2021 (6) TMI 536 - AT - Income Tax

Reopening of assessment - capital gain on sale of property - assessee was appointed as the power of attorney holder by the owner in respect of her immovable property - sale in Individual capacity as against representative assessee of owner - Capital gain on sale of immovable property in terms of the provisions of section 163(1)(c) - HELD THAT - As rightly pointed out by the ld CIT(A), mere mentioning the assessee's status as Individual instead of representative assessee of Smt. Pamela Jean Colleco is a curable defect in terms of section 292B of the Act as the assessment order so passed is in substance and effect has been passed in the status of representative assessee in conformity with and to give effect to the directions of the tribunal and thus, according to the intent and purpose of this Act. In light of aforesaid discussions, we are of the considered view that the order so passed by the AO in the impugned set-aside proceedings u/s 147/144/set-aside has been passed in the capacity of the assessee as representative assessee of Smt. Pamela Jean Colleco and continues to carry the same consequences and implication in terms of section 160, 161 and 162 of the Act as the original order passed u/s 147/144 except for the variation of the fair market value which the assessee has challenged and we shall be dealing while adjudicating the subsequent ground of appeal. In the result, we donot find any merit in the ground so taken by the assessee and the same is hereby dismissed. Determination of the Fair Market Value of the two properties - assessee is challenging the findings of the ld CIT(A) for considering part of property as residential and part commercial, and submitted that entire property is residential and should therefore be valued at ₹ 1.21 crores each as alternatively determined by the DVO in his valuation report - Revenue challenging the findings of the ld CIT(A) for considering part of property as residential and part commercial and at the same time, submitted that entire property be treated and valued as commercial property as done by the DVO and should therefore be valued at ₹ 3.00 crores each as determined by the DVO in his valuation report - HELD THAT - Both the documentary evidences and the actual usage of the property have their own relevance and importance and need to be considered while determining the fair market value of the property. At the same time, where there are visible and demonstrable variations in the actual usage or part usage of the property, the same have to be necessarily considered and cannot be ignored for the purposes of valuation. Therefore, on face of such findings, we fail to appreciate why the DVO has not considered the property part residential and part commercial and has applied purely commercial rates. Therefore, the findings of the ld CIT(A) to this extent that the land is under mixed land use and not entirely residential or commercial is hereby confirmed. In the instant case, we note that the revised valuation as so determined in respect of both the properties works out to less than 10% of the actual sale consideration as declared by the assessee and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur which even the legislature has lately recognized and has introduced the tolerance limit of 10% which have consistently been held by various Benches as curative in nature, such a difference needs to be ignored and declared sale consideration be accepted. We accordingly direct the AO to accept the sale consideration as declared by the assessee as per the two registered sale deeds. For the reasons stated above, the ground of appeal taken by the assessee is allowed and the ground of appeal taken by the Revenue is dismissed.

Summary

Issues Involved:
1. Legality of the assessment order passed in the individual capacity of the assessee.
2. Determination of the Fair Market Value (FMV) of the properties for capital gains tax purposes.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Order:

The assessee challenged the assessment order passed by the AO in his individual capacity instead of as a representative assessee of Smt. Pamela Jean Colleco. The original assessment had been set aside by the ITAT with directions to the AO to determine the FMV and provide a proper hearing to the assessee. The impugned assessment order, however, listed the assessee in his individual capacity, which the assessee argued was illegal and without authority of law. The CIT(A) upheld the assessment order, treating the error as curable under Section 292BB of the Income Tax Act, 1961.

The Tribunal noted that the original proceedings had established the assessee as the representative assessee of Smt. Pamela Jean Colleco, and this status had been confirmed by the ITAT and the Hon’ble Rajasthan High Court. The Tribunal held that the impugned order was in continuation of the earlier proceedings and was not an independent or de novo order. The order was passed to comply with the ITAT’s directions to determine the FMV and not due to any fresh jurisdiction acquired by the AO. The Tribunal concluded that the assessment order, despite the nomenclature error, was substantively in conformity with the intent and purpose of the Act and was thus valid. The ground of appeal taken by the assessee was dismissed.

2. Determination of the Fair Market Value:

The assessee contested the valuation of the properties at ?3,00,00,000 each as determined by the Valuation Officer (VO), arguing that the properties were residential and should not be valued using commercial rates. The CIT(A) partially agreed, considering the properties as 40% commercial and 60% residential, and adjusted the valuation accordingly.

The Tribunal examined the VO’s report and the CIT(A)’s findings. It noted that the VO had valued the properties based on commercial rates, influenced by their location and the stamp duty authorities’ adoption of commercial rates. However, the CIT(A) found that the properties had not been officially changed to commercial use in municipal records and that the buyers had applied for residential construction.

The Tribunal agreed with the CIT(A) that the properties were under mixed use, considering both documentary evidence and the actual usage of the properties. It found that the VO had not provided evidence to support the commercial valuation and that the properties were indeed used for residential purposes as well. The Tribunal confirmed the CIT(A)’s approach to consider the properties as part residential and part commercial.

The Tribunal further noted that the revised valuation of the properties (?1,58,79,497 and ?1,61,68,716) was less than 10% higher than the declared sale consideration (?1,50,00,000). It referred to legal precedents and legislative amendments that recognized a tolerance limit of 10% for such variations. The Tribunal held that the minor difference should be ignored, and the declared sale consideration should be accepted.

The ground of appeal taken by the assessee was allowed, and the ground of appeal taken by the Revenue was dismissed. The AO was directed to accept the sale consideration as declared by the assessee.

Conclusion:

The Tribunal upheld the validity of the assessment order passed in the individual capacity of the assessee, treating the nomenclature error as curable. It also directed the AO to accept the declared sale consideration for the properties, considering the minor difference in FMV as within the acceptable tolerance limit. Both appeals were disposed of accordingly.