2021 (11) TMI 1160 - AT - Income Tax

Quantum of Investment in house Property for Computation of Exemption u/s 54F - adopting deemed sale consideration as per provisions of section 50C - As submitted when the assessee has objected for adopting deemed sale consideration, as per provisions of section 50C the AO ought to have referred matter to the Departmental Valuation Officer and further adopt value as determined by the DVO - HELD THAT - From plain reading of sub-section (1) (2) of section 50C, it is very clear that the AO is bound to adopt fair market value, if there is difference between agreed consideration and guideline value of the property. Before adopting deemed consideration, it is bounden duty of the AO to refer valuation to the DVO, in case the assessee filed objection for adopting deemed consideration. In this case, there is a difference between agreed consideration as per sale deed and market value of the property as per guideline value. Also an admitted fact that the assessee has filed her objections before the AO for adopting guideline value of the property. It is also an admitted fact that the AO had referred valuation to the DVO. But, fact remains that before the DVO determines value of the property, the AO has completed assessment by adopting deemed sale consideration as per provisions of section 50C - AO has completely erred in adopting deemed sale consideration, as per provisions of section 50C when he himself referred valuation of property to the DVO. Computation of exemption u/s.54F - As many expenditure in construction activity is incurred on day to day basis for which the assessee s cannot keep bills and supporting vouchers. Therefore, for this reason genuine expenditure incurred for construction of building cannot be rejected. It is a well settled principles of law by the decision of various High Courts, including case of C.Aryama Sundaram 2018 (8) TMI 864 - MADRAS HIGH COURT that construction may commence before date of sale of asset, but should be completed on or before period of three years from the date of sale of original asset. Therefore, we are of the considered view that the Assessing Officer has erred in not considering amount spent towards construction of building prior to the date of sale of original asset. Adoption of deemed consideration for the purpose of exemption u/s.54 - The deeming fiction provided for computing full value of consideration as a result of transfer of property as per provisions of section 50C of the Act is only applicable for determining full value of consideration as defined u/s.48 of the Act and thus, for the purpose of computing exemption u/s.54F of the Act, deeming fiction provided u/s.50C cannot be enlarged because, one cannot expect a person to perform impossible things, as when the assessee receives a particular amount from transfer of property, he cannot be expected to reinvest amount over and above consideration received for transfer of property. AO has erred in adopting deemed consideration for the purpose of computation of exemption u/s.54F. Thus we set aside order passed by learned CIT(A) and restore the issue to file of the Assessing Officer and direct him to recompute long term capital gain by adopting market value of the property determined by the DVO and also by considering amount invested by the assessee for construction of new house property in light of our directions. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Quantum of Investment in House Property for Computation of Exemption u/s 54F
2. Application of Section 50C without Considering the Objection of the Appellant
3. Guideline Value Reduction by Tamil Nadu Government
4. Correct Computation of Exemption u/s 54F

Detailed Analysis:

1. Quantum of Investment in House Property for Computation of Exemption u/s 54F:
The assessee claimed exemption u/s 54F for reinvesting the sale consideration from the sale of land into the construction of a new residential house. The Assessing Officer (AO) found that out of Rs. 2,30,49,486/- claimed by the assessee, only Rs. 1,24,70,243/- was supported by bills and vouchers. Furthermore, Rs. 1,08,57,553/- of this amount was incurred before the sale of the original asset. The AO, therefore, restricted the exemption to Rs. 16,12,690/- and disallowed the remaining amount. The Tribunal found fault with the AO's approach, stating that many construction expenses may not have supporting bills and vouchers. It also emphasized that, as per judicial precedents, construction may commence before the sale of the old asset but must be completed within three years from the sale date. Hence, the AO erred in not considering the entire amount spent on construction for exemption.

2. Application of Section 50C without Considering the Objection of the Appellant:
The AO adopted the guideline value of the property as per Section 50C, which was higher than the actual sale consideration. The assessee objected, and the AO referred the matter to the Departmental Valuation Officer (DVO). However, the AO completed the assessment before the DVO's valuation was received, adopting the higher deemed sale consideration. The Tribunal held that the AO erred in adopting the deemed sale consideration without waiting for the DVO's valuation, as the assessee had rightfully objected to the guideline value.

3. Guideline Value Reduction by Tamil Nadu Government:
The assessee argued that the guideline value was reduced by 33% by the Tamil Nadu Government, and this should have been considered. However, the Tribunal did not specifically address this issue separately, implying that the primary focus was on the procedural correctness of the AO's actions regarding the valuation reference to the DVO.

4. Correct Computation of Exemption u/s 54F:
The AO computed the exemption u/s 54F using the deemed sale consideration rather than the actual consideration received. The Tribunal clarified that the deeming fiction under Section 50C is only for computing the full value of consideration for capital gains purposes and should not be extended to the computation of exemption u/s 54F. The actual consideration received should be used for determining the exemption, as it is unreasonable to expect an assessee to reinvest more than what was actually received from the sale.

Conclusion:
The Tribunal set aside the orders of the CIT(A) and the AO and remanded the matter back to the AO for a fresh assessment. The AO was directed to recompute the long-term capital gain by adopting the market value determined by the DVO and to consider the entire amount invested by the assessee in the construction of the new house property, including amounts spent before the sale of the original asset, for exemption u/s 54F. The appeals were allowed for statistical purposes.