Tribunal orders using actual sale price for capital gains calculation, remits additional payment issue for further assessment

The tribunal directed the adoption of the actual sale consideration for computing long term capital gain and remitted the issue of the additional payment of ? 23,00,000 back to the Assessing Officer for verification and possible deduction. The order was pronounced on January 30, 2017.

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Issues Involved:
1. Adoption of property value for computing long term capital gain.
2. Addition of Rs. 23,00,000 to the sale consideration.

Issue-wise Detailed Analysis:

1. Adoption of Property Value for Computing Long Term Capital Gain:

The primary issue revolves around whether the value certified by the District Valuation Officer (DVO) should be adopted as the full value consideration instead of the Agreement Value. The assessee declared a total sale consideration of Rs. 3,07,71,470/- in the Sale Deed but the Assessing Officer adopted the stamp duty valuation rate of Rs. 5,75,81,250/- for determining long term capital gain. The DVO later determined the fair market value at Rs. 3,14,86,000/-.

The tribunal found merit in the assessee's submission that the difference between the actual sale consideration and the value determined by the DVO was marginal, approximately 2% of the total value. Citing precedents, including the case of Rahul Constructions V/s. DCIT, where differences of less than 10% were deemed negligible, the tribunal concluded that the actual sale consideration mentioned in the Sale Deed should be adopted. The tribunal directed the Assessing Officer to use the actual sale consideration of Rs. 3,07,71,470/- for computing long term capital gain.

2. Addition of Rs. 23,00,000 to the Sale Consideration:

The second issue pertains to the addition of Rs. 23,00,000/- to the sale consideration, which was directly paid by the purchaser to Mr. Mansoor Aaga and Mrs. Shagufta Aaga. The assessee contended that this amount was not received by him and should not be taxable in his hands. The payment was made as part of a compromise to settle litigation and remove encumbrances on the property.

The tribunal noted that the Commissioner of Income Tax (Appeals) had selectively referred to clauses in the Sale Deed to reject the assessee's contention. However, a comprehensive reading of the Sale Deed, including Clause-9 and Clause-12, indicated that the payments to Mr. Mansoor Aaga and Mrs. Shagufta Aaga were part of the sale agreement and necessary to resolve litigation.

The tribunal referenced the Bombay High Court's decision in CIT V/s. Shakuntala Kantilal, which held that expenses incurred to remove encumbrances for transferring land are deductible. The tribunal remitted the issue back to the Assessing Officer to verify whether the amounts were actually received by Mr. Mansoor Aaga and Mrs. Shagufta Aaga. If confirmed, the amounts should be allowed as deductions under Section 48 of the Income Tax Act.

Conclusion:

The tribunal allowed the appeal partly, directing the adoption of the actual sale consideration for computing long term capital gain and remitting the issue of the Rs. 23,00,000/- payment back to the Assessing Officer for verification and appropriate deduction. The order was pronounced on January 30, 2017.

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