2009 (11) TMI 948 - AT - Income Tax

Determination of capital gain on sale of land - nature of land - adoption of the stated consideration as the full value of consideration - AO rejecting the sale consideration stated in the registered sale deed because the other piece of land measuring 17 Kanal 18 Maria owned by the assessee has been sold for a much higher price - assessee argued that AO did not have the jurisdiction to disregard the actual consideration declared by the assessee in the registered sale deed - HELD THAT - In our considered opinion, the action of the AO is not in consonance with the legal position - As decided in a later decision in the case of K.P. Varghese 1981 (9) TMI 1 - SUPREME COURT held that a mere difference between the market value and the consideration stated in the sale deed does not permit the AO to assume a higher sale consideration for the purposes of computing capital gains. We find that the consideration stated in the registered sale deed has been disregarded by the AO without showing that the assessee has received more than what is declared or disclosed by him as the consideration. Even from the perusal of the assessment order, we find no material or evidence brought out by the AO which could justify the burden cast on the Revenue to show that the assessee has received more than what is declared or disclosed by him as consideration in the sale deed. Under such circumstances, therefore, we are in agreement with the conclusion drawn by the CIT(A) that no addition is merited in this case by disregarding the full value of the consideration declared by the assessee. The order of the C1T(A) deleting the addition on account of long-term capital gain on sale of 4 Kanal 10 Maria of land is hereby affirmed. Accordingly, the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Validity of the addition made by the AO on account of long-term capital gain.
2. Justification of AO's adoption of market value over the declared sale consideration.
3. Acceptance of the assessee's explanation for lower sale consideration.
4. Legal principles governing the determination of "full value of the consideration."

Detailed Analysis:

1. Validity of the addition made by the AO on account of long-term capital gain:
The AO made an addition of Rs. 19,42,312 to the assessee's income, considering the sale consideration of land at Rs. 24,32,612 instead of the declared Rs. 4,50,000. This was based on a higher sale rate observed in a similar transaction. The CIT(A) deleted this addition, leading to the Revenue's appeal.

2. Justification of AO's adoption of market value over the declared sale consideration:
The AO's basis for the higher valuation was that another piece of land was sold for Rs. 5,40,625 per Kanal, whereas the subject land was sold for Rs. 1,00,000 per Kanal. The AO argued that the smaller piece of land should have fetched a similar price. However, the CIT(A) and ITAT found that the AO did not provide evidence that the assessee received more than the declared amount.

3. Acceptance of the assessee's explanation for lower sale consideration:
The assessee provided several reasons for the lower sale price:
- The land was situated deep inside the main road, unlike the other land.
- The land had odd dimensions and was smaller in size.
- Immediate cash payment was made for the smaller piece, unlike the staggered payment for the larger piece.
The CIT(A) accepted these explanations, noting no evidence to suggest the assessee received more than the declared amount.

4. Legal principles governing the determination of "full value of the consideration":
The ITAT referenced several judgments, including:
- George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC): The "full value of the consideration" refers to the price bargained for by the parties, not the market value.
- K.P. Varghese v. ITO [1981] 24 CTR (SC) 358: The AO must show evidence that the assessee received more than the declared amount.
- Smt Nilofer I. Singh [2009] 221 CTR (Delhi) 277: The adequacy of the price cannot be a factor to disturb the declared consideration.

The ITAT concluded that the AO's action was not in consonance with the legal position, as no evidence was provided to show that the assessee received more than the declared consideration. The CIT(A)'s decision to delete the addition was affirmed.

Conclusion:
The ITAT dismissed the Revenue's appeals, affirming the CIT(A)'s deletion of the addition of Rs. 19,42,312 on account of long-term capital gain. The decision was based on the lack of evidence that the assessee received more than the declared consideration and the legal principles governing the determination of "full value of the consideration."