Itta/96/2004 Of Commissioner Ofincome Tax-6 v. Dr.jaehangir M.jehangir

*THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDYand *THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.96 of 2002 % 10.12.2014 Commissioner of Income Tax-6, Hyderabad. Vs.$ Dr. Jeehangir M. Jehangir,hyderabad. …. Appellant…. Respondent ! Counsel for the Appellant: Sri S.R. Ashok, Senior S.C for Income TAxCounsel for Respondent: Sri P. Murali Krishna <Gist : >Head Note: ? Cases referred: THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAMI.T.T.A.No.96 of 2004 JUDGMENT:(per the Hon’ble Sri Justice L.Narasimha Reddy) The Revenue preferred this appeal feeling aggrieved by theorder dated 26.02.2004 passed by the Hyderabad Bench ‘B’ of theIncome Tax Appellate Tribunal (for short ‘the Tribunal’) inI.T.A.No.443/Hyd/1999. The respondent is an NRI. He inherited 1/4[th] share in an item ofimmovable property. He sold his share in the financial year 1994-95. In the returns filed by him under the Income Tax Act, 1961 (for short‘the Act’) for the Assessment Year 1995-96, he has shown the incomein the form of sale proceeds as Rs.6,45,142/-. The capital gaincomponent was shown as Rs.3,84,567/-. The Assessing Officerprocessed the return and passed an order dated 15.01.1997 acceptingthe facts and figures furnished by the respondent. The jurisdictional Commissioner selected the case of therespondent for suo-motu review under Section 263 of the Act. A showcause notice was issued directing the respondent to explain as to whythe order of assessment dated 15.01.1997, be not set aside. He opinedthat the market value of the property was taken as Rs.600/- per squareyard by the Assessing Officer, whereas the information furnished bythe Sub-Registrar discloses that it is only Rs.40/- per square yard. Therespondent submitted an explanation stating that the certificate issuedby the Sub-Registrar is to the effect that the value of the property isRs.40/- per square foot for the residential area and Rs.70/- per squarefoot for the commercial area and not Rs.40/- per square yard. Not satisfied with the explanation offered by the respondent, thejurisdictional Commissioner passed an order dated 19.03.1999revising the taxable income on the basis that the market value of theproperty to be taken into account under clause (ii) of Section 48 of theAct shall be Rs.40/- per square yard and not Rs.600/- per square yard,as allowed by the Assessing Officer. Consequential order was alsopassed by the Income Tax Officer. The respondent carried the matterin appeal before the Tribunal by filing I.T.A.No.443/Hyd/1999 and thesame was allowed. Heard Sri S.R. Ashok, learned Senior Standing Counsel for theappellant and Sri P. Murali Krishna, learned counsel for therespondent. Section 48 of the Act provides for the procedure to be followedin computation of the income, chargeable as “Capital gains”. As a firststep, the consideration that is fetched in the transfer of the property isto be ascertained and from that amount, two components, namely, a)expenditure incurred wholly and exclusively in connection with suchtransfer and b) the cost of acquisition of the asset and the cost of anyimprovement thereto, must be deducted. The further details arefurnished in the form of provisos. The Explanation is devoted to definethe various expressions, that are used in the Section. The second component, namely, the cost of acquisition of theasset would become important. That would cut into sale considerationand thereby, bring down the amount, which is liable to be taxed ascapital gain. The following illustration would make it clear. a. A plot of 500 square yards was sold in the yearreferable to the Assessment Year 1995-96 at the rate ofRs.2,000/- per square yard and it fetched Rs.10,00,000/-.referable to the Assessment Year 1995-96 at the rate ofRs.2,000/- per square yard and it fetched Rs.10,00,000/-. b.The owner of the plot incurred expenditure ofRs.1,00,000/- towards advertisement, documentation andlegal opinion.Rs.1,00,000/- towards advertisement, documentation andlegal opinion. The second component, namely, the cost of acquisition of theasset would become important. That would cut into sale considerationand thereby, bring down the amount, which is liable to be taxed ascapital gain. The following illustration would make it clear. a. A plot of 500 square yards was sold in the yearreferable to the Assessment Year 1995-96 at the rate ofRs.2,000/- per square yard and it fetched Rs.10,00,000/-.referable to the Assessment Year 1995-96 at the rate ofRs.2,000/- per square yard and it fetched Rs.10,00,000/-. b.The owner of the plot incurred expenditure ofRs.1,00,000/- towards advertisement, documentation andlegal opinion.Rs.1,00,000/- towards advertisement, documentation andlegal opinion. c.The property was purchased in the year 1985-86 for consideration of Rs.500/- per square yard. d.Over the period, a sum of Rs.2,00,000/- was spent forconstruction of compound wall, watchman shed andproviding electricity. construction of compound wall, watchman shed andproviding electricity. A sum of Rs.1,00,000/- incurred for advertisement etc., comesunder clause (i) of Section 48 of the Act. The amount representingconsideration for purchase, namely, Rs.2,50,000/-, and the cost ofconstruction of compound wall of Rs.1,00,000/-, aggregating toRs.3,50,000/- would come under clause (ii). The amount falling intoboth heads which aggregates to Rs.4,50,000/- is to be deducted fromthe total consideration of Rs.10,00,000/-. The resultant figure, namely,Rs.5,50,000/- would become ‘capital gain’, subject, however, to furtherrevision depending on the nature of the assessee and the nature oftransactions. From the above illustration, it becomes clear that anyfluctuation, in the cost of acquisition, would have its own bearing uponthe capital gain. In the instant case, the respondent stated that the cost ofacquisition is Rs.600/- per square yard and the same was accepted bythe Assessing Officer, after verification, and passed the order ofassessment dated 15.01.1997. The sole basis for the jurisdictional Commissioner to revise theorder of assessment was that the cost of acquisition of the propertywould be only Rs.40/- per square yard and accordingly, he pointed outthe difference of Rs.560/- per square yard. In his explanation, therespondent categorically stated that in the letter addressed by the SubRegistrar, the cost was mentioned as Rs.40/- per square foot,obviously, for the constructed area, and the same was mistaken by theCommissioner to be the cost of land per square yard. A perusal of the order passed by the Commissioner disclosesthat he got another letter from the Sub Registrar, Banjara Hills, whereinhe is said to have informed that the cost of Rs.40/- mentioned by him in his earlier letter, is per square yard of land and he mistakenlymentioned it as square foot of constructed area. The difference wasbound to be phenomenal. If Rs.40/- is the cost in respect of squarefeet of constructed area, in terms of square yards, it would not only benine times that figure, but also subject to addition of cost of the land, beit the one, on which the building was constructed or the proportionateopen land. When such is the devastating effect of the treating of thefigure vis-à-vis ‘square yard’ in stead of ‘square feet’, it was basic andfundamental duty of the Commissioner to have shared that informationwith the respondent and to take his view point in this behalf, intoaccount. However, he straightaway proceeded to pass the order. his earlier letter, is per square yard of land and he mistakenlymentioned it as square foot of constructed area. The difference wasbound to be phenomenal. If Rs.40/- is the cost in respect of squarefeet of constructed area, in terms of square yards, it would not only benine times that figure, but also subject to addition of cost of the land, beit the one, on which the building was constructed or the proportionateopen land. When such is the devastating effect of the treating of thefigure vis-à-vis ‘square yard’ in stead of ‘square feet’, it was basic andfundamental duty of the Commissioner to have shared that informationwith the respondent and to take his view point in this behalf, intoaccount. However, he straightaway proceeded to pass the order. What happened at the stage of appeal is of some curiosity andinterest. Noticing that the sole basis for the Commissioner to revisethe order passed by the Assessing Officer was the information said tohave been received by him from the Sub Registrar, the Tribunal askedthe departmental representative to furnish a copy of the same to it forverification. The representative expressed his inability and it ultimatelyemerged that copy thereof was not furnished even to the department. The Tribunal, naturally, was not at all convinced about the procedureadopted by the Commissioner and accordingly, allowed the appeal. Learned counsel for the appellant is not able to point out as tohow the order passed by the Tribunal suffers from any factual or legalerror. The appeal is accordingly dismissed. There shall be no orderas to costs. The miscellaneous petitions filed in this appeal shall also standdisposed of. ___________________________ L.NARASIMHA REDDY, J Date: 10.12.2014 ____________________________ CHALLA KODANDA RAM, J Note: L.R Copy to be marked B/o va