2018 (10) TMI 60 - AT - Income Tax

Tribunal adjusts fair market value, limits exemption to 33.33% under Section 54F

Shri Rajesh Kale Versus Income Tax Officer Ward 3 (5), Indore

Shri Rajesh Kale Versus Income Tax Officer Ward 3 (5), Indore - TMI Issues Involved:1. Determination of fair market value and applicability of Section 50C.2. Restriction of exemption under Section 54F to 33.33% due to joint ownership.3. Limitation of exemption under Section 54F to the amount invested up to the due date of filing the return.Detailed Analysis:Issue 1: Determination of Fair Market Value and Applicability of Section 50CThe assessee disclosed the sale consideration of a warehouse at Rs. 2,07,00,000/-, while the Assessing Officer (A.O.) adopted a fair market value of Rs. 4,75,00,000/-, invoking Section 50C of the Income Tax Act. The Departmental Valuation Officer (DVO) later valued the property at Rs. 2,15,96,882/-. The CIT(A) deleted the addition of Rs. 2,59,03,118/- but sustained an addition of Rs. 8,96,882/- due to the difference between the actual transaction value and the DVO's valuation. The Tribunal noted that the variation between the sale consideration and the DVO's valuation was only 4.33%, which is less than 10%. Citing various judicial pronouncements, including the case of Sita Bai Khetan v/s ITO and CIT v/s Pratapsingh Amrosingh Rajendra Singh, the Tribunal ruled that such a marginal difference should be ignored. Consequently, the Tribunal directed the A.O. to compute the Long Term Capital Gain based on the disclosed sale consideration of Rs. 2,07,00,000/-, allowing the assessee's appeal on this ground.Issue 2: Restriction of Exemption Under Section 54F to 33.33% Due to Joint OwnershipThe assessee claimed exemption under Section 54F for investing the sale proceeds in a residential flat purchased jointly with a partner and a partnership firm. The A.O. restricted the exemption to 33.33% of the amount invested, arguing that the property was not solely in the assessee's name. The CIT(A) upheld this restriction, distinguishing the case from others where the investment was made in the names of family members. The Tribunal agreed with the CIT(A), citing the Bombay High Court's decision in Prakash v/s ITO, which emphasized that the exemption under Section 54F is intended for the assessee's ownership and not for investments made in the names of unrelated parties. Therefore, the Tribunal upheld the restriction of the exemption to 33.33%.Issue 3: Limitation of Exemption Under Section 54F to the Amount Invested Up to the Due Date of Filing the ReturnThe assessee argued that the entire sale consideration was invested within the statutory period of two years, even though not all the funds were deposited in the Capital Gain Account Scheme before the due date of filing the return. The A.O. and CIT(A) limited the exemption to Rs. 71,46,348/-, the amount invested up to the due date of filing the return. The Tribunal referred to Section 54F(4), which mandates that unutilized amounts must be deposited in a Capital Gain Account before the due date of filing the return to qualify for the exemption. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not comply with this requirement. Thus, the exemption was rightly limited to Rs. 71,46,348/-.Conclusion:The Tribunal allowed the appeal concerning the fair market value determination and deletion of the addition of Rs. 8,96,882/-. However, it upheld the CIT(A)'s decisions on restricting the exemption under Section 54F to 33.33% and limiting the exemption to the amount invested up to the due date of filing the return. The overall appeal was partly allowed.