2025 (3) TMI 921 - AT - Income Tax

Computing the Long Term Capital Gains - determination of the fair market value of the asset at Nellore - HELD THAT - No opportunity was given to the assessee in respect of the adoption of the SRO rate by AO is concerned there is no dispute that the document bears the sale consideration at Rs. 9 lakhs and consequent to the revisionary orders while adopting the SRO rate in respect of the property at Rs. 33.88 lakhs the record does not reveal that any opportunity was granted to the assessee to put forth his case on this aspect. In this context the submission of AR that there is no column in the ITR to insist on the mention of stamp duty value of the asset assumes importance. We therefore are of the considered opinion that in all fairness the determination of the fair market value should have been referred to the DVO to be decided after hearing the assessee and considering the material put forth by him. We accordingly set aside the findings of CIT(A) on this aspect and restore the same to the file of AO to refer the determination of the fair market value of the asset at Nellore to the DVO to be decided after affording an opportunity to the assessee. Capital gains relatable to the property in Jubilee Hills Hyderabad - As perusal of the findings of the co-owner of the property brother of the assessee who holds 50% of share in the property and who litigated on the very same issue before the Tribunal we find that the coordinate Bench returned an unequivocal finding and held that since the interest paid in respect of the property at Jubilee Hills on the loan amount used by him for substituting the housing loan has a direct nexus with the acquisition of the property the same is allowable deduction in terms of section 48 and it is required to be reduced from the sale consideration received by the assessee being one of the components of the cost of acquisition. We do not think it just and proper to revisit the same issue and the judicial discipline requires that due deference must be shown to the findings given by the coordinate benches. Disallowance of this interest expense and also the consequential disallowance of the corresponding index of the cost of acquisition needs to be deleted. We accordingly direct AO to delete the same. Appeal of the assessee is allowed in part and for statistical purpose.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the determination of the sale consideration for the property at Nellore was correctly assessed under Section 50C of the Income Tax Act, 1961, without referring to the valuation officer.
Whether the interest paid on a loan obtained from India Bulls Finance Services for the property at Jubilee Hills can be considered part of the cost of acquisition under Section 48 of the Income Tax Act, 1961.

ISSUE-WISE DETAILED ANALYSIS

1. Determination of Sale Consideration under Section 50C for the Property at Nellore

Relevant Legal Framework and Precedents: Section 50C of the Income Tax Act mandates that if the consideration received on the transfer of a capital asset is less than the value adopted by the stamp valuation authority, the value so adopted shall be deemed to be the full value of the consideration. However, if the assessee claims that the value adopted exceeds the fair market value, the Assessing Officer must refer the valuation to a valuation officer as per Section 50C(2).
Court's Interpretation and Reasoning: The Tribunal noted that the assessee claimed the sale consideration at 9 lakhs while the Assessing Officer adopted 33.88 lakhs based on the stamp duty value. The Tribunal found that the Assessing Officer did not provide the assessee an opportunity to contest this value, nor was the matter referred to a valuation officer.
Key Evidence and Findings: The Tribunal observed that the sale document recorded 9 lakhs as the consideration. The assessee argued that the land had locational disadvantages, warranting a lower valuation than the SRO rate.
Application of Law to Facts: The Tribunal applied Section 50C(2) and concluded that the fair market value should have been determined by a valuation officer after hearing the assessee.
Treatment of Competing Arguments: The Tribunal acknowledged the assessee's argument regarding the absence of a column in the ITR for stamp duty value and the lack of opportunity to contest the SRO rate.
Conclusions: The Tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to refer the matter to a valuation officer for determining the fair market value, providing the assessee an opportunity to present his case.

2. Interest on Loan as Part of Cost of Acquisition for the Property at Jubilee Hills

Relevant Legal Framework and Precedents: Section 48 of the Income Tax Act allows for the deduction of the cost of acquisition and improvement from the full value of consideration received or accruing as a result of the transfer of a capital asset.
Court's Interpretation and Reasoning: The Tribunal considered previous findings in the case of the co-owner of the property, where it was held that the interest on the loan from India Bulls Finance Services was linked to the acquisition of the property.
Key Evidence and Findings: The Tribunal noted that the interest expense was incurred to substitute an initial loan from EDCO India Pvt Ltd., which was used for acquiring the property.
Application of Law to Facts: The Tribunal applied the precedent set in the co-owner's case, recognizing the interest as part of the cost of acquisition under Section 48.
Treatment of Competing Arguments: The Tribunal dismissed the DR's argument that the loan from India Bulls was not for acquisition purposes, citing the direct nexus established in the co-owner's case.
Conclusions: The Tribunal directed the Assessing Officer to allow the interest expense as a deduction under Section 48, effectively deleting the disallowance made by the CIT(A).

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reinforced the principle that the fair market value should be determined by a valuation officer when the assessee disputes the stamp duty value under Section 50C. It also upheld that interest on loans used to substitute acquisition loans can be included in the cost of acquisition under Section 48.
Final Determinations on Each Issue:
- For the Nellore property, the case was remanded to the Assessing Officer to refer the valuation to a valuation officer.
- For the Jubilee Hills property, the interest expense was allowed as a deduction from the sale consideration.

The appeal was partly allowed, with directions for further proceedings consistent with the Tribunal's findings.

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