The Ahmedabad bench of the ITAT has held that Section 50C of the Income Tax Act, 1961 cannot be invoked in case of brokerage costs incurred on the sale consideration by the purchaser.
The assessee, an individual, sold immovable property located at Paldi, Ahmedabad for a consideration of Rs.51 Lakhs vide sale deed registration with registered authority on 19.10.2011. during the assessment proceedings, the Assessing Officer noted that the stamp duty of Rs.12,74,440/- was collected on the aforesaid sale.
It was also noted that the assessee has paid Rs. 17500000/- to land tress passer and Rs. 1100000/- as brokerage. The AO further redetermined the land cost to Rs. 25025650/- by invoking section 50C.
The Revenue contended that the assessee is chargeable to long term capital gains of Rs.2,09,13,053/- when computed with reference to jantri value adopted by the registering authority.
The Tribunal noted that the substitution of the actual sale price of the property by deemed sale consideration as per the valuation adopted by the registering authority under s.50C is in controversy.
The Tribunal noted that it is primarily the case of the assessee that the lower consideration received on sale of the property is attributable to the encumbrances, encroachment and defect in vacant possession of the property.
“The assessee has demonstrated the encroachment by illegal occupiers with reference to electricity bills in the name of the illegal occupiers and substantial payment of Rs.1,75,00,000/- in aggregate to various such occupiers by the purchaser in the subsequent years. This fact of payment towards encroachment has not been disputed by the Revenue. Therefore, there is no reason to exclude such an amount for the purposes of computation of capital gains. Thus, the purchase consideration together with costs towards obtaining vacant property should stand at Rs.2,26,00,000/-. The assessee, however, has failed to explain as to why the difference between deemed sale consideration of Rs.2,60,05,348/- adjusted purchase costs and Rs.2,26,00,000/- being rs.34,05,348/- should not be subjected to capital gain tax in the light of Section 50C of the Act. The brokerage costs incurred on sale consideration by the purchaser cannot be taken into account for the purposes of Section 50C of the Act. The CIT(A) has thus failed to take cognizance of applicability of Section 50C of the Act to the extent of Rs.34,05,348/-. Hence, the order of the CIT(A) requires to be modified to the aforesaid extent and the chargeable capital gain requires to be increased by Rs.34,05,348/-,” the Tribunal said.
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