2011 (11) TMI 641 - AT - Income Tax

Computation of capital gain - deed of transfer of the flat - application of section 50C - Held that - CIT (A) observed that payment of ₹ 59,16,000/- was not only related to the flats sold but it related to other properties and relinquishment of other rights also. The ld. CIT (A) was of the view that 1/3rd portion of payment in lieu of vacation of the flat will be justified. The assessee did not furnish any other basis. In absence of material a different estimation of allocation of the payment of ₹ 59,16,000/- at this stage is not possible. We, therefore, confirm the order of the ld. CIT(A) on the issue as there is no contrary material on record. As regards valuation of flat as on 1.4.1981 the admitted facts of the case are that the value declared by the assessee is supported by valuation report of a Registered Valuer. The AO has taken different valuation without obtaining valuation report from the DVO. The AO has taken the value as on 1.4.1981 on other basis. We are of the view that assessee s valuation as on 1.4.1981 is supported by valuation by a technical person i.e. report of a registered valuer and contrary to that no such material or departmental valuation report is available on record. Merely on the basis of other general enquiries the valuation declared by the registered valuer cannot be substituted. We, therefore, set aside the orders of Revenue authorities on this issue and direct the AO to adopt the valuation of the flat as on 1.4.1981 as declared by the assessee. As regards application of section 50C the ld. AR has himself conceded, therefore this ground of the assessee is rejected. The AO is directed to recalculate the capital gain as per above discussion. This matter should be restored back to the file of AO for deciding the issue afresh as recomputation of capital gains has also been restored back to the AO for recalculation

Summary

Issues:
1. Computation of capital gain on the sale of a flat.
2. Valuation of the flat as on 1.4.1981.
3. Application of section 50C of the Act.
4. Disallowance of interest expenses.

Computation of Capital Gain:
The appellant contested the AO's decision regarding the reduction of only 1/3rd of the consideration paid for acquiring possession of a portion of the flat from the total sale consideration. The appellant also raised concerns about the computation of the cost of acquisition of the flat as of 1.4.1981 and the application of section 50C of the Act. The AO recomputed the capital gains, which the ld. CIT(A) upheld, leading to the dismissal of the appeal. The appellant argued that the entire amount paid for vacating the flat should be deducted from the cost of the flat, and the valuation of the flat as of 1.4.1981 should be the amount declared by the appellant and supported by a valuation report. The Tribunal found in favor of the appellant, directing the AO to adopt the valuation declared by the appellant for the flat as of 1.4.1981.

Valuation of the Flat as on 1.4.1981:
The Tribunal noted that the value declared by the appellant for the flat as of 1.4.1981 was supported by a valuation report from a Registered Valuer. In contrast, the AO had determined a different valuation without obtaining a valuation report from the DVO. The Tribunal emphasized that the appellant's valuation was backed by a technical expert's report, and there was no contrary material or departmental valuation report available. Thus, the Tribunal set aside the orders of the Revenue authorities and instructed the AO to adopt the valuation declared by the appellant for the flat as of 1.4.1981.

Application of Section 50C of the Act:
The ld. AR conceded that the ground related to the application of section 50C was not raised before the ld. CIT(A), leading to its rejection. The Tribunal upheld this decision, directing the AO to recalculate the capital gain based on the discussions in the judgment.

Disallowance of Interest Expenses:
The appellant challenged the disallowance of interest expenses made by the AO, arguing that the interest-bearing funds were used for business purposes, and there were sufficient interest-free funds available for granting loans. The ld. CIT(A) upheld the AO's decision based on a previous High Court judgment, which was subsequently overruled by the Supreme Court. The Tribunal set aside the ld. CIT(A)'s order, requiring a fresh consideration of the issue by the AO, along with the recomputation of capital gains. Consequently, the appeal was partly allowed for statistical purposes.

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