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2009 (8) TMI 846 - AT - Income TaxCapital gains computation - cost of acquisition - capitalizing interest on delayed payment of instalments - HELD THAT - It is clear that interest had to be paid on two counts viz. ( i ) the interest which was embedded in the instalments itself; and ( ii ) the interest paid on the delayed payment of instalments. As decided in the case of K. Raja Gopala Rao 2000 (11) TMI 31 - MADRAS HIGH COURT as the assessee had not made the purchase with his own funds he was required to pay interest for the borrowed fund and secure the borrowing by creating a mortgage. Such a mortgage could not have been created earlier as he had to first acquire title before encumbering the same. Payment of consideration for the sale having been made with the borrowed funds the borrowing directly related to the acquisition and the interest paid thereon would form part of the cost of acquisition. From the above it is clear that interest would also constitute cost of acquisition and therefore we find nothing wrong in the order of the CIT(A) directing the AO to recompute the capital gains after capitalizing interest paid on delayed payment of instalments. The appeals filed by the revenue fail. Difference between the valuation declared by the assessee and the valuation u/s 50C - HELD THAT - Since in respect of Noida properties objections were raised even before AO showing that Noida Authorities itself has sold the plots in Phase II at Rs. 1, 250 per square metre whereas the assessee has sold the plots at Rs. 1, 425 per sq. mtr. There may be some logic in the argument of the learned DR that other plots may not be in the developed area but this can be determined only by the Valuation Officer. In case of flat at Mira Road also the assessee had raised objection copy of which was filed before us. It was claimed in paragraph 1( b ) that the flat was located on the outskirts of Mira Road and on the border of Bhayander and civic amenities like provision of water etc. was very poor. We are of the view that once the assessee is raising objection no harm would be caused to the revenue if the matter is referred to the Valuation Officer for the proper valuation of the property. Therefore we set aside the order of the CIT(A) and direct the AO to refer the valuation to the Valuation Officer and then adopt the value accordingly. The appeals filed by the assessee are allowed for statistical purpose.
Issues Involved:
1. Recomputing capital gains after capitalizing interest on delayed payment of installments. 2. Additions based on the difference between the valuation declared by the assessee and the valuation under section 50C of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Recomputing Capital Gains After Capitalizing Interest on Delayed Payment of Installments: The revenue's appeal contested the CIT(A)'s direction to the Assessing Officer (AO) to recompute the capital gains by capitalizing the interest on delayed payment of installments. The AO had initially disallowed the interest paid by the assessee to the Noida Authorities, considering it as penal interest due to delayed payments. The CIT(A), however, directed the AO to include this interest in the cost of land for computing the Long-Term Capital Gains (LTCG). The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Madras High Court's ruling in the case of "CIT v. K. Raja Gopala Rao," which stated that the cost of acquisition includes not only the amount paid to the vendor but also the cost of borrowing for the purpose of paying the vendor. The Tribunal agreed that the interest paid on delayed installments should form part of the cost of acquisition, thus affirming the CIT(A)'s directive to recompute the capital gains by including the interest paid. 2. Additions Based on the Difference Between the Valuation Declared by the Assessee and the Valuation Under Section 50C of the Income Tax Act: The assessee appealed against the CIT(A)'s confirmation of the AO's action of adopting the value assessed for stamp duty purposes under section 50C of the Act as the sale consideration. The assessee argued that the AO should have referred the matter to the Valuation Officer upon the assessee's objection to the stamp duty valuation. The Tribunal noted that section 50C mandates that if the assessee claims the value adopted by the stamp valuation authority exceeds the fair market value, the AO should refer the valuation to the Valuation Officer. The Tribunal emphasized that the AO is not an expert in valuation, and hence, the legislature intended for the Valuation Officer to handle such disputes. Given that the assessee had raised objections and provided evidence of Noida Authorities selling plots at similar rates, the Tribunal directed the AO to refer the valuation to the Valuation Officer and adopt the value determined by the expert. Conclusion: The Tribunal dismissed the revenue's appeals, agreeing with the CIT(A) that interest on delayed payments should be included in the cost of acquisition for computing LTCG. Conversely, the Tribunal allowed the assessee's appeals for statistical purposes, directing the AO to refer the valuation dispute to the Valuation Officer and adopt the expert's valuation accordingly.
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