2018 (10) TMI 60 - AT - Income Tax

Capital gain computation - difference between the valuation made by the DVO and the sale consideration shown by the assessee - Held that - Where the alleged difference between the valuation made by the Ld. DVO and the sale consideration shown by the assessee is only 4.33%, Ld. CIT(A) erred in sustaining the addition of ₹ 8,89,882/-. We therefore direct the A.O to compute the Long Term Capital Gain on the basis of sale consideration of ₹ 2,07,00,000/- disclosed by the assessee. In the result Ground No.1, 2 & 3 of assessee s appeal are allowed to the extent of deletion of addition of ₹ 8,89,882/-. Restriction of claim of benefit under section 54F to the extent of 33.33% - Held that - In cases where for the purpose of claiming deduction u/s 54/54F/54B the investment in purchase of residential house/ agriculture land etc is made in the name of his wife or legal heir the benefit should not be denied because the persons are not strangers to the assessee. However in the instant case the other co-owners are not the relatives of the assessee but are partners in the partnership firm. Therefore A.O has rightly limited the benefit to 33.33% of the amount invested in purchase of residential house at ₹ 71,46,348/-. We find no reason to interfere in the findings of Ld.CIT(A). Ground No.4 of the assessee is dismissed. Allowing the benefit u/s 54F only to the extent of amount deposited till the date of filing of return - whether required amount was deposited within the statutory time limit of two years as contemplated u/s 54F? - Held that - One cannot have any other opinion except that the assessee has to either apply the net consideration for purchase of construction before the due date of filing of return of income or in the alternative deposit the same in the capital gain account. We can understand this provision with an example. For instance if during the financial year 2012-13, sale of immovable property i.e. the capital asset take place on 1.4.2012 and the due date of filing of return of income is 30.9.2013, then the assessee will have 18 months to utilize the net consideration. If for instance the assessee sells capital assets on 31.3.2013 then the assessee will have only 6 months to utilize the consideration for purchase or construction of the property and if the assessee want to claim the benefit u/s 54F of the Act then the remaining unutilized amount to be deposited with the capital gain account with a statutory Bank. We therefore held that the amount eligible for benefit u/s 54F of the Act in the case of the assessee will be to the extent of ₹ 71,46,348/- and the assessee will get the benefit of 33.33% on this amount. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Determination of fair market value and applicability of Section 50C.
2. Restriction of exemption under Section 54F to 33.33% due to joint ownership.
3. Limitation of exemption under Section 54F to the amount invested up to the due date of filing the return.

Detailed Analysis:

Issue 1: Determination of Fair Market Value and Applicability of Section 50C

The assessee disclosed the sale consideration of a warehouse at ?2,07,00,000/-, while the Assessing Officer (A.O.) adopted a fair market value of ?4,75,00,000/-, invoking Section 50C of the Income Tax Act. The Departmental Valuation Officer (DVO) later valued the property at ?2,15,96,882/-. The CIT(A) deleted the addition of ?2,59,03,118/- but sustained an addition of ?8,96,882/- due to the difference between the actual transaction value and the DVO's valuation. The Tribunal noted that the variation between the sale consideration and the DVO's valuation was only 4.33%, which is less than 10%. Citing various judicial pronouncements, including the case of Sita Bai Khetan v/s ITO and CIT v/s Pratapsingh Amrosingh Rajendra Singh, the Tribunal ruled that such a marginal difference should be ignored. Consequently, the Tribunal directed the A.O. to compute the Long Term Capital Gain based on the disclosed sale consideration of ?2,07,00,000/-, allowing the assessee's appeal on this ground.

Issue 2: Restriction of Exemption Under Section 54F to 33.33% Due to Joint Ownership

The assessee claimed exemption under Section 54F for investing the sale proceeds in a residential flat purchased jointly with a partner and a partnership firm. The A.O. restricted the exemption to 33.33% of the amount invested, arguing that the property was not solely in the assessee's name. The CIT(A) upheld this restriction, distinguishing the case from others where the investment was made in the names of family members. The Tribunal agreed with the CIT(A), citing the Bombay High Court's decision in Prakash v/s ITO, which emphasized that the exemption under Section 54F is intended for the assessee's ownership and not for investments made in the names of unrelated parties. Therefore, the Tribunal upheld the restriction of the exemption to 33.33%.

Issue 3: Limitation of Exemption Under Section 54F to the Amount Invested Up to the Due Date of Filing the Return

The assessee argued that the entire sale consideration was invested within the statutory period of two years, even though not all the funds were deposited in the Capital Gain Account Scheme before the due date of filing the return. The A.O. and CIT(A) limited the exemption to ?71,46,348/-, the amount invested up to the due date of filing the return. The Tribunal referred to Section 54F(4), which mandates that unutilized amounts must be deposited in a Capital Gain Account before the due date of filing the return to qualify for the exemption. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not comply with this requirement. Thus, the exemption was rightly limited to ?71,46,348/-.

Conclusion:

The Tribunal allowed the appeal concerning the fair market value determination and deletion of the addition of ?8,96,882/-. However, it upheld the CIT(A)'s decisions on restricting the exemption under Section 54F to 33.33% and limiting the exemption to the amount invested up to the due date of filing the return. The overall appeal was partly allowed.