2023 (6) TMI 181 - AT - Income Tax

Computing capital gains - FMV determination of property under dispute - HELD THAT - Since, the impugned property is covered under the proceedings under Urban Land Ceiling and Regulation Act, 1976, it is impracticable to fetch a higher market value. In the instant case, since the property is under dispute and the proceedings are pending before the Hon ble High Court of Andhra Pradesh, we are of the considered view that this property cannot fetch a fair value when compared to the properties which are not under litigation. The value as per the rent capitalization method is also far below to the actual consideration received by the assessee. We therefore are of the considered view that the sale consideration received by the assessee is to be adopted for the purpose of computing capital gains and accordingly the Ld. AO is hereby directed to consider Rs.1,38,33,333/- being the share of the assessee from the impugned sale of land and thereby allow the appeal of the assessee.

Summary

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act.
2. Determination of Fair Market Value (FMV) for capital gains computation.
3. Consideration of Urban Land Ceiling and Regulation Act, 1976 in valuation.

Summary:

1. Applicability of Section 50C of the Income Tax Act:
The assessee filed returns for AY 2012-13, declaring an income of Rs. 9,69,932/-. The Assessing Officer (AO) noticed discrepancies between the sale deed values and the market values adopted by the Registering Authority for stamp duty purposes. Consequently, the AO invoked Section 50C of the Income Tax Act to compute capital gains using the market value as the full value of consideration received. The AO's decision was initially upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], but the ITAT remitted the matter back to the AO for reconsideration, including additional evidence and the District Valuation Officer's (DVO) input.

2. Determination of Fair Market Value (FMV) for Capital Gains Computation:
Following the ITAT's directions, the AO referred the matter to the DVO, who initially valued the property at Rs. 12,23,30,000/-, attributing Rs. 4,07,77,000/- to the assessee. The assessee contested this valuation, and the final DVO report valued the property at Rs. 6,11,65,000/-, with the assessee's share being Rs. 2,03,88,330/-. The CIT(A) directed the AO to re-compute capital gains based on this final valuation. The assessee appealed, arguing that the value should be determined as per the Urban Land Ceiling and Regulation Act, 1976, or the rent capitalization method, or the actual consideration received, whichever is higher.

3. Consideration of Urban Land Ceiling and Regulation Act, 1976 in Valuation:
The assessee argued that the property was under a 99-year lease with 52 years remaining and was subject to proceedings under the Urban Land (Ceiling and Regulation) Act, 1976. The AO and CIT(A) did not fully consider these factors. The ITAT found merit in the assessee's argument, noting that similar properties were valued using the rent capitalization method and that the property was under litigation, affecting its market value. The ITAT referred to the Supreme Court's decision in S.N. Wadiyar vs. Commissioner of Wealth Tax, which supported the assessee's position. The ITAT concluded that the sale consideration received should be adopted for computing capital gains, directing the AO to consider Rs. 1,38,33,333/- as the assessee's share.

Final Decision:
The ITAT allowed the appeals of both assessees, directing the AO to adopt the actual sale consideration received for computing capital gains. The decision in ITA No. 218/Viz/2020 (Pydi Venkata Ramana) was applied mutatis mutandis to ITA No. 219/Viz/2020 (Pydi Giridhar Babu).

Pronounced in the open Court on the 01st June, 2023.