2024 (2) TMI 544 - AT - Income Tax

Capital gain computation on the transfer of property - AO mechanically adopted the stamp duty value/segment rate as the deemed sale consideration - assessee failed to participate in the assessment proceedings - non-reference to the Valuation Officer for determination of FMV - determining FMV of the property as on the date of transfer - HELD THAT - Failure on the part of the assessee to comply with the notices issued by the A.O and, thus, participate in the assessment proceedings was due to compelling circumstances prevailing at the relevant point of time i.e., death of his father on 06.08.2018. A.O while adopting the stamp duty value of Rs. 31,55,100/- as the deemed sale consideration for computing capital gain on the transfer of the aforesaid property which was claimed by the assessee to have been sold for Rs. 3.50 lacs, should not have mechanically adopted the stamp duty value/segment rate as the deemed sale consideration, and in all fairness, ought to have referred the matter to the District Valuation Officer (DVO) for determining of the FMV of the property as on the date of transfer. Thus as there were justifiable reasons for the assessee in not participating in the course of the proceedings before the A.O, as a result whereof, there was no occasion for him to have sought a reference to the DVO for determination of FMV of the property under consideration. The assessee had in the facts/submissions filed before the CIT(Appeals) categorically stated that as property under consideration was wall locked land located in between constructed buildings belonging to third parties with no independent access/approach road, therefore, for the said reason the said property was sold at a distress value of Rs. 3.50 lacs. Assessee has specifically brought to the notice of the CIT(Appeals) the locational disadvantages of his property, therefore the latter in exercise of powers vested with him which are co-terminus with that of the A.O ought to have considered the said material aspect and should have called for a remand report with a direction to the A.O to make a reference to the Valuation Cell for determining the FMV of the aforesaid property in question. Thus the matter in all fairness requires to be restored to the file of the A.O who is directed to make a reference to the Valuation Officer for determination of FMV of the aforementioned property as on the date of transfer - We are also unable to persuade to concur with the adoption of the cost of acquisition of the property under consideration at Rs. Nil by the A.O while calculating STCG on the sale of the same. AO is also directed to verify the aforesaid claim of the assessee qua the cost of acquisition of the aforesaid property under consideration, and allow his claim for deduction of indexed cost of acquisition if the same is found in order.

Summary

Issues Involved:

1. Adoption of Stamp Duty Value vs. Fair Market Value for Capital Gain Calculation.
2. Denial of Deduction for Cost of Acquisition and Indexation Benefits.
3. Violation of Principles of Natural Justice due to Ex-Parte Order.

Summary:

1. Adoption of Stamp Duty Value vs. Fair Market Value for Capital Gain Calculation:
The assessee challenged the addition of Rs. 31,55,100/- by the A.O, who adopted the stamp duty value instead of the fair market value (FMV) for computing capital gain under Section 50C. The A.O initiated proceedings under Sec. 147 due to the assessee's failure to file a return and issued a notice u/s. 148. The A.O found that the property was sold for Rs. 3,50,000/-, but the stamp duty value was Rs. 31,55,100/-. Due to non-compliance by the assessee, the A.O adopted the stamp duty value as the deemed sale consideration. The Tribunal held that the A.O should have referred the matter to the Valuation Cell u/s. 50C(2) to determine the FMV, citing the Calcutta High Court's judgment in Sunil Kumar Agrawal Vs. Commissioner of Income Tax.

2. Denial of Deduction for Cost of Acquisition and Indexation Benefits:
The assessee argued that the CIT(Appeals) erred in not allowing the deduction of Rs. 2,78,870/- for the cost of acquisition and the indexation benefits. The A.O had calculated the short term capital gain (STCG) without allowing any deduction towards the cost of acquisition. The Tribunal directed the A.O to verify the assessee's claim regarding the cost of acquisition and allow the deduction for the indexed cost of acquisition if found valid.

3. Violation of Principles of Natural Justice due to Ex-Parte Order:
The assessee contended that the CIT(Appeals) passed an ex-parte order without providing sufficient opportunity for a hearing, violating the principles of natural justice. The CIT(Appeals) had provided multiple opportunities, but the assessee failed to participate. The Tribunal acknowledged the assessee's reason for non-compliance, i.e., the death of his father, and directed the A.O to afford a reasonable opportunity of being heard during the set aside proceedings.

Conclusion:
The Tribunal restored the matter to the A.O for fresh adjudication, directing a reference to the Valuation Officer for determining the FMV of the property and verifying the cost of acquisition claim. The appeal was allowed for statistical purposes.