The assessee can be taxed only on the gain which is oozing out from the sale consideration, thus, no adverse inference can be drawn while invoking the provision of section 50C of the Act. – Bombay High Court

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Held : 

“The assessee can be taxed only on the gain which is oozing out from the sale consideration, thus, no adverse inference can be drawn while invoking the provision of section 50C of the Act. No evidence has been produced by the Revenue at any stage that the assessee actually received the value which was adopted by the stamp valuation authority.”

Facts of the Case : 

  1. The respondent assessee for Assessment Year 2005- 06 had filed the return of income declaring total income of Rs.1,63,86,880/.
  2. During scrutiny, it was noticed that the assessee had entered into a Memorandum of Understanding (“MOU” for short) with Mahavir Builders, agreeing to assign them development rights in respect of the immovable property for a consideration of Rs.2.51 crores (rounded off).
  3. This was done after obtaining necessary NOC under Section 269UL of the Income Tax Act, 1961 from the competent authority.
  4. This MOU however, could not be converted into a formal development agreement till September, 2004. At the time of execution of the agreement, the stamp duty authority assessed the value of the property for the purpose of stamp duty collection at Rs.4,63,73,500/.
  5. The Assessing Officer invoked Section 50C the Act and computed capital gain on the basis of stamp duty valuation of the property in question.

Basis of Decision :

  1. Firstly, there was a gap of nearly 3 years between the date of execution of the MOU and the execution of a formal development agreement. Obviously, the valuation made by the stamp authority was as on the date of the execution of the development agreement.
  2. Secondly and more importantly, the stamp valuation of Rs.4.63 crores was for a larger area of 7644 sq. meters where the assessee had assigned the development rights only with respect to 3872 sq. meters.

To download the complete order, PCIT vs. The Executor of Estate of Late Smt. Manjula A. Shah ITA 859 of 2016 Bombay High Court

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