2018 (2) TMI 1644 - AT - Income Tax

Addition of capital gain by invoking the provisions of section 45(4) - determination of capital gain on the transfer of the Saidakadal property - adopting the fair market value at ₹ 1.30 lac and cost of acquisition as on 01.04.1981 - fair market value as on 01.04.1981 taken by the ld. CIT(A) at ₹ 24.40 lac as against ₹ 18 lac taken by the Assessing Officer - Held that - The case of the assessee is that the fair market value of the building as on 1.4.1981 at ₹ 18 lac is exclusive of the fair market value of the land at ₹ 6.40 lac. As against this, we find the Assessing Officer has taken a consolidated fair market value of the land and building as on 1.4.1981 at ₹ 18 lac on the basis of some valuation report. AR could not draw our attention to the said report of the Registered valuer for ascertaining if ₹ 18 lac was only towards the building or for both the land & building. Under these circumstances, we remit the matter to the file of Assessing Officer for examining the Registered valuer s report and other connected material for ascertaining if value of land is part of ₹ 18 lac or it is independent. In case it is found from such material that the value of building along with land as on 01.04.1981 is ₹ 18 lac, then, there is no need for increasing ₹ 6.40 lac towards the value of land as on 01.04.1981 and vice versa. Indexation of value of land and building - Held that - There cannot be any dispute that once value as on 01.04.1981 is taken, such cost of acquisition needs to be indexed upwards for computing the amount of long-term capital gain. We, therefore, direct the Assessing Officer to firstly, consider the fair market value of the land and building as on 01.04.1981 and, thereafter, apply indexation for determining the total amount of capital gain from this property. Needless to say, the assessee will be given an opportunity of hearing in such proceedings. Valuation of Gulmarg land/hut - Held that - The ends of justice would meet adequately if the Assessing Officer decides the question of computation of capital gain from the transfer of Gulmarg land/hut u/s 45(4) of the Act afresh, after allowing a reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Determination of capital gain on transfer of Saidakadal property.
2. Valuation of Gulmarg land/hut.

Issue 1: Determination of capital gain on transfer of Saidakadal property:

The case involved the computation of capital gain by treating the transfer of an asset as a distribution to partners under section 45(4) of the Income-tax Act, 1961. The Assessing Officer initially valued the property at a combined fair market value of ?18 lac, including both land and building. The CIT(A) indexed the fair market value to ?24.40 lac, resulting in a capital gain of ?8.43 lac. However, the Tribunal observed that the assessee did not object to the value during assessment proceedings and did not exercise the option for fair market value or cost of the residential house. The High Court found inconsistencies in the Tribunal's findings and remitted the matter back for clarification. The Tribunal directed the Assessing Officer to determine the fair market value of the land and building separately as on 01.04.1981 and apply indexation for calculating the total capital gain, providing the assessee with a hearing opportunity.

Issue 2: Valuation of Gulmarg land/hut:

Regarding the valuation of Gulmarg land/hut, the Tribunal noted that no fair market value or valuation report was provided by the assessee. The property had been dismantled, and a new property was constructed. The value of Gulmarg hut at the time of transfer was informally discussed with a partner of the assessee firm. The High Court referred to a Tribunal order section inaccurately, leading to confusion. The Tribunal decided to allow the Assessing Officer to reevaluate the computation of capital gain from the transfer of Gulmarg land/hut under section 45(4) of the Act, ensuring the assessee's right to be heard.

In conclusion, the judgment addressed the issues of determining capital gain on the transfer of the Saidakadal property and the valuation of the Gulmarg land/hut. The Tribunal and High Court interventions aimed to clarify discrepancies in valuation and ensure fair assessment procedures, providing both parties with opportunities to present their cases effectively.