2016 (11) TMI 1646 - AT - Income Tax

Eligibility for deduction u/s 54B - whether the AO was justified in adopting the indexed cost of acquisition as per the value of DG Stamps ? - HELD THAT - As the particular property in question has its own location and other parameter as very important mentioned in the above parameter of factor affecting the valuation report hence increasing it by 10% cumulatively upto 1981 which becomes Rs. 21.43 per sq.mts for the year 1991. Hence he adopted the land value at Rs. 3, 36, 451/-. AO has adopted the rate on the basis of sale deed registered with the Stamp Valuation Authority situated in the nearby area. The law is well settled that the DG Stamps valuation would not be a proper indicator for ascertaining the Fair Market Value. However the registered valuer has applied the rate as per the Circular issued by the Government of Rajasthan. Such valuation ought not to have been set aside without referring the matter to the DVO as per section 55A(a) of the Act. Therefore we set aside the order of the AO on this issue and direct the AO to adopt the valuation as reported by the Registered valuer at Rs. 3, 36, 451/-. This issue is decided in favour of the assessee and against the revenue. Entitled for indexed cost of improvement - AO has not allowed the indexed cost of improvement on the basis that no evidence has been furnished - HELD THAT - No direct evidence with regard to the expenditure is placed on the record demonstrating the incurrence of the expenditure. But the fact that in the agricultural land such expenditures are incurred in the course of time. This fact cannot be lost sight of. Therefore after considering the facts we allow 50% of the indexed cost of improvement as claimed by the assessee being the reasonable expenditure incurred by the agriculturist on the improvement of the land. The assessee gets relief of Rs. 6, 52, 398/-. This ground of the assessee is partly allowed. Claim of deduction u/s 54B for making investment in the agricultural land in the name of the wife - HELD THAT - As decided in KALYA VERSUS COMMISSIONER OF INCOME-TAX 2012 (6) TMI 239 - RAJASTHAN HIGH COURT the word assessee used in the Income Tax Act needs to be given a legal interpretation and not a liberal interpretation as contended by the learned counsel for the appellant. If the word assessee is given a liberal interpretation it would be tantamount to giving a free hand to the assessee and his legal heirs and it shall curtail the revenue of the Government which the law does not permit - decided against assessee Not allowing the deduction u/s 54F - HELD THAT - Section requires the assessee to acquire a residential house and so long as the assessee acquires a building which may be constructed in such a manner as to consist of several units which can if the need arises be conveniently and independently used as an independent residence the requirement of the section should be taken to have been satisfied. Fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of exemption u/s 54/54F - In the case in hand out of the sale consideration the assessee purchased a residential house for Rs. 41 lacs on 31.12.2005 adjoining to the existing house. Thereafter the existing house was demolished and a new house was reconstructed so that the house purchased and house reconstructed would meet the requirement of the family. This fact is not rebutted by the revenue by placing any contrary material on record. Therefore by following the ratio laid down in the case of CIT vs. Syed Ali Adil 2013 (6) TMI 278 - ANDHRA PRADESH HIGH COURT and Gita Duggal vs. CIT 2013 (3) TMI 101 - DELHI HIGH COURT we hereby direct the AO to allow the claim of deduction under section 54F

Summary

Issues Involved:
1. Indexed cost of acquisition.
2. Indexed cost of improvement.
3. Deduction under section 54B for investment in agricultural land in the name of the wife.
4. Deduction under section 54F for construction expenses on the house.

Detailed Analysis:

1. Indexed Cost of Acquisition:
The primary issue was whether the Assessing Officer (AO) was justified in adopting the indexed cost of acquisition based on the value provided by the DG Stamps rather than the value determined by the registered valuer. The AO had adopted the indexed cost of acquisition at Rs. 1,48,630/- based on comparable instances, whereas the assessee had adopted a value of Rs. 3,36,451/- based on the registered valuer’s report. The Tribunal held that the AO should have referred the matter to the Departmental Valuation Officer (DVO) as per section 55A of the Income Tax Act if there was a variance in the Fair Market Value (FMV). The Tribunal directed the AO to adopt the valuation as reported by the registered valuer at Rs. 3,36,451/-, deciding this issue in favor of the assessee.

2. Indexed Cost of Improvement:
The AO did not allow the indexed cost of improvement amounting to Rs. 13,04,795/- claimed by the assessee, citing a lack of evidence. The Tribunal acknowledged that while no direct evidence was provided, it is common for agricultural land to incur such improvements over time. Therefore, the Tribunal allowed 50% of the claimed indexed cost of improvement, amounting to Rs. 6,52,398/-, as reasonable expenditure incurred by the agriculturist. This ground was partly allowed in favor of the assessee.

3. Deduction under Section 54B:
The issue was whether the assessee was entitled to a deduction under section 54B for investment in agricultural land in the name of his wife. The Tribunal noted that the Hon’ble Jurisdictional High Court in the case of Shri Kalya vs. CIT had held that the word ‘assessee’ in the Income Tax Act needs to be given a legal interpretation and not a liberal interpretation. Consequently, the Tribunal dismissed the ground raised by the assessee, deciding this issue against the assessee.

4. Deduction under Section 54F:
The assessee claimed a deduction under section 54F for Rs. 21,03,799/- incurred on the reconstruction of a house. The AO had allowed the deduction for the purchase of a new house for Rs. 41 lacs but denied the claim for reconstruction expenses, arguing that the assessee already owned one residential house. The Tribunal, referring to judgments from the Hon’ble Andhra Pradesh High Court and the Hon’ble Delhi High Court, held that the section requires the acquisition of ‘a residential house’ and does not specify that it should be one unit. The Tribunal directed the AO to allow the claim of deduction under section 54F, deciding this issue in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the AO to adopt the registered valuer’s report for the indexed cost of acquisition, allowing 50% of the indexed cost of improvement, dismissing the claim under section 54B, and allowing the deduction under section 54F for reconstruction expenses. The order was pronounced in the open court on 24.11.2016.