2007 (8) TMI 482 - AT - Income Tax

Summary

Issues Involved:
1. Computation of long-term capital gain on sale of immovable property.
2. Valuation of closing stock in the Balance Sheet.
3. Applicability of section 50C(1) and 50C(2) of the Income Tax Act.

Summary:

1. Computation of Long-Term Capital Gain on Sale of Immovable Property:
The ld. CIT found discrepancies in the computation of long-term capital gain on the sale of immovable properties. The sale consideration for properties sold to Sri Harish Saluja and Smt. Veena Saran was lower than the market value assessed for stamp duty purposes. The Assessing Officer (AO) did not consider these discrepancies while passing the assessment order, which the ld. CIT deemed erroneous and prejudicial to the interest of revenue. The AO failed to invoke the provisions of section 50C(1) and 50C(2) and did not refer the valuation of the capital asset to the Valuation Officer, as required.

2. Valuation of Closing Stock in the Balance Sheet:
The ld. CIT observed that the closing stock valuation in the Balance Sheet did not reflect the increased valuation as profit in the Profit & Loss Account. The AO did not make proper enquiries regarding the correct sales and purchase of property (Chintels House) and failed to reconcile the figures of opening stock, purchases, sales, and closing stock. The assessee was unable to provide a satisfactory reconciliation of these figures even before the Tribunal. The Tribunal confirmed the order of the ld. CIT, setting aside the AO's order for being erroneous due to the lack of necessary enquiries.

3. Applicability of Section 50C(1) and 50C(2):
Section 50C(1) is mandatory and requires the AO to adopt the valuation done by the Stamp Valuation Authorities if it exceeds the sale consideration shown by the assessee. The AO failed to discharge this statutory duty, which was considered an error. The Tribunal held that the AO must give explicit reasons for not referring the property to the Valuation Cell when the sale consideration is lower than the valuation by the Stamp Valuation Authorities. The Tribunal emphasized that the AO's discretion must be exercised objectively and with sufficient application of mind. The failure to invoke section 50C(1) was deemed a failure of statutory duty, setting a bad trend for revenue administration. The Tribunal confirmed the order of the ld. CIT and dismissed the appeal filed by the assessee.

Conclusion:
The Tribunal upheld the ld. CIT's order, setting aside the AO's assessment as erroneous and prejudicial to the interest of revenue. The AO's failure to make necessary enquiries and invoke the mandatory provisions of section 50C(1) and 50C(2) led to the confirmation of the ld. CIT's order for a de novo assessment.