Tribunal directs Fair Market Value use, disallows indexation on improvement costs, allows Section 54 deductions, considers actual sale consideration.

The Tribunal partly allowed the appeal, directing the Assessing Officer to use the Fair Market Value declared by the assessee for indexation, disallow indexation on claimed improvement costs, allow deduction under Section 54 for both residential flats, and consider the actual sale consideration for computing exemption under Section 54. The order was pronounced on 30/05/2016.

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Issues Involved:
1. Fair Market Value (FMV) of the asset as on 1/4/1981.
2. Cost of improvement incurred by the previous owner.
3. Deduction under Section 54 of the IT Act for investment in more than one residential flat.
4. Valuation of sale consideration under Section 50C(2) for claiming exemption under Section 54.

Analysis:

1. Fair Market Value (FMV) of the asset as on 1/4/1981:
The assessee contested the FMV of the asset as on 1/4/1981, claiming it to be Rs. 1,99,282/-, while the Assessing Officer (AO) and the Departmental Valuation Officer (DVO) valued it at Rs. 1,28,700/-. The Tribunal held that the AO cannot refer the matter to the DVO under Section 55A if the FMV declared by the assessee is higher than the DVO's valuation. The amendment to Section 55A by the Finance Act, 2012, effective from 01/07/2012, was noted, but it was not applicable to the assessment year in question. Therefore, the AO was directed to allow indexation based on the assessee's declared FMV of Rs. 1,92,282/-.

2. Cost of improvement incurred by the previous owner:
The assessee claimed an improvement cost of Rs. 3,00,000/- in F.Y. 2000-01 and Rs. 1,30,000/- in F.Y. 2004-05, which was incurred by the previous owner (mother-in-law). The AO disallowed these claims due to lack of evidence. The Tribunal upheld this decision, noting that neither the assessee's registered valuer nor the DVO mentioned any improvements in their reports. Thus, the claim for indexation on the improvement costs was dismissed.

3. Deduction under Section 54 of the IT Act for investment in more than one residential flat:
The assessee sought deduction under Section 54 for two flats purchased in Chitrakoot Nagar, Jaipur. The AO restricted the deduction to one flat, but the Tribunal allowed the deduction for both flats. The Tribunal referenced various court decisions, including CIT Vs K.G. Rukminianna (2011) 331 ITR 211, which interpreted "a residential house" to include multiple units, allowing for deduction on more than one residential property.

4. Valuation of sale consideration under Section 50C(2) for claiming exemption under Section 54:
The AO took the sale consideration as Rs. 62,63,250/- based on the DVO's valuation under Section 50C, rather than the actual sale consideration of Rs. 60,00,000/- declared by the assessee. The Tribunal ruled that for the purpose of deduction under Section 54, the actual sale consideration should be considered, not the value determined by the stamp authority or DVO. This decision was supported by the Jaipur Bench of ITAT in the case of Nand Lal Sharma Vs. ITO.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to:
- Use the FMV declared by the assessee for indexation purposes.
- Disallow the indexation on the claimed improvement costs due to lack of evidence.
- Allow the deduction under Section 54 for both residential flats.
- Consider the actual sale consideration for computing the exemption under Section 54.

Order Pronounced:
The appeal of the assessee was partly allowed, with the order pronounced in the open court on 30/05/2016.

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