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2016 (10) TMI 936 - AT - Income TaxApplicability of section 50C - sale of development rights - power of the AO to refer the valuation to DVO after completion of assessment - AO adopted the valuation determined by the DVO - Held that - The provisions of section 50C are deeming provisions. It is settled law and well accepted rule of interpretation that deeming provisions are to be construed strictly. Thus, while interpreting deeming provisions neither any words can be added nor deleted from language used expressly. We should apply the Rule of Strict Interpretation as well as Rule of Literal Construction while understanding the meaning and scope of deeming provisions. In our opinion, under the given facts and circumstances, Ld. Counsel has rightly contended that since the impugned capital asset transferred by the assessee upon which long term capital gain has been computed by the AO is on account of transfer of Development Rights in the land of the assessee. The land itself has not been transferred by the assessee. Thus, in our opinion provisions of section 50C have been wrongly applied upon the impugned transaction. Thus, we reverse the action of lower authorities in applying the provisions of section 50C and in substituting any value other than the amount of actual sales consideration received by the assessee. It is also noted by us that for the assessment year under consideration there is no other provisions on the statute which permit the AO to substitute any other value with the full amount of consideration actually received by the assessee, while computing income under the head of capital gains. - Decided in favour of assessee Trade guarantee provision made for expenses to be incurred during the warranty period as business expenditure allowed.
Issues Involved:
1. Long Term Capital Gain on Sale of Land 2. Short Term Capital Gain on Sale of Residential Flat 3. Disallowance under Section 14A 4. Application of Amendment in Section 115JB 5. Allowance of Trade Guarantee Provision as Business Expenditure 6. Addition on Account of Wealth Tax in Computing Book Profit under Section 115JB Detailed Analysis: 1. Long Term Capital Gain on Sale of Land The assessee contested the computation of long-term capital gains based on the Stamp Duty value instead of the actual consideration received. The Assessing Officer (AO) had initially used the Stamp Duty value due to the absence of the District Valuation Officer (DVO) report. The DVO later provided a valuation, which the AO used in a rectification order. The Tribunal noted that the capital asset transferred was "Development Rights in the land" and not the land itself. Since Section 50C applies only to the transfer of land or building, the Tribunal concluded that the provisions of Section 50C were wrongly applied. Consequently, the AO's action of substituting the actual sales consideration with the DVO's valuation was reversed, allowing the assessee's appeal on this ground. 2. Short Term Capital Gain on Sale of Residential Flat The AO computed short-term capital gains based on the Stamp Duty value rather than the actual consideration received. The assessee argued that the flat was sold on an "as-is-where-is" basis and that the building was old and poorly maintained. The Tribunal found that the AO failed to refer the matter to the valuation officer as required by Section 50C. Thus, the issue was remanded back to the AO for a fresh assessment, directing compliance with the procedure outlined in Section 50C, including a referral to the valuation officer and adequate opportunity for the assessee to respond. 3. Disallowance under Section 14A The AO made a disallowance under Section 14A by attributing interest and administrative expenses to the earning of dividend income, which is exempt from tax. The CIT(A) directed the AO to follow the Tribunal's order for the assessment year 2003-04. The Tribunal reinforced this direction, instructing the AO to adhere to the previous Tribunal's decision and provide the assessee with an adequate opportunity for a hearing. 4. Application of Amendment in Section 115JB The AO applied an amendment to Section 115JB retrospectively, which the CIT(A) upheld. The Tribunal noted that the amendment was not clarificatory but substantive, and therefore, could not be applied retrospectively. The AO was directed to recompute the book profits and tax payable under Section 115JB without considering the amendment. This ground was allowed in favor of the assessee. 5. Allowance of Trade Guarantee Provision as Business Expenditure The CIT(A) directed the AO to allow the trade guarantee provision as a business expenditure, relying on the Tribunal's decision in the assessee's case for earlier years. The Tribunal upheld the CIT(A)'s decision, noting that the facts and legal position remained unchanged. 6. Addition on Account of Wealth Tax in Computing Book Profit under Section 115JB The CIT(A) deleted the addition made by the AO on account of wealth tax in computing book profit under Section 115JB, following the Tribunal's order for earlier assessment years. The Tribunal upheld this decision, as there was no change in the facts or legal position. Conclusion: The appeals filed by the assessee were partly allowed, with specific directions for fresh assessment where necessary. The appeal filed by the revenue was dismissed, affirming the CIT(A)'s decisions on the contested issues.
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