Judgment:
1. This appeal of the assessee arises out of the order of CIT(A)-I, Pune, passed on 27.09.1999. The corresponding order of assessment was made by the DCIT, SR-2, Pune (hereinafter called the AO), under the provisions of Section 143(3) of the IT Act, 1961, on 26.02.1998. The assessee has taken up (seven grounds of appeal. Ground Nos. 6 & 7 are in the nature of prayer and residuary ground, which do not require any decision from us. The main ground of appeal is that the learned CIT(A) erred in not appreciating that the fair market value of the property, transferred by the assessee in this previous year for working out the long-term capital gains was. Rs. 27/- per sq. ft. as worked out by the registered valuer, It is inter-alia mentioned that the said land was converted into stock-in-trade and on the date of such conversion, the restrictions of Urban Land Ceiling Act (ULCA) were not applicable.
Therefore, the value on 01.04.1981 had to be made on the basis that the restrictions of ULCA were not applicable. It is further mentioned that the assessee had shown the value of the land on 01.04 1972, for the purpose of the levy of Wealth-tax, at Rs. 2,90,971/- and, therefore, the value claimed on 01.04.1981 was reasonable. It is also mentioned that the value of the property shown in the wealth-tax return on 01.04.1981 ought not to have been taken as the fair market value on that day for the purpose of computing capital gains and that the value declared in that return did not act as estoppel against the assessee.
Certain case laws were also cited in support of the aforesaid proposition. In view thereof, it was also mentioned that the learned CIT(A) erred in rejecting the grounds of appeal of the assessee before him.
2.1. From the assessment order, it is found that the assessee purchased land situated at Sassoon Road, Pune in the year 1963. This land was converted into stock-in-trade on 26.04.1989 and the value for the purpose of conversion was taken at Rs. 53,72,157/-. The assessee developed the land and constructed ownership flats, shops, etc. under the project name "Sharadaram Park". In the relevant previous year 28,691 sq.ft. of the land, being a part of the whole land, was sold, whose conversion price was Rs. 36,83,988/-. The fair market value of the land on 01.04.1981 was taken at Rs. 27/- per sq.ft. The indexed cost was worked out at Rs. 13,32,433/-, leading to long-term capital gains of Rs. 23,51,555/-. The value of the land was shown in the Wealth-tax return for AY 1991-92 at Rs. 2,10.000/-. However, it was stated that on the date of conversion of the land into stock-in-trade, the land had been exempted from the purview of ULCA, Therefore, the land should be valued on 01.04.1981 as if it was outside the purview of the ULCA. It was further stated that the value adopted by the wealth-tax officer at Rs. 2,10,000/- was an ad-hoc value, while the registered valuer had valued the land on scientific basis at Rs. 27/- per sq.ft. Accordingly, it was urged that the value of the land may be adopted as shown in the return of income. The learned AO did not accept the submissions and arguments of the assessee. It was pointed by him that the land was subjected to ULCA, 1976 on 01.04.1981. In terms of that Act, if any person held the land exceeding 10,000 sq.ft., it was liable to be acquired by the Government by payment of compensation @ Rs. 10/- per sq.mtr. The assessee had shown fair market value of the land in the return of wealth-tax at Rs. 88,871/- only on the aforesaid basis. The WTO estimated the value at Rs. 2,10,000/-, which was accepted by the assessee. Therefore, he adopted the value of the land at Rs. 1/- per sq.ft.
2.2. Aggrieved by this order, the assessee carried the matter in appeal before the learned CIT(A). The arguments of the assessee before the learned CIT(A) were the same as before the AO. The learned CIT(A) pointed out that the land was subjected to restrictions under the ULCA.However, the price placed by the AO at Rs. 1/- per sq.ft. was ridiculously low. It appears that an alternate claim was made by the assessee before the learned CIT(A) that the AO may be directed to take the value of the land at Rs. 2,10,000/- assessed under the wealth-tax proceedings for AY 1981-82. Therefore, he directed that the cost of acquisition of the land may be replaced by fair market value on 01.04.1981 of Rs. 2,10,000/-.
2.3. Before us, the learned Counsel narrated the facts regarding conversion of land into stock-in-trade, its development and sale of flats. In regard to computation of capital gains, it was pointed out that the registered valuer valued the land at Rs. 27/- sq.ft. The AO reduced the value by taking into consideration the value shown in the corresponding W.T. return and the restrictions placed under the ULCA.However, the learned CIT(A) allowed the value of Rs. 2.10 lakh on the basis of wealth-tax assessment. The registered valuer of the assessee had valued the land at Rs. 27/- per sq.ft. In the report, it was inter-alia mentioned that as per the scheme sanctioned under Section 21 of the ULCA, 1976, there were various impediments such as restriction on sale, scheme for weaker sections, plinth area restricted to 40 sq.mtr. for 45 tenements and 80 sq.mtr, for 22 tenements and restriction of 10% of dwelling units for sale @ Rs. 130/- per sq.ft. to the Government allottees etc. The impact of these restrictions was taken into consideration, however, he valued the land as if it was a freehold land and, thus, impact of the ULCA was not taken into consideration. Taking a comparable instance of sale in Bund Garden, he valued the land, which could be used for commercial purposes at Rs. 1500/- per sq.mtr., as if there is no restriction, and residential portion at Rs. 150 per sq.mtr., taking into account the restrictions of the scheme. The weighted average value per was worked out at Rs. 27/- per sq.ft. The learned Counsel pointed out that the valuation had been made on a reasonable basis taking into account the scheme approved under Section 21 of the ULCA.2.4. The learned Counsel relied on the decision of Hon'ble ITAT, Madras Bench, in the case of Dr. Louis Prakasam Kannaiya v. CIT (2000) 74 ITD 379. It may be worthwhile to state the facts of that case at some length. In that case certain jewellery was acquired under a Will and sold the same in the previous year relevant to AY 1994-95. The previous owner of the jewellery acquired it in 1935 and, therefore, option was exercised to substitute the cost of the previous owner the fair market value of the property on 01.04.1981. In the wealth-tax assessment for AY 1991-92, the AO had adopted the fair market value of the property.
However, due to specific situation prevailing in that year, namely, - that the Will was disputed, jewellery was under the custody of the court and even the previous owner had not taken the possession of the jewellery, the Tribunal discounted the value by 60% and came to the conclusion that the value should be 40% of the fair market value as on 01.04.1981. The AO treated such discounted value on 01.04.1981 as the value in place of the cost to the original owner. The Hon'ble Tribunal pointed out that the value for the wealth-tax purpose was discounted because of existence of peculiar facts of that case that even the previous owner had not taken the possession of the property due to dispute about Will. The litigation in that respect started in 1965 and continued during the life time of the previous owner. However, litigation was over when the sale had taken place and that factor became irrelevant. Therefore, the discount given by the Tribunal in the wealth-tax proceedings could not have been considered for the purpose of fixing the value on 01.04.1981 for the purpose of computing the capital gains.
2.5. The learned Counsel also relied on the decision of Hon'ble Cochin Bench of the ITAT in the case of Mrs. Sosamma Paulose v. JCIT (2003) 79 TTJ 572, in which it was inter-alia held that in absence of any cogent evidence in possession of the AO, value determined by the registered valuer cannot be disturbed or questioned.
2.6. As against the aforesaid, the learned DR relied on the orders of the authorities below.
3.1. We have considered the facts of the case and the submissions made before us. The facts of the case are that in the previous year, the assessee sold a part of land, which was earlier converted into stock-in-trade. The assessee opted to substitute the market value of the property on 01.04.1981 in place of its cost of acquisition. For this purpose, a report from the registered valuer was filed, in which the value was worked out at Rs. 27/- per sq.ft. The AO rejected this report without assigning any reason as to why this value was not acceptable. But, he relied on the value shown by the assessee in the wealth-tax return for AY 1981-82. The learned CIT(A) neither accepted the Value of the AO nor the value of the registered valuer but he placed the value at Rs. 2,10 lakh, being the value assessed for W.T.purpose by the AO. The assessee relied on the decision of Hon'ble ITAT, Cochin Bench, in the case of Mrs. Sosamma Paulose v. JCIT (supra), in which it was inter-alia held that the report of a registered valuer cannot be completely ignored in absence of substantive evidence to the contrary in the possession of the AO. No evidence has been cited by the AO or the learned CIT(A) as to why the aforesaid report was not correct. Therefore, we are of the view that the learned CIT(A) erred in ignoring the report completely. The learned Counsel also relied on the decision of Hon'ble ITAT, Madras Bench "A" in the case of Dr. Louis Prakasam Kannaiya v. CIT (supra), in which the valuation of jewellery made by the Hon'ble Tribunal was not accepted for the purpose of valuation under the Income-tax Act. However, the reasons for non-acceptance were peculiar to the facts of the case, namely, that even the previous owner had not taken the possession of the property, the property was in the possession of the court and, therefore, a discount of 60% was given for lack of possession. It was not a case where there were certain encumbrances were attached to the property.
The ratio of the case was not that the property has to be considered as it was on the date of sale. On the other hand, the Hon'ble Supreme Court, in the case of Shekhawati General Traders Ltd. v. ITO, Company Circle 1 Jaipur , held that the issue of bonus shares subsequent to 01.01.1954 was wholly extraneous and irrelevant and could not be taken into consideration for the purpose of computation of capital gains. Thus, the ratio of the case was that the property has to be considered as it was on 01.01.1954 in that case and consequently 01.04.1981 in this case. The ratio of this decision, was followed by the Hon'ble Bombay High Court in the case of CIT v. Lady Hirabai C.Jehangir . In that case, the Tribunal had found as a matter of fact that the transactions in shares in 1958 did not alter the continuity or identity of the shares and, therefore, the value has to be taken on 01.01.1954 as the shares existed at that point of time.
A question similar to the one in the case of the assessee also came up before the Hon'ble Madras High Court in the case of Meccane Industries Ltd. v. CIT . The Hon'ble Court held that the fact that lands were sold at much higher value did not alter in any away the cost of acquisition, which remained constant. The fact that by the time the assessee sold them, they were to be put to use for non-agricultural purposes did not involve any additional cost being incurred by the assessee. What was to be ascertained was the real profits earned by the assessee, which had to be brought to tax as capital gains. The real extent of gain was obviously the difference between the price at which the assessee sold the property and the price which the assessee paid for acquiring the property. The actual cost of acquisition of agricultural land is material and not the notional cost on that date, on the basis that the lands were to put to non-agricultural use. The ratio of this case is completely contrary to the arguments made by the learned Counsel that the property should be valued as if it was free from any encumbrance as on the date of conversion into stock-in-trade or on the date of sale, it was free from encumbrance of ULCA. The question regarding valuation of an immovable property, subject to statutory restrictions, was also discussed by the Hon'ble Rajasthan High Court in the case of CWT v. Raj Kumari Bhuvneshwari (1995) 215 ITR 198. The court pointed out that the Rajasthan Urban Property (Restriction on Transfer) Act, 1973, had placed restrictions on the right of the owner to transfer property and, therefore, its valuation was affected. However, it was not restricted to Rs. 3.00 lakh alone.
The learned court referred to the decision of the Apex Court in the case of CWT v. Raghubar Narain Singh , in which it was held that if an asset is subject to certain hazards including the liability of certain debt to be deducted form the asset, then, that factor which has the effect of diminishing the market value of the asset is a relevant factor to be taken in to account while estimating its value in the open market. The Tribunal had not done that and, therefore, the matter was remitted to the Tribunal for deciding the matter afresh. We are of the view that the ratio of that decision, though given under the Wealth-tax Act, is fully applicable to the facts of this case.
3.2. Coming to the facts of the case, the assessee had filed valuation report and we have already held that this report ought to have been taken into account for determining the value on 01.04.1981. The report valued the property at Rs. 27/- per sq.ft. on the footing that it was free from ULCA on 01.04.1981 also. Thus, this value is not in accordance with the decision of Hon'ble Rajasthan High Court in the case of Raj Kumari Bhuvneshwari(supra) or the decision of Apex Court in the case of Raghubar Narain Singh(supra). The registered valuer ought to have taken into account the impact of the restrictions on the property arising on account of applicability of ULCA. The effects of the ULCA were that the assessee was not free to sell the property, it could have been acquired by the competent authority or its use could have been allowed as per scheme sanctioned under Section 21 of that Act. In other words, the ownership and possession of the assessee were not in any way affective but its use was affected; and it could have also been acquired by payment of a sum of about Rs. 2,10,000/-.
However, the acquisition under the ULCA was not inevitable in the sense that that was the only consequence in respect of lands covered under the ULCA. There was an alternative to get the scheme approved under Section 21 and put the land to use as per the scheme sanctioned. Thus, there were drastic restrictions on user without affecting the ownership and possession on 01.04.1981. In the case of Dr. Louis Prakasam Kannaiya v. CIT (supra), the assessee was deprived of the possession and consequently the user of the jewellery. In such a circumstance, the Hon'ble Tribunal, in the wealth-tax proceedings, granted reduction of 60% from the fair market value of the property. In the instant case, while the assessee was in possession of the property, its user was drastically curtailed and consequently possessory right was also affected. Looking to these peculiar facts, we are of the view that interest of justice will be served, as per the decision of Hon'ble Rajasthan High Court in the case of Raj Kumari Bhuvaneshwari (supra), if the value determined registered valuer is discounted by 50% only.
Thus, we are of the view that the fair market value of the property on 01.04.1981 should be taken at Rs. 13.50 paise per sq.ft.
4. In result, the appeal of the assessee is partly allowed as discussed above and the capital gains shall be computed accordingly.