2023 (6) TMI 42 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - difference between the stamp value and declared consideration in sale (Sathekhat) executed through registered deed - assessee submitted that the purchase was not complete - AO observed that after the purchase of land, the assessee entered into an agreement to sell the same and hence the assessee s claim that the purchase was not complete, was wrong - HELD THAT - The third proviso to section 56(2)(vii)(b) provides that where the stamp value of the immovable property is disputed by the assessee on the ground mentioned in section 50C(2), AO may refer the valuation of such property to the Valuation Officer. The word may in such provision has been interpreted as shall in many cases, making it mandatory on the part of the AO to make a reference to the DVO, where the assessee asserts that the stamp value is excessive. Additional ground raised before the ld. CIT(A) in this regard has remained undisposed off, which in our considered opinion, is not correct. Going with the mandate of the third proviso to section 56(2)(vii)(b), we are of the considered opinion that it would be in the fitness of things if the impugned order on this score is set aside and the matter is remitted to the file of the AO for making a reference to the DVO for determining the value of the property afresh - Computation of capital gain will be done by the AO after allowing a reasonable opportunity of hearing to the assessee. Additional alternative ground of assessee contending that deduction of cost of acquisition should be given in the computation of the capital gain - As seen that the AO computed capital gain at the gross value of stamp value without allowing any deduction towards cost of acquisition and cost of improvement etc. It is axiomatic that capital gain does not refer to taxing the gross receipt. Section 48 of the Act clearly provides the mechanism for computation of capital gain by stating that cost of acquisition of the asset and cost of any improvement should be reduced from the full value of consideration, in addition to the expenditure incurred wholly and exclusively in relation to the transfer. It is, therefore, directed that while computing the capital gain in the hue of the above observations, the AO shall also grant deduction towards cost of acquisition etc. of the asset. Appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Confirmation of addition of Rs.3,43,92,718/- as capital gain.
2. Confirmation of addition of Rs.4,95,37,200/- under section 56(2)(vii)(b) of the Income-tax Act, 1961.

Summary:

Issue 1: Confirmation of addition of Rs.3,43,92,718/- as capital gain

The first issue pertains to the confirmation of addition of Rs.3,43,92,718/- as capital gain. The assessee, along with co-owners, entered into a development agreement with M/s. Kunal Realty on 22-01-2016 for a consideration of Rs.10,31,78,154/-. The agreement was registered, and the stamp duty was paid. The Assessing Officer (AO) treated the assessee's share of 1/3rd of the stamp value at Rs.3,43,92,718/- as capital gain since the assessee had not declared any capital gain on this transaction.

The Tribunal noted that the development agreement included several conditions, such as obtaining clearances and removing encroachments, which were not fulfilled. M/s. Kunal Realty had paid substantial amounts towards stamp duty and other costs, but possession of the land was not transferred due to encroachments. The Tribunal acknowledged that transfer of an encumbered property could result in capital gains liability, but the specific circumstances of this case, including additional evidence, warranted a fresh examination. The Tribunal set aside the impugned order and remanded the matter to the AO for a fresh decision considering the additional evidence and allowing the assessee a reasonable opportunity of hearing.

Issue 2: Confirmation of addition of Rs.4,95,37,200/- under section 56(2)(vii)(b)

The second issue concerns the addition of Rs.4,95,37,200/- under section 56(2)(vii)(b) of the Act. The assessee purchased land for Rs.1.85 crore, while the circle rate was Rs.6,80,37,200/-. The AO invoked section 56(2)(vii)(b) and added the difference between the stamp value and the declared consideration. The Tribunal observed that the purchase was completed through a registered sale deed, and the simultaneous agreement to sell the property further corroborated the transaction.

The Tribunal noted that the assessee had disputed the stamp value and raised an additional ground before the CIT(A) regarding the necessity to refer the valuation to the Departmental Valuation Officer (DVO). The Tribunal emphasized that the AO is mandated to refer the valuation to the DVO when the stamp value is disputed. The Tribunal set aside the impugned order and remitted the matter to the AO for making a reference to the DVO and determining the value afresh. The AO was also directed to grant deductions towards the cost of acquisition and other allowable expenses while computing the capital gain.

Conclusion:

The appeal was allowed for statistical purposes, and the matters were remanded to the AO for fresh consideration in light of the Tribunal's observations and additional evidence. The order was pronounced in the Open Court on 30th May, 2023.