2025 (6) TMI 1767 - AT - Income Tax

LTCG - assessee had 1/4th share in the sold land and building - Assessee s claim of safe harbour rule of 5% variation between stamp duty value and sale consideration for the AY 2012-13 under 3rd proviso of Section 50C - as per assessee AO failed to take note of the fact that the assessee has correctly deducted the consideration of part of building sold from its Written-down value as the building block still existed as per norms of calculation of capital gain on depreciable assets u/s 50 HELD THAT - AO has calculated the capital gain by taking into consideration of valuation as per stamp duty valuation and ignoring the reality that the assessee has strongly objected the report given by the Stamp valuation authority. It is important to mention here that in the case of one of the co-owners of immovable property reference was made to the DVO for determining the fair value of the property. Valuation report was received from the DVO and as per the report of the District Valuation Officer (DVO) value of the property was arrived at Rs.12, 07, 89, 700/- out of which the assessee s share would be Rs.3, 01, 97, 425/-. Since the report of the DVO and the valuation of the property was at Rs.12, 07, 89, 700/- the difference between the value determined by the DVO and the said consideration declared by the assessee is less than 5% of the sale consideration declared by the assessee. We have gone through the order passed by the ld. CIT (A) and find that the ld. CIT (A) in its order has discussed the valuation report of one of the co-owners and thereafter passed the order in favour of the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the third proviso to Section 50C of the Income Tax Act, which allows a safe harbour rule of 5% variation between stamp duty value and sale consideration, is applicable retrospectively for the assessment year 2012-13, despite the Finance Act 2018 stating its effective date as 01.04.2019.

(b) Whether the Assessing Officer (AO) was justified in making an addition for long-term capital gains by disregarding the valuation report of the District Valuation Officer (DVO) and relying solely on the stamp duty valuation.

(c) Whether disallowance under Section 14A of the Income Tax Act is sustainable when the assessee has not earned any exempt income during the relevant year.

(d) Whether the AO erred in restricting the credit of Tax Deducted at Source (TDS) claimed by the assessee, despite the claim being reflected in Form 26AS.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Applicability and Retrospective Effect of the Third Proviso to Section 50C

The third proviso to Section 50C provides that if the difference between the sale consideration and the stamp duty value does not exceed 5%, the sale consideration declared by the assessee shall be accepted for computing capital gains. The Revenue contended that this proviso, introduced by the Finance Act 2018, is effective only from 01.04.2019 and therefore cannot be applied retrospectively to AY 2012-13.

The CIT(A) and the Tribunal examined several judicial pronouncements from the Kolkata ITAT which held that the insertion of the third proviso to Section 50C is declaratory, curative, and procedural in nature rather than substantive. The Tribunal noted that the explanatory notes to the Finance Act 2018 specify the effective date as 01.04.2019; however, judicial precedents have interpreted the amendment as retrospective, effective from the date Section 50C was originally introduced (01.04.2003).

The Tribunal relied on these precedents to conclude that the safe harbour rule under the third proviso is applicable for AY 2012-13. This interpretation is consistent with the principle that procedural amendments clarifying existing provisions operate retrospectively unless expressly stated otherwise.

Issue (b) - Valuation of Property and Computation of Capital Gains

The AO computed long-term capital gains by adopting the stamp duty valuation of the property, which was higher than the sale consideration declared by the assessee, leading to an addition of Rs. 1,91,83,329/-. The assessee objected to the stamp duty valuation and requested reference to the DVO for a fair market valuation, which was not done by the AO.

The Tribunal noted that one of the co-owners of the same property had obtained a DVO valuation report after the assessment order was finalized. The DVO report valued the property at Rs. 12,07,89,700/-, which was closer to the declared sale consideration of Rs. 11,51,08,600/-. The difference between the DVO valuation and the declared sale consideration was less than 5%.

The CIT(A) relied on this DVO valuation and held that the difference did not exceed the 5% threshold under the third proviso to Section 50C, entitling the assessee to the safe harbour rule. The Tribunal concurred with this reasoning, emphasizing that the AO erred in ignoring the DVO valuation and relying solely on the stamp duty value, which was disputed by the assessee.

The Tribunal also observed that the building component was correctly deducted from the block of fixed assets by the assessee as per the provisions of Section 50, and the AO's calculation of capital gains without considering this was erroneous.

Issue (c) - Disallowance under Section 14A

The AO disallowed Rs. 75,186/- under Section 14A read with Rule 8D on the ground that the assessee incurred expenditure related to exempt income. The assessee contended that no exempt income was earned during the year, and hence no disallowance should be made.

The CIT(A) and the Tribunal relied on authoritative Supreme Court rulings which establish that disallowance under Section 14A cannot exceed the amount of exempt income earned during the year. Since the assessee did not earn any exempt income in the relevant year, the disallowance was held to be unsustainable and was deleted.

Issue (d) - TDS Credit

The assessee claimed TDS credit of Rs. 9,02,488/-, but the AO allowed only Rs. 31,675/-. The assessee produced Form 26AS reflecting the full TDS credit claimed. The CIT(A) directed the AO to verify the claim as per CBDT instructions and allow the admissible credit.

The Tribunal allowed this ground for statistical purposes, indicating that the AO should comply with procedural instructions regarding TDS credit verification.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"A.O. did not refer the valuation to DVO. However, assessee is a co-owner with Delight Suppliers Pvt. Ltd. Valuation report of the DVO has been received after the assessment order was finalised in the case of Delight Suppliers Pvt. Ltd. As per the valuation report, the estimated value of the property as on 31.01.2012 was Rs. 12,07,89,700/- whereas assessee had declared the sale consideration of Rs. 11,51,08,600/- as on 31.01.2012. Thus, the difference between the estimated value and the declared value was less than 5% of the declared value... It is held that this amendment is not a substantive amendment. Rather it is only a procedural amendment. Therefore, even when the statute does not specifically state so, such amendment are in the nature of retrospective amendment and these should be treated as effective from the date when 50C was introduced in the statute, i.e. w.e.f. 01.04.2003. As in the appellant's case, the difference between the estimated value and the declared value does not exceed 5% of the declared value, assessee is entitled for safe harbour rule of 5% as per 3rd proviso to section 50C, as held in various judicial decisions..."

Further, on Section 14A disallowance:

"There are several judgements... which says that disallowance u/s 14A cannot exceed the amount of exempt income earned during the year. This implies that when no exempt income has been earned, disallowance u/s 14A cannot be made. As appellant has not earned any exempt income on its investments in the current year, disallowance u/s 14A is not sustainable."

The Tribunal concluded by dismissing the Revenue's appeal and upholding the order of the CIT(A), thereby affirming the application of the safe harbour rule under the third proviso to Section 50C retrospectively, deleting the addition on capital gains, deleting the Section 14A disallowance, and directing proper verification and credit of TDS.