2019 (2) TMI 48 - AT - Income Tax

Entitlement to deduction claimed u/s. 54/54F - claim of assessee to calculate the long-term capital gains after taking into account the sale consideration as admitted by the assessee OR considering the sale consideration of the property transferred, as valued by the AVO - Held that - It is born out on record that in the said computation, the assessee itself has computed the long-term capital gains at ₹ 29,50,677/- and after deducting ₹ 29,04,841/- u/s. 54, has admitted the taxable long-term capital gains at ₹ 45,836/- as noted above. There remains nothing to say on behalf of the assessee to considering the sale consideration of property at ₹ 16,00,000/- for further computing the capital gain of the said property, particularly when the request of assessee for referring the valuation to Valuation cell has been accepted by the CIT(A) and the valuation of AVO at ₹ 34 lakhs has been accepted by him and the AO has been directed accordingly. No justification in the claim of assessee to consider the sale value of impugned property at ₹ 16 lakhs in the peculiar facts and circumstances of the present case. As far as the claim of deduction u/s. 54 it is not in dispute that the assessee has invested in purchase of residential property at B-40, Malcha Marg, for ₹ 29,04,841/-. AO while rejecting the claim of assessee u/s. 54 of the Act has opined that the said deduction is not available to the assessee u/s. 54 as he had sold a plot of land and not any residential house. The assessee has submitted that the claim made by assessee is legitimate and is available to it u/s. 54/54F. Once the assessee has admitted the capital gains on the sale of capital asset and has admittedly invested substantial amount of capital gains in purchase of residential property within the stipulated time, the assessee would be entitled to claim deduction u/s. 54 or 54F, as the case may be, and the Assessing Officer was bound to give credit of such claim legitimately, meaning thereby, if the assessee was found not satisfying the conditions of section 54 AO was required to consider its claim in the light of section 54F. Remit this issue back to the file of Assessing Officer for considering the claim of assessee on the anvil of section 54F and to decide the issue afresh after being satisfied with the conditions of section 54F, if satisfied by assessee. Needless to say, the assessee shall be given reasonable opportunity of being heard. - Appeal deserves to be partly allowed for statistical purposes.

Summary

Issues:
1. Jurisdiction of AO due to absence of notice under Section 143(2) of IT Act within prescribed period.
2. Valuation of property by Valuation Officer based on Circle Rate.
3. Allowance of deduction under Section 54/54F of IT Act.

Issue 1: Jurisdiction of AO
The appeal was filed against the order of the ld. CIT(A) for the assessment year 2008-09. The primary contention was the absence of service of notice under Section 143(2) of the IT Act within the prescribed period, challenging the jurisdiction of the Assessing Officer (AO) to make an assessment. The appellant argued that the assessment based on an invalid assumption of jurisdiction due to the lack of notice under Section 143(2) was invalid and bad in law. However, the ground related to this issue was not pressed by the appellant's representative and was dismissed.

Issue 2: Valuation of Property
The second issue revolved around the valuation of the property by the Valuation Officer (VO) based on the Circle Rate adopted by the Stamp Valuation Authority. The appellant contended that the valuation was arbitrary and unjust as it did not consider other derogatory factors such as legal disputes and illegal possession. The Capital Gains calculated based on this valuation were deemed excessive and unreasonable. The Assessing Officer computed the capital gain at a higher value, leading to a dispute regarding the appropriate valuation for determining the capital gains.

Issue 3: Allowance of Deduction under Section 54/54F
The final issue pertained to the allowance of deduction under Section 54/54F of the IT Act. The appellant argued that the ld. CIT(A) erred in not allowing the deduction concerning the investment from the sale proceeds in a residential house, which was permissible under the law. The Assessing Officer rejected the claim of deduction under Section 54, stating that the asset sold was a plot of land and not a residential house, hence not qualifying for the deduction. The appellant contested this decision and sought the legitimate allowance of the deduction under Section 54/54F.

In the judgment, the Tribunal analyzed the facts and submissions from both parties. Regarding the valuation issue, the Tribunal upheld the decision of the ld. CIT(A) to consider the sale consideration of the property at a higher value determined by the Valuation Officer. The Tribunal found no justification to consider the lower sale value proposed by the appellant, especially when discrepancies in the valuation were raised after the valuation was accepted by the ld. CIT(A).

Concerning the deduction under Section 54/54F, the Tribunal acknowledged that the appellant had invested in a residential property and had claimed the deduction in accordance with the provisions of the Act. The Tribunal remitted this issue back to the Assessing Officer for reconsideration, emphasizing that if the conditions of Section 54 were not met, the claim should be evaluated under Section 54F. The Tribunal directed the Assessing Officer to decide the issue afresh, ensuring the appellant's opportunity to present their case. Ultimately, the appeal was partly allowed for statistical purposes, indicating a favorable outcome for the appellant on the deduction issue.