2013 (8) TMI 834 - AT - Income Tax

Applicability of Section 50C - Transfer of capital assets - A.O. computed capital gain u/s 50C - CIT confirmed computation by A.O. - Held that - If the AO was to invoke the provisions of Sec. 50C, then A.O. should have first referred the matter to the Valuation Officer - CIT(A) has erred in not asking the AO to refer the matter for valuation - Decided in favour of assessee. Set off of brought forward unabsorbed depreciation - Held that - current year s depreciation is to be allowed as set off from the Long term capital gains and brought forward depreciation is to be treated as current year s depreciation as per the legal fiction of Sec. 32(2) of the Act, the same is also be allowed to be set off from the long-term capital gains - Following decision of Suresh Industries (P) Ltd. Vs ACIT 2012 (11) TMI 674 - ITAT MUMBAI - Decided in favour of assessee.

Summary

Issues:
1. Application of Sec. 50C for property transfer value determination.
2. Referral to Valuation Officer under Sec. 50C(2).
3. Set off of brought forward unabsorbed depreciation against Long Term Capital Gains.

Issue 1: Application of Sec. 50C for property transfer value determination:
The appeal concerned the application of Sec. 50C of the Income Tax Act regarding the determination of the value of property transfer at Wagle Estate, Thane. The Assessing Officer (AO) adopted the stamp duty value for computing capital gains, which was contested by the assessee. The AO did not refer the matter to the Valuation Officer as required under Sec. 50C(2). The Appellate Tribunal found that the AO and the CIT(A) erred in not following the procedure mandated by Sec. 50C. The Tribunal directed the AO to refer the valuation matter to the appropriate authority, emphasizing the importance of adhering to the statutory provisions.

Issue 2: Referral to Valuation Officer under Sec. 50C(2):
The second issue revolved around the AO's failure to refer the valuation matter to the Valuation Officer as per Sec. 50C(2). The Tribunal held that the AO should have referred the matter to the Valuation Officer when the assessee claimed that the stamp duty value exceeded the fair market value. Both the AO and the CIT(A) were found to have erred in not following this procedure. The Tribunal, in the interest of justice, directed the AO to refer the matter for valuation, ensuring a fair opportunity for the assessee to present their case.

Issue 3: Set off of brought forward unabsorbed depreciation against Long Term Capital Gains:
The third issue involved the denial of set off of brought forward unabsorbed depreciation against Long Term Capital Gains. The assessee argued that as per Sec. 32(2) of the Act, the unabsorbed depreciation should be merged with the current year's depreciation for set off against Long Term Capital Gains. The Tribunal, citing precedent, allowed the set off of unabsorbed depreciation against Long Term Capital Gains, directing the AO to determine the capital gains and then permit the set off. This decision was based on the legal fiction of Sec. 32(2) and the Tribunal's previous judgment in a similar case.

In conclusion, the Appellate Tribunal allowed the appeal for statistical purposes, highlighting the correct application of Sec. 50C, the necessity of referring valuation matters to the Valuation Officer, and the permissibility of set off of unabsorbed depreciation against Long Term Capital Gains as per relevant legal provisions and precedents.