2022 (6) TMI 1273 - AT - Income Tax

LTCG - FMV detrmination - AO computed assessee s share being 1/4th of the long term capital gain - scope of section 9B of the Act which was brought on the Statute book by Finance Act, 2021 w.e.f 1.4.2021 - A.R. vehemently submitted before us that the AO should have referred the matter tothe DVO for ascert aining the fair market value as on the date of sale as well as on 1.04.1981 and as the calculation made by the AO is just a guess work which is based on presumptions and assumptions without any reasonable and rationale basis and therefore the same may to be sent back to the file of the AO for assessing the correct amount of capital gain after making necessary reference to the DVO for ascertaining the fair market value of the plot as on the date of sale as well as on 1.4.1981 - HELD THAT - We find merits in the contentions of the assessee that the addition made by the AO is just on the basis of presumptions and assumptions without any valid basis. Accordingly we set aside the issue to the file of the AO with the direction to refer the matter to DVO for ascertaining the fair market value of the plot as on the date of sale as well as on 1.4.1981 and compute the long term capital on the basis of said report after affording reasonable opportunity of hearing to the assessee. Ground no. 2 is allowed for statistical purposes. Long term capital gain on sale of plot - HELD THAT - AO has computed the capital gain on the basis of presumptions and assumptions by taking the value of plot measuring 16405.125 sq. ft on estimated basis. Consequently we restore the issue to the file of the AO as the same direction to ascertain the fair market value as on the date of sale as well as on 1.4.1981 by referring the matter to the DVO and accordingly assess the long term capital gain falling to the share of the assessee. Ground no. 3 is allowed for statistical purpose. Addition on account of short term capital gain received upon retirement from the registered partnership firm - HELD THAT - We note that during the year the assessee has retired from the partnership firm w.e.f. 15.1.2011 in which the assessee was having 12.5% share in the profit. The Firm was having various assets as given above aggregating to Rs. 82,67,688/-. The AO calculated the short term capital gain by computing the deemed sale consideration at Rs. 6,45,83,358/- u/s 50C of the Act and assessee s share was calculated at Rs. 80,72,920/-. Similarly the proportionate asset cost which fall to the assessee s share was calculated at Rs. 10,38,460/- and thus calculated the short term capital gain at Rs. 70,30,31,460/- which was added to the income of the assessee. As perused the provisions of Section 9B and also analysed the arguments made before us by both the Parties and find that there was no provision in the Act to compute the deemed gain in respect of assets of the firm upon reconstitution retirement of a partner. We also note that a specific provision was inserted by Finance Act, 2021 w.e.f. 1.4.2021 providing for making such deemed addition on account of capital gain upon retirement of a person from the partnership firm which are applicable for AY 2021-22 and not to the year under consideration. Accordingly we set aside the order of ld CIT(A) and direct the AO to delete the addition. Appeal of assessee allowed.

Summary

Issues Involved:
1. Appeal against order of CIT(A) for assessment year 2011-12.
2. Addition of long term capital gain on sale of plot.
3. Addition of long term capital gain on sale of another plot.
4. Addition of short term capital gain received upon retirement from partnership firm.

Issue 1:
The appeal was against the order of CIT(A) for the assessment year 2011-12.

Analysis:
The appellant raised a general issue in ground no. 1, which was not pressed during the hearing and dismissed. Ground no. 2 concerned the addition of long term capital gain on the sale of a plot. The AO calculated the gain without referring the matter to the DVO, leading to a lack of reasonable basis. The ITAT set aside the issue to the AO to ascertain fair market value and compute the capital gain accurately after necessary references to the DVO. Ground no. 2 was allowed for statistical purposes. Ground no. 3, similar to ground no. 2, was also allowed for statistical purposes after being restored to the AO for proper valuation.

Issue 2:
The addition of short term capital gain received upon retirement from the registered partnership firm.

Analysis:
The appellant retired from a partnership firm and the AO calculated short term capital gain without statutory provisions for such computation upon retirement. The ITAT noted the absence of relevant provisions in the Act for assessing deemed capital gain upon retirement of a partner. Referring to Section 9B introduced by the Finance Act, 2021, applicable from AY 2021-22, the ITAT directed the AO to delete the addition of short term capital gain. Ground nos. 4 and 5 were allowed accordingly.

Conclusion:
The ITAT allowed the appeal for statistical purposes, setting aside the additions of capital gains and directing the AO to reevaluate the calculations based on fair market value and statutory provisions. Grounds not pressed were dismissed, and the general and consequential grounds were also dismissed.