2016 (8) TMI 689 - AT - Income Tax

Assessing Officer's Appeal Dismissed, Assessee's Cross Objection Partially Allowed

Income tax Officer-18 (2) (1), Mumbai Versus Smt. Smita Vinod Bhagwati And Vice-Versa

Income tax Officer-18 (2) (1), Mumbai Versus Smt. Smita Vinod Bhagwati And Vice-Versa - TMI Issues Involved:1. Determination of Long Term Capital Gain (LTCG) and its exemption under Section 54F of the Income Tax Act.2. Adoption of Fair Market Value (FMV) for the purpose of calculating LTCG.3. Claim of Short Term Capital Gain (STCG) exemption on a transaction between blood relatives.Detailed Analysis:1. Determination of Long Term Capital Gain (LTCG) and its exemption under Section 54F of the Income Tax Act:During the assessment proceedings, the Assessing Officer (AO) found that the assessee had shown an office premises for a total consideration of Rs. 2.31 crores and declared LTCG of Rs. 81.85 lakhs. The assessee claimed exemption under Section 54F of the Income Tax Act based on investment in land acquired from CIDCO and expenses for constructing a house on the said land, showing an investment of Rs. 1.92 crores. The AO held that the transfer of shares in the property was not legally valid as there was no legal document registered with any Government agency, and the property remained an undivided unit. Consequently, the AO denied the exemption claimed under Section 54F, adding Rs. 1.02 crores to the assessee's total income.The First Appellate Authority (FAA) held that the assessee had complied with the provisions of Section 54F by investing the entire consideration received on the sale of the original asset into purchasing a plot of land and starting construction of a new residential unit. The FAA directed the AO to allow the claim of the assessee for exemption under Section 54F.2. Adoption of Fair Market Value (FMV) for the purpose of calculating LTCG:The AO adopted the cost of acquisition based on the Wealth Tax value mentioned in the probate application, disregarding the valuation report of a registered valuer submitted by the assessee, which claimed FMV of Rs. 17.02 lakhs as on 01/04/1981. The FAA held that the AO was required to adopt the FMV as per the valuation report of the registered valuer instead of the Wealth Tax value given in the probate. The FAA directed the AO to adopt the FMV of Rs. 17.02 lakhs as on 01/04/81 as per the valuation report dated 11/09/2008.The Tribunal found that for computing LTCG, the provisions of Section 55 of the Act have to be considered, not the Rule 1D of the Wealth Tax Act. The Tribunal referred to the case of B. Subhadra L/R B Paparaju and Madhu Tyagi, which held that the values adopted under the Wealth Tax Act are not applicable for determining FMV under the Income Tax Act. The Tribunal upheld the FAA's order, confirming that the valuation report of the registered valuer should be adopted.3. Claim of Short Term Capital Gain (STCG) exemption on a transaction between blood relatives:The assessee claimed that the STCG on the sale of property should be exempted as it was a transaction between blood relatives and thus exempt under Section 56(2) of the Act. The FAA dismissed the claim as it was not made before the AO and the assessee did not file a revised return of income.The Tribunal, referring to the judgment of Pruthvi Brokers of the Hon'ble Bombay High Court, held that appellate authorities can allow claims made before them for the first time, even if a revised return is not filed. The Tribunal remitted the issue back to the FAA for fresh adjudication, directing the FAA to decide the issue after affording a reasonable opportunity to the assessee.Conclusion:The appeal filed by the AO was dismissed, and the Cross Objection (CO) filed by the assessee was partly allowed. The order pronounced in the open court on 12th August 2016 confirmed the FAA's decisions on the LTCG and FMV issues, while remitting the STCG exemption claim back to the FAA for reconsideration.