2020 (5) TMI 134 - AT - Income Tax

Capital gain computation - justification in adopting the value u/s. 50C - property not sold for the market rate - HELD THAT - Property is admittedly mortgaged with Catholic Syrian Bank. It is also not in dispute that one of the assessee Smt. Muragasamy Lalitha was suffering from Kidney failure. Therefore the contention of the assessee that the property could not be sold for the market rate may have some justification. In the case of G. Anitha 2015 (4) TMI 723 - ITAT HYDERABAD found that wherever there was an encumbrance the value u/s. 50C of the Act need not be applied. The decision of the Division Bench of ITAT Hyderabad (supra) is binding on a single Member. Therefor this Tribunal is of the considered opinion that when the assessee mortgaged property to Catholic Syrian Bank and could not effectively negotiate for sale of property due to Kidney failure of one of the assessee the provisions of s. 50C of the Act not be applicable. Orders of the both the lower authorities are set aside and the addition made by the AO as confirmed by the Ld. CIT(A) is deleted. - Decided in favour of assessee.

Summary

Issues:
Appeal against orders of Commissioner of Income Tax relating to assessment year 2013-14 - Computation of capital gain based on property sale consideration - Applicability of section 50C of the Income Tax Act - Property mortgaged to a bank - Effect of encumbrance on market value determination.

Analysis:
The judgment pertains to two appeals by the assessee challenging the orders of the Commissioner of Income Tax for the assessment year 2013-14. The main issue revolves around the computation of capital gain from the sale of a property, where the assessee took the sale consideration at a lower value than the guideline value provided by the Registration Department. The assessee justified this difference by citing a distress sale value determined by a registered valuer due to the property being mortgaged to a bank and one of the owners suffering from Kidney failure, affecting the negotiation process. The representative for the assessee argued that section 50C of the Act, which mandates using guideline value for computing capital gain, should not apply in this case, relying on a decision by the ITAT, Hyderabad Bench in a similar matter.

On the other hand, the Departmental Representative contended that section 50C is a statutory mandate, requiring the use of guideline value when the property is sold below that value. However, the ITAT Chennai, in its analysis, considered the unique circumstances of the case. The Tribunal noted that the property was indeed mortgaged and one of the owners was facing health issues, impacting the sale process. Referring to the decision of the Division Bench of ITAT, Hyderabad, the Tribunal concluded that in cases where there is an encumbrance on the property, the provisions of section 50C need not be strictly applied. Therefore, the Tribunal ruled in favor of the assessee, setting aside the orders of the lower authorities and deleting the addition made by the Assessing Officer.

In conclusion, both appeals filed by the assessee were allowed, and the judgment was pronounced in open court on 3rd February 2020 at Chennai.