2016 (8) TMI 21 - AT - Income Tax

Valuation u/s. 50C - Held that - AO is correct in invoking the provisions of Section 50C. Assessee either should have objected to the valuation before the SRO or should have objected the valuation before the AO who in turn could have referred it to the Valuation Officer. Since neither of the actions was undertaken by assessee, the provisions of Section 50C are to be applied as such. Eventhough the amount of difference is small; there is no option to the appellate authorities not to ignore the provisions of the Statute. Assessee should have objected to the valuation being adopted u/s. 50C(2). Having not done, it is not possible to substitute any value other than the SRO value under Section 50C. I find no merit in assessee s contentions. Accordingly, the ground is rejected. Disallowance of expenditure on construction of partition walls and toilets - Held that - As far as development agreement is concerned, it is true that assessee was to get constructed first floor admeasuring 9,000 Sq. Ft., without any internal partition walls. Assessee along with her husband has sold 6,185 Sq. Ft., in the first floor along with undivided share of land and the sale documents do indicate that there were partition walls and toilets. Obviously, these could have been incurred by assessee. Even though, no details could be furnished to the satisfaction of AO/CIT(A), the fact cannot be denied that assessee had to incur some expenditure on the partition walls and the toilets, being provided on the sold property. Considering the above, I am of the view that an amount of ₹ 3 Lakhs can be allowed to assessee towards possible expenditure on development of the property. Accordingly, the grounds are partially allowed. AO is directed to re-work out the capital gains accordingly. Addition of entire rental income in the hands of assessee - Held that - This issue requires examination by the AO. First of all, it has to be seen whether assessee and her son owns only 50% of the share of the property? If so, whether assessee s husband also owns any property as the submissions made before the AO vide letter dt. 11-12-2015 do indicate that Shri K. Pratap Reddy owns 1/4th share only. It is also stated that the same was accepted in an assessment u/s. 143(3) dt. 31-12-2009. Thus, the submissions by assessee indicates that Shri K. Pratap Reddy holds 1/4th share while assessee owns 1/4th share and her two sons owns the balance share at 1/4th each. Consequently, there are four persons in whose hands the income should have been offered. No details of the complete ownership and offering of incomes were placed on record. AO himself considers only 1/4th share of assessee and another 1/4th share of one son in assessee s hand. Whether the other son is a major or a minor and incomes are offered separately could not be verified. Thus we direct the AO to examine the ownership of the property and assess only that part of the rental income which is to be assessed in assessee s hands. AO is also directed to give credit accordingly in the respective hands.

Summary

Issues:
1. Assessment of sale consideration under Section 50C of the Income Tax Act
2. Disallowance of expenditure for construction of partition walls and toilets
3. Assessment of rental income from joint ownership of property

Assessment of sale consideration under Section 50C:
The issue revolves around the invocation of Section 50C of the Income Tax Act by the Assessing Officer (AO) to tax the difference between the sale consideration mentioned in the Sale Deed and the value offered by the assessee. The assessee objected, citing a Supreme Court judgment, but the Commissioner of Income Tax (Appeals) rejected the contention. The Tribunal upheld the AO's decision, emphasizing that the assessee failed to object to the valuation before the Sub-Registrar or the AO, as required by law. Despite the small difference in values, the Tribunal ruled that the provisions of Section 50C must be applied, as the assessee did not follow the prescribed procedures for challenging the valuation.

Disallowance of expenditure for construction of partition walls and toilets:
The dispute concerns the disallowance of &8377; 7.53 lakhs claimed by the assessee for constructing partition walls and toilets. The assessee could not provide sufficient evidence to support the claimed expenditure, leading to its disallowance. The Tribunal considered the development agreement and sale documents, acknowledging that the assessee had incurred some expenditure on the property improvements. Consequently, the Tribunal allowed &8377; 3 lakhs towards the possible expenditure on property development, directing the AO to adjust the capital gains accordingly.

Assessment of rental income from joint ownership of property:
The issue involves the addition of entire rental income in the hands of the assessee, who jointly owns the property with her son. The AO added the entire rent to the assessee's income without considering the ownership structure correctly. The Tribunal directed the AO to reexamine the ownership details and assess only the portion of rental income attributable to the assessee and her son. The issue was remanded to the AO for proper assessment, emphasizing the need for a thorough examination of ownership shares and income attribution. The Tribunal allowed the grounds for statistical purposes, directing the AO to provide due credit accordingly.

In conclusion, the Appellate Tribunal ITAT Hyderabad partially allowed the assessee's appeal for statistical purposes, addressing issues related to the assessment of sale consideration under Section 50C, disallowance of expenditure for property improvements, and the assessment of rental income from jointly owned property. The judgment provides detailed analysis and interpretations of the relevant legal provisions, emphasizing procedural compliance and evidence substantiation in tax assessments.