2010 (7) TMI 1174 - AT - Income Tax

Summary

Issues Involved:
The appeal filed by the assessee against the order of CIT(A) for AY 2006-07 u/s 143(3) of the IT Act regarding computation of capital gain and exemption u/s 54(2).

Computation of Capital Gain:
The assessee declared total income of &8377; 4,12,600/- and showed nil capital gain on sale of ancestral property, valuing it at &8377; 22,750/- per sq.yard as on 1.4.1981. However, the AO valued the property at &8377; 5,000/- per sq.mtr., resulting in assessed income of &8377; 1,99,27,800/-. The AO also disallowed exemption u/s 54(2) for not utilizing the capital gain amount deposited in the bank account. The CIT(A) upheld these additions, leading to the current appeal.

Capital Gain Valuation Discrepancy:
The AO's valuation of the property differed significantly from the assessee's valuation based on a registered valuer's report. The AO considered the fair market value as &8377; 5,000/- per sq.mtr., while the assessee claimed &8377; 22,750/- per sq.yard. The assessee argued that the property's location and surroundings warranted a higher value, but failed to provide sufficient evidence to support this claim. The Tribunal directed a detailed market enquiry and submission of sale deeds for similar properties to substantiate the valuation.

Exemption u/s 54(2) for Capital Gain:
The assessee deposited &8377; 25 lakhs in the capital gain account before the due date, but the AO denied exemption u/s 54(2) for not utilizing the amount within the statutory period for constructing a house. The Tribunal held that non-utilization should be assessed only after three years from the transaction date, not in the relevant assessment year. The matter was remanded to the AO for verification and decision as per law.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing a reevaluation of the capital gain computation and exemption u/s 54(2) based on the discrepancies in valuation and utilization of the deposited amount. The case was remanded to the AO for further examination and decision in accordance with the law.

Decision Date:
The decision was pronounced in the open Court on 23rd July, 2010.