2023 (9) TMI 1507 - AT - Income Tax

LTCG computation under Section 50C: DVO fair market value applies when stamp duty exceeds 110% of sale consideration

ITAT Mumbai ruled on LTCG computation under Section 50C where stamp duty value exceeded 110% of declared sale consideration. Court upheld DRP's rejection ... LTCG - Addition on account of Section 50C - DRP had rejected the contention of the Appellant that the provisions of Section 50C would not be attracted in the fact and circumstances of the present case - HELD THAT:-We concur with the above finding of the DRP. Even if the benefit the decision of the Tribunal in the case of Maria Fernandes Chery [2021 (1) TMI 620 - ITAT MUMBAI] is granted to the Appellant, the provision of Section 50C of the Act would still be attracted in the fact of the present case as the value of INR 4,37,55,300/- assessable by the Stamp Valuation Authority exceeds 110% of the sale consideration of INR 3,96,00,000/- disclosed by the Appellant. However, since the DVO has determine the fair market value of the capital asset at INR 4,00,32,000/-, the assessing officer is directed to re-compute LTCG by taking the same as full value of consideration. Disallowance of deduction claimed by the Appellant in respect of the expense being fee paid for valuation, and expenses pertaining to travel of Appellant to India - We concur with the AO and the DRP that the deduction for the aforesaid expenses cannot be allowed as the same were not connected with the transfer of the capital asset. Expenses were incurred after the transfer of capital asset for the purpose of preparation of valuation report. While expense on travel of the Appellant were personal in nature and cannot be said to have been incurred for the transfer of the capital asset. Claim for deduction being the amount paid by the Appellant to the Mahavir Co-op Housing Society Ltd - We find merit in the contentions advanced on behalf of the Appellant. We note that the Appellant executed the Deed of Transfer on 12/02/2018 which was registered 12/03/2018. As per Clause 15 of the aforesaid Deed of Transfer, the Appellant took over the obligation to pay the transfer fee payable to the Society for transfer of the capital asset in the records of the Society. On perusal of the details of cheque issued by the Appellant and receipt issued by the Society, we find that the Appellant had made paymen to the Society. In our view, the Appellant had no reason to make a voluntary payment of around 3% of the sale consideration of INR 3,96,00,000/- to the Society after execution of Deed of Transfer except to aid registration of transfer in the name of the purchaser in records of the Society in terms of Clause 15 of the Deed of Transfer. The fact that the Society choose to treat the amount paid by the Appellant as a voluntary donation for repair and maintenance of the Society and issue a receipt to that effect is an issue to be addressed by the concerned regulator. As regards computation of LTCG in the hands of the Appellant, the Appellant parted with the money for discharging the his liability as per Clause 15 of the Deed of Transfer which crystallized on execution of Deed of Transfer on 12/02/2018. We hold that the payment made by the Appellant to the Society by way of cheque was expense connected to transfer of capital asset and therefore, the same should be reduced from the full value of consideration while determining the amount of LTCG. AO is directed accordingly. Issues:1. Addition under Section 50C of the Income Tax Act2. Disallowance of expenses in connection with the transfer3. Adjudication of penalty proceedingsIssue 1: Addition under Section 50C of the Income Tax ActThe case involved an appeal against the Assessment Order under Section 143(3) read with Section 144C(13) of the Income Tax Act for the Assessment Year 2018-19. The Appellant disputed the addition of Rs. 41,55,300/- under Section 50C of the Act, arguing that the difference between the stamp duty value and transaction value was negligible due to negative factors related to the property sold. The DRP finalized the order without waiting for the report of the Departmental Valuation Officer. The Assessing Officer computed Long Term Capital Gain (LTCG) based on the full value of consideration as per Section 50C and disallowed claimed expenses. The Appellant's objections were rejected, leading to the Final Assessment Order. The Tribunal concurred with the DRP's decision that Section 50C applied, and directed the re-computation of LTCG based on the DVO's fair market value determination.Issue 2: Disallowance of expenses in connection with the transferThe Appellant objected to the disallowance of expenses totaling INR 16,05,380/- related to the transfer, arguing that the DRP did not consider the factual aspects correctly and dismissed the claim mechanically. The Tribunal upheld the disallowance of certain expenses, such as valuation fees and personal travel expenses, as they were not directly connected to the transfer of the capital asset. However, the Tribunal allowed the deduction of INR 11,70,000/- paid by the Appellant to the housing society, considering it a legitimate expense connected to the transfer, reducing the LTCG amount accordingly.Issue 3: Adjudication of penalty proceedingsThe Appellant's objection regarding the initiation of penalty proceedings was dismissed by the DRP as premature. The Tribunal upheld this decision, stating that the impugned additions and disallowances did not amount to underreporting or misreporting of income by the Appellant. Consequently, the Tribunal partly allowed the appeal, adjusting the computation of LTCG and dismissing the penalty proceedings as premature.This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the Tribunal's findings and directions regarding each issue.