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2011 (5) TMI 625 - AT - Income TaxWhether Section 55A can be invoked when provisions of Section 50C are applicable - LTCG on sale of joint inherited residential property - Revenue contended under-statement of sale consideration - reference to Valuation Officer u/s 55A to determine sale value and FMV at 01.04.1981 - Held that - In case of immovable property reference to DVO can be made only u/s 50C under sub-section (2) thereon and not u/s 55A which can be invoked in respect of transfer of capital asset as provided under 45(1A), 45(2), or 45(4) where there is no concept of full value consideration. Therefore, reference to DVO for determining FMV as on the date of sale was not valid. Reference to DVO for ascertaining FMV at 01.04.1981 - Held that - In the present case assessee has submitted a valuation report of the approved valuer who has determined the FMV at Rs. 26,24,269/-. According to the AO fair market value as on 1.4.81 is less and DVO has determined the same at Rs. 15,78,000/- as on 1.4.81. Thus clearly estimate made by registered valuer is not less than the fair market value as adopted by AO on the basis of DVO s report. Under these circumstances, the AO cannot make any reference under clause (a) of section 55A. Also, condition laid down in clause (b)(ii) is not fulfilled since AO has not expressed any opinion about the nature of the asset and other relevant circumstances as to why it is necessary to refer the property to the DVO. Therefore, we do not uphold the reference for determining FMV as on 1.4.81. Encumbrance claim - assessee claimed to have made payment as per terms in the WILL of late Shri Jayantibhai Shah, these payments were made to various persons and were required to be made within 24 months of the death of Shri Jayantibhai Shah - AO disallowed claim only for the reasons that such claim was late and was not made within 24 months of the death - Held that - Claim cannot be disallowed if it is otherwise legally permissible. Even though WILL required the legal heirs to make the payments on sale of the property within 24 months but in reality sale may take time but for that matter liability created by the charge on the property will not cease to exist - Decided in favor of assessee.
Issues Involved:
1. Deletion of addition on account of long-term capital gain (LTCG). 2. Allowance of encumbrance claim in the calculation of LTCG. 3. Validity of the Assessing Officer's (AO) order. Issue-Wise Detailed Analysis: 1. Deletion of Addition on Account of Long-Term Capital Gain: The primary issue was whether the CIT(A) XI, Ahmedabad was correct in deleting the addition of Rs. 154,26,467/- on account of LTCG. The assessee, an HUF, declared LTCG on the sale of a joint residential property inherited from Shri Jayantilal V. Shah. The property was sold for Rs. 1,30,41,000/-, which was also the valuation done by the stamp valuation authorities. The assessee's approved valuer determined the fair market value (FMV) of the property as on 1.4.1981 at Rs. 26,24,269/-. The AO, unsatisfied with this valuation, referred the property to the District Valuation Officer (DVO), who valued it at Rs. 3,05,66,700/- as on the date of sale and Rs. 15,78,000/- as on 1.4.1981. Consequently, the AO computed the LTCG at Rs. 2,15,33,600/- and the assessee's share at Rs. 54,26,467/-. The CIT(A) deleted the addition, accepting the capital loss declared by the assessee, stating that the sale consideration admitted by the appellant was as per the Stamp Valuation Authority and the FMV as on 1.4.1981 was supported by an approved valuer's report. The CIT(A) found no evidence that the appellant received the sale consideration of Rs. 3,05,66,700/- and upheld the assessee's declared FMV. 2. Allowance of Encumbrance Claim in Calculation of LTCG: The CIT(A) directed the AO to allow the encumbrance claim of Rs. 75,000/- in the calculation of LTCG. The AO had initially disallowed this claim, but the CIT(A) found it legally permissible and necessary to uphold the charge created by the deceased on the property. 3. Validity of the AO's Order: The Revenue argued that the CIT(A)'s order was cryptic and lacked reasoning. The AO had the power to refer the property for valuation under section 55A to determine both the cost of acquisition as on 1.4.1981 and the FMV as on the date of sale. The AO believed that the provisions of section 50C did not preclude the application of section 55A. The Tribunal held that once transfer of immovable property is involved, section 50C alone is applicable, and section 55A cannot be invoked. Section 50C provides that the valuation adopted by Stamp Valuation Authorities (SVA) for stamp duty purposes is deemed to be the full value of consideration if it is higher than the actual sale consideration. The Tribunal found that the AO had no power to refer the property to the DVO under section 55A when the provisions of section 50C were applicable. The Tribunal also addressed the valuation as on 1.4.1981, stating that the AO could not make a reference under clause (a) of section 55A if the FMV estimated by the registered valuer was higher than the DVO's valuation. Clause (b) of section 55A could only be invoked if no valuation report from a registered valuer was filed, which was not the case here. Conclusion: The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. It concluded that the reference to the DVO for determining the FMV as on the date of sale and as on 1.4.1981 was not legally sustainable. The Tribunal also upheld the allowance of the encumbrance claim, finding no force in the AO's reasoning for disallowance.
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