ITO Vs Smt. Rajani Manhar Bhagat (ITAT Ahmedabad)
Conclusion: Since the market value of immovable property sold by assessee had to be Rs.2,60,05,348/- and the purchase consideration together with costs towards obtaining vacant property should stand at Rs.2,26,00,000/-, therefore, the long term capital gain would be Rs.34,05,348/- as per section 50C and the brokerage costs incurred on sale consideration by the purchaser could not be taken into account for the purposes of Section 50C.
Held: Assessee-individual sold immovable property for a consideration of Rs.51 Lakhs. AO found that stamp duty of Rs.12,74,440/-was collected on the aforesaid sale and the market value of the property was Rs.2,60,05,348/-. He also noticed that no income by way of capital gains was declared by assessee in the return of income filed , therefore, he reopened assessment. Assessee filed revised computation of total income declaring the amount of Rs.3,42,036/- as long term capital gains on the aforesaid transaction of sale of land. AO essentially disputed the sale consideration of Rs.51 Lakhs having regard to the value adopted by the registering authority for the purposes of payment of stamp duties in respect of such sale in tune with Section 50C. Assessee contended that the property was occupied unauthorizedly by 17 families who were illegal occupier of the property. Assessee was not in a position to get the vacant possession. thus, she sold the property together with encroachment. The purchaser had negotiated with the illegal occupiers and incurred additional costs of Rs.1,75,00,000/- to get the property vacated. AO however was not convinced with the plea of assessee for adoption of Rs. 51Lakhs as the sale consideration for the purposes of Section 50C and accordingly substituted the sale consideration of Rs.51 Lakhs by the value adopted by the registering authority at Rs.2,60,05,348/- in the hands of the assessee. It was held the lower consideration received on sale of property was attributable to the encumbrances, encroachment and defect in vacant possession of the property. This fact of payment towards encroachment had not been disputed by Revenue. Therefore, there was 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 Rs.2,26,00,000/-.Assessee however had failed to explain as to why the difference between deemed sale consideration of Rs.2,60,05,348/- adjusted purchase costs Rs.2,26,00,000/- being rs.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 could not be taken into account for the purposes of Section 50C. Hence, the order of CIT(A) required to be modified to the aforesaid extent and the chargeable capital gain requires to be increased by Rs.34,05,348/-.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Ahmedabad (‘CIT(A)’ in short), dated 22.05.2017 arising in the assessment order dated 18.03.2016 passed by the Assessing Officer (AO) under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.
2. The substantive ground of appeal raised by the Revenue reads as under:
“1) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,09,13,053/- made by the AO u/s 50C of the IT Act allowing assessee’s claim to have payment of Rs.1,75,00,000/- to trespasser without appreciating the fact that these facts have not been mentioned in the sale deed/document registered before the sub registrar without disputing the stamp duty for valuation of the land of Rs.2,60,05,348/-.”
3. Briefly stated, the assessee, an individual, sold immovable property located at Paldi, Ahmedabad for a consideration of Rs.51 Lakhs vide sale deed registration with registered authority on 19.10.2011. It was found by the AO that stamp duty of Rs.12,74,440/-was collected on the aforesaid sale. The market value of the property was determined by the registering authority at Rs.2,60,05,348/-. The AO also noticed that no income by way of capital gains was declared by the assessee in the return of income filed under s.139 of the Act. In the light of alleged under valuation of the property by Rs.2,09,05,348/- and non-declaration of capital gains, the case of the assessee was reopened by invoking Section 147 of the Act. In the course of re-assessment, the assessee filed revised computation of total income declaring the amount of Rs.3,42,036/- as long term capital gains on the aforesaid transaction of sale of land. It was claimed by the assessee that land was acquired prior to 01.04.1981 and the fair market value of the property stands at Rs.6,06,110/- and consequently having regard to the sale consideration of Rs.51 Lakhs and indexed cost of acquisition on income of Rs.3,42,036/- only has accrued. The fair market value of cost of acquisition was subsequently revised but however we are not concerned with this aspect of acquisition cost. The AO essentially disputed the sale consideration of Rs.51 Lakhs having regard to the value adopted by the registering authority for the purposes of payment of stamp duties in respect of such sale in tune with Section 50C of the Act. It was contended before the AO by the assessee that she has received a consideration of Rs.51 Lakhs only and no more and there is no question of under valuation of property. It was submitted that the property was occupied unauthorizedly by 17 families who had also taken electrical connection and were illegal occupier of the property. The assessee was not in a position to get the vacant possession. The assessee sold the property as it is together with encroachment and therefore the value was bound to be lower. It was essentially contended that the impugned plot as well as the adjoining plot of the neighbourer were illegally occupied and therefore the assessee has not given vacant possession of the property to the purchaser. The purchaser has negotiated with the illegal occupiers and incurred additional costs of Rs.1,75,00,000/- to get the property vacated. The AO has in fact made inquiries with purchasers who duly confirmed the cost incurred of Rs.1,75,00,000/- to the illegal occupiers. The AO however was not convinced with the plea of the assessee for adoption of Rs.51 Lakhs as the sale consideration for the purposes of Section 50C of the Act. It was observed by the AO that the assessee has not disputed the valuation adopted by the stamp duty authority and therefore Section 50C of the Act is clearly applicable. It was further observed with reference to the sale agreement that the assessee had handed over the vacant possession of the land to the purchaser without any dispute. It was further noted that expenditure incurred by the purchaser during FY 2013-14 is of no consequence for the purposes of applicability of Section 50C of the Act. The AO accordingly substituted the sale consideration of Rs.51 Lakhs by the value adopted by the registering authority at Rs.2,60,05,348/- in the hands of the assessee.
4. Aggrieved by the aforesaid action of the AO, the assessee preferred appeal before the CIT(A).
5. The CIT(A) took note of the copy of electricity bills in the name of the illegal trespassers, MOU dated 04.02.2014 between the purchaser and the trespassers for vacating land, photographs of the illegal occupation of land by hutments and came to the conclusion that only real income is required to be taxed. The CIT(A) accordingly directed the AO to consider the chargeable long term capital gains at Rs.3,42,036/- as claimed by the assessee as against Rs.2,09,13,053/-computed by the AO. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“4. Decision: I have gone through the facts mentioned in the assessment order and the submission filed by the appellant carefully. The Assessing Officer has mentioned about his show cause, appellant’s response and non’ acceptance of explanation in para 5 onwards assessment order. I have perused PP 01-206/PB in wherein the appellant has clearly raised objection to the proposed addition, the appellant has tried to defend through various arguments. Firstly, it was submitted that the plot of land was having illegal encumbrances and the appellant filed MOU dated 04/02/2014/ copy of electricity bill of such illegal persons and photographs of land occupied by illegal huts. It was brought to the notice that the AO had called the information vide notice dated 22/12/2015 u/s. 133(6) from the purchaser of the land and the purchaser had filed information vide letter dated 28/01/2016 with the AO (page 62 of paperbook), the same is reproduced as under:
“With reference to your letter dated 22/12/2015 we would like to give details as below:
1. Copy of sales deed vide document register no. 12118 dated 19/10/2011 is attached herewith.
2. Copy of ledger of Smt. Rajni M Bhagat is attached herewith. ^
3. We have purchase said property of juntry value Rs. 26005348/-in Rs. 5100000/- from Smt. Rajni M Bhagat. However we have paid Rs. 17500000/- to land tress passer and Rs. 1100000/- as brokerage. So total land cost to us is Rs. 25025650/-. Copy of land account, copy of land tress passer a/c with all deed are attacher herewith for your reference. Please acknowledge the same. For Pravinchandra N Maniar”
The Assessing Officer has not accepted the argument of the third party that Rs 1,75,00,000/- have been paid to the tress passers. This information was collected u/s 133(6} by the AO. However, the details as filed before AO is at page 64 of paper book which is reproduced as under:
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