2010 (9) TMI 1265 - AT - Income Tax

Summary

Issues Involved:

1. Validity of assessment under section 147 of the Income Tax Act.
2. Adoption of guideline rate for computing capital gains under section 50C.
3. Denial of exemption under section 54 for investment in two residential properties.

Issue-wise Detailed Analysis:

I. Validity of Assessment under Section 147:

The assessee contested the reopening of the assessment under section 147, arguing that the Assessing Officer (AO) failed to make necessary inquiries before issuing the notice under section 148. The AO issued the notice based on information from the Sub-Registrar's office indicating a higher guideline value for the property sold by the assessee, suggesting an understatement of capital gains. The CIT (A) upheld the AO's action, citing the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd., which states that the AO only needs a reason to believe that income has escaped assessment to initiate proceedings under section 147.

The Tribunal agreed with the CIT (A), stating that the AO had sufficient grounds to believe that income had escaped assessment based on the discrepancy between the sale consideration declared by the assessee and the guideline value reported by the Sub-Registrar. The Tribunal found that the AO acted within his jurisdiction and complied with legal requirements, thus validating the reopening of the assessment.

II. Adoption of Guideline Rate for Computing Capital Gains under Section 50C:

The AO adopted the guideline value of Rs. 4,62,56,000 as the sale consideration for computing capital gains, contrary to the assessee's declared value of Rs. 2,68,89,375. The assessee objected to this, leading the AO to refer the matter to the District Valuation Officer (DVO), who determined the fair market value (FMV) at Rs. 3,25,37,000. The CIT (A) directed the AO to adopt the stamp duty authority's value of Rs. 4,06,56,735.

The Tribunal found that the CIT (A) erred in not considering the DVO's valuation and the objections raised by the assessee. The Tribunal held that the DVO's valuation, being lower than the stamp duty authority's value, should be adopted as the FMV. The Tribunal recalculated the property value at Rs. 2,71,03,330, considering the assessee's objections and the prevailing market rates. The AO was directed to re-compute the capital gains based on this revised value.

III. Denial of Exemption under Section 54 for Investment in Two Residential Properties:

The assessee claimed exemption under section 54 for investments in two residential properties. The AO denied the exemption for the second property, citing a Tribunal decision in ITA No: 530/Bang/2007. The assessee relied on the Karnataka High Court's decision in CIT v. D. Anand Basappa, which allowed exemption for investments in multiple residential units if they are considered a single unit.

The Tribunal distinguished the present case from the High Court's ruling, noting that the two properties were located in different areas (Koramangala and Domlur II Stage) and could not be considered a single unit. Therefore, the Tribunal upheld the CIT (A)'s decision to deny the exemption for the second property.

Conclusion:

The Tribunal partly allowed the assessee's appeal, validating the reopening of the assessment under section 147, directing the AO to adopt the revised property value of Rs. 2,71,03,330 for computing capital gains, and upholding the denial of exemption under section 54 for the second residential property.