2014 (2) TMI 422 - AT - Income Tax

Tribunal favors assessee, rejects department's appeal on valuation, surrender value, and section 50C

ITO -16(1) (2), Versus RV. Sheth & Others

The Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the department's appeal concerning the validity of the reference ... Rectification of mistake u/s 154 of the Act - Validity of reference made to valuation officer u/s 50C of the Act – Computation of capital gain – Held that:- The reference u/s 50C of the Act is limited only in respect of the value of the transferred property as on the date of its transfer and secondly such reference can be made only when the value adopted by the stamp valuation authorities is objected to by the assessee, and not otherwise - the value of the property as on 1.4.81 furnished by the valuation officer by way of his order dated 22.12.2009, u/s 50C of the Act received by the AO on 5.1.2010 is illegal – the transaction is not covered by the provisions of section 50C – thus, the AO is directed not to consider the FMV of the property as on 1.4.1981 as given by the valuation officer in his valuation report dated 22.12.2009 for the purpose of computing capital gains from the impugned transaction – the order of the CIT(A) upheld – decided against Revenue. Issues:1. Validity of reference to Valuation Officer under section 50C of the Income Tax Act.2. Correctness of AO's increase in surrender value of tenancy rights.3. Applicability of section 50C on the transaction.Issue 1: Validity of reference to Valuation Officer under section 50C:The appeal challenged the CIT(A)'s decision regarding the reference made by the AO to the Valuation Officer under section 50C of the Income Tax Act. The AO invoked rectification proceedings u/s 154 and reworked the surrender value of tenancy rights. The CIT(A) directed the AO not to apply the value taken by the Valuation Officer. The AR questioned the correctness of the AO's decision to increase the value and the applicability of section 50C. The CIT(A) held that the transaction was not covered by section 50C as the agreement for surrender was not registered, and unregistered agreements were not under section 50C until 1.10.2009. The CIT(A) concluded that the AO's reliance on the valuation report was illegal, and the AO's action was vitiated. The appeal was allowed on this issue, directing the AO not to consider the FMV for capital gains calculation.Issue 2: Correctness of AO's increase in surrender value:The AO's decision to increase the surrender value of tenancy rights from 1.00 crore to 1.19 crores was challenged. The AR argued that the AO's increase was incorrect and questioned the application of section 50C. The Tribunal opined that the AO's valuation increase could not be a subject for rectification. It was highlighted that the assessee did not agitate the issue during rectification as he was not aggrieved until then. The Tribunal sustained the CIT(A)'s order to not consider the FMV as given by the Valuation Officer, dismissing the appeal.Issue 3: Applicability of section 50C on the transaction:The issue of whether section 50C applied to the transaction was extensively discussed. The CIT(A) held that the transaction was not covered by section 50C due to the unregistered nature of the agreement and the specific requirements of section 50C. The Tribunal referred to a previous case where it was established that section 50C did not apply to tenancy rights. The Tribunal emphasized that the AO's decision to increase the value was beyond the scope of rectification, ultimately dismissing the department's appeal.In conclusion, the Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the department's appeal concerning the validity of the reference to the Valuation Officer, the correctness of the surrender value increase, and the applicability of section 50C on the transaction.