Market value of property with encroachment would always be lower – ITAT

Market value of property with encroachment would always be lower – ITAT directs adoption of valuation u/s 50C prevalent on the date of agreement to sale 

ABCAUS Case Law Citation:
ABCAUS 2699 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
Dara Singh Vs. ITO Ward-1(2), Ghaziabad and ITA No.2213/Del/2018
Sanjeev Lal Vs. CIT 365 ITR 389.

The case of the appellant assessee was reopened and the assessment u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (‘the Act’) was framed. The Assessing Officer (AO) after considering the facts applied stamp valuation value in respect of property purchased and inter alia made addition u/s 50C of the Act.

Aggrieved against this, the assessee preferred an appeal before CIT(A), who dismissed the same.

Aggrieved, the assessee was in further appeal before the Tribunal.

The assessee submitted that the authorities below failed to appreciate the facts in right perspective. He submitted that in this case, there was an encroachment and the assessee had to enter into a registered agreement to sale and possession was given. He submitted that if at all, stamp valuation rates were to be applied on the date of execution of agreement to sale but not on the date when the sale deed was executed.

The Tribunal observed that the fact that the assessee had executed a registered agreement to sale and also a Power of Attorney. As per the agreement to sale, it was stated that the entire sale consideration has been received. Later, the sale deed was executed by the registered power of attorney of the assessee.

It was undisputed that the proceedings before the revenue authority in the court of Tahsildar was pending before the execution of sale deed which was evident from the order of the Tahsildar.

The Tribunal opined that the assessee could not have executed the sale deed without clearing encroachment. For clearing encroachment, assessee had approached the competent court, therefore, ratio laid down by the Hon’ble Supreme court would be applicable on the facts of the case.

The Tribunal emphasised that valuation for the purpose of stamp duties and adoption of the stamp valuation under the income tax laws would stand on different footing. Keeping in view of such factors in mind, revenue had brought an amendment w.e.f. A.Y. 2010-11 to fix such lacunas.

The Tribunal noted that the CIT(A) had discarded claim of the assessee on the ground that power of attorney and agreement to sale were executed subsequent to receipt of sale consideration by the assessee. He was of the opinion that these documents were prepared to justify the cash deposits.

The Tribunal opined that in normal circumstances, the suspicion of CIT(A) may be correct but in the instant case, where the property was not free from encumbrance, sale consideration of such property would always be lower than the market value.

The assessing officer was directed to adopt the valuation as prevalent on the date of agreement to sale and compute capital gain accordingly.

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