2014 (5) TMI 46 - AT - Income Tax

Deletion of STCG - Valuation of asset Held that - The decision in M/s Lalbhai Kalidas & Co. Versus Income Tax Officer 16(3) (2), Mumbai 2013 (11) TMI 682 - ITAT MUMBAI followed - FAA was of the view that a reading of section 43 clause (c) indicated that the written down value had to be adjusted by the actual cost of any asset falling within the block acquired during the year, that the assessee had purchased two galas and entire amount of Rs. 40 lacs had been paid, that registration had been complete, that the assessee had acquired the assets as per section 43(6)(c) - The material test in the connection is domain over the flat and investment in it - Central Board of Direct Taxes Circular No. 471 , dated October 15, 1986, deals with investment in flats under the self-financing scheme of the Delhi Development Authority - The Board has stated in the circular that when an allotment letter is issued to an allottee under this scheme on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled - The Board has directed that such an allotment of a flat under this scheme should be treated as a case of construction for the purpose of capital gains thus, the order of the FAA upheld Decided against Revenue. Reference made to DVO - Valuation of property u/s 50C(2) of the Act Held that - FAA was of the view that the assessee had already disputed the valuation before the AO and the AO was duty bound to send the matter to the DVO for valuation - As the AO did not any mention of reference to the DVO in the assessment order, he directed the AO to adopt the value determined by the DVO, in case matter was referred by him to the DVO - The decision in S. Muthuraja Versus Commissioner of Income Tax 2013 (8) TMI 40 - MADRAS HIGH COURT followed - the mandate of section 50C(2)is very clear and AO is left with no option, but to refer the matter to the DVO - if the FAA has given a conditional direction in accordance with the provisions of the Act, then his order has to be upheld Decided against Revenue.

Summary

Issues:
1. Deletion of Short Term Capital Gain
2. Treatment of acquired assets in block of assets
3. Reference to District Valuation Officer (DVO) for property valuation

Deletion of Short Term Capital Gain:
The appellant challenged the order of the CIT(A) regarding the deletion of Short Term Capital Gain of Rs. 47,69,046. The Assessing Officer (AO) determined the income of the assessee at Rs. 47.80 lakhs, noting the sale of a business premises and purchase of new galas. The AO treated the amount of Rs. 47,69,046 as Short term capital gain under section 50 of the Act. However, the First Appellate Authority (FAA) held that the assessee had acquired the assets as per section 43(6)(c) and was entitled to adjust the cost of the property with the Written Down Value (WDV) of the block of assets for capital gains. The FAA deleted the disallowance made by the AO, leading to the appeal being dismissed.

Treatment of Acquired Assets in Block of Assets:
The AO argued that the galas purchased by the assessee could not form part of the block of assets as they were not in possession or put to use for business purposes. However, the FAA referred to section 43 clause (c) and held that the assessee had acquired the galas during the year, entitling adjustment in the block of assets. The FAA emphasized that the use of the asset was not a condition precedent for adjustment. The AR contended that the use of the asset was not essential for availing benefits under section 50. Citing relevant case law and the interpretation of "acquired" in section 50, the FAA upheld the adjustment, resulting in the deletion of the disallowance.

Reference to District Valuation Officer (DVO) for Property Valuation:
The issue revolved around the AO's failure to refer the valuation of the property to the DVO as per section 50C(2) of the Act. The FAA directed the AO to adopt the value determined by the DVO if the matter was referred. The AO and DR supported the AO's decision, while the AR cited a judgment emphasizing the mandatory nature of the reference to the DVO. The tribunal noted the clear mandate of section 50C(2), requiring the AO to refer the matter to the DVO. Consequently, the conditional direction by the FAA was upheld, leading to the dismissal of the AO's appeal.

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