2013 (9) TMI 2 - AT - Income Tax

Assessee wins appeal for exemption under Sections 54EC & 54F, Tribunal upholds valuation based on fair market value.

The Tribunal allowed the assessee's appeal for exemption under Section 54EC, citing an agreement to sell and considering earnest money as part of the sale ... Revision u/s 263 - Exemption U/S 54EC - Assessee submitted before the Bench that the assessee-HUF sold the property by a registered sale deed.- The HUF received advances before the transfer and the money was deposited in the specified bonds as required under s. 54EC. On the basis of the same, the appellant claimed exemption under s. 54EC to the extent of value of bonds- The AO allowed the exemption in the original assessment under s. 54EC of the IT Act- But the CIT assuming jurisdiction under s. 263 held that exemption under s. 54EC was not available to the assessee as the investment in the bonds was made before the execution of the sale deed instead of within six months from the date of transfer of the property - Held that: As per the provision of s. 263, neither by the conduct of the assessee there is loss to Revenue nor the conduct of the assessee is prejudicial to the interests of the Revenue; rather the assessee was fair enough to deposit the amount immediately after receipt of the same as advance payments on the basis of the agreement to sale - assessee has invested an amount of ₹ 50 lakhs out of the advance money received on the basis of the agreement to sale, therefore, following the spirit of the CBDT Circular No.359 dated 10-05-1983 in the context of section 54E - Following decision of Bhikulal Chandak HUF Vs. ITO [2009 (6) TMI 605 - ITAT NAGPUR] - Decided in favour of assessee. Deduction u/s.54 - No approval for building plan and no structural design of the property - Held that:- although the construction was unauthorised, however the same has been regularized in the amnesty scheme and the investment towards construction of the property has been made before the due date of filing of the return u/s.139(4) and that he is in a position to produce the architect and also furnish the details towards the construction of the property. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate his case by producing the architect before him for his examination. The Assessing Officer also shall give an opportunity to the assessee to produce the various details which according to him is relevant for deciding the issue - Following decision of Commissioner of Income-tax-II, Chandigarh Versus Ms. Jagriti Aggarwal [2011 (10) TMI 279 - PUNJAB AND HARYANA HIGH COURT] - Decided in favour of assessee. Fair Market Value - Valuation u/s 50C - Whether addition made by the Assessing Officer on the basis of the Stamp duty valuation is correct or not - CIT deleted addition - Held that:- The valuation adopted by the appellant as on 01-04-1981 is on the basis of valuation report obtained from Govt. Approved Valuer. The normal rule is that when there is variation in the stamp duty valuation and the value adopted by the assessee on the basis of valuation report and the assessee objects for considering the .stamp duty valuation, the fair market value is to be adopted unless it is referred by A.O. to Valuation Officer and since in this case the assessee had objected to the stamp duty valuation adopted by the A.O. Assessing Officer was not right in substituting the stamp duty valuation without referring the matter to the Valuation Officer - valuation by the Stamp Authority is based on the circle rates. These circle rates adopt uniform rate of property for the entire locality, which inherently disregard the peculiar features of a particular property. Even in a particular area, on account of location factors and possibilities of its use, there can be vide variations in the price of the property. The circle rates or the ready reckonor rates adopted for stamp duty purpose disregards all these factors and a uniform rate has been taken into consideration for all the properties in that particular area - Following decision of CIT Vs. Chandni Bhuchar [2010 (1) TMI 502 - Punjab and Haryana High Court] - Decided in favour of assessee. Adoption of cost inflation index - Held that:- assessee became the owner of the property by way of a will, therefore, the cost of the same shall relate back to the previous owner. Since the previous owner had owned the property prior to 01-04-1981, therefore, the year 1980-81 adopted by the assessee for the purpose of indexation is in consonance with the provisions of the Act - Decided against assessee. Issues Involved:1. Exemption under Section 54EC.2. Exemption under Section 54F.3. Adoption of Fair Market Value as on 01-04-1981.4. Adoption of Cost Inflation Index.Detailed Analysis:1. Exemption under Section 54EC:The assessee claimed an exemption of Rs. 50 lakhs under Section 54EC by investing in Rural Electrification Corporation Ltd. bonds before the sale date. The Assessing Officer disallowed this claim, arguing that the investment was made prior to the sale date and thus did not qualify for exemption. The CIT(A) upheld this decision, stating there was no evidence of any prior agreement for sale. However, the Tribunal found that there was an agreement to sell dated 21-02-2006, and according to CBDT Circular No. 359 dated 10-05-1983, earnest money or advance is part of the sale consideration. Therefore, the Tribunal allowed the assessee's claim for exemption under Section 54EC, setting aside the CIT(A)'s order.2. Exemption under Section 54F:The assessee claimed an exemption of Rs. 1,84,07,779 under Section 54F for investing in a new residential property. The Assessing Officer disallowed this claim due to the lack of approval for the building plan, unverifiable expenses, and non-production of the architect. The CIT(A) upheld this disallowance. The Tribunal, considering the assessee's argument that the construction was regularized under an amnesty scheme and that the investment was made before the due date for filing the return, restored the issue to the Assessing Officer for re-examination. The assessee was directed to produce the architect and relevant details to substantiate the claim.3. Adoption of Fair Market Value as on 01-04-1981:The assessee valued the property at Rs. 71,18,920 as on 01-04-1981 based on a valuation report from a government-approved valuer, while the Assessing Officer adopted the value of Rs. 40,91,400 based on the Stamp Duty Registrar's valuation. The CIT(A) accepted the assessee's valuation, noting that the Stamp Duty valuation was based on circle rates which do not consider the specific features of the property. The Tribunal upheld the CIT(A)'s decision, agreeing that the valuation by the Stamp Authority was not correct and that the assessee's valuation was reasonable.4. Adoption of Cost Inflation Index:The Assessing Officer used the financial year 2003-04 for indexation purposes, while the assessee used 1981-82. The CIT(A) ruled in favor of the assessee, citing Section 49(1)(ii) and the Special Bench decision in DCIT Vs. Manjula J. Shah, which states that the indexation should be based on the date of acquisition by the previous owner. The Tribunal upheld the CIT(A)'s decision, confirming that the cost inflation index should be calculated from 1981-82, as the property was acquired by the previous owner before that date.Conclusion:The Tribunal allowed the assessee's appeal for exemption under Section 54EC and restored the issue of exemption under Section 54F to the Assessing Officer for re-examination. The Tribunal dismissed the Revenue's appeal regarding the adoption of Fair Market Value and Cost Inflation Index, upholding the CIT(A)'s decisions.