2017 (8) TMI 951 - AT - Income Tax

Capital gain - reference to DVO for determining fair market value of the property as contemplated u/s 50C(2) - Held that - Claim of the assessee to make reference to DVO for determining fair market value of the property as contemplated u/s 50C(2) of the 1961 Act can be raised at an appellate stage as taxes are required to be computed in accordance with and authority of law. Section 50C(2) and 50C(3) of the 1961 Act clearly allows the reference to DVO if the assessee dispute ready reckoner as adopted by stamp duty valuation authorities of the State Government, the assessee has challenged the ready reckoner rates by giving cogent reasons detailed above. In our considered view, this issue also needs to be set aside and restored back to the file of A.O. for de-novo determination of the issue on merits, the AO shall refer the matter to the DVO for determining fair value of market as contemplated u/s 50C(2) and 50C(3) of the 1961 Act, wherein the AO shall compute short term capital gains arising from sale of property after considering valuation report of DVO. The assessee is directed to produce all relevant evidences/ explanations before the AO as well before DVO to support its contentions, which shall be admitted by the AO/DVO in the interest of justice and adjudicated on merits in accordance with law. Needless to say that the AO/DVO shall provide sufficient and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of business expenses.
3. Adoption of higher value for property sale consideration under Section 50C.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed late by 146 days. The assessee attributed the delay to the failure of their legal representatives to file the appeal on time. The Tribunal noted the affidavits and email communications provided by the assessee, which demonstrated the reliance on their legal counsel. The Tribunal found the reasons for the delay to be genuine and bona fide, thus condoning the delay to serve the substantial interest of justice.

2. Disallowance of Business Expenses:
The assessee's business had been closed since June/July 2007, yet they claimed administrative expenses, including repairs and maintenance. The AO disallowed these expenses, noting the lack of business activity and insufficient details. The CIT(A) allowed some statutory expenses but upheld the disallowance of repairs and maintenance expenses of ?2,50,000, citing lack of details and treating them as capital expenditure. The Tribunal found that additional evidence submitted by the assessee was not forwarded to the AO for verification, violating Rule 46A. Therefore, the Tribunal restored the matter to the AO for de novo determination, directing the assessee to provide all necessary evidence.

3. Adoption of Higher Value for Property Sale Consideration under Section 50C:
The AO adopted the ready reckoner rate of ?1,44,40,147 as the full value of consideration for computing short-term capital gains, as it was higher than the actual sale consideration of ?1,30,56,550. The assessee requested a reference to the DVO under Section 50C(2), arguing that the ready reckoner rate was erroneously high. The CIT(A) rejected this request as it was not made during the assessment proceedings. The Tribunal held that the assessee's request for a DVO reference could be raised at the appellate stage. The Tribunal restored the matter to the AO with directions to refer the valuation to the DVO and compute the capital gains accordingly, ensuring the assessee is given an opportunity to present evidence.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, condoning the delay and remanding the issues related to disallowance of business expenses and adoption of higher property sale consideration back to the AO for fresh adjudication.