2020 (5) TMI 351 - AT - Income Tax

Reopening of assessment - Capital gain computation - invoking Section 50C - full value consideration being determined by the DVO - whether valuation adopted by the stamp valuation authority cannot by itself be made the basis of re-opening of assessment? - HELD THAT - Assessee has brought on record the material which distinguishes the case from the normal transfer as property was occupied by the tenants at a meager rent and also dispute is pending in the Court. Certainly adverse factors affect the fair market value and no buyer would like to purchase the property if the vacant and undisputed possession is not handed over to him at the time of transfer - when the property is attached with various factors adversely affecting the value/ price of the property, the fair market value determined by the DVO by adopting the DLC Rates and giving only 15% discount on account of distressed sale is not justified. DVO has not cited any comparable instances of a similarly situated property occupied by the tenants. It is undisputed fact that the assessee cannot fetch a prevailing market price which is in the area. Accordingly, in the facts and circumstances of the case, we find that sale consideration as agreed between the parties and reflected in the sale deed is representing correct fair market price of the property in question. Hence, the addition made by the AO and sustained by the ld. CIT(A) on this account is deleted. Cost of acquisition as well cost of construction - CIT(A) rejected the claim of the assessee on the ground that the assessee has not filed any evidence to substantiate her claim that ground floor of the property was constructed in the year 1984-85 - HELD THAT - AO as well as the DVO has accepted the construction of the ground floor in the financial year 1984-85 and first floor in financial year 2002-03. Therefore, there is no basis for doubting the year of construction as claimed by the assessee. We are of the considered view that average indexed cost taken by the assessee as well as by the AO would be a just and reasonable amount of cost of construction. Accordingly, the average of two amounts comes to ₹ 5,68,056/- and the same shall be allowed as deduction on account of indexed cost of construction. The AO is directed to recompute the Long Term Capital Gain by considering the indexed cost of construction as indicated above.

Summary

Issues:
1. Reopening of assessment based on Section 50C valuation
2. Validity of reasons provided for reopening
3. Assessment of property with encumbrances
4. Discrepancy in sale price and Section 50C valuation
5. Deduction of cost of construction

Reopening of Assessment based on Section 50C Valuation:
The assessee challenged the reopening of assessment under Section 148 of the Income Tax Act, 1961, arguing that full disclosure was made initially. The AO had reopened the assessment due to a variance in property valuation between the assessee and the stamp duty authority. The AO assessed Long Term Capital Gain based on Section 50C valuation. The CIT(A) referred the valuation to the DVO, who determined the fair market value higher than the AO's assessment. The assessee contended that the property had various issues and should not be valued solely based on stamp duty rates. The DVO's valuation was challenged, citing distress sale, tenant disputes, and incomplete construction valuation.

Validity of Reasons Provided for Reopening:
The appellant contended that the assessment order was passed without valid service of reasons under Section 148(2). Legal precedents were cited to support the argument that proper reasons for reopening must be provided. The lack of valid reasons for reopening was highlighted as a procedural error in the assessment process.

Assessment of Property with Encumbrances:
The appellant argued that the property under consideration had encumbrances, limitations, and tenant disputes affecting its value. The CIT(A) was criticized for not considering these factors while assessing the property. The appellant emphasized that the property's actual value should be adjusted for these encumbrances and limitations.

Discrepancy in Sale Price and Section 50C Valuation:
The CIT(A) was criticized for adopting a higher value for the property compared to the sale price declared by the assessee. The appellant argued that the fair market value should not solely rely on stamp duty valuation and should consider the property's actual condition, including tenant occupancy and pending disputes.

Deduction of Cost of Construction:
The appellant claimed deductions for the cost of construction in specific financial years, which were denied by the AO and upheld by the CIT(A). The appellant provided evidence supporting the claimed costs of construction, challenging the AO's estimation. The Tribunal directed the AO to reconsider the Long Term Capital Gain calculation by allowing the indexed cost of construction as claimed by the appellant.

In conclusion, the Tribunal partly allowed the appeal, emphasizing the need for a comprehensive assessment considering the property's actual condition, encumbrances, and valid reasons for reopening assessments under Section 148. The judgment highlighted the importance of fair valuation methods and proper deductions in determining Long Term Capital Gain.