2023 (3) TMI 1031 - AT - Income Tax

Capital gain computation - Difference in sale consideration and guidance - adopting the fair market value u/s 50C - HELD THAT - Tribunal in the coowner s case Amarnath Sarla 2022 (6) TMI 1372 - ITAT BANGALORE an appropriate opportunity ought to have been given to the assessee to reconcile the value mentioned by DVO and registered valuer and also with regard to the method of valuation followed by the different valuers. It is also submitted by Ld. A.R. that DVO has considered the value of certain property which was not in the impugned sale deed which has to be excluded while determining the FMV of the impugned property. We also direct the authorities to bring more comparable cases for deciding the issue. With this observation we remit the entire issue to the file of AO for reconsideration - Thus we remit this issue also to the file of AO for similar directions. These grounds of assessee s appeal are partly allowed for statistical purposes. Deduction u/s 54F - whether the assessee herein has actually constructed any residential house within the meaning object and time laid down u/s. 54F of the Act the material on record does not suggest any construction of the house in terms of section 54F ? - HELD THAT - Assessee could not furnish the requisite evidence to prove the fact that there was any actual construction within the time stipulated in section 54F of the Act. The assessee has not placed any cogent evidence so that it can be inferred that actually there was construction of residential building out of the sale proceeds of the sale of land and also not placed evidence for the purchase of any materials relating to construction of residential building. Merely producing a copy of permission from Gram Panchayat with regard to construction permission that itself cannot discharge the assessee from proving actual construction. In our opinion this is made believe story before us and without producing requisite evidence to suggest that the assessee has completed the construction within the period of 3 years after the date of transfer. It has also been noted that assessee has not produced any license/permission for construction of building in the scheduled property from any authorities said to be constructed and there was no evidence in support of the fact that there was actually any construction within the stipulated time as per section 54F of the Act. Accordingly we do not find any merit in the arguments of the ld. A.R. which is only artificial and superficial and deduction u/s 54F of the Act cannot be granted. This ground of appeal of the assessee is rejected.

Summary

Issues Involved:
1. Addition on account of difference in sale consideration and guidance under Section 50C of the Income Tax Act.
2. Disallowance of deduction under Section 54F of the Income Tax Act amounting to Rs. 32,76,006/-.

Issue 1: Addition on account of difference in sale consideration and guidance under Section 50C of the Income Tax Act

The first ground concerns the addition on account of the difference in sale consideration and guidance value under Section 50C of the Income Tax Act. The assessee contested the fair market value (FMV) adopted by the CIT(A) at Rs. 2,34,63,205/-, arguing that it did not consider the assessee's objections based on the DVO's report and the CBDT-approved valuer's report, which valued the property at Rs. 1,25,30,606/-. The assessee referenced judgments from the Hon'ble Madras High Court and the Hon'ble Delhi High Court, which stated that the Revenue cannot adopt the guidance value for computing capital gains tax without considering the assessee's objections and the DVO's report.

The facts reveal that the property was sold for Rs. 1,55,00,000/-, but the AO adopted a guidance value of Rs. 2,66,50,000/-, enhancing the sale proceeds by Rs. 1,11,50,000/- for capital gains computation. The assessee argued the property's actual location and sale in piecemeal affected its value, but the AO was not convinced and applied Section 50C.

The CIT(A) referred the matter to the DVO, who valued the property at Rs. 2,34,63,205/-. The CIT(A) upheld this valuation, noting the DVO had addressed the assessee's objections. The Tribunal, referencing a similar case, remitted the issue back to the AO, directing the AO to reconsider the valuation in light of the registered valuer's report and comparable cases.

Issue 2: Disallowance of deduction under Section 54F of the Income Tax Act amounting to Rs. 32,76,006/-

The second ground pertains to the disallowance of deduction under Section 54F. The assessee claimed a deduction for investing the sale proceeds in purchasing a site and starting construction, although the construction was not completed within the specified period. The assessee referenced judgments from the Hon'ble High Court of Karnataka, which held that the benefit under Section 54F should not be denied if the sale proceeds were invested in purchasing or constructing a residential house, even if the construction was incomplete.

The facts show the assessee sold properties for Rs. 36,00,000/- and claimed a deduction under Section 54F. The assessee initially entered an agreement to purchase a residential house but later bought plots and started construction. However, the AO disallowed the deduction as the construction was not completed within the specified period. The CIT(A) upheld the AO's decision, noting the assessee failed to provide evidence of construction within the stipulated time.

The Tribunal examined the provisions of Section 54F, which require the construction of a residential house within three years from the sale date. The Tribunal found no evidence of construction within this period and noted the assessee's failure to provide necessary evidence despite being required by the AO and CIT(A). The Tribunal concluded that the assessee did not discharge the onus of proving the construction and upheld the disallowance of the deduction under Section 54F.

Conclusion:

The appeal was partly allowed for statistical purposes, with the issue regarding the addition under Section 50C remitted back to the AO for reconsideration, while the disallowance of deduction under Section 54F was upheld.