was also
considered by the DVO to evaluate a property in the same village in the case of
one K, and the valuation report of the DVO valuing that property as on 1st
Jan., 1981 has been accepted by the AO in the case of K— That apart, assessee’s
land enjoyed an advantageous position because of its location—Aforesaid
evidence led by the assessee has not been shown to be lacking in bona fides— AO
has not made out a case as to why he has preferred the rate collected from the
revenue Department—Thus, there was no justification for the AO to reject the fair
market value of land determined @ Rs. 11.50 lacs per acre—Therefore, capital
gain is to be computed by taking the fair market value of land @ Rs. 11.50 lacs
per acre as the cost of acquisition”
18. It is pertinent to highlight here that the appellant offered the sale
consideration, as recorded in the seized ‘Agreement to Sell’, for the purpose
of section 45 r.w. section 48 of the Act, which was accepted by the AO and the
CIT(A), for the purpose of computation of capital gains. However, AO as well as
CIT(A) turned a volte-face, in considering such sale consideration recorded in
seized ‘Agreement to Sell’ for the purpose of determining ‘Fair Market Value’
of the said land as on 1.4.1981. This approach of the authority is
contradictory in nature, as the land and transaction related thereto, are
factual in nature. The revenue is not permitted to adopt different yardsticks,
in respect of a single transaction, under reference, as per its suitability.
The revenue has adopted sale consideration of the said land, for the purpose of
computation of capital gains at Rs. 43.25 lacs per acre, but rejected the same
while determining the ‘Fair Market Value’ of the said land, as on 1.4.1981.
Such approach cannot be justified under any civilized jurisprudence and on the
touchstone of pragmatic and factual rationality. Further, the contention of the
appellant is supported by the certificate issued by the Patwari and duly
endorsed by the Tehsildar, in his communication in question, as reproduced
above, whereby the market price of the agricultural land situated, on main
Rahon Road is verified at about Rs.5 lacs per acre, during the year 1980-81, as
per enquiries made. In this context, it is pertinent to mention here that AO
has failed to invoke the provisions of section 55A of the Act, for the purpose
of ascertaining the ‘Fair Market Value’ of the land, as on 1.4.1981, as the
provisions of section 55A of the Act contain a legislative intent and mandate,
for such specific purpose of ascertaining ‘Fair Market Value’ of the asset, as
on 1.1.1981, by the expert valuer. Further, it is pertinent to mention that
‘Fair Market Value’ in relation to a capital asset has been defined u/s 2(22B)
of the Act. Fair Market Value in relation to capital asset, means the price
that the capital asset would ordinarily fetch on the sale in the open market on
the relevant date). Sale consideration, as found recorded in the Sale Agreement
in question, which was seized in the course of search operation, is nothing but
‘Fair Market Value’, as negotiated and arrived at by the purchaser and the
seller, in respect of said land, having regard to the market conditions,
location of the land and other relevant factors. Such sale consideration, as
recorded in ‘Agreement to Sell’ is not same as recorded in the Registered Sale
Deed of the said land. Therefore, adoption of average value of land by the
revenue, at Rs.27,030/- per acre, on the basis of Registered Sale Deeds, cannot
be considered as ‘Fair Market Value’ within the definition of Fair Market Value
in relation to a capital asset, as contained u/s 2(22B) of the Act. The
rationale and philosophy behind insertion of section 50C of the Act is that
there is a wide gap between the sale consideration shown in the Registered Sale
Deed and the ‘Fair Market Value’ of the asset sold. Therefore, legislature
deemed it fit, to introduce the deeming provisions of section 50C, which
contemplate a deeming situation in respect of full value of consideration, for
the purpose of levy of capital gains. Thus, conceptually and factually, there
is wide difference between the sale consideration, as recorded in the
registered sale deed and the ‘Fair Market Value’ of the asset.
19. In view of this, consideration as shown in the Registered Sale Deed cannot
be equated with ‘Fair Market Value’, as defined in the Act u/s 2(22B) of the
Act. /Therefore, adoption of average value of land at Rs. 27,030/- per acre as
on 1.4.1981, as ‘Fair Market Value’ of the land in question, for the purpose of
computation of capital gains, is not legally and factually tenable. ‘Fair
Market Value’ represents the price that a seller is willing to accept and a
buyer is willing to pay in the open market. The price or sale consideration as
specified in the Registered Sale Deed of an asset in India represents the price
or sale consideration negotiated or determined not in the open market but in
the parallel operating market where such transactions crystallized in a
clandestine manner. In view of this, sale consideration of an asset, as
recorded in the Registered Sale Deed is generally understated and, hence,
cannot he taken as ‘Fair Market Value’ as on 1.4.1981 for the purpose of
computation of ‘Capital Gains’.
20. The ITAT, Chandigarh ‘B’ Bench in the case of Smt. Baljinder Kaur (supra)
held that it is well settled that the concept of ‘Fair Market Value’ envisages
existence of a hypothetical seller and a hypothetical buyer in a hypothetical
market. Therefore, intrinsically speaking, the determination of ‘Fair Market
Value’ of a capital asset as on 1st April, 1981 would involve an element of
estimation based on relevant factors. An ‘Agreement to Sell’ is a relevant
factor in determination of ‘Fair Market Value’, as on 1.4.1981, in the present
appeal.
21. In view of the above legal and factual discussions, and having regard to the
fairness, the Fair Market Value of the land in question, deserves to be taken
at Rs. 3.50 lacs per acre, as on 1.4.1981, for the purpose of computation of
capital gains. Consequently, appeal of the assessee is partly allowed.
22. In the result, appeal of the assessee is partly allowed.
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