2025 (3) TMI 921 - AT - Income Tax

Assessee wins partial relief on capital gains computation and Section 48 interest expense deduction

Ramesh Munaiah Chintakunta Versus DCIT, Circle-3 (1), Hyderabad

The ITAT Hyderabad-AT partially allowed the assessee's appeal regarding long term capital gains computation. The tribunal found that the AO failed to ... Computing the Long Term Capital Gains - determination of the fair market value of the asset at Nellore - HELD THAT:- No opportunity was given to the assessee in respect of the adoption of the SRO rate by AO is concerned, there is no dispute that the document bears the sale consideration at ₹ 9 lakhs, and consequent to the revisionary orders while adopting the SRO rate in respect of the property at ₹ 33.88 lakhs, the record does not reveal that any opportunity was granted to the assessee to put forth his case on this aspect. In this context the submission of AR that there is no column in the ITR to insist on the mention of stamp duty value of the asset assumes importance. We, therefore, are of the considered opinion that in all fairness the determination of the fair market value should have been referred to the DVO to be decided after hearing the assessee and considering the material put forth by him. We accordingly set aside the findings of CIT(A) on this aspect and restore the same to the file of AO to refer the determination of the fair market value of the asset at Nellore to the DVO to be decided after affording an opportunity to the assessee. Capital gains relatable to the property in Jubilee Hills, Hyderabad - As perusal of the findings of the co-owner of the property, brother of the assessee, who holds 50% of share in the property and who litigated on the very same issue before the Tribunal, we find that the coordinate Bench returned an unequivocal finding and held that since the interest paid in respect of the property at Jubilee Hills on the loan amount used by him for substituting the housing loan has a direct nexus with the acquisition of the property, the same is allowable deduction in terms of section 48 and it is required to be reduced from the sale consideration received by the assessee, being one of the components of the cost of acquisition. We do not think it just and proper to revisit the same issue and the judicial discipline requires that due deference must be shown to the findings given by the coordinate benches. Disallowance of this interest expense and also the consequential disallowance of the corresponding index of the cost of acquisition needs to be deleted. We accordingly direct AO to delete the same. Appeal of the assessee is allowed in part and for statistical purpose. ISSUES: Whether the sale consideration adopted under section 50C of the Income Tax Act, 1961 for the vacant plot at Nellore should be the stamp duty value or the actual sale consideration declared by the assessee. Whether the Assessing Officer was required to refer the determination of fair market value to the Valuation Officer under section 50C(2) upon objection by the assessee. Whether the interest paid on a substituted loan obtained from India Bulls Finance Services Ltd. for the property at Jubilee Hills qualifies as part of the cost of acquisition under section 48 of the Income Tax Act, 1961. Whether the disallowance of the interest expense and the consequent disallowance of indexed cost of acquisition related to the Jubilee Hills property was justified. RULINGS / HOLDINGS: Regarding the Nellore property, the Court held that 'in all fairness the determination of the fair market value should have been referred to the DVO to be decided after affording an opportunity to the assessee,' and set aside the CIT(A)'s findings to restore the matter to the Assessing Officer for such referral. The Court ruled that the Assessing Officer was not justified in adopting the stamp duty value under section 50C without providing the assessee an opportunity to contest and without referring the matter to the Valuation Officer as mandated by section 50C(2) of the Act. Concerning the Jubilee Hills property, the Court followed the coordinate Bench's unequivocal finding that the interest paid on the substituted loan from India Bulls Finance Services Ltd. 'has nexus with the acquisition of the property' and is therefore 'allowable deduction in terms of section 48 of the Act' as part of the cost of acquisition. The Court directed deletion of the disallowance of the interest expense and the consequential disallowance of the indexed cost of acquisition relating to the Jubilee Hills property, emphasizing the principle of judicial discipline and deference to coordinate Bench decisions. RATIONALE: The Court applied the provisions of section 50C of the Income Tax Act, 1961, which mandates that where the consideration declared in the sale deed is less than the value adopted by the stamp valuation authority, the value adopted by the stamp authority shall be deemed to be the full value of consideration unless the assessee objects and the Assessing Officer refers the matter to the Valuation Officer under section 50C(2). The Court emphasized the procedural requirement of affording the assessee an opportunity to contest the adoption of the stamp duty value and the necessity of referral to the Valuation Officer to determine fair market value when objections are raised, noting the absence of such procedure in the present case. Regarding the cost of acquisition under section 48, the Court relied on precedent from a coordinate Bench holding that interest paid on a substituted loan taken to repay an original housing loan secured on the same property qualifies as part of the cost of acquisition, thus eligible for indexation and deduction from sale consideration. The Court underscored the importance of judicial discipline by following the coordinate Bench's prior findings rather than re-examining settled issues, thereby maintaining consistency in tax jurisprudence.