2015 (6) TMI 1236 - AT - Income Tax

Computation of capital gain - computing the value of the flat as beyond the value adopted by the Stamp Valuation Authorities - Whether CIT(A) is erred in restricting the addition of 70 lakhs made by the Assessing Officer as long term capital gains and not appreciating the facts that the stamp duty valuation at 30.03 Lakhs did not pertain to the valuation of the said two flats received by the assessee from the developer? - HELD THAT - To file an appeal the power is not given to the AO but it is vested in the Commissioner of Income Tax to give authorisation to the AO to file an appeal which has to be done with utmost sincerity and with an open mind. In the instant case the appeal appears to have been filed in a routine fashion in as much as the AO has no basis for valuing each flat at 35 lakhs which is more than double the value adopted by the Stamp Valuation authorities. Even as on date the valuation report has not been obtained from the DVO. Under these circumstances it is difficult to fathom as to how a responsible officer such as Commissioner of Income Tax has approved the request of the AO to prefer an appeal against the order of the CIT(A). We take this opportunity to advice all the Commissioners not to grant authorisation in cases where there is no chance of winning an appeal. In fact we called for the record to verify as to the reasons given by the AO which might have prompted the learned Commissioner to give his authorisation. The record was not made available to us. Be that as it may in the peculiar facts and circumstances of the case the AO has not made out any case under section 50C of the Act or under any other provisions of the Act to make an addition whereas the learned CIT(A) has given cogent reasons to delete the addition on both the counts. We therefore approve the order passed by the CIT(A) and dismiss the appeal filed by the Revenue.

Summary

Issues Involved:
1. Valuation of property for capital gains tax assessment.
2. Applicability of exemption under section 54F of the Income Tax Act.
3. Authority to file appeals in tax matters.

Issue 1: Valuation of property for capital gains tax assessment:
The appeal by the Revenue challenged the order of CIT(A)-26, Mumbai regarding the addition of Rs. 70 lakhs as long-term capital gains. The dispute arose from the Stamp Duty valuation of Rs. 30.03 lakhs for two flats received by the assessee from a developer in exchange for development rights. The Assessing Officer (AO) estimated the value of each flat at Rs. 35 lakhs, resulting in the addition. However, the AO did not provide a basis for this valuation, and no valuation report was obtained from the Departmental Valuation Officer (DVO). The CIT(A) found the AO's estimation unjustified and relied on precedents to support the assessee's claim that the transaction was a capital receipt not chargeable to tax. The ITAT upheld the CIT(A)'s decision, criticizing the Revenue for filing an appeal without proper grounds and dismissed it.

Issue 2: Applicability of exemption under section 54F of the Income Tax Act:
The assessee contended that the two flats received were exempt under section 54F as the gains were reinvested in a new residential property. The AO rejected this claim, leading to the appeal. The CIT(A) analyzed the case and agreed with the assessee, emphasizing that the transaction was akin to a capital receipt based on legal precedents. The ITAT concurred with the CIT(A) and dismissed the Revenue's appeal, highlighting the lack of a valid basis for the AO's valuation and the incorrect rejection of the exemption claim under section 54F.

Issue 3: Authority to file appeals in tax matters:
The ITAT criticized the Revenue for filing an appeal without proper grounds, questioning the AO's valuation methodology and the lack of a valuation report from the DVO. The ITAT advised tax authorities to exercise caution in granting authorization for appeals, especially when the chances of success are minimal. The ITAT emphasized that the power to file appeals lies with the Commissioner of Income Tax, and such decisions should be made diligently and with a clear rationale. In this case, the ITAT found no valid grounds for the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition, ultimately dismissing the appeal.

This detailed analysis of the judgment highlights the key issues surrounding the valuation of property for capital gains tax assessment, the applicability of exemptions under the Income Tax Act, and the authority to file appeals in tax matters.