2019 (7) TMI 594 - AT - Income Tax

Addition u/s 50C - substitution of stamp duty value as deemed sale consideration against actual sale price - reduction of payment made to trespasser - sale deed/document registered before the sub registrar without disputing the stamp duty for valuation of the land - HELD THAT - It is primarily the case of the assessee that the lower consideration received on sale of property is attributable to the encumbrances, encroachment and defect in vacant possession of the property. The assessee has demonstrated the encroachment by illegal occupiers with reference to electricity bills in the name of the illegal occupiers and substantial payment of ₹ 1,75,00,000/- in aggregate to various such occupiers by the purchaser in the subsequent years. This fact of payment towards encroachment has not been disputed by the Revenue. Therefore, there is no reason to exclude such amount for the purposes of computation of capital gains. Thus, the purchase consideration together with costs towards obtaining vacant property should stand at ₹ 2,26,00,000/-. The assessee however has failed to explain as to why the difference between deemed sale consideration of ₹ 2,60,05,348/- adjusted purchase costs and ₹ 2,26,00,000/- being ₹ 34,05,348/- should not be subjected to capital gain tax in the light of Section 50C. The brokerage costs incurred on sale consideration by the purchaser cannot be taken into account for the purposes of Section 50C. CIT(A) has thus failed to take cognizance of applicability of Section 50C to the extent of ₹ 34,05,348/-. Hence, the order of the CIT(A) requires to be modified to the aforesaid extent and the chargeable capital gain requires to be increased by ₹ 34,05,348/-.- Appeal of the Revenue is partly allowed.

Summary

Issues Involved:
1. Application of Section 50C of the Income Tax Act, 1961.
2. Determination of the correct sale consideration for capital gains computation.
3. Consideration of encumbrances and illegal occupation in property valuation.
4. Procedural compliance with Section 50C(2) regarding reference to the District Valuation Officer (DVO).

Issue-wise Detailed Analysis:

1. Application of Section 50C of the Income Tax Act, 1961:
The primary issue was whether the sale consideration declared by the assessee should be substituted with the value adopted by the registering authority for stamp duty purposes under Section 50C. The Assessing Officer (AO) invoked Section 50C, replacing the declared sale consideration of ?51 Lakhs with the stamp duty valuation of ?2,60,05,348/-. The CIT(A) and the Tribunal both examined the applicability of Section 50C and concluded that the actual sale consideration should be considered, factoring in the encumbrances and illegal occupation.

2. Determination of the Correct Sale Consideration for Capital Gains Computation:
The AO disputed the sale consideration of ?51 Lakhs, citing the stamp duty valuation. The assessee argued that the property was sold with encumbrances and illegal occupants, justifying the lower sale price. The CIT(A) accepted the assessee's claim, supported by evidence such as electricity bills in the names of illegal occupants and an MOU detailing payments to trespassers. The Tribunal partially upheld this view but modified the CIT(A)'s order to include an additional chargeable capital gain of ?34,05,348/-, recognizing the difference between the adjusted purchase costs and the deemed sale consideration under Section 50C.

3. Consideration of Encumbrances and Illegal Occupation in Property Valuation:
The assessee provided evidence of illegal occupation, including electricity bills and an MOU indicating payments to trespassers totaling ?1,75,00,000/-. The AO did not accept these arguments, but the CIT(A) and the Tribunal found them credible. The Tribunal noted that the purchase consideration, including costs for obtaining vacant possession, should be considered, resulting in an adjusted sale consideration of ?2,26,00,000/-.

4. Procedural Compliance with Section 50C(2) Regarding Reference to the District Valuation Officer (DVO):
The assessee argued that the AO should have referred the matter to the DVO as per Section 50C(2) when disputing the stamp duty valuation. The CIT(A) and the Tribunal noted that the AO failed to do so, which was a procedural lapse. The Tribunal emphasized that the AO should have considered the provisions of Section 50C(2) and referred the matter to the DVO for a fair valuation.

Conclusion:
The Tribunal partially allowed the Revenue's appeal, modifying the CIT(A)'s order to increase the chargeable capital gain by ?34,05,348/-. The Tribunal recognized the encumbrances and illegal occupation affecting the sale consideration but also acknowledged the need to comply with Section 50C's procedural requirements. The final chargeable capital gain was adjusted accordingly, balancing the actual sale consideration and the deemed value under Section 50C.