2018 (5) TMI 52 - AT - Income Tax

Reopening of assessment - assessee s share on retirement from the partnership firm - value of property by the value determined by the DVO - valuation report by the DVO suggesting higher value of the property - Held that - The transaction under question is not a transfer of immovable property per se. It is only transfer of interest in the partnership firm. In such a case the value of interest in partnership firm which have been agreed upon by partners through a deed cannot be very re-determined or rewritten. There is no evidence that extra money has passed hands between the partners for the transfer of interest in the partnership firm. CIT(A) has dealt in great detail the reasons for such a difference between the value adopted by the DVO and value adopted by the Stamp Duty Authorities vis- -vis annual consideration sale at a later date vide para 7 of his order. The detailed finding given by the CIT(A) are as per material on record. We support the conclusion that the material gain determined by the AO by substitute value of property by the value determined by the DVO was not sustainable in law. The finding so recorded has not been controverted by learned DR by bringing any positive material on record. Accordingly, we do not find any justifiable reason for interfering in the order of CIT(A) for deleting the addition so made. With regard to reopening of assessment, we found that there was a valuation report by the DVO suggesting higher value of the property. Under these facts and circumstances, the AO has correctly concluded that there is a reason to believe that there is an escapement of income. Accordingly, we do not find any infirmity in the order of CIT(A) for upholding the reopening of assessment.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the IT Act.
2. Determination of long-term capital gains (LTCG) on the transfer of property and its valuation.
3. Applicability of section 50C for substituting the value determined by the District Valuation Officer (DVO).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The case was reopened by issuing a notice under section 148. The Assessing Officer (AO) justified the reopening based on a valuation report from the DVO, which suggested a higher value for the property. The CIT(A) upheld the reopening, and the Tribunal concurred, stating that the AO had a valid reason to believe there was an escapement of income, thus justifying the reopening of the assessment.

2. Determination of Long-Term Capital Gains (LTCG):
The assessee initially declared a long-term capital gain of ?552,791 on the sale of property, claiming exemption under section 54EC. However, during the assessment, the AO received a DVO report valuing the property significantly higher. The AO recalculated the LTCG based on the DVO's valuation, resulting in a higher taxable amount. The assessee contended that the transaction was a retirement from a partnership firm, not a sale of property, and thus should not attract capital gains tax. The CIT(A) and the Tribunal found that the transaction was indeed a transfer of interest in the partnership firm, not a direct sale of immovable property. Consequently, the value agreed upon by the partners in the retirement deed could not be re-determined or rewritten.

3. Applicability of Section 50C:
The AO applied section 50C to substitute the actual consideration with the DVO's valuation. However, the CIT(A) and the Tribunal concluded that section 50C was not applicable in this case because the transaction was a transfer of interest in a partnership firm, not a direct transfer of immovable property. The CIT(A) noted that there was no evidence of extra money exchanging hands beyond the agreed consideration in the retirement deed. The Tribunal upheld this view, emphasizing that the DVO's valuation could not substitute the agreed consideration for the transfer of interest in the partnership firm. Additionally, the Tribunal highlighted the significant difference between the DVO's valuation and the stamp duty valuation, which further supported the CIT(A)'s decision.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection. It upheld the CIT(A)'s decision to delete the addition made by the AO based on the DVO's valuation and confirmed the reopening of the assessment under section 147. The Tribunal found no evidence to support the AO's higher valuation and agreed that the transaction was a transfer of interest in a partnership firm, not a direct sale of property, thus section 50C was not applicable.