2010 (9) TMI 656 - AT - Income Tax

Capital gain - Valuation report - The Assessing Officer has assigned several reasons for rejecting the report of the Government valuer which have not been rebutted by the assessee through any material on record - It is also admitted fact that no expenses were incurred for development of the agricultural land. The approved valuer has not given any reason why comparable cases should not be accepted - Decided against the assessee Regarding exemption u/s 54F - the assessee after selling the plot of land had deposited the sale proceeds in normal saving bank account instead of depositing the same in the notified SBI account for construction of house and therefore the assessee complied with the provisions of law substantially - The well-known principle of harmonious construction is that effect shall be given to all the provisions and for that any provision of the statute should be construed with reference to the other provisions so as to make it workable - the assessee has violated the provisions of section 54F(4) of the Income-tax Act by not opening a designated account and depositing the proceeds in that account - the assessee has not utilized the amount in question for construction of house before the due date of filing of the return of income i.e. 31-8-1996 as per notified scheme - Decided against the assessee

Summary

Issues Involved:
1. Determination of Long-Term Capital Gains (LTCG) and the valuation of property as on 1-4-1981.
2. Eligibility for exemption under Section 54F of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Determination of Long-Term Capital Gains (LTCG) and Valuation of Property as on 1-4-1981

The primary issue in this appeal was the determination of the Long-Term Capital Gains (LTCG) arising from the sale of a plot of agricultural land. The assessee declared LTCG of Rs. 46,109, valuing the property as on 1-4-1981 at Rs. 65 per Sq. Mtr., based on a valuation report from a Government Approved Valuer. However, the Assessing Officer (AO) rejected this valuation and adopted a rate of Rs. 20 per Sq. Mtr., citing reasons such as the purchase price of Rs. 5.20 per Sq. Mtr. in 1979, lack of development expenses, and comparable sales instances from the neighboring area.

The CIT(A) partially accepted the assessee's appeal and adopted an average rate of Rs. 42 per Sq. Mtr., considering that the Government Approved Valuer did not account for sale instances during the relevant period and the co-owner of the land had declared a value of Rs. 20 per Sq. Mtr. The CIT(A) stated, "Neither the value given by the Government approved valuer nor the value adopted by the Assessing Officer gives the correct realistic value of the plot of land as on 1-4-1981."

The Tribunal upheld the CIT(A)'s decision, noting that the reasons provided by the AO for rejecting the Government Valuer's report were valid and not rebutted by the assessee. It concluded that the average rate of Rs. 42 per Sq. Mtr. was reasonable, stating, "The learned CIT(A) on proper appreciation of facts and material on record already allowed substantial relief to the assessee."

2. Eligibility for Exemption under Section 54F of the Income-tax Act, 1961

The second issue involved the eligibility for exemption under Section 54F, which provides tax relief on capital gains if the sale proceeds are invested in a new residential house. The assessee sold the land and deposited the sale proceeds in a normal savings bank account, utilizing only Rs. 45,000 for construction before the due date for filing the return. The AO denied the exemption for the remaining Rs. 9,50,484, as the assessee did not deposit the amount in the Capital Account Scheme as required by Section 54F(4).

The CIT(A) upheld the AO's decision, emphasizing that the entire sale proceeds should have been deposited in the designated Capital Gain Accounts Scheme, 1988, and not in a normal savings account. The CIT(A) stated, "The whole purpose of capital gain account scheme has been defeated."

The Tribunal agreed with the CIT(A), noting that the assessee's failure to comply with the mandatory provisions of Section 54F(4) constituted a substantial non-compliance, not merely a technical default. It stated, "The assessee deposited the sale proceeds in a normal saving bank account and did not utilize the amount as per scheme thus defeated the very concessional scheme provided under the Act."

Conclusion

The Tribunal dismissed the appeal, affirming the CIT(A)'s decisions on both issues. The valuation of the property was reasonably determined at Rs. 42 per Sq. Mtr., and the exemption under Section 54F was rightly denied due to non-compliance with the prescribed deposit scheme. The appeal was dismissed in its entirety.