2018 (6) TMI 1094 - AT - Income Tax

Additions made on LTCG on sale of agricultural land by adopting stamp duty valuation u/s 50C and ignoring the benefit of claim u/s 54B and 54F - AO has made addition of the capital gain which is over and above the investment made in the agricultural land and residential house due to the fair market value adopted as per the provisions of Section 50C - Held that - Once, the assessee has invested the entire actual sale consideration for purchase of agricultural land eligible for deduction U/s 54B as well purchase of new residential house eligible for deduction Under section 54F of the Act then, no addition is justified based on the deemed full value consideration as per the provisions of Section 50C of the Act. When the capital gain was fully invested in the new capital asset eligible for deduction u/s 54B and 54F then the benefit of the provisions of Sections 54B and 54F would be available to the assessee to the full amount of capital gain computed on the basis of deemed full value u/s 50C - Hence, the addition made by the AO on account of capital gain is deleted - Decided in favor of assessee.

Issues Involved:
1. Addition of ?13,49,532 as Long Term Capital Gain.
2. Invocation of Section 50C of the Income Tax Act, 1961.
3. Application of DLC rate of land as on the date of Agreement to Sale.
4. Retrospective application of the proposed amendment in Budget 2016 to Section 50C.
5. Extension of the scope of Section 50C on investments under Section 54B and 54F.
6. Addition of Long Term Capital Gain at ?1,93,81,842.
7. Acceptance of sale consideration as evidenced by the sale deed.

Detailed Analysis:

1. Addition of ?13,49,532 as Long Term Capital Gain:
The assessee contested the addition of ?13,49,532 as Long Term Capital Gain, arguing that the CIT(A) erred in confirming the AO's action. The tribunal noted that the AO adopted the stamp duty valuation under Section 50C, which was higher than the declared sale consideration. The assessee argued that the DLC rates as on the date of agreement should be considered, not the date of the sale deed. The tribunal found merit in the assessee's contention that the DLC rates should reflect the fair market value, not temporary enhancements.

2. Invocation of Section 50C of the Income Tax Act, 1961:
The AO invoked Section 50C, adopting the sale consideration at a higher value based on stamp duty valuation. The tribunal observed that the AO referred the valuation to the DVO, who based the valuation on temporarily enhanced DLC rates. The tribunal held that the DVO should have considered the fair market price instead of the temporary enhancement.

3. Application of DLC rate of land as on the date of Agreement to Sale:
The assessee argued that the DLC rates as on the date of the agreement to sell (22.09.2011) should be adopted, as part payment was received on that date. The tribunal agreed, noting that the agreement's existence was evidenced by part consideration received, despite the agreement not being registered.

4. Retrospective application of the proposed amendment in Budget 2016 to Section 50C:
The assessee claimed that the proposed amendment should be treated as retrospective. The tribunal did not delve deeply into this issue, as it found that the capital gain was fully invested in new capital assets, making this point academic.

5. Extension of the scope of Section 50C on investments under Section 54B and 54F:
The AO restricted the benefit of Sections 54B and 54F to the actual investment made, based on the higher capital gain computed under Section 50C. The tribunal held that once the entire sale consideration was invested in eligible assets, no additional tax liability should arise from the deemed full value consideration under Section 50C.

6. Addition of Long Term Capital Gain at ?1,93,81,842:
The AO added ?1,93,81,842 as Long Term Capital Gain by adopting a higher sale consideration based on stamp duty valuation. The tribunal found that the assessee had invested the entire sale consideration in new assets, which should negate any additional tax liability from the higher valuation.

7. Acceptance of sale consideration as evidenced by the sale deed:
The assessee argued that the sale consideration as per the sale deed should be accepted. The tribunal supported this view, noting that the actual sale consideration was fully invested in new assets, making the higher valuation under Section 50C inconsequential.

Conclusion:
The tribunal concluded that since the assessee invested the entire sale consideration in new agricultural land and residential property, the full benefit of Sections 54B and 54F should be granted. Consequently, the additions made by the AO based on higher valuations under Section 50C were deleted. The appeal by the assessee was allowed, and the other issues raised became academic.

Order:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 11/06/2018.

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