Sale proceeds used as consideration; improvement cost disallowed; Rs.50,000 litigation expense allowed; AO to verify s.54F

ITAT held the actual amount realized on sale of litigated land is the sale consideration. Claimed cost of improvements (Rs.7,50,000) disallowed for lack of evidence. Litigation expenses were acknowledged but, absent proof, Rs.50,000 was allowed. Question of exemption under s.54F for amounts deposited in CGAS after the s.139(1) due date was remitted to the AO to verify whether subsequent investments were made within s.54F time limits; AO to allow s.54F if conditions satisfied. AO also to verify whether the assessee owned more than one residential house on transfer date.

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Issues: (i) Whether the sale consideration of the land should be substituted by the DVO valuation of Rs. 67,34,000/- or the actual amount realized of Rs. 45,00,000/- when the property was under litigation; (ii) Whether the claimed cost of improvement of Rs. 7,50,000/- is allowable without documentary evidence; (iii) Whether payments to litigants of Rs. 11,00,000/- and litigation expenses of Rs. 1,00,000/- are deductible from sale proceeds; (iv) Whether deposit in Capital Gains Account Scheme (CGAS) made after the due date under section 139(1) but before filing of return under section 139(4) qualifies for exemption under section 54F; (v) Whether the assessee is ineligible for exemption under section 54F on account of owning more than one residential house on the date of transfer of the original asset.

Issue (i): Whether the sale consideration for computing LTCG should be the actual amount realized (Rs. 45,00,000/-) or the DVO valuation (Rs. 67,34,000/-) when the property was subject to litigation.

Analysis: The record contains documents (pages 1137) evidencing litigation over the property. The Tribunal considered precedents where, in cases of property under litigation, the actual amount realized by the assessee was accepted as the sale consideration. The DVO valuation and stamp valuation were on record, but the assessee produced evidence that only Rs. 45,00,000/- was realized and there was no evidence of any unrecorded additional consideration or 'on-money'.

Conclusion: In favour of Assessee. The Tribunal directed the Assessing Officer to treat the sale consideration as Rs. 45,00,000/-.

Issue (ii): Whether the claimed cost of improvement of Rs. 7,50,000/- is allowable in absence of supporting bills or vouchers.

Analysis: The assessee claimed improvements incurred over several years but did not produce any documentary evidence before the authorities or the Tribunal to substantiate the amounts. The statutory requirement is that claims must be supported by relevant evidence.

Conclusion: Against Assessee. The claim of Rs. 7,50,000/- is dismissed for lack of evidence.

Issue (iii): Whether payments to litigants (Rs. 11,00,000/-) and litigation expenses (claimed Rs. 1,00,000/-) are deductible from the sale proceeds.

Analysis: The Tribunal examined the memorandum of understanding and other documentary material (pages 4043) showing payment of Rs. 11,00,000/- to litigants and recognized that litigation in respect of the land occurred (pages 1137). The litigation expense claim lacked supporting vouchers, but given the proven litigation and the MOU and payments, an allowance in part was considered appropriate.

Conclusion: Partly in favour of Assessee. Deduction of Rs. 11,00,000/- for payments to litigants is allowed and Rs. 50,000/- is allowed for litigation expenses (total Rs. 11,50,000/- allowed out of Rs. 12,00,000/- claimed).

Issue (iv): Whether deposit in CGAS made after the due date under section 139(1) but before filing of return under section 139(4) entitles the assessee to exemption under section 54F.

Analysis: Section 54F and related provisions of section 139 were examined. The Tribunal noted binding and persuasive precedents showing that deposits made in CGAS after the due date may qualify for exemption under section 54F only if such deposited amounts are subsequently utilized for purchase or construction of residential property within the time limited by section 54F. Verification of subsequent utilization requires factual enquiry and documentary evidence.

Conclusion: Partly in favour of Assessee (statistical). The issue is remanded to the Assessing Officer to verify whether amounts deposited in CGAS were utilized for purchase/construction within the time specified under section 54F; exemption to be granted if utilization is established.

Issue (v): Whether the assessee is ineligible for exemption under section 54F because he owned more than one residential house on the date of transfer.

Analysis: The income-tax return shows income from two house properties. Whether both properties are residential is a factual question requiring verification of the nature of the properties.

Conclusion: Partly in favour of Revenue (statistical). The issue is remanded to the Assessing Officer to verify the nature of both properties; if both are residential and owned on the date of transfer, exemption under section 54F must be denied, otherwise it must be allowed.

Final Conclusion: The Tribunal accepted the actual sale consideration of Rs. 45,00,000/- and allowed related deductions partly, dismissed the unsubstantiated improvement claim, and remanded questions relating to exemption under section 54F and the nature of properties for factual verification by the Assessing Officer; the appeal is thus partly allowed and the Revenue's cross-objection is allowed for statistical purposes.

Ratio Decidendi: Where a property is subject to litigation, and the assessee establishes that the actual amount realized is the true sale consideration with no evidence of additional unrecorded receipts, the actual amount realized must be treated as the sale consideration for computation of capital gains.

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