Ita/425/2009 Of Director Of Income Tax v. Mr Shahrooq Ali Khan

IN THE HIGH COURT OF KARNATAKA AT BENGALURU Dated this the 10[th] day of August, 2015 Present THE HON’BLE MR JUSTICE VINEET SARAN & THE HON’BLE MR JUSTICE B MANOHAR Income Tax Appeal 425 / 2009 Between 1 Director of Income Tax International Taxation Rashtrothana Bhavan Rashtrothana Bhavan Nrupathunga Road Bangalore Bangalore 2 Asst. Commissioner of Income Tax International Taxation – Circle 19(1) Rashtrothana Bhavan Nrupathunga Road Bangalore Bangalore Appellants (By Sri K V Aravind, Adv.) And Mr Shahrooq Ali Khan Flat # 9, 9-B, 9[th] Floor Regency Heights # 3/2/1, Frazer Town Cleveland Road Bangalore Respondent (By Sri G Sarangan, Sr. Adv. a/w Balaram R Rao, Adv.) 2 Appeal is filed under S.260 A of the Income Tax Act, 1961 praying to set aside the order passed by the ITA Tribunal, Bangalore in ITA 835/Bang/2008 dated 13.2.2009 and confirm the order of the Appellate Commissioner confirming the order passed by the Assistant Commissioner of income Tax, Intl. Taxn. Circle 19(1), Bangalore. Appeal coming on for hearing this day, Vineet Saran J, delivered the following: JUDGMENT This is an appeal filed by the Revenue challenging the order of the Tribunal. Brief facts relevant for the purpose of this case are: A joint development agreement (JDA) was entered into between the assessee, Sri Sharooq Ali Khan; his brother, Sri Sameer A Khan; and M/s Ashed Properties and Investment Private Limited, represented by its Director, Sri Sameer A Khan. The property to be developed was comprising of a total area of 35,887 sq.ft., out of which, 12,377 sq.ft. was the share of assessee, Sri Sharooq Ali Khan; 14,538 sq.ft. was the share of Sri Sameer A Khan ( which was gifted to him by the assessee, Sri Sharooq Ali Khan); and 8,972 sq.ft. belonged to M/s Ashed Properties and Investment Private Limited. For the assessment year 2004-05, the assesee declared capital gain of Rs.6,95,446/- after taking into account the consideration in the form of three flats falling in his share, as per the JDA and also the corresponding undivided interest in the property. The Assessing Officer, after obtaining the valuation report of three flats and other undivided interest in the property, arrived at the value of the share of the assessee at Rs.2,00,45,265/- instead of Rs.1,18,66,871/- as claimed by the assessee. The cost of acquisition as claimed by the assessee at Rs.1,11,71,425/-, was recomputed by the Assessing Officer at Rs.92,67,192/- and thus arrived at net capital gain at Rs.1,07,78,073/- (being Rs.2,00,45,625/- minus Rs.92,67,192/-) instead of Rs.6,95,446/- as declared by the assessee. The appeal filed by the assessee was dismissed by the Commissioner of Income Tax (Appeal), who held that the appellant had clearly transferred 12,377 sq.ft. of undivided interest in land in return for 9,747 sq.ft. of built up area and 4,470 sq.ft. of undivided interest. It further held that the cost of acquisition of asset has to be taken on the basis of the asset given up, which in the instant case is 12,377 sq.ft. of undivided interest. To this extent, the appellate Commissioner directed the Assessing Officer to rework the capital gains taking the fair market value based on the report of the Valuation Officer and the indexed cost of acquisition based on 12,377 sq.ft. of undivided interest. Challenging 4 The appeal filed by the assessee was dismissed by the Commissioner of Income Tax (Appeal), who held that the appellant had clearly transferred 12,377 sq.ft. of undivided interest in land in return for 9,747 sq.ft. of built up area and 4,470 sq.ft. of undivided interest. It further held that the cost of acquisition of asset has to be taken on the basis of the asset given up, which in the instant case is 12,377 sq.ft. of undivided interest. To this extent, the appellate Commissioner directed the Assessing Officer to rework the capital gains taking the fair market value based on the report of the Valuation Officer and the indexed cost of acquisition based on 12,377 sq.ft. of undivided interest. Challenging 4 the said order, the assessee filed further appeal before the Tribunal, which has been allowed after holding that the valuation report was obtained under section 142-A of the Act, whereas it ought to have been called for under section 55-A of the Act, and since there was no opinion recorded by the Assessing Officer before calling for the valuation report, the same could not have been relied upon. The Tribunal further found that the assessee had transferred only 8,434 sq.ft. of undivided interest in exchange of three flats measuring 9,747 sq.ft. along with 527 sq.ft. of undivided interest of the adjoining land and thus allowed the appeal of the assessee and accepted the return of income filed by the assessee. Challenging the said order, this appeal has been filed by the Revenue, which has been admitted on following questions of law: 1 Whether the Tribunal was correct in holding that the Assessing Officer has to form an opinion that the property is under valued before sending it to the valuation officer which had not been done in the facts of the present case when the assessee himself had raised no objection for referring to the Valuation Officer? 2 Whether the Tribunal was correct in holding that only 8,434 sq.ft had been transferred by ignoring the development agreement which clearly stated that 12,377 5 sq.ft has been transferred to the builder and consequently recorded a perverse finding? We have heard Sri K V Aravind, learned counsel for the Revenue and Sri Sarangan, learned Senior Counsel appearing along with Sri Balaram Rao, learned counsel for the respondent – assessee and perused the records. With regard to the first question, it has been submitted by learned counsel for appellant that though technically the valuation report should have been called for under section 55-A of the Act and in the present case, the Assessing Officer had called for such report under S.142-A of the Act, but the same would not be a mistake which could not be rectified as, substantially the intention was to get the correct valuation of the three flats, as the Assessing Officer did not agree with the valuation submitted by the assessee. Learned counsel for respondent assessee has, however, submitted that under section 55-A of the Act, the Assessing Officer was to first form an opinion that such valuation report was required and then only a report in this regard could have been called for. It is contended that in not having recorded his reasons for forming an opinion, calling of the valuation report from the District Valuation Officer cannot be justified in law. In our opinion, what is to be primarily considered is that whether the valuation report was required in the facts of the present case or not. Admittedly, there was no valuation report of a registered Valuer submitted by the assessee with regard to the valuation of the three flats in question. It is correct that the Assessing Officer had wrongly sought the report under section 142-A of the Act, whereas it ought to have been called under section 55-A of the Act which provides for the Assessing Officer to be first of the opinion that the fair market value of the asset exceeds by more than 15% of the value of the asset as claimed by the assessee, for which reasons ought to have been recorded by the Assessing Officer. In our opinion, what is to be primarily considered is that whether the valuation report was required in the facts of the present case or not. Admittedly, there was no valuation report of a registered Valuer submitted by the assessee with regard to the valuation of the three flats in question. It is correct that the Assessing Officer had wrongly sought the report under section 142-A of the Act, whereas it ought to have been called under section 55-A of the Act which provides for the Assessing Officer to be first of the opinion that the fair market value of the asset exceeds by more than 15% of the value of the asset as claimed by the assessee, for which reasons ought to have been recorded by the Assessing Officer. Considering the fact that the Assessing Officer has the power to call for a valuation report when he is of the opinion that the valuation of the asset given by the assessee is undervalued and technically such opinion has not been recorded by the Assessing Officer in the present case, though we answer the first question in favour of the assessee and against the Revenue, but we provide that in the facts and circumstances of the case, the matter may be reconsidered by the Assessing Officer and after recording reasons for forming an opinion with regard to calling for a valuation report as required under section 55-A of the Act, the Assessing Officer may proceed afresh in the matter, in accordance with law. As regards the second question, the Tribunal has held that only 8,434 sq.ft. had been transferred, without there being any reference to this figure of 8,434 sq.ft. in any of the agreements or memorandum of understanding between the parties. The agreement and the memorandum of understanding, as had been entered into between the parties, was for 12,377 sq.ft. being the share of contribution of the assessee in the total land given for development to the developer. The Tribunal, without assigning any cogent reason in this regard, has come to the conclusion that the assessee had transferred only 8,434 sq.ft. of undivided interested in exchange of three flats measuring 9,747 sq.ft. along with 527 sq. ft. of undivided interest in the adjoining land. The findings recorded by the Assessing Officer as well as the appellate Commissioner in this regard have not been properly appreciated by the 8 Tribunal. As such, we answer the second question in favour of the Revenue and against the assessee. However, keeping in view the totality of circumstances, the entire matter is referred back to the Assessing Officer for fresh computation, in accordance with law, after considering the matter relating to obtaining of valuation report with regard to the asset in question under section 55-A of the Act as well as valuation of the property transferred in favour of the assessee including the three flats and also the corresponding undivided interest in the property. Appeal stands disposed of in terms as mentioned aforesaid. No order as to costs. Sd/- Judge Bkm/An Sd/- Judge