Commissioner Of Income Taxchennai v. M/S.maharaja Seafoods India P Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MR. JUSTICE G.M.AKBAR ALIT.T.C.A. NOS. 813 & 814 OF 2013ANDM.P. NO. 1 OF 2013 Commissioner of Income TaxChennai....Appellant in both the appeals - Vs - M/s.Maharaja Seafoods India P Ltd.1, 5[th] Street, Dr.Radhakrishnan SalaiChennai 600 004....Respondent in both the appeals Appeals filed against the order dated 20.03.2013 passed by theIncome Tax Appellate Tribunal, Madras 'C' Bench, made in ITANos.1017/Mds/2011 and 1018/Mds/2011 against the order of the Assistant Commissioner of Income Tax(Appeals) IV (1) Chennai, dated 10.03.2011 in ITA No. 214/2007-2008,PAN / GIR No. /year of assessment 2005-2006 and against theorder of the Assistant Commissioner of Income Tax, Company Circle -IV(1), Chennai, dated 10.03.2011 ITA 549/2006-2007, PAN/GIRNo. /year of assessment 2004 - 2005 respectively. These appeals have been filed by the appellant against the orderdated 20.03.13 passed by the Income Tax Appellate Tribunal in ITANos.1017/Mds/2011 and 1018/Mds/2011. 2. The following substantial questions of law have been framedfor consideration in these appeals :-https://hcservices.ecourts.gov.in/hcservices/ “1) Whether under the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wascorrect in applying the value of the land at theaverage of the valuation rate adopted by the assesseeand the revenue, for the purpose of arriving at thefair market value of the property as on 1[st] April,1981? 2) Whether under the facts and circumstances of thecase, the Income Tax Appellate Tribunal was correctin rejecting the value adopted by the Revenue, on thebasis of the guideline value, which is fixed on thebasis of transactions in the area where the land issituated? 3. These appeals are filed by the Revenue against the order ofthe Tribunal in relation to capital gains in respect of certain landssold, which is relatable to the assessment years 2004-2005 and 2005-2006. The assessee sold lands measuring 26,087 sq.ft., in MarakayarNagar, Neelankarai Village at the rate of Rs.521/= per sq.ft. Forthe purpose of computation of capital gains under Section 48 r/wSection 55 (2) (b) (i) of the Income Tax Act, the assessee determinedthe cost of acquisition as on 1.4.1981 by adopting the fair marketvalue of Rs.120/= per sq.ft, which the assessee did by referring tofour documents, two documents of the year 1992, one document of theyear 1994 and two documents of the year 1995. However, the abovesaiddocuments were not placed before the Assessing Officer, but placedonly before the Commissioner of Income Tax (Appeals). Based on thevalue determined in those documents, by adopting the method called'Reverse Indexation', the said fair market price of Rs.120/= persq.ft. was claimed as on 1.4.81. However, the said price was notaccepted by the Assessing Officer, but fixed the fair market price byrelying upon the certificate of the Sub Registrar, Adyar, Chennai,which certificate determined the value in respect of survey No.92/2/Aat Rs.3500/= per ground or Rs.1.46 per sq.ft. The Assessing Officerrejected the acquisition value relied upon by the assessee andproceeded to determine the long term capital gains on the basis ofthe value found in the certificate issued by the Sub Registrar. 4. The assessee, aggrieved by the assessment, preferred appeal tothe Commissioner of Income Tax (Appeals), who, taking note of theabovesaid four documents submitted by the assessee, at the firstinstance before the Commissioner of Income Tax (Appeals) and takingnote of the certificate issued by the Sub Registrar, which is reliedupon by the Assessing Officer and relying upon a co-ordinate Benchdecision in ACIT, Co. Cir. VI (1), Chennai – Vs – SAS Engineering P.Ltd. (ITA No.61/Mds/2008 – dated 14.08.2008), adopted mean value atRs.60/= per sq.ft. and held as under :- 4. The assessee, aggrieved by the assessment, preferred appeal tothe Commissioner of Income Tax (Appeals), who, taking note of theabovesaid four documents submitted by the assessee, at the firstinstance before the Commissioner of Income Tax (Appeals) and takingnote of the certificate issued by the Sub Registrar, which is reliedupon by the Assessing Officer and relying upon a co-ordinate Benchdecision in ACIT, Co. Cir. VI (1), Chennai – Vs – SAS Engineering P.Ltd. (ITA No.61/Mds/2008 – dated 14.08.2008), adopted mean value atRs.60/= per sq.ft. and held as under :- “7.17. In this case also, there can be no doubtthat the property in the ECR is a valuable property https://hcservices.ecourts.gov.in/hcservices/ where prices have risen astronomically in the lastten years. The guideline value at Rs.1.46 is thevalue as on 1.4.1981 and not kept pace with fastchanging times. Similarly, the Valuation Reportfurnished by the appellant suffers from the infirmityof not quoting any specific sale instance.Therefore, in the interest of justice, and as alsoheld by the Hon'ble ITAT in the case quoted supra, Idirect the Assessing Officer to adopt a mean value ofRs.60 per sq.ft.” 5. Aggrieved by the said order, the Revenue went on appeal beforethe Tribunal on two issues, viz., (i) relating to business income and(ii) relating to capital gains. Insofar as the question of businessincome is concerned, the Tribunal held that since the assessee hadalready closed its business, the income earned by the assessee fromletting of buildings and land is not business income and, therefore,the business expenditures claimed by the assessee are not allowableand, therefore, the issue was answered in favour of the Revenue.However, insofar as the issue on capital gains is concerned, theTribunal, relying upon the decision of this Court in CIT – Vs –J.Chelladurai (204 Taxmann 258 (Mad)), held that in computing capitalgains, average of the values can be adopted and affirmed the order ofthe Commissioner of Income Tax (Appeals). Aggrieved against the saidorder of the Tribunal, while the Revenue is before this Court byfiling the two appeals insofar as capital gains is concerned, theassessee has not chosen to file any appeal insofar as the claim ofbusiness income is concerned, which was held in favour of the Revenue. 6. At the threshold, it was pointed out by Mr.Senthilkumar,learned standing counsel for the Revenue that the facts inChelladurai's case (supra) may not apply on all fours to the facts ofthe present case. The certificate issued by the Sub Registrar inrespect of the property in question cannot be brushed aside, as inChelladurai's case (supra), it was found that the certificate wasfound to be forged and, therefore, average method was adopted, whichis not comparable with the case on hand. In the present case, theassessee has not shown comparable documents of the year 1981 todetermine the fair market price as required under Section 55 (2) (b)(i) and, therefore, based on the certificate of the Sub Registrar,the guideline value was fixed by the Assessing Officer in arriving atthe assessment and, therefore, the order of the Commissioner ofIncome Tax (Appeals) as also that of the Tribunal has to be set aside. 7. Per contra, Mr.Sridhar, learned counsel appearing for theassessee/respondent reiterated the pleadings as made before theOriginal Authority, the Commissioner of Income Tax (Appeals) and theTribunal and contended that the value of the property in a very primelocality on the outskirts of the city cannot be fixed at Rs.1.46 persq.ft. The certificate issued by the Sub Registrar determining theguideline value at Rs.1.46 sq.ft. was not even intimated to thehttps://hcservices.ecourts.gov.in/hcservices/ 7. Per contra, Mr.Sridhar, learned counsel appearing for theassessee/respondent reiterated the pleadings as made before theOriginal Authority, the Commissioner of Income Tax (Appeals) and theTribunal and contended that the value of the property in a very primelocality on the outskirts of the city cannot be fixed at Rs.1.46 persq.ft. The certificate issued by the Sub Registrar determining theguideline value at Rs.1.46 sq.ft. was not even intimated to thehttps://hcservices.ecourts.gov.in/hcservices/ assessee so as to give his objections, if any. Therefore, the standof the Assessing Officer in fixing the value at Rs.1.46 per sq.ft. isarbitrary and is not sustainable in law. It is the further plea ofMr.Sridhar, learned counsel for the respondent that four documents,pertaining to subsequent period, were submitted before theCommissioner of Income Tax (Appeals) and on scrutiny of the abovesaiddocuments, the fair market price was determined based on reverseindexation by the Commissioner of Income Tax (Appeals), which wassubsequently affirmed by the Tribunal and in such view of the matter,no interference is called for with the order passed by the Tribunal. 8. Heard Mr.T.R.Senthilkumar, learned standing counsel appearingfor the appellant/Revenue and Mr.Sridhar, learned counsel appearingfor the respondent/assessee and also perused the materials placed inthe typed set of documents and the orders passed by the Commissionerof Income Tax (Appeals) and the Tribunal. 9. On a careful scrutiny of the records and on a perusal of theorders passed by the Commissioner of Income Tax (Appeals) and theTribunal, we find that both the Commissioner of Income Tax (Appeals)and the Tribunal have gone on a different plane altogether byadopting mean value of Rs.60/= per sq.ft. The respondent/assesseehad adopted reverse indexation method in computing the value of theland. However, there is nothing on the record to indicate whethersuch a method could be adopted in computing the value. The furtherstand of Mr.Sridhar that the reverse indexation sought for by theassessee before the Commissioner of Income Tax (Appeals), though notbefore the Assessing Officer, has to be the determinable method asprovided by law for computation of fair market value as requiredunder Section 55 (2) (b) (i), this Court is of the considered opinionthat the said question has to be gone into by the authorities anddecided before such a method of computation can be adopted. 10. Perforce, we are not agreeable with the view of the Tribunalin following Chelladurai's case (supra) in arriving at its finding inrelation to computation of fair market value, since the facts thereinwould reveal that on account of the forged certificate, the Court hadadopted average method in the said case, while the facts in thepresent case stands on a different footing. 11. While we accept the plea of the Revenue that determination offair market price by the Commissioner of Income Tax (Appeals) andconfirmed by the Tribunal is not in consonance with law, we givecredence to the stand taken by the learned counsel for the assesseethat the determination of the fair market price for computation ofcapital gains, as was done by the assessee, was not given due regardby the Assessing Officer, but the Assessing Officer has arbitrarilytaken the certificate issued by the Sub Registrar for fixing the fairmarket value, without offering an opportunity to the assessee toraise his objections. https://hcservices.ecourts.gov.in/hcservices/ 11. While we accept the plea of the Revenue that determination offair market price by the Commissioner of Income Tax (Appeals) andconfirmed by the Tribunal is not in consonance with law, we givecredence to the stand taken by the learned counsel for the assesseethat the determination of the fair market price for computation ofcapital gains, as was done by the assessee, was not given due regardby the Assessing Officer, but the Assessing Officer has arbitrarilytaken the certificate issued by the Sub Registrar for fixing the fairmarket value, without offering an opportunity to the assessee toraise his objections. https://hcservices.ecourts.gov.in/hcservices/ 12. For the reasons abovesaid, we find that there is a lacuna(i.e.) violation of principles of natural justice in the proceedingsbefore the Commissioner of Income Tax (Appeals) and the Tribunal asalso before the Assessing Officer for non-consideration of the aboveissues. In these circumstances, we deem it fit to remand the matterback to the Original Authority/Assessing Officer for determining theissue of fair market price as on 1.4.1981 by giving the assessee anopportunity to produce all relevant documents in support of its pleaas also raise objections with regard to any document as may be reliedon by the Assessing Officer. 13. Accordingly, these tax appeals are allowed by way of remandto the Assessing Officer for determining the issue of fair marketprice as on 1.4.1981, and the Assessing Officer shall give anopportunity to the assessee/respondent to produce all relevantdocuments in support of its plea and also raise objections withregard to any document that may be relied on by the Assessing Officerbefore a final decision is taken in the matter. Consequently,connected miscellaneous petition is closed. However, there shall beno order as to costs. Sd/-Assistant Registrar(Records) //True Copy// GLNTo Sub Assistant Registrar 1. Commissioner of Income TaxChennai. 2. The Assistant Commissioner,Income Tax, Chennai. https://hcservices.ecourts.gov.in/hcservices/