2017 (2) TMI 1540 - AT - Income Tax

Enhancement by CIT(A) - addition under the deeming provisions of Section 50C - CIT(A) not only confirmed action of the AO but also directed the AO to make an addition in respect of cost of acquisition as there was variation in the figures of cost of acquisition as per record vis-a-vis the lease deed - HELD THAT - A co-ordinate bench of this Tribunal in the case of M/s. Monga Metal Pvt. Ltd 2013 (8) TMI 1179 - ITAT LUCKNOW has held that such an action of the AO i.e. of proposing enhancement without putting the assessee to specifically notice in this regard is unsustainable in law as provisions of section 251(2) categorically says that the Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Therefore it is incumbent upon the ld. CIT(A) for affording a reasonable opportunity of showing cause against enhancement to the assessee. If he fails to afford an opportunity to the assessee enhancement made by him is not sustainable in the eyes of law. In the light of these facts enhancement made by the ld. CIT(A) is not sustainable as it was done without issuing a show cause against enhancement to the assessee. We therefore find no merit in the additions. Whether the provisions of section 50C can be invoked in respect of the lease hold property ? - As this issue is no longer res integra there are several decisions of this Tribunal including the case of DCIT vs. Tejinder Singh 2012 (3) TMI 47 - ITAT KOLKATA Atul G. Puranik 2011 (5) TMI 576 - ITAT MUMBAI in support of the proposition. Hon ble Delhi High Court in the case of CIT vs. Shri Kishan Das 2014 (2) TMI 897 - DELHI HIGH COURT has approved this school of thought and inter alia observed strictly construed the letter of Section 50C to say that the conveyance has to be complete in respect of all entitlements to the property. In the present case the Tribunal has upheld the valuation of the assessee. We notice that apart from the three Benches decisions of which have been relied on the Tribunal also considered the distinction made between Section 50C and 54D(1) which specifically provides that capital gains from transfer by way of compulsory acquisition under any law of capital asset being land building or any right in the land or building Section 50C on the other hand talks of transfer by assessee of a capital asset being land or building or both. The contrast in language given that Section 50C is a specific provision which seeks to enact a presumption is significant. The valuation of the concerned State agency or the government that the cost of the land is in the circumstances higher is determinative. We notice that in the present case there has been no such valuation. That apart the Tribunal adopted an approach which with respect appears to be correct in that it took note of the proportionate transfer of leasehold rights for 54 years. If the Revenue s contentions were to be conceded then in the given facts of case if the leasehold rights for residual period of 3 or 4 years were to be valued at par with the cost of acquisition of the full tenure of the lease of 90 years absurd and anomalous results would ensue. Thus both the grievances of the assessee indeed deserve to be upheld. Neither the learned CIT(A) was justified in confirming the action of the Assessing Officer in treating the stamp duty valuation as consideration for transfer for the purpose of computing capital gain nor was he justified in proposing enhancement of income regarding reduction in the cost of acquisition without putting assessee to notice in this respect. We therefore uphold the plea of the assessee.

Summary

Issues involved:
Cross appeals against the order dated 04.02.2015 passed by the CIT(A) for assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 for the assessment year 2010-11.

Analysis:
1. Grievances of the Assessee:
The assessee contested the addition made under Section 50C of the IT Act, arguing that it does not apply to the transfer of leasehold rights. They also objected to the direction to adopt indexed cost of acquisition without prior notice. The CIT(A) confirmed the addition partially, leading to the appeal.

2. Grievances of the Revenue:
The Revenue challenged the CIT(A)'s acceptance of the DVO report, reducing the long-term capital gain addition. They argued that the CIT(A) erred in setting aside the matter of cost of acquisition to the AO, as per the Finance Act 2001. The Revenue sought restoration of the Assessing Officer's order.

3. The dispute centered around the sale of a leasehold property, with the Assessing Officer valuing it higher than the sale consideration. The CIT(A) confirmed the Assessing Officer's action and directed an addition for cost of acquisition discrepancies. Both parties were dissatisfied with the CIT(A)'s decisions, leading to cross-appeals.

4. The ITAT noted that enhancing the assessment without prior notice to the assessee was unsustainable. Citing precedent, the ITAT emphasized the necessity of providing a reasonable opportunity for the assessee to respond to enhancements. Additionally, the ITAT clarified that Section 50C does not apply to leasehold properties, supported by various Tribunal decisions and High Court judgments.

5. Consequently, the ITAT upheld the assessee's plea, ruling that the CIT(A) was unjustified in confirming the Assessing Officer's actions under Section 50C and proposing enhancements without proper notice. As the addition was deleted on merit, the Revenue's grievances became irrelevant, and their appeal was dismissed as infructuous.

6. In conclusion, the ITAT allowed the assessee's appeal while dismissing the Revenue's appeal. The judgment was pronounced on February 9, 2017, resolving the cross-appeals in favor of the assessee and emphasizing the importance of procedural fairness in tax assessments.