2018 (10) TMI 365 - AT - Income Tax

Addition u/s 50C - capital gain computation - ascertaining fair market value - Held that - Section 50C provides that full consideration mentioned in section 48 is to be replaced by the consideration on which value of the property was adopted for the purpose of payment of stamp duty. No doubt the assessee had purchased an area of 2468 sq.meters, 1936 sq.meters, 1979 sq.meters and 893.sq.meters consisting of four survey numbers. Out of that cancellation qua area 1979 sq.metes and 893 sq.meters (143/1 and 143/2) stand accepted by the ld.CIT(A). If an industrialist wants a particular piece of land and that fallen short of expectation of its potential user, then it would make a distress sale qua the remaining area. None of the authorities have examined, whether the remaining area has access from the road or not. Hence, in order to ascertain fair market value as contemplated in section 50C(2), a reference ought to be made to DVO. Restore these issues to the file of AO and direct him to make a reference under section 50C(2) to the DVO for determining fair market value of the plot as on the date of sale i.e. 31.1.2012. On the basis of that report, he would work out capital gain assessable in the hands of the assessee. Hence, in order to ascertain fair market value as contemplated in section 50C(2), a reference ought to be made to DVO. We set aside both orders of the Revenue authority below. Restore these issues to the file of AO and direct him to make a reference under section 50C(2) of the Act to the DVO for determining fair market value of the plot as on the date of sale i.e. 31.1.2012. On the basis of that report, he would work out capital gain assessable in the hands of the assessee - Appeal of the assessee is partly allowed for statistical purpose.

Summary

Issues:
Appeal against order of ld.CIT(A) confirming addition under section 50C of Income Tax Act, 1961 for assessment year 2012-13.

Analysis:
The assessee filed an appeal before ITAT against the order of ld.CIT(A) confirming the addition of ?23,46,939 under section 50C of the Income Tax Act, 1961. The case involved the discrepancy between the sale consideration shown by the assessee and the value determined by the Sub-Registrar office for stamp duty purposes. The AO added the difference to the total income of the assessee for calculating long-term capital gain under section 50C. The ld.CIT(A) partly accepted the appeal, agreeing with the assessee's cancellation of the sale deed for one plot but not for the other. The Tribunal considered the contentions of both parties.

The assessee contended that the plot deed mentioned as a sale deed was a mistake and should be considered a cancellation deed, thus section 50C should not be applied. The Tribunal noted that a plot purchased with legal documents cannot be cancelled by merely executing another deed. The ld.CIT(A) rightly rejected this stand. Additionally, the Tribunal observed that the assessee had created a fresh right to the seller by executing a new deed, contradicting the claim of cancellation.

Regarding the alternative contention, the Tribunal analyzed section 50C, which deems the value assessed for stamp duty as the full consideration for capital gain calculation. The Tribunal found that the remaining plot's potential value had reduced substantially due to encumbrances. It directed the AO to refer the valuation of the property to the DVO under section 50C(2) to determine the fair market value and assess capital gains accordingly. The Tribunal set aside the previous orders and remitted the issues to the AO for further assessment.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, emphasizing the need for a fair market value assessment by the DVO for accurate capital gain calculation.