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2010 (7) TMI 832 - AT - Income TaxWhether the reference made by the AO to the DVO u/s 55A is bad in law - HELD THAT - we are of the view that reference by the AO to the DVO u/s 55A for valuation of FMV of the property as on 1-4-1981 is not valid for the reasons that FMV declared by the assessee as per Government registered valuer s report was more than the FMV as estimated by the DVO. Since determination of the FMV as on 1-4-1981 was based on the report of the DVO the same is held to be invalid. Consequently estimation of the FMV of the property as on 1-4-1981 as made by the assessee is directed to be accepted. Ground No. 1 of the assessees is allowed. disallowance of valuation expenses - HELD THAT - we are of the view that as far as expenses on construction of dividing wall electricity and water meter transfer charges are concerned they are to be considered as expenditure incurred wholly and exclusively in connection with such transfer within the meaning of section 48(i). The AO is directed to allow the claim of the assessee in this regard. However valuation expenses claimed by the assessee are only to support of its computation of capital gain for income-tax purpose. They cannot be said to be expenditure incurred wholly and exclusively in connection with sale of the capital asset. To the extent of disallowance of valuation expenses order of learned CIT(A) is confirmed. Thus ground No. 3 raised by the assessees is partly allowed. claim for exemption u/s 54EC - HELD THAT - In the present case the assessees transferred the capital asset on 25-10-2005 and therefore time for making investment has been extended up to 31-9-2006. The assessees have made the investment in long-term specified asset on 10-7-2006 within the extended time-limit laid down by the Circular referred. In view of the above the assessees were entitled to claim deduction u/s 54EC. We direct the AO to allow claim of the assessees for exemption u/s 54EC. Thus ground No. 4 is allowed.
Issues Involved:
1. Validity of reference to the DVO under section 55A. 2. Confirmation of addition to the declared amount. 3. Disallowance of certain expenses. 4. Denial of exemption under section 54EC. Issue-wise Detailed Analysis of the Judgment: 1. Validity of Reference to the DVO under Section 55A: The primary objection by the assessees was the reference to the DVO under section 55A. According to the assessees, clause (a) of section 55A is applicable only if the value claimed by the assessee is less than the fair market value (FMV). Since the FMV declared by the assessee was more than the FMV estimated by the DVO, clause (a) was not applicable. Clause (b) could only be invoked if the value claimed by the assessee was not supported by an estimate made by a registered valuer (RV). The Tribunal agreed with the assessees, citing decisions from the Hon'ble Bombay High Court and the Hon'ble Gujarat High Court, which held that references to the DVO under section 55A were invalid if the FMV declared by the assessee was higher than the FMV estimated by the DVO. Consequently, the Tribunal directed that the FMV as declared by the assessee should be accepted, rendering the reference to the DVO invalid. 2. Confirmation of Addition to the Declared Amount: Given the decision on the first ground, the Tribunal found that the second ground raised by the assessees, which involved the confirmation of the addition of Rs. 77,21,360 in place of Rs. 68,99,900, did not require further consideration. The Tribunal's acceptance of the FMV declared by the assessee resolved this issue. 3. Disallowance of Certain Expenses: The assessees challenged the disallowance of expenses related to dividing wall construction, electricity and water meter transfer charges, and valuation expenses. The Tribunal held that the expenses on the construction of the dividing wall and the transfer charges for electricity and water meters were necessary for the proper transfer of the property and should be considered as expenses incurred wholly and exclusively in connection with the transfer under section 48(i). However, the valuation expenses were deemed to be for the purpose of supporting the computation of capital gain for income-tax purposes and not directly connected to the transfer of the asset. Therefore, the Tribunal directed the Assessing Officer to allow the claims for the dividing wall and meter transfer expenses but upheld the disallowance of the valuation expenses. 4. Denial of Exemption under Section 54EC: The assessees claimed exemption under section 54EC for investments made in Rural Electrification Corporation (REC) bonds. The Assessing Officer denied the exemption because the investments were made belatedly. However, the Tribunal noted that the CBDT had issued a circular extending the time limit for making such investments due to the non-availability of bonds. The Tribunal found that the assessees had made the investments within the extended time limit specified by the CBDT circular. Consequently, the Tribunal directed the Assessing Officer to allow the exemption under section 54EC. Conclusion: The Tribunal partly allowed the appeals, invalidating the reference to the DVO under section 55A, directing the acceptance of the FMV declared by the assessees, allowing certain expenses related to the transfer of the property, and granting the exemption under section 54EC for investments made within the extended time limit.
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