2011 (7) TMI 1193 - AT - Income Tax

Summary

Issues Involved:
1. Claim of deduction u/s 54 of the Income-tax Act, 1961.
2. Assessing Officer not following procedure u/s 50C(2) of the Act.

Summary:

Issue 1: Claim of Deduction u/s 54 of the Income-tax Act, 1961

The Revenue appealed against the CIT(Appeals) decision allowing the assessee's claim for deduction u/s 54 of the Income-tax Act, 1961. The Assessing Officer (A.O.) had disallowed the claim, asserting that the new asset purchased was not a residential property but a commercial complex, based on the purchase deed and an inspection report by the Inspector. The Inspector noted the absence of a kitchen and the commercial use of the premises by tenants. The assessee contended that the building was originally constructed as a residential house and was rented out for business purposes due to lack of residential demand. The CIT(Appeals) accepted the assessee's explanation, supported by a CMDA plan approval and a Board's Circular dated 20.9.1973, which stated that a residential house used for commercial purposes does not lose its residential character. The CIT(Appeals) also referenced the jurisdictional High Court decision in CIT v. Natarajan (287 ITR 271) to support the assessee's claim.

Upon review, the Tribunal found that the property was intended and constructed as a commercial complex, as evidenced by the Conveyance Deed and lease agreements. The Tribunal concluded that the assessee could not claim exemption u/s 54 for a commercial property and reversed the CIT(Appeals) decision.

Issue 2: Assessing Officer Not Following Procedure u/s 50C(2) of the Act

The assessee argued that the A.O. did not follow the procedure laid down u/s 50C(2) of the Act by not referring the valuation of the property to a Valuation Officer despite the assessee's objections to the guideline value adopted by the Registration Department. The Tribunal noted that the assessee had filed objections and requested a valuation reference before the assessment order was finalized. The Tribunal held that the A.O. should have referred the valuation to the Valuation Cell as per sub-section (2) of Section 50C of the Act. Consequently, the Tribunal set aside the orders of the CIT(Appeals) and the A.O. on this issue and remitted the matter back to the A.O. for re-computation of capital gains in accordance with the law, considering the assessee's objections.

Conclusion:

The appeal of the Revenue was allowed for statistical purposes, and the order was pronounced on 22nd July, 2011.