2017 (9) TMI 847 - AT - Income Tax

Tribunal rules in favor of assessee on capital gains, dismisses Revenue's appeal on deduction.

Shri Asit Rameshchandra Shah Versus The Jt. CIT, Range-2 And DCIT, Cir. 1 (2), Ahmedabad

Shri Asit Rameshchandra Shah Versus The Jt. CIT, Range-2 And DCIT, Cir. 1 (2), Ahmedabad - Tmi Issues Involved:1. Long-term capital gains addition of Rs. 65,50,266/-.2. Section 54EC deduction disallowance of Rs. 50 lacs.Issue-wise Detailed Analysis:1. Long-term Capital Gains Addition of Rs. 65,50,266/-:The assessee contested the addition of Rs. 65,50,266/- to long-term capital gains, arguing that the fair market value (FMV) as of 01.04.1981 should be Rs. 25,78,300/- as per the registered valuer's report, instead of the Rs. 7,35,750/- determined by the Assessing Officer (AO). The AO had reduced the FMV to Rs. 250/- per sq. yd. from Rs. 700/- per sq. yd., leading to the contested addition.The assessee argued that:- The AO should have referred to the valuation officer under Section 55A of the Income Tax Act, 1961, rather than estimating the FMV himself.- The valuation by the AO was not justified as it did not consider the property's location and other relevant factors correctly.The CIT(A) upheld the AO's valuation, noting that:- The property in question was located 2 km inside the main Ashram Road, on a less wide road, which justified a lower valuation compared to the comparable property on the main Ashram Road.- The AO's estimation of Rs. 250/- per sq. yd. was based on a thorough inquiry and comparison with a similar property.Upon appeal, the Tribunal observed:- Both the properties were part of the same town planning scheme but had different commercial potentials due to their locations.- The valuation of Rs. 700/- per sq. yd. by the assessee's valuer was excessive, while the AO's valuation of Rs. 250/- per sq. yd. was too low.- The Tribunal applied a thumb rule and determined an average FMV of Rs. 367.05 per sq. yd. for the property as of 01.04.1981.The Tribunal partly allowed the assessee's appeal on merits, directing the AO to finalize the computation based on the revised FMV.2. Section 54EC Deduction Disallowance of Rs. 50 lacs:The Revenue contested the CIT(A)'s decision to allow the assessee's claim for a Section 54EC deduction of Rs. 1 crore, made in two installments of Rs. 50 lacs each in different financial years but within six months of the capital gain arising.The AO had restricted the deduction to Rs. 50 lacs, citing the proviso to Section 54EC, which limits the investment to Rs. 50 lacs in any financial year. The assessee argued that the investment limit applies per financial year, not per transaction, and cited various judicial precedents supporting this view.The CIT(A) allowed the deduction, referencing decisions from various ITAT benches, including the jurisdictional ITAT, which had consistently held that the limit of Rs. 50 lacs applies per financial year, allowing for a total deduction of Rs. 1 crore if the investments are made in two different financial years within six months of the transfer.The Tribunal upheld the CIT(A)'s decision, noting:- The consistent judicial interpretation that the investment limit of Rs. 50 lacs applies per financial year.- The absence of any contrary judicial precedent from the jurisdictional High Court or the Supreme Court.The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s findings.Conclusion:The Tribunal partly allowed the assessee's appeal regarding the long-term capital gains addition, directing a revised FMV of Rs. 367.05 per sq. yd. The Revenue's appeal on the Section 54EC deduction was dismissed, upholding the assessee's claim of Rs. 1 crore deduction in two financial years.