2016 (3) TMI 361 - AT - Income Tax

Addition on account of capital gains - estimation of fair market value - application of fair market value on the basis of DLC as per Section 50C - Held that - It is undisputed fact that these properties were not got registered under the Registration of Stamp Act. It is also a fact that there was a transfer of assets from assessee to brother of the assessee namely Shri Shoukat Ali. The assessee himself admitted that this transfer as on 01/4/2006. The Assessing Officer has given deduction @ 10% on the basis of computing fair market value as on 01/4/2006. However, this matter is technical, therefore, both the properties i.e. plot No. 33, 33A, Jagdish Colony, Amer Road, Jaipur and agricultural land at Amer are required to be referred for the DVO U/s 55A of the Act. However, property at office premises has been referred to the DVO, the Assessing Officer had given deduction on account of fair market value as on 01/4/2006 from the DVO s report as DVO had calculated the fair market value as on 31/3/2007. Therefore, the capital gain calculated by the Assessing Officer on their property i.e. office premises is justified. However, the objection raised by the AR against the valuation of the DVO is required to be considered, therefore, we feel necessary to allow further deduction @ 10%, in total 20% including Assessing Officer s deduction from the fair market value estimated by the DVO. It is further noticed by the Bench that when book value as on 01/4/2006 has been taken for computing of the capital gain at ₹ 10,21,694/- whereas in assessment order it has been shown as on 31/3/2006 at ₹ 3,96,260/-, which is opening balance as on 01/4/2006. - Decided in favour of revenue

Issues Involved:
1. Deletion of the addition of Rs. 39,38,796/- made by the Assessing Officer on account of capital gains.
2. Application of Section 50C of the Income Tax Act, 1961.
3. Fair market value determination for capital gains computation.
4. Retrospective application of amendments to Section 50C.

Detailed Analysis:

1. Deletion of the Addition of Rs. 39,38,796/- Made by the Assessing Officer on Account of Capital Gains:

The assessee, engaged in the business of trading gemstones, filed a return declaring a total income of Rs. 3,54,110/-. The Assessing Officer (AO) observed that the assessee had transferred 50% share of certain properties but did not declare any capital gain. The AO calculated the capital gains on the basis of the DVO's report and added Rs. 39,38,796/- to the assessee's income. The assessee appealed to the CIT(A), who deleted the addition, stating that Section 50C was not applicable as the properties were not registered and the amendment to Section 50C was prospective, not retrospective. The revenue appealed to the ITAT, which partially allowed the appeal, directing the AO to refer the properties for valuation under Section 55A and make necessary changes as per law.

2. Application of Section 50C of the Income Tax Act, 1961:

The AO applied Section 50C, which deals with the valuation of capital assets for the purpose of computing capital gains. The AO argued that the amendment to Section 50C, which included the term "assessable," was clarificatory and retrospective. However, the CIT(A) and various tribunals held that the amendment was prospective, effective from 01/10/2009, and not applicable to the assessment year 2007-08. The ITAT noted that the properties were not registered, and the AO used the DLC rate to determine the fair market value, which was not in line with the provisions of Section 50C for the relevant assessment year.

3. Fair Market Value Determination for Capital Gains Computation:

The AO determined the fair market value using the DVO's report and DLC rates. The CIT(A) disagreed, stating that the properties were not registered, and the assessable value by stamp duty authorities could not be taken as the full value of consideration. The ITAT directed the AO to refer the properties for valuation under Section 55A and allowed a further deduction of 10% from the fair market value estimated by the DVO, totaling a 20% deduction, including the AO's initial deduction.

4. Retrospective Application of Amendments to Section 50C:

The AO argued that the amendment to Section 50C, which included the term "assessable," was clarificatory and retrospective. However, the CIT(A) and various tribunals, including the ITAT, held that the amendment was prospective, effective from 01/10/2009. Therefore, the assessable value could not be applied to the assessment year 2007-08. The ITAT upheld this view and directed the AO to verify the facts and make necessary changes as per law.

Conclusion:

The ITAT partially allowed the revenue's appeal, directing the AO to refer the properties for valuation under Section 55A and make necessary changes as per law. The ITAT also allowed a further deduction of 10% from the fair market value estimated by the DVO, totaling a 20% deduction, including the AO's initial deduction. The ITAT upheld the view that the amendment to Section 50C was prospective and not applicable to the assessment year 2007-08.

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