2015 (5) TMI 574 - AT - Income Tax

Computation of log term capital gains - transfer of share of the assessee co-owner of the property having 1/24th share in property situated at Survey No.1611, Shivaji Nagar, Pune. Held that - As submitted by assessee he did enter into an agreement with Shri Sanjay Kakade for sale of his share in the property and the consideration was fixed between the parties at ₹ 93,75,000/-. In furtherance to the said contract, assessee received ₹ 60,00,000/-, however the balance amount was not received by the assessee. The family members had approached the civil court to restrain the assessee from selling the property without offering them the right to purchase. The learned Authorized Representative for the assessee has emphasized that the civil court vide its order dated 18.02.2008 restrained the assessee from going ahead with the sale. On this basis, the case set up is that the sale has not indeed fructified and therefore, no capital gain required to be taxed. It is also submitted at the time of hearing that the proceedings in the civil court are yet continuing. Documents, as submitted now, which bring out in detail the dispute is pending in the civil court, has been furnished before the Tribunal and it was not available before the lower authorities. Thus the points raised by the assessee is quite significant because if assessee is able to demonstrate that the sale agreement could not be fructified in view of the pendency of civil suit in question, obviously, no cognizance of the same can be taken for assessing any income from such an agreement till the outcome of the civil proceedings crystallized. Thus set-aside the order of CIT(A) and restore the matter back to the file of Assessing Officer to make an assessment afresh with regard to the transaction in question. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Validity of the assessment order under section 143(3).
2. Computation and taxation of Long-Term Capital Gains (LTCG).
3. Acceptance of the valuation report and reference to the Assistant Valuation Officer (AVO).

Issue-wise Detailed Analysis:

I. Validity of the Assessment Order:

The assessee contested the validity of the assessment order passed under section 143(3) of the Income Tax Act, 1961, arguing that it was based on a provisional valuation report and thus founded on presumptions. The assessee also contended that the CIT(A) overstepped its authority by validating an invalid assessment. However, these grounds were not pressed during the hearing and were dismissed as "Not Pressed."

II. Computation and Taxation of Long-Term Capital Gains (LTCG):

The primary issue was whether the transfer of the assessee's 1/24th share in a property resulted in LTCG for the assessment year 2007-08. The Assessing Officer (AO) had received information about an irrevocable Power of Attorney issued by the assessee regarding the property, leading to the reopening of the assessment. The assessee claimed no transfer occurred, citing ongoing litigation and non-receipt of the full sale consideration. However, the AO deemed the transfer complete under section 53A of the Transfer of Property Act, 1882, and section 2(47)(v) of the Income Tax Act, 1961, due to the execution of the Power of Attorney and partial receipt of consideration.

The CIT(A) upheld the AO's decision, noting that the property was inherited and the assessee's share was defined but not physically demarcated. The CIT(A) referenced the Civil Judge's decree, which allowed family members to sell their undivided shares subject to pre-emption rights. The CIT(A) concluded that the sale was effective despite the court's temporary restraint on possession, as the irrevocable Power of Attorney indicated effective transfer.

III. Valuation:

The assessee challenged the acceptance of the valuation report dated 30-01-2012, valuing the 1/24th share at Rs. 1,67,000 as on 1-4-1981, arguing inadequate opportunity for hearing. Additionally, the assessee contended that the reference to the AVO for property valuation exceeding Rs. 10 lakhs was illegal and should have been referred to the DVO.

Tribunal's Decision:

The Tribunal found the documents submitted by the assessee, indicating ongoing civil litigation, significant. It noted that if the sale agreement did not fructify due to the pending civil suit, no LTCG could be assessed until the civil proceedings concluded. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh assessment, considering the new evidence. The AO was directed to provide an opportunity for hearing and reassess the transaction accordingly.

The grounds related to the valuation report were also remanded to the AO for reconsideration, ensuring a reasonable opportunity for the assessee to present their case.

Conclusion:

The appeal was partly allowed, with the Tribunal setting aside the CIT(A)'s order and remanding the case to the AO for fresh assessment, considering the ongoing civil litigation and reassessing the valuation report.