By TIOL News Service

CHENNAI, MAR 21, 2017: THE ISSUE IS - Whether Guideline value issued by Sub-Registrar is only one of the indicators to arrive at the fair market value of a subject property, and hence cannot be the basis of determining fair market value of similarly circumstanced property. YES is the verdict.

Facts of the case:

The assessee had filed her return admitting total income of Rs.1,00,38,686/- and the same was processed u/s 143(1). Subsequently, the case was picked up for scrutiny and accordingly, notices were issued u/s 143(2) & 142(1). In the return, the Assessee had disclosed income under the head 'Capital Gains' to the extent of Rs.93,57,975/-. The said income was generated on account of transfer and/or sale of an immovable property situated at Chennai. The Assessee, in the course of proceedings held before AO, had disclosed that she had purchased the subject property along with superstructure via a registered sale deed at a cumulative cost of Rs.1,86,607/-. The said purchase consideration included the cost of land and the superstructure amounting to Rs.1,67,000/-, as also moneys expended towards stamp and registration fee amounting to Rs.22,607/-. Notably, the Assessee, in calculating the capital gains, factored in the fair market value of both the subject land and the fixtures and fittings, woods, fixed ornamentals and the debris of the superstructure, i.e., the building, which was demolished in 1983. The AO however was not satisfied, and adopted the guideline value of Rs.27,000/- per ground to arrive at the indexed cost of acquisition. Adopting the said value, the AO pegged the indexed cost of acquisition and improvement at Rs.1,63,10,615/-. Thus, based on this indexed cost of acquisition, the AO calculated the taxable long term capital gain at Rs.2,05,86,210/- and after factoring in surcharge, education cess, interests and taxes paid, a demand in a sum of Rs.34,00,813/- was raised against the Assessee. Furthermore, notice for penalty proceedings was also issued.

On appeal, the ITAT held that,

++ the fact that both the subject property, which is located in T.Nagar, and the, one, which is located in Cathedral Road were in an area, where commercial activity was and is being carried out is not disputed. In our opinion, one can take judicial notice of the fact that, ordinarily, the per ground price of a property, which has a smaller area, would be greater, in comparison to that, which has larger area. Therefore, the argument of Revenue's counsel that, since, the Cathedral Road property had a larger area as against that of the subject property and hence, ought not to be used as a measure, has no weight. Furthermore, the assessee himself has discounted the per ground rate of the Cathedral property which was calculated at Rs.6,83,333/- per ground to Rs.5,00,000/- per ground. In addition to this fact, as has been noted in the course of narration of events, the value of the building as obtaining in 1983 was also pared down to Rs.6,87,500/-. Therefore, given the circumstances that concurrent finding of facts have been returned by both the CIT (A) and the Tribunal, we are not inclined to interfere with the impugned judgment;

++ there can be no doubt that the AO could not have substituted the guideline value for the fair market value, as has been rightly observed by the Tribunal in the impugned judgment. The guideline value is only, one of the indicators to arrive at the fair market value of a given property. The AO asked the wrong question by calling upon the Sub-Registrar, T.Nagar, to supply him the guideline value of the subject area as on 1.4.1981. What the AO ought to have done was to ask for, perhaps, the sale deeds of property transactions carried out in the subject area in respect of similarly circumstanced properties. As against this, the Assessee, on her part, discharged the onus and therefore, no fault can be found with her conduct in proceeding with the matter.

(See 2017-TIOL-528-HC-MAD-IT)