2017 (6) TMI 492 - AT - Income Tax

Deduction u/s. 54EC - non accepting the actual consideration received by the assessee on account of sale of the impugned property - Held that - The provisions for Section 54EC require to make investment in the specified securities on the basis of actual sale consideration and not on the basis of deeming amount of consideration as envisaged in section 50C of the Act. Whereas the provision of Sec. 50C provides for deemed value of consideration adopted as per the Stamp Valuation Authority for the purpose of capital gain. In the instant case the impugned property was sold at a value lesser than the value adopted for the purpose of stamp duty. Therefore the valuation determined for the purpose of stamp valuation is taken as sale consideration. However, such deeming provision cannot be applied to the provision of law as specified Section 54EC of the Act. Accordingly, the deduction u/s 54EC in the instant case shall be limited to the amount of ₹ 18 lakh i.e. actual investment. However, for the computation of capital gain the provision of deeming sale consideration shall be applied as specified under section 50C i.e. ₹ 35,76,180/-. In view of the above, the AO is directed to compute the capital gains after taking the sale consideration at ₹ 35,76,180.00 as per the provisions of section 50C of the Act. But for the purpose of deduction u/s. 54EC, the sale value would be taken at ₹ 18.99 lacs which is the actual sale consideration. Calculation of cost of acquisition - Held that - Authorities Below have not considered the valuation report given by the registered valuer though the assessee s claim to have filed the same before the Authorities Below. Similarly, we also find that assessee has declared the valuation of the impugned property @ ₹ 2030.00 per sq. ft. in the immediate preceding year as evident from the supporting documents which are placed on record. But on perusal of the same, we find that no scrutiny assessment was carried out by the Department in the earlier assessment year. Therefore in our considered view, the matter has not been adjudicated on the basis of merit. We also find that the valuation report showing the cost of acquisition of the assessee as submitted by the ld. AR was never verified by the Revenue. Therefore, we are not inclined to accept the same view taken by the Authorities Below. In view of the above, we are of the opinion that the issue of cost of acquisition as on 01.04.1981 needs to be re-verified in the light of above facts and circumstances. Therefore we remit the issue to the file of AO with the direction to re-verify the cost of acquisition as on 01.04.1981 and after providing reasonable opportunity of being heard to assessee as per law. This ground of assessee s appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Treatment of value declared for stamp duty as sale consideration for capital gain calculation under Section 50C.
2. Acceptance of actual consideration received for the purpose of deduction under Section 54EC.
3. Determination of cost of acquisition for the purpose of capital gains calculation.

Detailed Analysis:

Issue 1: Treatment of Value Declared for Stamp Duty as Sale Consideration for Capital Gain Calculation under Section 50C

The first issue raised by the assessee was that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in treating the value declared for stamp duty purposes as the sale consideration for calculating capital gains under Section 50C of the Income Tax Act. However, the assessee's representative did not advance any argument in support of this ground of appeal. Consequently, this ground was dismissed as infructuous.

Issue 2: Acceptance of Actual Consideration Received for the Purpose of Deduction under Section 54EC

The assessee argued that the CIT(A) erred in not accepting the actual consideration received from the sale of the property for the purpose of deduction under Section 54EC. The assessee had invested ?18 lakh in specified assets under Section 54EC for exemption from capital gains. The Assessing Officer (AO) computed the capital gains based on the deemed sale consideration as per Section 50C, which was higher than the actual sale consideration. The AO also calculated the deduction under Section 54EC based on this deemed consideration.

Upon appeal, the CIT(A) partially agreed with the assessee, directing the AO to compute the Long Term Capital Gain under Section 50C using the Fair Market Value determined by the Valuation Office of the Income-tax Department but to allow the deduction under Section 54EC based on the actual sale value. The Tribunal upheld this decision, noting that Section 54EC requires investment based on actual sale consideration, not the deemed value under Section 50C. Therefore, the deduction under Section 54EC was limited to ?18 lakh, the actual investment, while the capital gain was computed based on the deemed sale consideration of ?35,76,180.

Issue 3: Determination of Cost of Acquisition for the Purpose of Capital Gains Calculation

The assessee contended that the CIT(A) erred in taking the cost of acquisition at ?20,000. The assessee had calculated the cost of acquisition based on the property's value as of 01.04.1981, indexed using gold rates, arriving at ?4,91,050. The AO, however, took the cost of acquisition as ?20,000, the value recorded in the partition deed dated 15.07.1985, and proportionally allocated this amount to the properties sold, resulting in an indexed cost of ?54,135.

The CIT(A) upheld the AO's decision, but the Tribunal found that the Authorities Below had not considered the valuation report by a registered valuer submitted by the assessee. Additionally, the valuation of ?2030 per sq. ft. accepted in the immediate preceding year was not scrutinized on merit. The Tribunal remitted the issue back to the AO for re-verification of the cost of acquisition as of 01.04.1981, directing a re-evaluation in light of the registered valuer's report and providing the assessee a reasonable opportunity to be heard.

Conclusion

In summary, the Tribunal dismissed the ground related to the treatment of stamp duty value as sale consideration due to lack of argument. It upheld the CIT(A)'s decision to compute capital gains based on the deemed value under Section 50C but to allow deduction under Section 54EC based on actual sale consideration. Lastly, it remitted the issue of determining the cost of acquisition back to the AO for re-verification, considering the registered valuer's report and earlier accepted valuations. The appeal was thus partly allowed for statistical purposes.