2016 (2) TMI 1089 - AT - Income Tax

Computation of capital gain with the aid of section 50C - Held that - We are of the view that since the valuation of the property for the purpose of computation of capital gain is dependent upon the valuation adopted by ADM (Finance), Agra whose decision is under challenge before the Hon ble Allahabad High Court. Therefore, the assessee and the ld. DR are justified in contending that such valuation could be adopted by the AO as per final decision of Hon ble Allahabad High Court. The ld. CIT(A) also in the case of firm, M/s. Setwell Associates directed that ultimately, the value would be finally determined by the Hon ble Allahabad High Court. Therefore, the capital gains in the hands of the partners including the assessee, can be computed on the sale consideration determined by the Stamp Valuation Authority subject to decision of Hon ble Allahabad High Court. In principle, the applicability of provision of section 50C of the Act, in the facts and circumstances of the case, has not been disputed and such findings of the authorities below to that extent are confirmed. We set aside the orders of the authorities below and restore the issue to the file of AO with direction to re-compute the capital gain in the hands of the assessee as per sale valuation determined by the Stamp Valuation Authority as per directions of the Hon ble Allahabad High Court. The AO shall recompute the capital gain by following the judgment of Hon ble Allahabad High Court in this regard, as is submitted by the ld. Counsel for the assessee. We clarify that the re-computation of income on account of capital gain shall be made by the AO u/s. 153(3)(iii) of the IT Act as per final amount determined by the Hon ble Allahabad High Court of sale value of property under consideration as per Stamp Valuation, as would be decided in the case of buyer.

Summary

Issues:
Reopening of assessment under section 147 of the IT Act and enhancement of assessment by &8377; 1,92,52,303 on account of computation of capital gain with the aid of section 50C of the IT Act.

Analysis:
1. The appeal was filed against the order of the ld. CIT(A)-II, Agra for the assessment year 2005-06. The assessee contested the reopening of assessment under section 147 of the IT Act and the subsequent enhancement of assessment by &8377; 1,92,52,303 due to the computation of capital gain using section 50C of the IT Act.

2. The assessment was reopened based on discrepancies in the declared sale consideration of a property. The AO found that the property's value was undervalued, leading to an incorrect computation of capital gains. The AO issued an exparte assessment order determining the long term capital gain and total income, which the assessee challenged before the ld. CIT(A).

3. The ld. CIT(A) considered the AO's report and issued a show cause notice to the assessee for enhancing income by &8377; 1,93,53,303 on account of capital gain computation. The ld. CIT(A) passed an exparte order, dismissing the reopening issue and enhancing the assessment based on the valuation determined by ADM, resulting in an increase of &8377; 1,92,52,303 in the total income.

4. The assessee's counsel did not contest the reopening issue but requested to await the final valuation determined by the Hon'ble High Court. The counsel highlighted ongoing legal proceedings related to the property valuation before the Allahabad High Court and emphasized the need to adopt the valuation decided by the High Court for computing capital gains.

5. The counsel further explained the history of valuation disputes related to the property and cited the ld. CIT(A)'s order in the case of M/s. Setwell Associates, directing that the capital gains should be computed based on the valuation determined by the Stamp Valuation Authority subject to the High Court's decision. Both the assessee's counsel and the ld. DR agreed that the final valuation should be determined post the High Court's decision.

6. The ITAT observed that the valuation for computing capital gains depended on ADM (Finance), Agra, whose decision was under challenge before the High Court. Considering the submissions and the ld. CIT(A)'s direction in a similar case, the ITAT set aside the lower authorities' orders and directed the AO to recompute the capital gain based on the valuation determined by the Stamp Valuation Authority as per the High Court's decision.

7. The ITAT clarified that the AO should recomputed the income under section 153(3)(iii) of the IT Act based on the final value determined by the High Court. The appeal was partly allowed for statistical purposes, with no other points argued or pressed during the proceedings.