2016 (12) TMI 1406 - AT - Income Tax

Tribunal directs revaluation for tax purposes, highlights importance of accurate classification and valuation

Smt. Chalasani Naga Ratna Kumari Versus ITO, Ward-3 (2), Visakhapatnam

The Tribunal partly allowed the appeal, directing the A.O. to adopt the stamp duty value as on the date of the agreement for sale, allow 50% of the ... Capital gains income not offered to tax on sale of land - nature of land - whether the lands sold by the assessee are agricultural lands or capital assets liable for capital gains? - Held that:- No merits in the arguments of the assessee, for the reason that the Visakhapatnam Municipal Corporation is a notified municipality vide notification no.9477 dated 6.1.1994. As per said notification, any land situated within 8 kms. from the distance of Visakhapatnam Municipal Corporation is agricultural land coming within the definition of capital asset. We further observed that the Visakhapatnam Municipal Corporation has been upgraded to Greater Visakhapatnam Municipal Corporation by the State Government of Andhra Pradesh, vide notification no.937 dated 21.5.2005 with extended boundary. Since, the lands sold by the assessee are situated within 8 kms distance from the newly incorporated boundary of GVMC, the distance should be measured from the limits of GVMC to determine whether a particular land is a capital asset or not for the purpose of section 2(14) of the Act. In the present case, it is no doubt lands are situated within 8 kms. from the limits of GVMC. Therefore, we are of the view that the lands sold by the assessee are capital assets within the meaning of section 2(14) of the Act and liable for capital gains. The CIT(A) after considering the relevant facts, has rightly held that the lands are capital assets and liable for capital gain tax. Therefore, we uphold the CIT(A) order and reject ground raised by the assessee. Adoption of value u/s 50C for the purpose of determination of capital gains - Held that:- we find that the assessee has entered into a sale agreement in the year 2007 and as on that date, the stamp duty value of the property was less than sale consideration agreed to be paid between the parties. Although, stamp duty value of the property has been changed as on the date of sale deed, for the purpose of determination of deemed consideration u/s 50C of the Act, stamp duty value of the property as on the date of execution of agreement to sale should be adopted, instead of value on the date of execution of sale deed. Therefore, we are of the view that the A.O. was erred in adopting value of the property as on the date of sale deed to determine deemed consideration u/s 50C of the Act. Hence, we direct the A.O. to adopt value of the property as on the date of agreement to sale for the purpose of computation of capital gain u/s 50C of the Act. Disallowance of expenditure of transfer - A.O. observed that the assessee has failed to produce any evidences in support of expenses on transfer, therefore, disallowed entire expenditure of transfer for want of proper supporting evidences - Held that:- We do not find any merits in the findings of the A.O. for the reason that though assessee need to substantiate expenditure with necessary evidences, the possibility of certain expenditure on transfer cannot be ruled out. Therefore, considering the overall facts and circumstances of the case, we are of the view that certain expenditure being litigation expenses and development expenses should be allowed while computing the capital gains. Hence, we direct the A.O. to allow 50% of the expenditure claimed under the head litigation expenses and development expenses. Rejection of exemption claimed u/s 54F - Held that:- We find force in the arguments of the assessee, for the reason that the assessee has furnished a copy of valuation report in support of cost of construction of the property, wherein registered valuer has determined the cost of construction of ₹ 75,20,000/-. Though the A.O. has allowed exemption of ₹ 63,83,000/- in the consequential proceedings, the A.O. has not given any reasons for not considering the evidences filed by the assessee. Therefore, we set aside the issue to the file of the A.O. and direct the A.O. to examine the evidences filed by the assessee and allow exemption accordingly. Issues Involved:1. Whether the lands sold by the assessee are agricultural lands or capital assets liable for capital gains.2. Adoption of value under Section 50C of the Income Tax Act for the purpose of determination of capital gains.3. Disallowance of expenditure of transfer.4. Rejection of exemption claimed under Section 54F of the Income Tax Act.Issue-wise Detailed Analysis:1. Agricultural Lands vs. Capital Assets:The primary issue was whether the lands sold by the assessee were agricultural lands or capital assets liable for capital gains. The assessee claimed that the land was agricultural and situated beyond 8 kms from the limits of Visakhapatnam Municipal Corporation, thus not liable for capital gains. The Assessing Officer (A.O.) and CIT(A) held that the lands were not agricultural, as they were vacant and not used for agricultural operations. The Tribunal found that the lands were classified as agricultural in the revenue records and suitable for agricultural operations. Therefore, the lands were considered agricultural, but since they were within 8 kms from the Greater Visakhapatnam Municipal Corporation (GVMC) limits, they were deemed capital assets under Section 2(14) of the Act and liable for capital gains.2. Adoption of Value under Section 50C:The A.O. adopted the market value of the property as on the date of the sale deed for computing capital gains. The assessee argued that the value as on the date of the agreement to sell should be considered. The Tribunal agreed with the assessee, referencing a proviso to Section 50C and a relevant case law, which stated that the stamp duty value as on the date of the agreement should be adopted if the agreement was prior to the sale deed. Hence, the A.O. was directed to adopt the value as on the date of the agreement for computation.3. Disallowance of Expenditure of Transfer:The assessee claimed litigation and development expenses which the A.O. disallowed for lack of evidence. The Tribunal found that while evidence was necessary, the possibility of such expenses could not be entirely ruled out. Therefore, the Tribunal directed the A.O. to allow 50% of the claimed expenses.4. Exemption under Section 54F:The assessee claimed an exemption under Section 54F for investing in a residential house. The A.O. denied it, stating the assessee already had a residential house and constructed three independent units. The CIT(A) ruled that the term 'a residential house' could include multiple units within a single house, thus allowing the exemption. The Tribunal upheld this but noted that in the consequential proceedings, the A.O. allowed only part of the claimed exemption. The Tribunal directed the A.O. to reconsider the valuation report provided by the assessee and allow the exemption accordingly.Conclusion:The Tribunal partly allowed the appeal, directing the A.O. to adopt the stamp duty value as on the date of the agreement for sale, allow 50% of the claimed transfer expenses, and reassess the exemption under Section 54F based on the valuation report. The decision emphasized the importance of proper classification and valuation in determining tax liabilities.