2016 (12) TMI 950 - AT - Income Tax

Addition of Long term capital gain - sale of plot - determination of price - fair market value of the property - Held that - It is observed that in the Master Development Plan - 2011 of the JDA, this plot was shown for residential purposes. The registered document also mentions that the plot was only for residential purpose. JDA Patta and Site Plan also show that plot was for residential purpose. However, spot inspection report shows that this plot was of capable of being exploited for commercial purposes as surrounding properties were being used for commercial purposes. The stamp Valuation authority has adopted the commercial rate for valuation of the Plot. The assessee s request to convert the land to commercial was declined by JDA. Thus the location of the plot was capable to be utilized for commercial purposes but legally the plot was not commercial. This is also a fact that there is a difference in market value of the authorized commercial property and illegally used for commercial purposes. This fact has not been taken into consideration while arriving at the fair market value of the plot on the date of transfer for the purpose of provisions of Section 50C of the Act. Therefore, in the interest of justice and equity, the issue is restored to the file of the AO to decide it afresh after ascertaining the fair market value of the property with due weightage given to the fact that plot was not a commercial plot but capable to be illegally exploited for commercial purposes. Thus the appeal of the assessee is allowed for statistical purposes.

Summary

Issues: Valuation of property for capital gains computation based on stamp duty valuation versus actual sale consideration. Admission of additional evidence by CIT(A) under Rule 46A of IT Rules. Interpretation and application of Section 50C of the Income Tax Act.

Valuation of Property for Capital Gains Computation:
The appeal was filed against the confirmation of the addition of ?43,98,575 as long-term capital gain on the sale of a plot. The dispute arose from the valuation of the property sold by the assessee, with the sale consideration declared at ?35,00,000 in the sale deed. However, the Sub-Registrar revalued the property at ?84,89,500 for stamp duty purposes. The Assistant Valuation Officer determined the Fair Market Value at ?84,75,000, invoking Section 50C of the Act. The AO adopted this value for computing capital gains. The assessee submitted a letter from Jaipur Development Authority (JDA) after the assessment order, indicating the property was residential as per the Master Development Plan, 2011. The CIT(A) admitted this letter as additional evidence under Rule 46A of the IT Rules.

Admission of Additional Evidence by CIT(A) under Rule 46A:
The CIT(A) admitted the JDA's letter as additional evidence, despite objections from the AO, citing judicial precedents supporting the admission of additional evidence to enable a fair disposal of the appeal on merits. The AO's remand report raised concerns about the JDA letter not being supported by spot verification and highlighted that the valuation by the Assistant Valuation Officer was based on thorough spot verification. The AO contended that the JDA letter did not impact the valuation adopted for computing capital gains.

Interpretation and Application of Section 50C of the Income Tax Act:
The AO relied on Section 50C of the Act, deeming the stamp duty valuation as the full value of consideration for computing capital gains. The AO determined the long-term capital gains based on the stamp duty valuation of ?84,75,000, rejecting the declared sale consideration. The CIT(A) upheld the AO's decision, emphasizing that the stamp duty valuation was lower than the valuation by the Sub-Registrar. However, during the appeal, it was argued that the property, though capable of commercial use, was legally designated for residential purposes. The issue was restored to the AO to reassess the fair market value, considering the property's potential for commercial use despite its residential designation.

In conclusion, the appeal was allowed for statistical purposes, directing the AO to reevaluate the fair market value of the property with due consideration given to its potential for commercial use, despite being legally designated for residential purposes. The judgment highlighted the importance of accurately determining the fair market value for computing capital gains and the admissibility of additional evidence under Rule 46A to ensure a just resolution of tax disputes.