[2019] 109 taxmann.com 541 (Delhi - Trib.

)[05-09-2019]

INCOME TAX : Where assessee sold a part of land and factory shed (immovable
property) consisting of land and building and assessee had taken cost of acquisition
for land as per valuation report as at 1-4-1981, same could not be rejected by
Assessing Officer when he had not put on record any evidence to show that
valuation report obtained by assessee was devoid of any merit
INCOME TAX : Section 50 is a special provision for computing capital gain in case of
depreciable asset and is restricted for purpose of provisions of section 48 or section
49 specifically and it has nothing to do with exemption that is provided in totally
different provisions and therefore, capital gain computed under section 50 would be
chargeable to tax at concessional rate under section 112

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[2019] 109 taxmann.com 541 (Delhi - Trib.)

IN THE ITAT DELHI BENCH 'A'
Deputy Commissioner of Income-tax
v.
Ajanta Tubes Ltd.*
SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER
AND PRASHANT MAHARISHI , ACCOUNTANT MEMBER
IT APPEAL NO. 4432 (DELHI) OF 2014
[ASSESSMENT YEAR 2008-09]
SEPTEMBER 5, 2019

I. Section 55 of the Income-Tax Act, 1961 - Capital gains - Cost of acquisition (Land) -
Assessment year 2008-09 - Whether where assessee sold a part of land and factory shed
(immovable property) consisting of land and building and assessee had taken cost of
acquisition for land as per valuation report as at 1-4-1981, same could not be rejected by
Assessing Officer when he had not put on record any evidence to show that valuation report
obtained by assessee was devoid of any merit - Held, yes [para 15][In favour of assessee]
II. Section 112 read with section 50 of the Income-Tax Act, 1961 - Capital gains - Tax on long-
term capital gains (Depriciation on building) - Assessment year 2008-09 - Whether section 50
is a special provision for computing capital gain in case of depreciable asset and is
restricted for purpose of provisions of section 48 or section 49 specifically and it has
nothing to do with exemption that is provided in totally different provisions and therefore,
capital gain computed under section 50 would be chargeable to tax at concessional rate
under section 112 - Held, yes[para 16] [In favour of assessee]
FACTS

■ The assessee-company was engaged in the business of manufacture of steel and PVC pipes.
■ During the year the assessee sold a part of land and factory shed (immovable property) consisting of land
and building.
■ The assessee in its return of income had shown certain amount as long-term capital gain from sale of land
and nil as short-term capital gain from sale of building/factory shed.
■ The Assessing Officer held that since factory building was the capital asset on which only short-term
capital gain would arise on transfer of it as per provision of section 50 the Assessing Officer computed the
short-term capital gain on sale of building.
■ The Assessing Officer further held that the assessee had taken the cost of acquisition for land at as per
valuation report as at 1-4-1981 as against being the book value.
■ The Assessing Officer further held that the perusal of the valuation report furnished in support of fair
market value as at 1-4-1981 being cost of acquisition of land revealed that the valuer had valued the cost
of land at which was not acceptable.

■ Accordingly the Assessing Officer computed the long-term capital gain on sale of land and granted
exemption under section 54D and net taxable long-term capital gain was computed.
■ Against this the assessee had shown the long-term capital gain and therefore the addition on account of the
long-term capital gain on sale of land was made.
■ On appeal the Commissioner (Appeals) held that though the sale of building was considered as short-term
capital gain under section 50 but it would be charged to tax as long-term capital gain as per concessional
rates.
■ On appeal to the Tribunal:
HELD

■ The Commissioner (Appeals) has held that assessee has been given an option according to the provisions
of section 55(2)(b) to adopt the fair market value as on 1-4-1981 by submitting the valuation report from
an approved valuer to substitute in option to the cost of acquisition of the asset. Therefore this is a
beneficial provision. The Assessing Officer has not put on record any evidence to show that the valuation
report obtained by the assessee is devoid of any merit or the prevailing rate as on that date on 1-4-1981 of
the similar property were less than Rs. 130 per square meter. No such evidences have been shown to the
Court. In view of this the rejection of the valuation report by the Assessing Officer cannot be accepted.
Even otherwise in the grounds of appeal the Assessing Officer has raised an issue that taking the valuation
of land as per approved valuer’s report means that the land purchased in 1993 has not been distinguished
for the taxation purposes separately. However no evidence has been produced that the impugned land sold
by the assessee is acquired post 1-4-1981. In view of this ground number 1 of the appeal is dismissed.
[Para 15]
CASE REVIEW

CIT v. V. S. Dempo Company Ltd.[2016] 74 taxmann.com 15/242 Taxman 434/387 ITR 354 (SC) (para 16)
followed.
CASES REFERRED TO

CIT v. V.S. Dempo Company Ltd. [2016] 74 taxmann.com 15/242 Taxman 434/387 ITR 354 (SC) (para 14).
P.V. Gupta, Sr. DR for the Revenue. Saurav Rohtagi, CA for the Assessee.
ORDER

Prashant Maharishi, Accountant Member. - This appeal is filed by the revenue against the order of the ld
CIT (A)-IV, New Delhi dated 26.05.2014 for the Assessment Year 2008-09.
2. The revenue has raised the following grounds of appeal:-
"1 . On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in directing the AO to
take the valuation of land as on 01.04.1981 as per approved valuer's report because the assessee has also
acquired some land after 01.04.81. Therefore by taking valuation of land as per approved valuer's report
means that the land purchased in 1993 has not been distinguished for indexation purpose. When this
value showed very huge appreciation of property within 3 to 6 years, the AO was fully justified in
 rejecting the report prepared at the behest of the assessee and. calculating the capital gain after providing
for indexation at the cost price.
2. Deleting the addition of Rs.2,33,77,352/- made as short term capital gain when (A) the assets on which
capital gain arose is on depreciable assets for which the issue involved was computation of capital gain
which had to be computed in the manner prescribed under section 50 and (B) capital gain tax would be
charged as if such capital gain had arisen out of a short term capital asset.
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s)
of appeal at any time before or during the hearing off this appeal."
3. The brief facts of the case show that the business of the assessee company was to manufacture of steel and
PVC pipes at it works at Ghaziabad. During the year under consideration the assessee company has sold a part
of land and Factory shed (immovable property) consisting of land and building on 12/03/2008 INR
4183700000 and INR 90945000/-. The assessee company filed its return of income on 27/2/2010 declaring
total income of INR 1 20946810/-. In its return of income, the company had shown Rs 117791426 as long-
term capital gain from sale of land and Rs Nil as short-term capital gain from sale of building/factory shed.
Thereafter the case was assessed u/s 143 (3) on 23/10/2009 on income of INR 5 3393280/-.
4. Subsequently the case of the assessee was reopened by issuing notice u/s 148 of the act on 29/12/2011 after
recording the reasons. The assessee submitted that the original return filed u/s 139 (1) may be treated as return
filed in response to notice u/s 148 of the income tax act. Subsequently a show cause notice was issued as to
why the addition on account of shortterm capital gain arising on sale of land and building of INR 541,500,000
should not be taxed against the long-term capital gain shown by the assessee company.
5. The assessee objected to the same and stated that it is not correct to include land and building in the same
block of assets and consider the transfer as short-term capital gain. Assessee also submitted that it has never
claimed appreciation on the land however; the answer of the assessee on the issue of depreciation of building
was silent.
6. Learned assessing officer noted that assessee company had sold its land and building shed to M/s Bhushan
steels Ltd as per sale deed dated 12/03/2008 for INR 101050000/- admeasuring 424490 m2 along with
building and on the same date of INR 183700000/- admeasuring 44535 0 m2 along with building. Further
depreciation has not been provided on factory building, as the same was not used throughout the year. Further
the company had decided to sell factory building and freehold land vide agreement to sale dated 12/3/2008 to
the same party for INR 313750000/-. Towards the sale the assessee company has received INR 1 56875000/-
and remaining balance was outstanding. It was further noted that assessee has shown long-term capital gain
for the sale of land and building at Rs. 117791426/-. Assessee has also worked out the long-term capital gain
on factory building situated in this premises on which the assessee company has been claiming depreciation
regularly. The written down value of the building was found at Rs. 6698248/-. The learned AO held that since
factory building is the capital asset on which only short-term capital gain would arise on transfer of it as per
provision of section 50 of the Act. The assessee company has also taken the cost of acquisition for land at as
per valuation report as at 1-4-1981 of INR 9102600/- as against INR 390954/- being the book value. He
further held that the perusal of the valuation report furnished in support of fair market value as at 1-4-1981
being cost of acquisition of land, revealed that the valuer has valued the cost of land at INR 9 102600/- which
is not acceptable. Accordingly he computed the long-term capital gain on sale of land at Rs. 252520244/- and
granted exemption under section 54D of INR 100000000/- and net taxable long-term capital gain was
computed at INR 1 52520244/-. Against this the assessee has shown the long-term capital gain of Rs
117791426/- and therefore the addition on account of the long-term capital gain on sale of land was made of
INR 34728818/-. With respect to the short-term capital gain on sale of building he considered the sale value at
INR 3 0075600/- and computed the short-term capital gain thereon of INR 2 3377352/- accordingly the
assessment order was passed on 30/3/2013 under section 148 read with section 143 (3) of the act.
7. Assessee aggrieved with the order of the learned assessing officer has challenged the same before the
learned CIT - A. The learned CIT - A upheld the taxation of INR 2 3377352/- on the sale of building and
factory shed as short-term capital gain as the assessee company has been claiming depreciation regularly in
the books of accounts and the net value of building was shown at rupees 6698248/- on 31/3/2008. He held that
factory building is a depreciable asset on which the appellant has been claiming depreciation. This issue has
not been agitated by the assessee before us and therefore it is now concluded. However, the revenue has raised
this ground as per ground number 2 of appeal.
8. On the issue of inclusion of stamp duty of INR 1 0105000/- in the amount of sale consideration he held that
appellant has paid the stamp duty as per the sale agreement and therefore according to the provisions of
section 48 the expenditure incurred wholly and exclusively in connection with the transfer of the capital asset
the assessee deserves the deduction of the above amount. Therefore, he allowed the claim of the assessee. On
this issue, also revenue is not in appeal before us.
9. On the issue of the action of the learned assessing officer in taking the cost of the land as per the audited
balance sheet for the purpose of arriving at the indexed cost of land and ignoring the approved valuer's
valuation of land asset 1/4/1981, he referred to the provisions of section 55 (2) (B) and held that the above
section makes it clear that where asset was acquired before the 1st Day of April 1981, the cost of acquisition
of the asset will be the cost of acquisition of the asset to the assessee or the fair market value of that asset as
on 1st Day of April 1981, at the option of the assessee. He further held that the option is with the assessee to
opt for the fair market value as on 1/4/1981 by submitting the valuation report from an approved valuer. The
act does not provide option to the assessing Officer to not to accept the valuation report regarding the fair
market value unless he is able to prove by bringing evidence on record that the valuation report is not correct.
He further held that there is no dispute that the land in question was acquired by the appellant prior to
1/4/1981. In view of this, he held that the AO was not justified in rejecting the valuation report of approved
valuer showing the value of land as on 1/4/1981 and therefore he allowed the appeal of the assessee on this
ground. The revenue is aggrieved with the same and is in appeal before us.
10. He further held that though the sale of building is considered as short-term capital gain u/s 50 of the act
but it would be charged to tax as long term capital gain as per concessional rates.
11. The learned departmental representative vehemently supported the order of the learned assessing officer
and submitted that there is an unusual appreciation shown in property within 3 to 6 years and therefore the
assessing officer was fully justified in rejecting the valuation report shown by the assessee as the cost of
acquisition determining far market value of property as at 1/4/1981. He further stated that the grounds of
appeal state that taking the valuation of land as per approved valuer's report means that the land purchased in
1993 has not been distinguished for taxation purposes. He therefore submitted that the order of the learned
CIT - A is erroneous. This was argument with respect to ground number 1 of the appeal.
12. For Ground no 2 ld DR relied up on the order of the ld AO.
13. The learned authorised representative relied upon the order of the learned CIT - A with respect to ground
number 1 of the appeal of the assessing officer
14. The ld AR , With respect to ground number 2 of the appeal of the assessee he submitted that as per para
number 5.4.2 of the order of the learned CIT - A the above addition has been confirmed and therefore there is
no grievance of the revenue. He further submitted that issue is not squarely covered by the decision of the
honourable Supreme Court in case of CIT v. V.S Dempo Co Ltd [2016] 74 taxmann.com 15/290 CTR 401/387
ITR 354/242 Taxman 434 (SC).
15. We have carefully considered the rival contention and perused the orders of the lower authorities. Brief
facts of the case are that the business of the appellant Company was to manufacture of steel and P.V.C. pipes
at its works at Ghaziabad (UP). The appellant company filed its return of income for the assessment year
2008-2009 declaring the total income at Rs. 12,09,46,810. The appellant company sold part of the immovable
property consisting of land and building on 12th March, 2008 for Rs. 18,37,00,000 and Rs.9,09,45,000,
respectively. The appellant in its return of income had shown Rs.11,77,91,426 as Long Term Capital Gain
from sale of land and 'Nil as Short Term Capital Gain from sale of building /shed. The notice under section
148/143(3) of the Income Tax Act, 1961 dated 29th December, 2011 was served upon the appellant. The
assessment was completed by the Assistant Commissioner of Income-Tax on 30.03.2012 under section 143(3)
of the Act at a total income of Rs. 17,90,52,975 after making additions on account of short term capital gains
of Rs.2,33,77,352 and Rs.3,47,28,818 on account of long term capital gains. The sale deeds in question were
for composite sale of land and building (i.e., sale deed did not mention the break-up of consideration for land
and building separately) for Rs. 18,37,00,000 and Rs.9,09,45,000. The dispute between the appellant company
and the Assessing Officer is three folds; one related to the apportionment of sale price of the two sale deeds
between land component and the building and second related to non consideration of the fair market value
(FMV) of land as on 1-4-1981 as per the approved valuer's report and lastly inclusion of stamp duty paid by
the appellant as part of sale consideration. The learned CIT - A has dealt with the whole issue as per ground
number 4 of the appeal at para number 7 of his order. The only grievance of the learned assessing officer is
that that assessee should not have been granted the deduction of the valuation of the land as on 01/04/1981 at
INR 9 102600/- wherein the valuer has taken the land at the rate of INR 1 30/- per square metre. The learned
assessing officer has rejected the valuation report stating that it is without any basis. The learned CIT - A has
held that assessee has been given an option according to the provisions of section 55 (2) (b) of the income tax
act to adopt the fair market value as on 1/4/1981 by submitting the valuation report from an approved valuer
to substitute in option to the cost of acquisition of the asset. Therefore, this is a beneficial provision. The
learned assessing officer has not put on record any evidence to show that the valuation report obtained by the
assessee is devoid of any merit or the prevailing rate as on that date on 01/04/1981 of the similar property
were less than INR 1 30/- per square meter. No such evidences have been shown to us or before the learned
CIT - A. In view of this, the rejection of the valuation report by the learned assessing officer cannot be
accepted. Even otherwise in the grounds of appeal the learned AO has raised an issue that taking the valuation
of land as per approved valuer's report means that the land purchased in 1993 has not been distinguished for
the taxation purposes separately. However, no evidence has been produced before us that the impugned land
sold by the assessee is acquired post 1 /4/1981. In view of this ground number 1 of the appeal is dismissed.
16. The second ground of appeal is against treatment given by the learned CIT - A of rupees to 3377352/- by
admitting the additional ground holding that same is chargeable to tax as per the provisions of section 112 of
the income tax act. The above issue now is squarely covered by the decision of the honourable Supreme Court
in VS Dempo Co. Ltd. (supra) wherein it has been held that section 50 of the income tax act is a special
provision for computing the capital gain in the case of depreciable asset is only restricted for the purpose of
the provisions of section 48 of section 49 of the income tax act specifically. It has nothing to do with the
exemption that is provided in totally different provisions. The learned CIT - A while deciding the issue in para
number 5.4.3 has relied upon the decision of the coordinate bench and granted relief to the assessee. The
learned departmental representative could not point out any infirmity in the order of the learned CIT - A. In
view of this ground number 2 of the appeal of the AO is dismissed.
17. Accordingly, appeal of the learned assessing officer is dismissed.
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*In favour of assessee.