2020 (11) TMI 49 - AT - Income Tax

Addition on account of capital gains - addition u/s 50C - reference should have been made to the DVO - HELD THAT - The assessee has not produced copy of the Purchase Deed of the property in question by father of the assessee despite it was a registered document. Therefore, cost of acquisition of asset is not proved by assessee. Further, no evidence have been produced by assessee to prove cost of the improvement in the property either by the assessee or by her father. No benefit under section 48 could be given to the assessee. Therefore, claim of assessee that assessee suffered capital loss on sale of the property in question cannot be accepted in any manner. Therefore, A.O. has rightly computed the capital gain on sale of transfer of capital asset. Addition made u/s 50C - Assessee has been making different statements at different stages in order to avoid payment of capital gains tax. Assessee has not objected to the stamp valuation under section 50C before A.O. when A.O. has given specific show cause notice to the assessee u/s 50C, A.O. was not obliged to make a reference to the DVO under section 50C. Such explanation was considered to be the highest prevailing market price and as such it was directed that reference should have been made to the DVO under section 50C. In the present case of the assessee, the assessee had made a specific statement before A.O. that since the land in question is an agricultural land or that assessee suffered capital loss, therefore, provisions of Section 50C are not applicable. The assessee has never pleaded such fact before the A.O. for making any reference to the DVO under section 50C therefore, this decision would not support the case of the assessee. In the absence of production of the Purchase Deed and source of construction made on the impugned property, would clearly show that the valuation report have been manipulated by assessee just to avoid payment of capital gains tax to the Revenue Department. The valuation report is of no reliance.- Decided against assessee.

Summary

Issues Involved:
1. Addition on account of capital gains.
2. Addition under section 50C of the I.T. Act, 1961.

Issue-wise Detailed Analysis:

1. Addition on Account of Capital Gains:

The Assessee filed a return of income declaring ?9,24,280/-, claiming exemption on a sale consideration of ?65 lakhs for agricultural land. The Assessing Officer (A.O.) observed that the land in question had significant built-up structures, indicating it was not agricultural land but a residential property. Consequently, the A.O. issued a show cause notice to disallow the exempt income of ?65 lakhs and add it to the income as long-term capital gains.

The Assessee contended that the construction was for agricultural purposes, such as protecting crops from pests and providing shelter for livestock. However, the A.O. rejected this explanation, noting inconsistencies in the Assessee's claims and the valuation report, which described the property as immovable and not agricultural. The A.O. computed the capital gain without allowing the benefit of indexation for construction costs, as the Assessee failed to provide the Purchase Deed and evidence of construction costs. The addition of ?64,24,710/- was made on account of long-term capital gains.

The Tribunal found that the Assessee did not provide sufficient evidence to support the claim that the property was agricultural land or to substantiate the cost of construction. The valuation report indicated the property was constructed with cement concrete and had load-bearing walls, cement flooring, and an RCC slab roof, contradicting the Assessee's claim of it being agricultural land. The Tribunal upheld the A.O.'s computation of capital gains, noting the Assessee's failure to produce the Purchase Deed and evidence of construction costs.

2. Addition Under Section 50C of the I.T. Act, 1961:

The A.O. noted the Circle Rate of the property was ?1,87,76,000/-, while the sale consideration was ?65 lakhs, which is less than the Circle Rate. A show cause notice was issued under Section 50C of the I.T. Act, proposing an addition of ?1,22,76,000/- (?1,87,76,000/- minus ?65,00,000/-) to the Assessee's income. The Assessee argued that Section 50C did not apply as the property was agricultural land and, alternatively, contended that if the Circle Rate was considered, it would result in a capital loss.

The Tribunal noted that the Assessee did not object to the stamp valuation at the time of the sale and failed to produce evidence to support the claim of agricultural land. The Tribunal also found discrepancies in the valuation report regarding the year of construction and the basis for the valuation. The Assessee did not request a reference to the Valuation Officer (DVO) under Section 50C during the assessment, and thus, the A.O. was not obliged to make such a reference.

The Tribunal concluded that the Assessee's failure to object to the stamp valuation and the lack of evidence to support the claim of agricultural land justified the A.O.'s addition under Section 50C. The Tribunal upheld the addition of ?1,22,76,000/-.

Conclusion:

The Tribunal dismissed the Assessee's appeal, upholding the additions made by the A.O. on account of capital gains and under Section 50C of the I.T. Act, 1961. The Assessee's failure to provide sufficient evidence and inconsistencies in the claims were critical factors in the decision.