2016 (9) TMI 1452 - AT - Income Tax

Addition of amount u/s. 50C - computation of capital gains and the treatment given by AO towards sale of shares as short term capital gain and not as long term capital gain as claimed by assessee - Held that - AO has referred the valuation to the Valuation Officer and adopted the value of 79, 20, 000/- which is indeed very much less than the market value for stamp duty purposes but more than what assessee has received. AO has to give a fair opportunity to assessee with reference to the Valuation Officer s report and obtain objections if any from assessee before determining the value when assessee admits that the property was sold for 20 Lakhs on certain special considerations. Since no opportunity was given to assessee before adopting the value we are of the opinion that assessee should be given due opportunity by following the principles of natural justice. On that reason alone adoption of the sale value cannot be approved. Assessment of income in the hands of assessee -addition of income of the minors - Held that - Since assessee is only having 1/3rd share in the property sold capital gains to that extent alone should be taxed in her hand. As far as the income of the minors are concerned if the capital gains if any arises in their hand that has to be determined first separately and then only the same can be clubbed in the hands of the mother. The AO has not considered this aspect at all and entire sale consideration is brought to tax in the hands of assessee alone. He should have determined the share of each person separately determine the capital gains in each hand and then only provisions of Section 64 & 65 can be invoked. Since AO s computation is per se not according to the provisions of the Act that also requires re-consideration. Capital gains computation on sale of shares - AO is directed to examine the issue again as assessee has given various dates for acquisition of shares. Even though shares could have been allotted later whether assessee can get benefit of cost of indexation having invested the money much earlier in the company which is their private limited company. Since these aspects requires re-examination we hereby set aside the computation of Long Term Capital Gain and Short Term Capital Gain on sale of shares for re-examination. The sale deeds indicate that the shares were sold piece-meal during the year under consideration.

Summary

Issues Involved:
1. Addition of amount u/s. 50C of the Income Tax Act and computation of capital gains.
2. Treatment of sale of shares as 'short term capital gain' instead of 'long term capital gain'.

Issue 1: Addition of amount u/s. 50C of the Income Tax Act and computation of capital gains:
The appellant admitted an income of ?1,81,260 and a loss from capital gains in the return. The Assessing Officer (AO) observed a variance in the valuation of a land sale, leading to the referral of the issue to the Valuation Officer. The Valuation Officer determined the property value at ?79,20,000, but the AO adopted this value without providing a fair opportunity to the appellant to contest. The AO also failed to consider that the appellant held only a 1/3rd share in the property. The Tribunal found these lapses and directed a reassessment, emphasizing the need for a fair opportunity and proper application of tax provisions.

Issue 2: Treatment of sale of shares as 'short term capital gain' instead of 'long term capital gain':
The appellant claimed a loss on the sale of shares, but the AO assessed it as a 'short term capital gain' due to the shares being allotted on 31-10-2009. The Tribunal noted discrepancies in the acquisition dates of shares and directed a re-examination of the capital gains computation on the shares. The Tribunal highlighted the need to determine the shares' acquisition details, the possibility of indexation benefit, and the circumstances surrounding the share sales post the appellant's husband's demise. The Tribunal set aside the previous assessment for a thorough re-examination by the AO.

In summary, the Tribunal found deficiencies in the AO's assessment regarding the valuation of property and the treatment of share sales. The Tribunal emphasized the importance of providing a fair opportunity to the appellant, accurately determining the capital gains, and considering the specific circumstances surrounding the transactions. The judgment directed a reassessment for both issues, allowing the appeal for statistical purposes.