2012 (9) TMI 682 - AT - Income Tax

ITAT upholds assessee's capital gains calculation, rejects department's appeal. Section 50C inapplicable pre-enactment.

Asst. Commissioner of IT. 12(1), Mumbai Versus M/s Manubhai A Sheth Larger HUF

The ITAT dismissed the department's appeals for both assessment years, upholding the CIT(A)'s decisions that the capital gains were correctly computed by ... Capital Gain – AO compute sales consideration u/s 50C - Whether the AO was within his legal authority to import the figure of stamp duty valuation without actually referring to authority – Assessee enter into MOU regarding sale of property on 31/7/1998 – Registration of the property in year 2000 – AO applied the prevalent Stamp Duty rate though no such valuation was made by the local Stamp Duty authorities in respect of the said property - Assessee give possession of land after getting certification from CG u/s 269UL (3) – Held that:- As the AO transpires that the valuation as per stamp authority, which is prescribed Sec. 50C can be one of the parameters to arrive at the full value of the property that is to be transferred. The transfer of the land has to be considered on occurring in the year 2000, when the provisions of Sec. 50C were not in force. Decision in favour of assessee Capital Gain – Assessee has conveyed the property to buyer prior to 2001-02 along with 90% payment - Only the 10% final part payment which was made during the year along with the formal documentation – As per AO property was actually transferred in the instant year – Held that:- As the fact that the property in question was agreed to be sold and conveyance done even prior to F.Y 2001-02 is not disputed even in the assessment order. AO is using is the final payment and documentation and on that basis, the application of Sec. 50C. It is clear from the fact that except for the last installment everything was completed prior to 2001-02. Therefore, Sec. 50C were neither there nor could have been applied. Appeal decides in favour of assessee. Issues Involved:1. Determination of the actual transfer date of the property.2. Applicability of Section 50C of the Income Tax Act.3. Valuation of the property for computing Long Term Capital Gain (LTCG).4. Ownership and rights related to the property.5. Correctness of the Assessing Officer's (AO) valuation method.Issue-wise Detailed Analysis:1. Determination of the Actual Transfer Date of the Property:The primary issue was whether the property transfer occurred in Assessment Year (AY) 2003-04 or earlier. The assessee argued that the transfer took place in 1998 when the MOU was signed, and possession was handed over, supported by the NOC from the Appropriate Authority. The CIT(A) agreed, noting that the MOU and substantial payment were made in 1998, and the development agreement was registered in 2000. Therefore, the transfer was considered to have occurred before the introduction of Section 50C in 2003.2. Applicability of Section 50C of the Income Tax Act:Section 50C, which deals with the valuation of capital assets for stamp duty purposes, was introduced on 01/04/2003. The AO applied this provision retroactively to the transfer, which the CIT(A) and ITAT found unjustified. The CIT(A) held that Section 50C could not be applied to a transfer that occurred before its enactment, as the property transfer was completed by 2000.3. Valuation of the Property for Computing Long Term Capital Gain (LTCG):The AO recomputed the property value based on the stamp duty ready reckoner, arriving at a much higher value than declared by the assessee. The CIT(A) rejected this, stating that the AO could not adopt or alter the value unless assessed by the Stamp Duty Authorities. The ITAT upheld this view, confirming the capital gain at Rs. 56.78 crores as declared by the assessee, not the Rs. 226.46 crores computed by the AO.4. Ownership and Rights Related to the Property:The AO contended that the assessee was the sole owner, and the tenants had no rights to enter into the transaction. However, this issue was secondary to the main contention of the transfer date and valuation. The CIT(A) did not find this argument sufficient to alter the transfer date or valuation.5. Correctness of the AO's Valuation Method:The AO used the stamp duty ready reckoner to determine the property's value, which the CIT(A) and ITAT found inappropriate. The CIT(A) emphasized that the AO could not fix a value not assessed by the Stamp Duty Authorities. The ITAT agreed, noting that the AO's valuation was based on a surmise, not supported by law or fact.Separate Judgments Delivered:The judgment for AY 2006-07, although involving similar issues, had distinct facts. The property transfer to Unique Estates Development Co. Ltd. was agreed upon in 1992, with possession handed over before May 2000. The AO applied Section 50C based on the final installment paid in 2005. The CIT(A) and ITAT found that the property was effectively transferred before 2001-02, thus Section 50C did not apply. The ITAT upheld the CIT(A)'s findings, directing the AO to accept the LTCG as declared by the assessee.Conclusion:The ITAT dismissed the department's appeals for both assessment years, upholding the CIT(A)'s decisions that the capital gains were correctly computed by the assessee, and Section 50C was inapplicable as the transfers occurred before its enactment. The AO's valuation method was found unjustified, and the declared values were accepted.