2014 (10) TMI 608 - AT - Income Tax

Computation of capital gain u/s 50C(1) Adoption of FMV determined by the Stamp Valuation Authority for the purpose of stamp duty - Capital gains on sale of agriculture - land Held that - Land sold is a capital asset as defined u/s 2(14) of the Act - Though, the assessee has disclosed the total consideration received on sale of property by all the coowners at ₹ 4,50,00,000/- but the Registering Authority has valued the property for stamp duty purpose at ₹ 14,76,00,000 - understatement in sale value in terms of section 50C(1) is prima-facie established - the AO in terms with section 50C(2) did refer the valuation of the property to the DVO - DVO submitted a report to the AO on 25/10/2012 by determining the value of the property at ₹ 7,93,80,483 by estimating the fair market value of the property as on the date of registration at ₹ 43.41 lakh per acre - the AO ignoring the statutory mandate as contained u/s 50C(2) and (3) completed the assessment on the very same day he referred the valuation to the DVO by adopting the value of property at ₹ 14.76 crores as determined by the SRO for stamp duty purpose - AO s action cannot be approved - When the assessee has objected to the SRO value and the valuation of the property has been referred to the DVO, the AO is duty bound to take into account the valuation made by the DVO and thereafter compute the capital gain in terms with section 50C(3). Assessee has complied to the provisions of section 50C(2) and AO has referred the valuation to DVO - adoption of SRO value by completely ignoring the valuation made by the DVO is totally wrong and in violation of statutory mandate of section 50C - value determined by SRO cannot be considered as the fair market value of the property for computation of capital gain. Determination of value by DVO Held that - section 50C is a deeming provision, assessee is required to establish that sale consideration shown by him is the actual fair market value as on the date of execution of agreement of sale cum GPA on 30/10/2008 - Neither the assessee nor the department has brought any substantive evidence on record to justify the value adopted by them thus, the matter is required to be remitted back to the AO for fresh adjudication Decided in favour of assesse.

Summary

Issues Involved:
1. Computation of capital gain under section 50C(1) of the Income Tax Act.
2. Determination of Fair Market Value (FMV) of the property.
3. Cost of acquisition of property as on 01/04/1981.
4. Denial of exemption under section 54EC of the Income Tax Act.

Detailed Analysis:

1. Computation of Capital Gain under Section 50C(1):
The primary issue in these appeals is the computation of capital gain under section 50C(1) of the Income Tax Act by adopting the FMV determined by the Stamp Valuation Authority for the purpose of stamp duty. The AO noticed that the assessee, along with 13 others, sold 18 acres of land for a total consideration of Rs. 4,50,00,000, but the Stamp Valuation Authority valued it at Rs. 14,76,00,000. Consequently, the AO computed the capital gain based on the higher value determined by the Stamp Valuation Authority. The CIT(A) upheld this computation, noting that the assessee did not dispute the value before any authority, thus section 50C(2) was not attracted.

2. Determination of Fair Market Value (FMV):
The assessee contended that the land sold was part of a water body and agricultural operations were possible only when there was no water in the lake. The assessee argued that the FMV should be based on the valuation by a registered valuer, which was Rs. 26.50 lakhs per acre, rather than the SRO value of Rs. 82 lakhs per acre. The AO made a reference to the DVO, who valued the property at Rs. 43.41 lakhs per acre. However, the AO ignored the DVO's valuation and used the SRO value. The Tribunal held that the AO's action was incorrect and remitted the matter back to the AO to decide the issue afresh after making necessary enquiries to ascertain the FMV, ensuring that in no case should the FMV exceed the DVO's valuation.

3. Cost of Acquisition of Property as on 01/04/1981:
The assessee contested the cost of acquisition determined by the AO. However, neither the learned AR advanced any argument nor was there any material to justify the claim. Consequently, this ground was dismissed by the Tribunal.

4. Denial of Exemption under Section 54EC:
The assessee claimed exemption under section 54EC for investment in bonds. Although no specific argument was advanced during the hearing, the Tribunal remitted the issue back to the AO to reconsider it in accordance with the law after determining the FMV of the property on the date of sale and affording the assessee an opportunity of being heard.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, directing the AO to re-examine the FMV of the property and reconsider the exemption under section 54EC, while dismissing the ground related to the cost of acquisition.