2012 (9) TMI 356 - AT - Income Tax

Validity of revisionary order passed u/s 263 - under-assessment of capital gain - non-applicability of Section 50C by AO - Held that - In instant case, AO has not examined the applicability of section 50C. Nothing has been brought on record to show that any such enquiry had been made by the AO in the course of assessment proceedings. In view of the specific provisions of section 50C, the AO ought to have examined this aspect and failure to do so renders the order of assessment erroneous and prejudicial to the interests of revenue. Therefore, CIT was justified in initiating proceedings u/s. 263 With regard to the merits of the order, it is found that provisions of section 50C(2) provide for a reference to the DVO, if the assessee makes a claim that the guidelines value for the purpose of stamp duty exceeds the fair market value of the property as on the date of transfer. Since the AO has not made any enquiries with regard to the application of section 50C, the assessee had no occasion to exercise his right u/s. 50C. Hence, AO is directed to make a reference to the DVO u/s 50C and thereafter compute the capital gain on transfer of capital asset. Thus, the order u/s. 263 is modified as stated above - Decided partly in favor of assessee.

Summary

Issues:
Delay in filing the appeal by the assessee, Merits of the appeal regarding capital gains computation under section 50C of the Income Tax Act, 1961.

Delay in filing the appeal:
The appeal was delayed by 205 days due to the assessee's misunderstanding of the Commissioner's order under section 263 of the Act. The delay was condoned based on the reasons provided in the application for condonation. The Tribunal found the delay justifiable as the assessee had filed for a stay against recovery, which was granted without any objection from the revenue, implying the delay was already condoned. Thus, the delay in filing the appeal was condoned.

Merits of the appeal - Capital Gains Computation under Section 50C:
The case involved the computation of capital gains for an individual assessee who claimed exemption under section 54F of the Act for the assessment year 2007-08. The dispute arose when the Commissioner, under section 263, found the AO's assessment erroneous due to undervaluation of the property sold. The Commissioner noted discrepancies in the value adopted for stamp duty and the actual consideration received, invoking section 50C to determine the full value of consideration. The assessee argued that the value adopted for stamp duty should not be conclusive and that the AO did not consider the provisions of section 50C during assessment.

Analysis and Decision:
The Tribunal held that the AO's failure to examine the applicability of section 50C rendered the assessment erroneous and prejudicial to revenue, justifying the Commissioner's initiation of proceedings under section 263. While the Tribunal acknowledged the assessee's argument regarding the date of agreement and guidelines value changes, it found insufficient evidence to support the claim of agreement dated 04.04.2005. However, the Tribunal agreed with the assessee that the guidelines value for stamp duty is disputable under section 50C(2) and directed the AO to refer the matter to the DVO for valuation. The Tribunal modified the Commissioner's order to allow the assessee an opportunity to contest the guidelines value and compute capital gains accordingly. Consequently, the appeal was partly allowed, modifying the order under section 263 of the Act.