Tribunal Remands Tax Appeal for Fresh Consideration on Capital Gains & Deductions

The Tribunal allowed the appeal for statistical purposes and remanded both issues to the Assessing Officer for fresh consideration. For the first issue regarding capital gain, the Tribunal emphasized the need for a reevaluation considering the specific circumstances and additional evidence provided. The second issue concerning section 56(2)(vii)(b) involved directing the AO to refer the valuation to the Departmental Valuation Officer and allow deductions for cost of acquisition and other expenses in computing capital gain. The matters were remitted for a fresh decision based on the Tribunal's directions and additional evidence presented.

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Issues Involved:
1. Confirmation of addition of Rs.3,43,92,718/- as capital gain.
2. Confirmation of addition of Rs.4,95,37,200/- under section 56(2)(vii)(b) of the Income-tax Act, 1961.

Summary:

Issue 1: Confirmation of addition of Rs.3,43,92,718/- as capital gain

The first issue pertains to the confirmation of addition of Rs.3,43,92,718/- as capital gain. The assessee, along with co-owners, entered into a development agreement with M/s. Kunal Realty on 22-01-2016 for a consideration of Rs.10,31,78,154/-. The agreement was registered, and the stamp duty was paid. The Assessing Officer (AO) treated the assessee's share of 1/3rd of the stamp value at Rs.3,43,92,718/- as capital gain since the assessee had not declared any capital gain on this transaction.

The Tribunal noted that the development agreement included several conditions, such as obtaining clearances and removing encroachments, which were not fulfilled. M/s. Kunal Realty had paid substantial amounts towards stamp duty and other costs, but possession of the land was not transferred due to encroachments. The Tribunal acknowledged that transfer of an encumbered property could result in capital gains liability, but the specific circumstances of this case, including additional evidence, warranted a fresh examination. The Tribunal set aside the impugned order and remanded the matter to the AO for a fresh decision considering the additional evidence and allowing the assessee a reasonable opportunity of hearing.

Issue 2: Confirmation of addition of Rs.4,95,37,200/- under section 56(2)(vii)(b)

The second issue concerns the addition of Rs.4,95,37,200/- under section 56(2)(vii)(b) of the Act. The assessee purchased land for Rs.1.85 crore, while the circle rate was Rs.6,80,37,200/-. The AO invoked section 56(2)(vii)(b) and added the difference between the stamp value and the declared consideration. The Tribunal observed that the purchase was completed through a registered sale deed, and the simultaneous agreement to sell the property further corroborated the transaction.

The Tribunal noted that the assessee had disputed the stamp value and raised an additional ground before the CIT(A) regarding the necessity to refer the valuation to the Departmental Valuation Officer (DVO). The Tribunal emphasized that the AO is mandated to refer the valuation to the DVO when the stamp value is disputed. The Tribunal set aside the impugned order and remitted the matter to the AO for making a reference to the DVO and determining the value afresh. The AO was also directed to grant deductions towards the cost of acquisition and other allowable expenses while computing the capital gain.

Conclusion:

The appeal was allowed for statistical purposes, and the matters were remanded to the AO for fresh consideration in light of the Tribunal's observations and additional evidence. The order was pronounced in the Open Court on 30th May, 2023.

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