2019 (8) TMI 1752 - AT - Income Tax

Capital gain computation - Addition invoking the provisions of section 50C - immovable property falls under litigation for quite a number of years - Whether market value of the property will be considerably less than the value determined by the Stamp Valuation Authority because normally valuation of the State Stamp Authority would be a pre-determined value based on the market value of the surrounding land having clear title? - HELD THAT - The sale value realised by the assessee is approximately 73% of the value determined by the Valuation Officer and the Valuation Officer has adopted 94% of the market value determined by the State Stamp Valuation Officer. We are of the firm view that the allowance granted by the Valuation Officer is too low considering the drawbacks of the land sold by the assessee. The assessee has realised reasonable amount as sale consideration from his litigated property being 73% of the value determined by the Valuation Officer and therefore there is no necessity to disturb the sale value as the same could be treated as the market value of the property considering the drawbacks of the property. We hereby direct the AO to delete the addition made in the hands of the assessee while computing his long-term capital gains. Appeal of the assessee is allowed.

Summary

Issues: Valuation of immovable property for computing long-term capital gains under section 50C of the Income Tax Act.

In this case, the primary issue revolves around the valuation of an immovable property admeasuring 800 sq yds situated at a specific location. The Assessing Officer (AO) invoked section 50C of the Income Tax Act due to a variance between the sale consideration and the market value stated in the sale deed. The AO made an addition of &8377; 26,80,000 towards long-term capital gains based on the valuation report of the Valuation Officer valuing the property at &8377; 98,80,000. The crux of the matter was whether the Valuation Officer's determined value was appropriate.

During the assessment proceedings, the assessee argued that the property was under litigation and occupied by unauthorized persons, affecting its market value. The assessee contended that the actual sale value of &8377; 72 lakhs, received amidst the litigation, was fair considering the circumstances. The Valuation Officer's valuation was challenged on the grounds that it did not adequately consider the drawbacks of the property due to the ongoing legal issues.

The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing that the Valuation Officer had factored in the drawbacks of the land in determining its value. However, on appeal to the ITAT Hyderabad, it was observed that the property being under litigation significantly impacted its market value. The ITAT noted that despite the property being disputed, the assessee managed to realize &8377; 72 lakhs, which was approximately 73% of the value determined by the Valuation Officer. The ITAT concluded that the Valuation Officer's allowance was too low, considering the property's drawbacks, and directed the AO to delete the addition of &8377; 26,80,000 made towards long-term capital gains.

Ultimately, the ITAT allowed the appeal of the assessee, emphasizing that the sale value of &8377; 72 lakhs could be considered as the market value of the property given the circumstances, and there was no need to disturb this amount while computing the long-term capital gains. The judgment was pronounced on 21st August 2019 by the ITAT Hyderabad.