Woman Sold Property for Rs. 1.56 Crore, Faced Capital Gains Recalculation Using Rs. 1.87 Crore Stamp Duty Value; ITAT Orders Fresh Examination of Section 50C and Section 54F Claims

The Income Tax Appellate Tribunal (ITAT) Bangalore observed that once the assessee has objected to the stamp duty valuation and furnished a registered valuer’s report, the AO is required to follow the statutory procedure and refer the issue to the Departmental Valuation Officer (DVO).

The assessee is an individual who filed her return of income declaring a total income of Rs 2.72 lakh. During limited scrutiny proceedings, the AO examined the valuation of capital gains and the claim of deduction under Section 54F of the Income Tax Act, 1961. The assessee had sold a property on 1 December 2015 for Rs 1.56 crore and thereafter purchased a residential site and started constructing a new house. She claimed exemption under Section 54F on the investment made in the new residential property.

However, the AO invoked Section 50C and used the stamp duty value of Rs 1.87 crore as the deemed sale consideration. The exemption claimed under Section 54F was also denied on the ground that the assessee had neither completed the construction before the due date of filing the return nor deposited the unutilized amount in the Capital Gains Account Scheme.

Aggrieved by which, the assessee preferred an appeal before the CIT(A), where the appeal was dismissed for non-prosecution after the assessee failed to respond to various notices.

The Tribunal observed that the assessee had furnished a registered valuer’s report and had challenged the adoption of the stamp duty value under Section 50C before the AO. It held that once such an objection was raised, the AO was required to follow the procedure prescribed under Section 50C and refer the valuation issue to the Departmental Valuation Officer. Since no such action was taken, the assessment had a procedural defect.

The Bench further noted that the assessee had placed relevant details regarding the construction of the residential house and also held that the CIT(A) ought not to have dismissed the appeal solely for non-prosecution and was required to decide the matter on merits.

Accordingly, the Tribunal restored the entire matter to the file of the AO with a direction to consider the valuation report filed by the assessee and to re-examine the claim for deduction under Section 54F in accordance with the law.