2025 (9) TMI 695 - AT - Income Tax

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

Shri Madhusudhan Jaju, Hyderabad. Versus Income Tax Officer, Ward-1, Hyderabad.

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 ... LTCG on sale of land subject to litigation - HELD THAT:-As gone through the decision of Sunil Narang [2019 (8) TMI 1752 - ITAT HYDERABAD] wherein the Tribunal accepted the amount actually realized by the assessee as sale consideration - Thus we hold that, as the property was under litigation, the actual amount received by the assessee should only be considered as sales consideration. Cost of improvement - The assessee has claimed the cost of improvement of Rs. 7,50,000/- (Rs. 2.50 lakhs Rs. 2 lakhs Rs. 2 lakhs and Rs. 1 lakh during the F.Ys. 2000-01, 2001-02, 2007-08 and 2009-10 respectively). However, neither before the revenue authorities nor before us, the assessee produced any evidence in support of his claim. In our considered opinion, any claim in absence of relevant evidence is not permissible under the Act. Therefore, in the absence of any supporting evidence towards expenditure of Rs. 7,50,000/-, we are not inclined to allow the claim of the assessee. Deductibility of litigation expenditure from sale proceeds of the land - The payment made by the assessee is eligible for deduction from the sale consideration of land. Further, as we have found that, there is a litigation with regard to the impugned land, incurring of litigation expenses cannot be denied. However, as the assessee could not produce any evidence in support of the expenses, we thought it appropriate to allow Rs. 50,000/- on account of litigation expenses. Exemption u/s.54F - amount deposited in CGAS after the due date specified u/s.139(1) but before the date of filing of the ROI u/s.139(4) - There is no dispute about the fact that the amount in the present case has not been deposited within the due date specified u/s.139(1) of the Act. Hence, to decide whether the amount deposited in CGAS by the assessee after the due date, will be eligible for exemption u/s.54F of the Act or not, it depends on the investment made by the assessee in subsequent periods. The same is required to be verified from the records of the assessee along with the supporting evidences. Therefore, we remand the issue to the file of the AO to verify, whether the investment made by the assessee out of the amount deposited in CGAS, is within the time specified u/s.54F of the Act or not. We also direct the Ld. AO to allow the exemption u/s.54F of the Act to the assessee if the amount invested in CGAS is utilised by the assessee for the purpose of purchase / construction of residential house property within the time allowed u/s.54F of the Act. Accordingly, the ground is allowed for statistical purposes. Claim of deduction u/s.54F as Assessee owns more than one residential house, on the date of transfer of the original asset - There is no dispute on the facts between both the parties that the exemption u/s.54F of the Act will not be available to the assessee, if the assessee was owner of more than one residential house property as on the date of transfer of original assets. There is also no quarrel that the assessee has shown income from two house properties. Now it is a matter of verification, whether both the properties are residential or not. Therefore, we remand this issue to the file of Ld. AO to verify the nature of both the properties. ISSUES PRESENTED AND CONSIDERED 1. Whether the fair market value determined by the Departmental Valuation Officer (DVO) can substitute the actual sale consideration where the property sold was subject to litigation and the assessee received a lower actual sale consideration. 2. Whether claimed cost of improvements (aggregate Rs. 7,50,000) is allowable in computing long term capital gains where the assessee failed to produce bills/vouchers for expenditures incurred in earlier years. 3. Whether payments made to litigants (Rs. 11,00,000 under MOU) and litigation expenses (claimed Rs. 1,00,000) are deductible from sale consideration for computation of capital gains. 4. Whether deposit in Capital Gain Account Scheme (CGAS) made after the due date specified under section 139(1) but before filing return under section 139(4) qualifies for exemption under section 54F when the deposited amount is subsequently applied to purchase/construct residential house within the time prescribed by section 54F. 5. Whether exemption under section 54F is barred where the assessee owned more than one residential house on the date of transfer of the original asset (issue raised in Revenue's cross-objection). 6. Whether the delay in filing the Revenue's cross-objection (254 days) should be condoned. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Substitution of Sale Consideration (DVO value v. actual consideration where property under litigation) Legal framework: For computation of long term capital gains, sale consideration is the amount actually received/realised unless there is reason to treat a different value as the fair market value; DVO/stamp valuation may be used where sale consideration is suspected to be understated. Precedent Treatment: The Tribunal relied on a coordinate-bench decision which accepted the actual amount realised as sale consideration where the property was under litigation; that precedent was followed. Interpretation and reasoning: The record established that the sold land was subject to litigation. Documentary evidence (orders relating to litigation and MOU/purchase documents) showed limitations on realization. There was no evidence of 'on money' or receipt of additional undisclosed consideration. In these circumstances, the Tribunal held that the actual amount realized should be treated as sale consideration rather than DVO valuation (which was higher). Ratio vs. Obiter: Ratio - where a property is under litigation and the assessee can demonstrate that the lower sum is the amount actually received (with no evidence of undisclosed receipts), the actual consideration prevails over DVO valuation for calculating capital gains. Conclusion: DVO value substituted by actual sale consideration of Rs. 45,00,000; AO directed to adopt actual consideration for LTCG computation. Issue 2 - Allowability of Cost of Improvements (lack of supporting evidence) Legal framework: Expenditure claimed as cost of improvement must be substantiated by relevant evidence (bills, vouchers) to be allowable in capital gains computation. Precedent Treatment: Obligation rests on assessee to substantiate claims; established principle followed without distinguishing precedent. Interpretation and reasoning: Claim comprised payments across multiple prior years, but the assessee failed to produce any bills/vouchers or corroborative documents before either Revenue authorities or Tribunal. The Tribunal emphasised the statutory and evidentiary requirement that claims must be supported; mere assertion without documentary proof is insufficient. Ratio vs. Obiter: Ratio - in absence of supporting documentation, claims for cost of improvements cannot be allowed under the Act. Conclusion: Claim for Rs. 7,50,000 disallowed. Issue 3 - Payments to Litigants and Litigation Expenses Legal framework: Outgoings genuinely and wholly incurred in relation to transfer may be deductible from sale consideration for capital gains computation if substantiated and shown to be connected to the transfer. Precedent Treatment: The Tribunal applied ordinary principles of admissibility of expenses and accepted documentary proof (MOU and evidence of payment) as sufficient to establish deductibility. Interpretation and reasoning: The record contained MOU evidencing obligation to pay Rs. 11,00,000 to litigants and documents showing payment. Litigation in respect of the property was otherwise established by court orders on record. For litigation expenses claimed at Rs. 1,00,000, no specific vouchers were produced; considering the fact of litigation, a modest allowance was appropriate. The Tribunal exercised evaluative judgment: full Rs. 11,00,000 allowed; litigation expenses partly allowed at Rs. 50,000 due to lack of detailed evidence. Ratio vs. Obiter: Ratio - payments to litigants proved by MOU and payment records are deductible from sale consideration; unsubstantiated litigation expenses may be allowed in a moderated amount where litigation is established but vouchers are absent. Conclusion: Deduction of Rs. 11,50,000 (Rs. 11,00,000 + Rs. 50,000) allowed; balance of litigation expense claim disallowed. Issue 4 - Eligibility for exemption under section 54F where deposit in CGAS is after section 139(1) due date Legal framework: Section 54F permits exemption where capital gains are applied to purchase/construct residential house within prescribed periods; deposits in CGAS made on or before the due date under section 139(1) qualify for the exemption; jurisprudence has recognised that amounts deposited after the section 139(1) due date but before filing return under section 139(4) may qualify only if the deposited amounts are subsequently invested in purchase/construction within the time limits of section 54F. Precedent Treatment: Tribunal and court decisions cited by the assessee support the proposition that post-due-date CGAS deposits may be treated as qualifying for section 54F if subsequently utilised for purchase/construction within the statutory timeframe; those authorities were considered and distinguished to the extent factual verification of utilisation is required. Interpretation and reasoning: The Tribunal identified the legal test: whether the deposited amount in CGAS (made after the section 139(1) due date) was ultimately applied for purchase or construction of a residential house within the time stipulated by section 54F. The Tribunal found the deposit was made after the section 139(1) due date; therefore entitlement depends on subsequent utilisation facts. As the record before the Tribunal did not establish utilisation within the prescribed period, the matter required factual verification by the Assessing Officer with supporting evidence. Ratio vs. Obiter: Ratio - post-due-date CGAS deposit does not automatically disqualify section 54F exemption; entitlement depends on verified subsequent investment in purchase/construction within section 54F timelines. Remand for factual verification is justified. Conclusion: Matter remanded to AO to verify whether amounts deposited in CGAS were utilised for purchase/construction within the time allowed under section 54F; if so, exemption to be allowed. Ground allowed for statistical purposes (partial allowance/remand). Issue 5 - Revenue's contention that assessee owned more than one residential house on date of transfer (cross-objection) Legal framework: Section 54F denies exemption where, on the date of transfer of original asset, the assessee owns more than one residential house (subject to statutory exceptions); factual determination of the nature (residential v. commercial) of properties on that date is determinative. Precedent Treatment: Standard factual enquiry remitted to AO; no novel legal principle was laid down by the Tribunal. Interpretation and reasoning: ITR indicated income from two house properties; dispute concerned the characterization of one property (claim by assessee that it is commercial). Because entitlement turns on the factual nature of both properties on the date of transfer, Tribunal remanded to AO to verify nature and ownership status; if both are residential and owned on that date, section 54F exemption must be denied; otherwise, allowance follows. Ratio vs. Obiter: Ratio - factual verification as to the nature of properties is prerequisite to deciding section 54F entitlement where multiple properties appear on record. Conclusion: Cross-objection allowed for statistical purposes and remitted to AO for verification; AO to deny or allow section 54F accordingly. Issue 6 - Condonation of delay in filing Revenue's cross-objection Legal framework: Delay in filing appeals/COs may be condoned if reasonable cause is shown; Tribunal may exercise discretion after considering reasons. Precedent Treatment: The Tribunal applied the established test of 'reasonable cause' for condonation of delay. Interpretation and reasoning: Reasons for delay included transfer of AO, nomination for election duty, time-barred assessments and related administrative matters. Tribunal found these constituted reasonable cause and exercised discretion to condone delay. Ratio vs. Obiter: Ratio - administrative disruptions and official transfers/nominations can constitute reasonable cause for condonation where they meaningfully explain filing delay. Conclusion: Delay (254 days) in filing Revenue's cross-objection condoned; CO admitted for adjudication.