2018 (5) TMI 1687 - AT - Income Tax

Valuation of land u/s 50C - Sale of disputed property - disallowance of expenditure incurred towards land levelling, construction of wall and a room - Held that - Assessee has sold the property with the disputes in the property - some disputes were unsettled at the time of sale, which is evident from the list of cases pending for which the court orders which were submitted subsequent to the date of sale - thus assessee is eligible to claim the adjustment in the valuation of land to the extent of 30% as per the guidelines for valuation of Immovable Properties, 2009 - Decided in favor of assessee Expenditure incurred towards advocate fee disallowed - self made vouchers - Held that - Assessee has legal disputes with the parties, who are claiming to be the owners of the land - since the vouchers are self-made, the issue is remitted back to AO in order to give one more opportunity to assessee to file proper confirmation with details such as, address and PAN details - Decided in favour of assessee for statistical purpose Disallowing the expenditure incurred towards land levelling, construction of wall and a room - Held that - Evidences are submitted before the authorities to show that there existed compound wall and room adjacent to the land - thus the matter is remitted back to AO to determine the value with the assistance from DVO with reasonableness and allow the same as cost incurred to build the compound wall and a room - Decided in favour of assessee for statistical purpose

Summary

Issues:
1. Valuation of property for capital gains tax purposes under section 50C of the Income Tax Act.
2. Deduction claim for advocate fees.
3. Claim of expenditure for land leveling, construction of compound wall, and a room.

Issue 1: Valuation of property for capital gains tax purposes under section 50C of the Income Tax Act:

The Assessing Officer (AO) observed discrepancies in the valuation of a property sold by the assessee, leading to a capital gains tax issue. The AO adopted a higher value for the property based on the stamp duty valuation, which the assessee contested due to pending litigation affecting the property's market value. The AO rejected the assessee's contentions and applied the provisions of section 50C to determine the sale consideration. Upon appeal, the Commissioner of Income Tax (Appeals) upheld the AO's decision, emphasizing that there were no encumbrances on the property and dismissing the assessee's claim for a reduced valuation due to pending litigation. However, the ITAT Hyderabad allowed the appeal, considering the pending disputes and directed a 30% adjustment in the property valuation as per the guidelines for valuation of immovable properties.

Issue 2: Deduction claim for advocate fees:

The assessee claimed a deduction for advocate fees incurred in legal proceedings related to the property sale. The AO disallowed a portion of the claimed amount due to insufficient supporting documentation. The CIT(A) upheld the AO's decision, stating that the self-made vouchers lacked essential details for verification. The ITAT directed a reevaluation by the AO, instructing the assessee to provide proper confirmations from the lawyers receiving the fees for legal representation. If verified, the deduction should be allowed.

Issue 3: Claim of expenditure for land leveling, construction of compound wall, and a room:

The assessee claimed expenditure for land leveling and construction activities, which the AO disallowed based on self-made vouchers lacking credibility. The CIT(A) supported the AO's decision, highlighting the absence of a solid basis for the valuation provided by the assessee. However, the ITAT acknowledged the evidence presented during remand proceedings, including an affidavit from the builder and police FIRs showing the existence of the claimed structures. The ITAT remitted the issue back to the AO for further consideration, directing a valuation assessment with reasonable assistance to determine the allowable costs for the claimed activities.

In conclusion, the ITAT Hyderabad allowed both appeals for statistical purposes, addressing the valuation discrepancies, advocate fees deduction, and claimed expenditures for land-related activities. The judgment emphasizes the importance of proper documentation and verification in tax assessments, ensuring fair treatment for taxpayers while upholding legal requirements.