2016 (7) TMI 1186 - AT - Income Tax

Appellate Tribunal rules on capital gains computation emphasizing actual sale consideration

Shri Prem Nath Versus ITO, Ward 37 (3), New Delhi

The Appellate Tribunal ITAT DELHI ruled in favor of the appellant in a case concerning the computation of income from long term capital gains. The ... Capital gains computation - whether on actual amount received or on the deemed amount accrued to the assessee - Held that:- . AO without disputing the fact that the actual cost of consideration of the property in question was ₹ 5,00,000/- computed the capital gains on the basis of circle rate which were at ₹ 16,43,000/-. Ld. CIT (A) has also perpetuated the error committed by the AO which is not sustainable in the eyes of law. We are of the view that on the basis of actual sale consideration of ₹ 5,00,000/- received by the assessee, the long term capital gain came to be ₹ 2,93,211/-. So in view of the decisions rendered by the Hon’ble jurisdictional High Court in case cited as Smt. Nilofer I Singh (2008 (8) TMI 165 - DELHI HIGH COURT ), we are of the considered view that lower revenue authorities have erred in computing the capital gain in the instant case on the basis of deemed cost of consideration u/s 50C whereas AO was statutorily required to compute the capital gain as per provisions contained u/s 48 of the Act on the basis of actual cost of consideration received by the assessee. Whether lower revenue authorities have erred in computing the capital gain by ignoring the fact that the assessee has invested entire capital gain in specified bonds as per section 54EC? - Held tht:- AO as well as CIT (A) have erred in computing the capital gain in this case to the tune of ₹ 11,36,211/- by computing the capital gain on the basis of deemed cost of consideration as against actual cost of consideration required u/s 48 of the Act and have also lost sight of the fact that assessee has invested the entire capital in specified bonds as per provisions contained u/s 54EC of the Act. So, we answer the aforesaid question in favour of the assessee. - Decided in favour of assessee. Issues Involved:1. Computation of income from long term capital gains based on circle rate value instead of actual sale consideration.2. Adoption of circle rate value for computing capital gains without referring the matter to the Valuation Officer.3. Ignoring appellant's request to refer the matter to the Valuation Officer and not considering cited case laws.4. Construing the provisions of section 50C as mandatory while ignoring subsection (2) of section 50C.5. Permission to amend, modify, or withdraw any ground of appeal.Issue 1: Computation of Capital GainsThe appellant contested the computation of income from long term capital gains based on the circle rate value of the land instead of the actual sale consideration received. The Assessing Officer (AO) calculated the long term capital gain using the circle rate value, leading to an addition to the total income of the assessee. The appellant argued that the actual sale consideration should be considered for computing capital gains, as per section 48 of the Income-tax Act, 1961. The Tribunal agreed with the appellant, citing precedents that emphasized the importance of considering the actual amount received by the assessee for calculating capital gains. The lower authorities erred in not following this principle, and the Tribunal allowed the appeal in favor of the assessee.Issue 2: Referral to Valuation OfficerThe appellant raised concerns regarding the adoption of the circle rate value for computing capital gains without referring the matter to the Valuation Officer. The appellant requested the matter to be referred to the Valuation Officer and cited relevant case laws, which were ignored by the lower authorities. However, the Tribunal did not specifically address this issue in the judgment, as the focus was primarily on the correct computation of capital gains based on actual sale consideration.Issue 3: Mandatory Nature of Section 50CThe appellant argued that the lower authorities erred in considering the provisions of section 50C as mandatory and not taking into account subsection (2) of section 50C. The Tribunal did not delve deeply into this specific issue in the judgment, as the primary focus was on the correct computation of capital gains based on actual sale consideration, as per section 48 of the Act.Issue 4: Additional Grounds Raised by the AssesseeThe appellant sought to raise additional grounds related to the legal position that deeming provisions of section 50C are not applicable to exemption provisions under section 54 to 54F. The Tribunal allowed the application to raise these additional grounds, as they were deemed necessary for a complete adjudication of the case. The appellant's arguments regarding the application of section 50C to exemption provisions were considered, and the Tribunal ruled in favor of the appellant based on legal interpretations and precedents cited.Conclusion:The judgment by the Appellate Tribunal ITAT DELHI in this case primarily focused on the correct computation of capital gains based on the actual sale consideration received by the assessee. The Tribunal emphasized the importance of following the provisions of section 48 of the Income-tax Act, 1961, which require the consideration of the actual amount received by the assessee for calculating capital gains. Additionally, the Tribunal addressed the additional grounds raised by the appellant regarding the application of deeming provisions under section 50C to exemption provisions under section 54 to 54F, ruling in favor of the appellant based on legal interpretations and precedents.