NANJAPPA LAKSHMANA ,BANGALORE vs. INCOME TAX OFFICER WARD-1(3)(4), BANGALORE

The Assessee is an individual. During the previous year relevant to AY 2014-15 he sold a property for a sale consideration of Rs.25,00,000/-. However, the valuation as per the sub-registrar’s guideline values for the purpose of stamp duty and registration was a sum of Rs.38,40,000/-. The Assessee did not file return of income on the due date u/s.139(1) of the Income Tax Act, 1961. The AO issued notice dt. 29.10.2015 u/s.148 of the Act for making an assessment u/s.147 of the Act, of income chargeable to tax that had escaped assessment. Prior to issue of notice u/s.148 of the Act, the AO on coming to know about the information regarding sale of property by the Assessee from the Registrar of Assurances issued a notice dated 9.6.2015 u/s.133(6) of the Act bringing to the notice of the Assessee that he had derived long term capital gain (LTCG) on sale of the property and its quantum had to be determined as per Sec.50C of the Act. The Assessee in reply thereto explained that he had invested the entire sale consideration received on transfer in purchase of another property for Rs.25,11,465/- and was entitled to claim deduction in respect of such investment u/s.54F of the Act and there is no dispute on this aspect. The Assessee in the said reply also highlighted that the value adopted for the purpose of registration and stamp duty was not the correct market value due to certain disadvantageous location of the property. In view of the provisions of Sec.50C of the Act, the AO computed LTCG by adopting the full value of consideration received on transfer at a sum of Rs.38,40,000/- and arrived at taxable capital gain of Rs.11,99,465 after allowing deduction u/s.54F of the Act. The order of the AO was confirmed by the CIT(A).

The Assessee has in this appeal challenged the validity of initiation of reassessment proceedings and also the correctness and validity of determination of LTCG and the action of the AO in not making a reference to District Valuation Officer for determination of Fair Market Value of the property for the purpose of determination of LTCG.

The ld. AR relied on a decision in the case of Gyan Chand Batra v/s ITO (2010) 133 TTJ 482 (JP), wherein it was held that once the full value of consideration is invested in purchase of new asset and deduction is to be allowed u/s.54F of the Act, then there can no capital gain tax on transfer of capital asset. The learned DR however submitted that provisions of Sec.50C of the Act would then become redundant if such interpretation is accepted.

I have considered the rival submissions. The Jaipur Bench of ITAT in the case of Gyan Chand Batra (supra) held that the deeming fiction of substituting full value of consideration by stamp duty value in a case where the actual consideration is less than the stamp duty value, is a fiction which has a limited application for the purpose of Sec.48 of the Act alone. Hence, for ascertaining the full value of consideration as mentioned in different provisions except s. 48, consideration specified in sale deed has to be considered. Thus, meaning of full value of consideration as referred to in Explanation to s. 54F(1) is not governed by the meaning of the words 'full value of consideration' as mentioned in s. 50C. In a case where the cost of new asset is not less than the net consideration, the whole of the capital gain is not chargeable to tax even if the capital gain is computed by taking the value adopted by the stamp registration authority. Hence, the assessee is entitled for exemption under s. 54F. In case of Nandlal Sharma v/s ITO (2015) 122 DTR 404 (JP), it was held that Sec. 50C is deeming fiction by which stamp duty value of the asset sold is to be substituted for actual consideration. The same being purely a fiction, its scope is limited to s. 50C only and cannot be enlarged without a specific reference. Therefore, while computing exemption under s. 54, the actual sale consideration is to be taken into consideration and not the stamp duty valuation under s. 50C .

I am bound by the decision of a Division Bench and cannot express any view contrary to the one expressed by the Division Bench. Respectfully following the aforesaid decisions, I hold that since the Assessee has invested the entire net consideration received on transfer in purchase of new asset, there cannot be any incidence of capital gain tax. The addition made in this regard is deleted.

In view of the decision on merits, I am not deciding the other contentions raised by the AR.

In the result, appeal of the Assessee is allowed.