2012 (9) TMI 118 - AT - Income Tax

Partial Appeal Success: Section 50C Applied, 55A Invalid, Fair Market Value Used, Property Valuation Adjusted

The tribunal partly allowed the appeal by upholding the application of Section 50C for computing capital gains, invalidating the reference to the ... Capital Gain 50C - Weather AO can make reference to DVO u/s 55A - AO could not have record any opinion as to existence of difference between the value of the asset as claimed by the assessee and the fair market value - Held that:- Reference can be made to DVO u/s 55A when AO records opinion that value had been underestimated by assessee as decided in case of HIABEN JAYANTILAL SHAH (2008 (4) TMI 292 - GUJARAT HIGH COURT) - However if the fair market value declared by the assessee is supported by the estimate of the registered valuer and the value so claimed is more than the fair market value as per the AO, no reference to the DVO u/s 55A can be made - Decided in favor of Assessee. Valuation of Sales price under Capital gain - Defects/inconsistencies in the DVO's Valuation of the property - Whether rate adopted by register valuer on the basis of stamp Duty Ready Reckoner, 2005 for Developed Land FSI will applicable to residential building - Held that:- The assessee transferred residential building and not Land. The rate as applicable to Land should not be applied when the property under transfer is 'Residential Building. The value is calculated on the basis of rates applicable to the residential building - Decision, Ground partly allowed. Exemption u/s 54 - Can assessee claim exemption for two residential houses on two different stories of same building u/s 54 - Held that:- As decided in case of K.C. Kaushik (1990 (4) TMI 38 - BOMBAY HIGH COURT) - the assessee to be entitled to exemption u/s 54 only in respect of one residential house - Decided in favor of Revenue. Issues Involved:1. Application of Section 50C of the Income Tax Act.2. Reference to the Department Valuation Officer (DVO) under Section 55A.3. Defects/Inconsistencies in the DVO's valuation of the property as of 01.04.1981.4. Defects/Inconsistencies in the DVO's valuation of the property on the date of sale.5. Restriction of exemption under Section 54 to only one house.Issue-wise Detailed Analysis:1. Application of Section 50C of the Income Tax Act:The assessee contested the application of Section 50C, which allows the adoption of the stamp duty value as the full value of consideration for computing capital gains. The tribunal followed a precedent set in the case of the other co-owner of the same property, Mrs. Arlette Rodrigues, and rejected the assessee's contention. Thus, the application of Section 50C was upheld.2. Reference to the Department Valuation Officer (DVO) under Section 55A:The assessee argued that the reference to the DVO for valuing the property as of 01.04.1981 was erroneous and beyond the jurisdiction of the Assessing Officer (AO). The tribunal noted that the fair market value declared by the assessee was supported by a registered valuer's report, and no material indicated the necessity of the DVO's reference. Citing judgments from the Rajasthan High Court and Gujarat High Court, the tribunal concluded that the reference to the DVO was invalid and directed the adoption of the fair market value as declared by the assessee at Rs. 24 lakh.3. Defects/Inconsistencies in the DVO's valuation of the property as of 01.04.1981:The tribunal found that the DVO's valuation of Rs. 6,85,800 was not justified as the AO did not record any material prompting the reference. The tribunal directed adopting the fair market value of Rs. 24 lakh as declared by the assessee, supported by the registered valuer's report.4. Defects/Inconsistencies in the DVO's valuation of the property on the date of sale:The assessee contested the DVO's valuation of the property at Rs. 2.91 crore, arguing that the rate adopted by the registered valuer was lower. The tribunal examined the rates from the Stamp Duty Ready Reckoner and determined that the rate applicable to the residential building should be Rs. 6,970 per sq. ft., not Rs. 8,200 per sq. ft. as adopted by the DVO. The tribunal directed the AO to compute the capital gain using the rate of Rs. 6,970 per sq. ft.5. Restriction of exemption under Section 54 to only one house:The assessee claimed exemption under Section 54 for two flats, but the AO restricted it to one flat, supported by the Special Bench order in the case of Ms. Sushila M. Jhaveri. The tribunal noted conflicting judgments from various High Courts but followed the jurisdictional High Court's decision in K.C. Kaushik, which restricted the exemption to one house. The tribunal upheld the restriction of the exemption to one flat, as the two flats on different stories could not constitute one house.Conclusion:The appeal was partly allowed. The tribunal upheld the application of Section 50C, invalidated the reference to the DVO under Section 55A, directed the adoption of the fair market value as declared by the assessee for 01.04.1981, adjusted the rate for the property on the date of sale, and restricted the exemption under Section 54 to one flat.