2016 (12) TMI 1341 - AT - Income Tax

Determining long term capital gain in respect of sale of property - assessee co-owner to the extent of 1/8th share - substituting the actual sale consideration with the amount determined by the DVO by applying provisions of section 50C - Held that - In the case of one of the co-owners, the assessment order has been passed u/s 143(3). No addition has been made in her hands. Ld. Counsel has rightly relied upon the aforesaid wherein it has been held that identical treatment deserves to be given in the hands of all the co-owners. Thus, on this ground itself, the action of the lower authorities in making addition in this regard is not sustainable. In addition to the above, it is also noted by us that while finding out comparable rate of neighbouring properties sold at that time, Ld.CIT(A) had inadvertently taken the rate of a property which was not pertaining to the same building, but located in Sidhwa Building, whose stamp duty has been given at ₹ 7,733 per sq.ft. On the other hand, rates of other properties located in the same building, i.e. BMP building are lesser than the sale price shown by the assessee and average rate of those properties were below the rate shown by the assessee. Thus, if correct sale instances were taken into consideration, no addition would have been called for. Further, it is clear from the evidences shown to us that the building of the assessee was constructed prior to 1940, whereas the aforesaid sale instances considered by the Ld. CIT(A) pertain to the building constructed in 1965. Thus, there cannot dispute on the point that appropriate adjustment on account depreciation must be given while determining the fair market values of two properties constructed at two different points of time. Further, none of the authorities has considered the aspect of providing discount with respect to sale price of properties owned by more than one person. It is noted by us that, if we properly consider all the objections raised by the assessee, the actual sale consideration shown by the assessee @ ₹ 6,000 per sq.ft., would not be less than the fair market value in view of the facts brought before us. Under these circumstances, there is actually no case of any addition. Ld. CT(A) ought to have deleted the addition fully. Thus, amount of the addition sustained by the Ld. CIT(A) is directed to be deleted.

Summary

Issues:
1. Determination of long term capital gain under section 50C for sale of property.
2. Justification of addition by Assessing Officer.
3. Validity of valuation methods and fair market value determination.
4. Consistency in treatment of co-owners in similar transactions.
5. Consideration of depreciation and discount in property valuation.

Issue 1: Determination of long term capital gain under section 50C for sale of property:
The appeal involved the question of whether the Assessing Officer was justified in making an addition while determining long term capital gain for the sale of a property at Colaba, Mumbai, where the assessee was a co-owner. The Assessing Officer substituted the actual sale consideration with the amount determined by the Stamp Duty Valuation Authority under section 50C of the Act. The assessee contested this automatic application of section 50C and provided objections and supporting evidence to justify the actual sale consideration. The Commissioner of Income Tax (Appeals) reduced the addition based on the valuation report received from the DVO, but the Tribunal found that the actual sale consideration should have been accepted, considering the objections raised and the treatment of co-owners in similar transactions.

Issue 2: Justification of addition by Assessing Officer:
The Assessing Officer made the addition by substituting the sale consideration with the value assessed by the Stamp Valuation Authority under section 50C, despite objections raised by the assessee and the absence of the DVO's valuation report. The Tribunal noted that the actual sale consideration had been accepted in the assessments of other co-owners, and similar treatment should have been applied to the present assessee. The Tribunal held that the action of the lower authorities in making the addition was not sustainable, especially considering the treatment of co-owners in identical transactions.

Issue 3: Validity of valuation methods and fair market value determination:
The Commissioner of Income Tax (Appeals) determined the fair market value based on comparable transactions in the vicinity, but the Tribunal found discrepancies in the selection of sale instances and the consideration of depreciation. Correct sale instances were not considered, and adjustments for depreciation were overlooked. The Tribunal concluded that the fair market value should have been based on the actual sale consideration provided by the assessee, and the addition made by the Commissioner was not justified.

Issue 4: Consistency in treatment of co-owners in similar transactions:
The Tribunal emphasized the importance of treating co-owners consistently in transactions involving shared properties. It noted that the actual sale consideration had been accepted in the assessments of other co-owners, and similar treatment should have been extended to the present assessee. The Tribunal referred to legal precedents supporting identical treatment for co-owners in such cases.

Issue 5: Consideration of depreciation and discount in property valuation:
The Tribunal highlighted the importance of considering depreciation and discount in property valuation, especially in cases involving co-owned properties. The Tribunal found that appropriate adjustments for depreciation and discount were not provided in the valuation process, leading to an unjustified addition to the capital gains. The Tribunal directed the deletion of the addition sustained by the Commissioner and emphasized the need for a comprehensive valuation approach considering all relevant factors.

This detailed analysis of the judgment highlights the key issues involved in the appeal and provides a comprehensive overview of the Tribunal's decision based on the legal arguments and evidence presented in the case.