2019 (11) TMI 75 - AT - Income Tax

Capital gain computation - distress sale - reference to DVO - fair market value u/s. 50C - Why property could not have been sold at the fair market value? - HELD THAT - On perusal of the DVO report, it is noticed that the property which has been sold by the assessee was land locked and had no approach road. It is only Smt. Sukanya Kamalakar Reddy s property which had the approach to the road and since the injunction was denied to the assessee and particularly since it has been decreed that the vendors of the assessee did not have any legal title over the property, we are of the view that the assessee was constrained to sell the property to Smt. Sukanya Kamalakar Reddy only. Therefore, it is clearly a distress sale. Though the assessee has raised the objections before the Assessing Officer as well as the DVO, neither the A.O. nor the DVO have passed any speaking order as to why these objections are not acceptable to them. CIT(A) has also erred in holding that the ITAT has already considered these facts in the earlier proceedings. We have gone through the order of the ITAT and find that the Tribunal had only remanded the issued to the file of the A.O. for re-consideration of the issue on merits after calling for the DVO report, if necessary. Therefore, the ITAT has not decided the issue on merits and all these facts were never considered by any of the Authorities below. From the computation of total income filed along with return of income for the A.Y. 2006-07, we find that the assessee had offered the short term capital gains to tax by considering ₹ 6 lakhs as sale consideration received after deducting therefrom, the cost of acquisition. The documents relating to the Civil Suit are also filed before us and we find that there was a legal dispute and the assessee has been held to be not a legal title holder of the property. In view of the same, we accept the contention of the assessee that it is a distress sale and assessee was constrained to sell the property to none other than the Respondent in the Civil Suit and therefore, the property could not have been sold at the fair market value. Appeal of the assessee is allowed.

Summary

Issues:
Assessment of short term capital gains under section 50C based on deemed sale consideration.

Analysis:

1. Background and Assessment: The case involves an appeal by the assessee against the order of the Ld. CIT(A)-6, Hyderabad for the Assessment Year 2006-07. The initial assessment was completed under section 143(3) r.w.s 147 of the IT Act, 1961, determining the total income after adopting the SRO value as the full value of consideration as per section 50C. The assessee appealed to the ITAT, which admitted the legal ground for reference to the DVO for valuation of the property.

2. DVO Valuation and Assessment Proceedings: The Assessing Officer referred the matter to the DVO for valuation of the property. However, due to a delay in receiving the Valuation Report, the Assessing Officer adopted the value proposed in the show cause notice as the deemed sale consideration under section 50C, leading to the computation of short term capital gains. The assessee appealed to the Ld. CIT(A), who dismissed the appeal based on the ITAT's previous decision regarding the property being a distress sale.

3. Grounds of Appeal: The assessee raised multiple grounds of appeal, challenging the orders of the Assessing Officer and the Ld. CIT(A). The main contentions included the non-applicability of section 50C to a property with defective legal title sold under compulsion, the issue of distress sale as highlighted by the ITAT, and the failure of the authorities to consider essential facts presented by the assessee.

4. Arguments and Decision: The Learned Counsel for the Assessee argued that the property was sold under distress, and therefore, section 50C should not apply, resulting in no capital gains for the assessee. The ITAT, after considering the contentions and documents presented, concluded that the property was indeed sold under distress, and the assessee was constrained to sell it to a specific party due to legal constraints. The ITAT found that the objections raised by the assessee were not adequately addressed by the authorities below, leading to the allowance of the assessee's appeal.

5. Conclusion: The ITAT allowed the appeal of the assessee, emphasizing the distress sale nature of the transaction and the legal constraints faced by the assessee in selling the property. The decision highlighted that the property could not have been sold at fair market value due to the unique circumstances surrounding the sale. As a result, the ITAT ruled in favor of the assessee, overturning the orders of the lower authorities and deleting the additions made by the Assessing Officer.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented by the parties, and the final decision reached by the ITAT in favor of the assessee.