2010 (11) TMI 129 - AT - Income Tax

Set-off of Loss & Capital Gain: Tribunal Rules on Property Sale

The case involved issues of non-allowance of set off of long-term loss against long-term capital gain and computation of short-term capital gain on the ... Computation of short term capital gain - The assessee was called upon to explain as to why the provisions of section 50C be not applied for the purposes of computing capital gain - The assessee was called upon to explain as to why the value adopted by DVO be not rejected - Admittedly the stamp value of the said flat on the date of transfer was ₹ 1.18 crores - It is apparent from a bare perusal of the above provision that the directive of sub-section (1) of section 50C is not absolute - The mechanism for redressal of grievance by the assessee in a case where such stamp valuation is on a higher side, has been enshrined in sub-section (2) of section 50C - It is not open to the Assessing Officer to set aside the report of the Valuation Officer and then go by his own whims and fanciesFrom sub-section (2) of section 50C it can be noticed that where the assessee disputes the valuation of stamp valuation authority, “the Assessing Officer may refer the valuation of the capital assets to a Valuation Officer - if the value determined by the DVO under sub-section (2) is lower than that of the value adopted, assessed or assessable by the stamp valuation authority under sub-section (1), the value so estimated under sub-section (2) shall be binding on the Assessing Officer and the assessment shall be made accordingly. In our considered opinion both the authorities below erred in taking shelter of the provisions of sub-section (3) of section 50C in disregarding the value determined by the DVO.DVO determined fair market value at ₹ 46.48 lakhs, which is lower than the value for the purpose of stamp duty at ₹ 1.18 crore - As per the provisions of section 50C(2), the capital gain is required to be computed by considering the fair market value of the property at ₹ 46,48,781 as the full value of the consideration received or accruing to the assessee as a result of the transfer of capital asset - In the result, the appeal is partly allowed for statistical purposes. Issues Involved:1. Non-allowance of set off of long-term loss against long-term capital gain.2. Computation of short-term capital gain on the sale of property rights.Issue-wise Detailed Analysis:1. Non-allowance of Set Off of Long-term Loss Against Long-term Capital Gain:The appellant did not press Ground No. 7, which challenged the non-allowance of set off of long-term loss of Rs. 72,216 against long-term capital gain. Consequently, this ground was dismissed.2. Computation of Short-term Capital Gain on the Sale of Property Rights:Facts and Background:The appellant purchased a flat for Rs. 30,00,000 in October 2003 and sold it in September 2004 for Rs. 35,00,000. The Assessing Officer (AO) noted that the stamp duty valuation of the flat was Rs. 1,18,07,180 and proposed to apply Section 50C of the Income-tax Act for computing capital gain. The appellant argued that the market value of the property could not have increased so significantly within a year and requested the AO to refer the matter to the Departmental Valuation Officer (DVO). The DVO valued the property at Rs. 46,48,781.Assessing Officer's Determination:The AO rejected the DVO's valuation, arguing that the rate per square foot was too low and no deductions were required towards Transferable Development Rights (TDR) and construction costs. The AO adopted the stamp duty valuation of Rs. 1.18 crore for computing short-term capital gain at Rs. 85,83,430.Legal Provisions and Tribunal's Analysis:- Section 48: Provides the mode of computation of income under the head 'Capital gains'.- Section 50C: Special provision for the determination of full value of consideration in certain cases. Sub-section (1) mandates that if the sale consideration is less than the value adopted by the stamp valuation authority, the latter shall be deemed as the full value of consideration.- Section 50C(2): Allows the AO to refer the valuation of the capital asset to a Valuation Officer if the assessee claims that the stamp valuation exceeds the fair market value. The provisions of Section 16A of the Wealth-tax Act apply, making the DVO's valuation binding on the AO.- Section 50C(3): States that if the DVO's valuation exceeds the stamp valuation, the latter shall be taken as the full value of consideration.The Tribunal noted that the AO has no authority to disregard the DVO's valuation once a reference is made under Section 50C(2). The AO must complete the assessment in conformity with the DVO's estimate as per Section 16A(6) of the Wealth-tax Act. The Tribunal emphasized that the DVO's valuation is binding on the AO, and the AO cannot substitute his own estimate.Conclusion:The Tribunal directed the AO to compute the capital gain by considering the DVO's valuation of Rs. 46,48,781 as the full value of consideration received or accruing to the assessee as a result of the transfer of the capital asset. The appeal was partly allowed for statistical purposes.Order Pronounced:The order was pronounced on November 4, 2010.