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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: DR. B. R. R. KUMAR & SH. YOGESH KUMAR US
PER YOGESH KUMAR US, JM
1. This appeal is filed by the assessee for assessment year 2015-16 against the order of the ld. Commissioner of Income Tax (Appeals)-XXV, New Delhi [hereinafter referred to as CIT (Appeals)] dated 13.11.2019.
The assessee has raised the following substantive grounds of appeal:-
“1. The action of CIT (A) in upholding the addition of Rs.32,19,000/- made under section 143(3) by adopting the circle rate of sale consideration prevailing on the date of registry instead of date of agreement to sell is unjust, illegal, arbitrary, illusory and deserves to be deleted.
2. The action of lower authorities in making an addition of Rs.32,19,000/- by adopting a wrong and incorrect circle rate is unjust, illegal, arbitrary, unwarranted and deserves to be deleted.
3. The action of lower authorities in taxing the addition of Rs.32,19,000/- under the head business income and not under the head capital gains is unjust, illegal, arbitrary, illusory and deserves to be correctly taxed.
4. That the action of lower authorities in not setting off the loss of Rs.24,99,705/- claimed as long term loss against the addition of Rs.32,19,000/- unjust, illegal, arbitrary, illusory and deserves to be set off.”
Brief facts of the case are that the Assessee being the owner of Flat No.504; 5th Floor, Parvanath Prestige Goutham, Budhnagar U.P., entered into an agreement to sell of immovable property on 17-01-2012 and subsequently executed the Sale Deed and handed over the possession of the property to the purchaser in the month of May 2014. The Assessee has received the entire sale consideration of Rs. 35,30,000/- in following manners:-
17th January 2012 Rs.5,50,000/- 2. 8th February 2012 Rs.4,00,000/- 3. 21st March 2012 Rs.4,00,000/- 4. 29th March 2012 Rs.4,00,000/- 5. 10th May 2012 Rs. 10,00,000/- 6. 12th June 2012 Rs.4,30,000/- 7. 20th July 2012 Rs.50,000/- 8. 27th May 2014 Rs.3.00.000/- Total Rs.35.30.000/-
As on the date of agreement to sell, the circle rate prevailing (in the 2012) was Rs. 30,000/- per sq. mts. As on the date of execution of the Sale Deed and handing over of the possession of the immovable property to the purchaser, the prevailing circle rate in that year (2014) was Rs. 55,000/- per sq. Mts.
The assessment proceeding have been initiated against the assessee and an assessment order came to be passed under section 143(3) of the Act on 28.12.2017, wherein the Ld. AO substituted selling price of Rs. 35,30,000/- with Rs. 67,49,000/- based on circle rate prevailing in the year of the actual sale and handing over of the possession ie: 2014, which is at Rs. 55,000/- per sq. Mts.. Based on the said calculation, an addition of Rs. 32,19,000/- was made as business income, rejecting the indexation claimed by the assessee. As against the assessment order dated 28.12.2017, the assessee has preferred an appeal before the Ld. CIT(A) and the Ld. CIT(A) vide order dated 13.11.2019, dismissed the appeal filed by the assessee by confirming the addition made by the AO.
Aggrieved by the order of the Ld. CIT(A) dated 13.11.2019, the present appeal has been preferred by the assessee on the grounds mentioned above. The assessee has also filed an application under section 154 of the Act before the Ld. C1T(A) and a rectification order dated 28.02.2020 has been passed allowing the indexation and thus addition of Rs. 32,19,000/- as business income was reduced to Rs. 7,19,295/- as long term capital gain, which remained as the subject matter of the present Appeal.
Ld. Counsel for the assessee submitted that the assessee had entered into an agreement to sell of residential Flat on 17th January 2012 for a sale consideration of Rs. 35,30,000/- which is as per the circle rate prevailing on the said date. Further submitted that between the period 17.01.2012 to 20.07.2012, the assessee has received a total sum of Rs. 32,30,000/-. Out of the said amount admittedly the assessee has received a sum of Rs. 5,50,000/- by way of RTGS on 17/01/2012 through Punjab National Bank and only a sum of Rs. 3,00,000/- has been received on 27.05.2014 from the purchaser, therefore submitted that for the purpose of computing the full value consideration, the authorities are bound to consider the value adopted or assessable by the stamp valuation authority as on the date of the agreement i.e. the circle rate prevailing on 17.01.2012 i.e. Rs. 30,000/- per sq. ft. and not the circle value prevailing as on the date of registration of the sale deed and by relying on the Judgment of the jurisdictional High Court, submitted that the proviso to section 50C(1) of the Act is retrospective in nature and the benefit of the same to be extended to the assessee.
Per contra, the Ld. DR submitted that the assessee has not furnished the official circle rate as on 17.01.2012 before the authorities and as on the date of passing the order by the lower authorities, the Law as to whether the proviso to Section 50C(1) of the Act is retrospective or not was not settled by the Hon'ble High Court or the Hon'ble Supreme Court. Further the Ld. DR has relied on the order of the lower authorities.
We have heard the parties, perused the material on record and gave our thoughtful consideration. It is not in dispute that assessee had entered into an agreement to sell of a residential Flat on 17.01.2012 for a total sale consideration of Rs. 35,30,000/- and received a total sum of Rs. 32,30,000/- as on 20.7.2012. The total value of the sale consideration was agreed and received in accordance with the circle rate prevailing on the date of the agreement and there are no materials on record with the department either to dispute or disprove the said facts. It is also not in dispute that as on date of sale deed the circle rate has been increased and as per the prevailing in the year 2014 the total sale consideration would be Rs. 67,49,000/-. Therefore the Ld. AO by adopting the circle rate prevailing in the year of sale deed, made addition of Rs. 32,19,000/-.
The first proviso to Section 50C(1) of the has been inserted by the Finance Act 2016 w.e.f. 01.04.2017 which mandates that the value adopted by the stamp valuation authority on the date of agreement may be taken for the purpose of computing the full value of the consideration of such transfer. Further, the second proviso mandates that the first proviso shall apply only in the case where the amounts of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed on or before the date of agreement of transfer.
In the present case, the assessee has received a sum of Rs. 5,50,000/- by way of RTGS on 17/01/2012 through Punjab National Bank on the date of execution of agreement to sell. Now the only remains for consideration as to whether for the year under consideration i.e: AY 15-16, the assessee is entitled to get benefit of the proviso to Section 50C(1) of the Act or not?
In implementation of Section 50C (1) of the Act the parties in many times faced undue hardship and difficulties when agreement to sell of a property was executed in earlier years and transferred took place in later years. During the intervening period price of the property has increased but the vendor is bound to perform agreement and can claim only the agreed consideration. To remove such difficulties, a proviso was insulted to apply provision in a manner that in such cases the fair market value as per stamp authorities as on the date of agreement can be considered as deemed consideration instead of fair market value adopted for assessment of stamp duty. The second proviso to Section 50C(1) of the Act also provided some safeguards and check and balances to ensure that only in genuine case of prior agreements.
The High Court of Madras in the case of Commissioner of Income tax, Chennai Vs. Sh. Vummudi Amarendran while dealing with the issue as to whether the proviso to section 50C(1) of the Act is prospective or retrospective in nature, held that the proviso to Section 50C (1) is having retrospective effect. The relevant portions are as under:-
“ 12. The Honble Supreme Court in Kolkata Export Company took note of the earlier decisions on the same issue in the case of Allied Motors Private Limited Vs. CIT [1997 (224) ITR 677 (SC)], Whirlpool of India Limited Vs. CIT, New Delhi [2000 (245) ITR 3], CIT Vs. Amrid Banaspati Company Limited [2002 (255) ITR 114] and CIT vs. Alom Enterprises [2009 (319) ITR 306] and held that the new proviso should be given retrospective effect from the insertion on the ground that the proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment. Thus by taking note of the above decisions, we have no hesitation to hold that the proviso to Section 50C(1) of the Act should be taken to be retrospective from the date when the proviso exists. The CIT(A) while allowing the assessee's appeal vide order dated 25.07.2019, took note of the submissions made by the assessee wherein they placed reliance on the decision of the Ahmadabad Bench of the Tribunal in the case of Dharamshi bhai Sonani Vs. ACIT [2016 75 taxmann.com 141 (Ahmedabad- Trib)]; order of the Delhi Bench of the ITAT in the case of Income Tax officer Vs. Modipon Limited [2015 (57) taxmann.com 360 (Delhi Tribunal)].
13. On a reading of the order passed by the CIT(A), it is interesting to note the report submitted by the Income Tax Simplification Committee set up in 2015, headed by a Former Judge of the High Court, Delhi.
14. Mr.T.Ravikumar, learned Senior Standing Counsel is right in a submission that this report is not binding or cannot be taken to have a statutory force. Nevertheless Simplification Committee was consisted of experts in the field of taxation and it would be worthwhile and interesting to note as to why they have considered the insertion of the proviso to Section 50(C) of the Act should be held to be retrospective; In the report there is an extract of Memorandum explaining provisions of Finance Bill 2016 which reads as follows: ''Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property. Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. When an immovable property is sold as a stock-in-trade.
It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property. These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.''
15. Taking note of the above Memorandum, it was pointed out that once a statutory amendment is being made to remove an undue hardship to the assessee or to remove an apparent incongruity, such an amendment has to be treated as effective from the date on which the law, containing such an undue hardship or incongruity, was introduced. The report also referred to the decision in the case of Alom Enterprises [2009 (319) ITR 306].
Reverting back to the decisions relied on by the Revenue, the decision in Bagri Impex (P.) Ltd., supra is distinguishable on facts as the assessee therein contended that the date of agreement should be taken as date on which the property was transferred by bringing the same within the ambit of Section 2(47) of the Act, which is not the case before us. In Ambattur Clothing Company Limited, the assessee contended that since the buyer wanted the Sale Deed to be released after registration, they had paid stamp duty as per the guideline value which is higher than the sale consideration agreed to be paid on the instruments. This explanation offered by the assessee was found to be factually incorrect and rejected and in the background of the said facts, the Honble Supreme Court observes that the Assessing Officer was justified in treating the value adopted by the stamp valuation authority as the deemed sale consideration, received/ accruing as a result of transfer.
On going through the facts of the case on hand, we find that no such observation was made by the Assessing Officer. The assessee's consistent case was that the sale consideration agreed to be paid to him by the purchaser was Rs.19 crores and Rs.6 crores was received as advance on the date of entering into the Agreement for Sale. However, the Assessing Officer disbelieved the same and applied the guideline value at Rs.27 crores on the date when the Sale Deed was executed and registered. Therefore, in our considered view, the decision in Ambattur Clothing Company Limited cannot be applied with the facts and circumstances of the case on hand.
Mr.T.Ravikumar, learned counsel is right in a submission that the observations made by the Tribunal qua the decision of the Honble Supreme Court in Vatika Township is incorrect. In fact we find that the Tribunal did not assign any reasons as to why the decision in Vatika Township do not apply to the facts of the case. In fact the decision in Vatika Town Ship should be referred for the purpose as to when a Statute can be treated to be clarificatory and when not?. The legal principle laid down therein ought to have been taken note of by the Tribunal. Therefore, the Tribunal may not be fully right in stating that the judgment in Vatika Township will not be applicable to the facts as the judgment needs to be looked into to consider the legal principle of retrospectively, retro activity or prospectivity. In any event, the ultimate conclusion arrived at by the Tribunal confirming the above order passed by the CIT(A) cannot be found faulted with.
For all the above reasons, the appeal filed by the Revenue is dismissed. The Substantial Questions of Law raised in these appeals are answered against the Revenue and in favour of the assessee. No costs.”
14. The jurisdictional High Court in the case of CIT vs, Khoobsurat Resorts (P) Ltd., while dealing with the similar issue held as under:-
“12. As far as the first question is concerned, this Court notices that with the amendment to the Act, and insertion of Section 50-C, a presumption can be drawn that property was sold for a higher value for determining capital gains, in case of the valuation indicated by the assessee to the stamp authorities, being higher than the consideration disclosed in the sale deed or conveyancing instrument. That provision reads as follows: "50C. Special provision for full value of consideration in certain cases, - (1) Where the consideration received o accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereinafter in this section referred to as the "stamp valuation authority") for the purpose of payment’ of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1), where - (a) the assessee claimed before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed by the stamp valuation authority under sub-section (i) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections , (3), (4), (5) and (6) of section 16A, clause (i) of sub- (2) section (1) and sub-sections (6) and (7) of section 23A sub- section (5) of section 24, section 34 A A. section 35 and section 37 of the Wealth-tax, Act, 1967 (27 of 1957) shall, with necessary modifications, apply in relation to such reference as they apply in “12. As far as the first question is concerned, this Court notices that with the amendment to the Act, and insertion of Section 50-C, a presumption can be drawn that property was sold for a higher value for determining capital gains, in case of the valuation indicated by the assessee to the stamp authorities, being higher than the consideration disclosed in the sale deed or conveyancing instrument. That provision reads as follows: "50C. Special provision for full value of consideration in certain cases, - Where the consideration received o accruing as a result of (3) the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereinafter in this section referred to as the "stamp valuation authority") for the purpose of payment’ of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
(4) Without prejudice to the provisions of sub-section (1), where - (a) the assessee claimed before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed by the stamp valuation authority under sub-section (i) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections
(3) , (3), (4), (5) and (6) of section 16A, clause (i) of sub- section (1) and sub-sections (6) and (7) of section 23A sub- section (5) of section 24, section 34 A A. section 35 and section 37 of the Wealth-tax, Act, 1967 (27 of 1957) shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under subsection (1) of section 16A of that Act. Explanation - For the purposes of this section "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). (4) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received on accruing as a result of the transfer."
It is apparent from the above provision that a presumption 13. that the sale price is higher can be drawn, if the circumstances spelt out in Section 50-C are fulfilled. This provision was challenged before the Madras High Court, in K.R. Palanisamy (supra). The Court repelled the challenge, but nevertheless held that:
"Sub-sections (2) and (3) of Section 50C provides further safeguard to the assessee, in the sense that if the assessee claims before the assessing officer that the value adopted by the stamp duty authorities exceeds the fair market value and the value so adopted or assessed for the purpose of stamp duty has not been disputed in any appeal or revision before any authority, the Assessing Officer could refer the valuation of the capital asset to the Departmental Valuation Officer. On such reference, if the value determined by the Valuation Officer is more than the value adopted or assessed by the stamp duty authority, the Assessing Officer shall adopt the market value as determined by the Stamp duty authority. Thus, a complete foolproof safeguard has been given to the assessee to establish before the authorities concerned the real value. Thus, what is stated in Section 50C as a real value cannot be regarded as a notional or artificial value and such real value is determinable only after hearing the assessee as per the statutory provisions stated supra. There is no indication either in the provisions of Section 50C of Income-tax Act or Section 47A of the Stamp Act or rules made there under about the adoption of the guideline value. Hence, the contention that the Section 50C is arbitrary and violative of Article 14 cannot be accepted." The fiction created by virtue of Section 50C applies only in respect of escaped income of a seller, for the determination of the true capital gain. Such a special provision has to be construed narrowly, having regard to the subject matter, and the extension of the fiction or presumption in respect of any matter not covered by it is unauthorized by the law. There is a body of judicial authority on this aspect (Garden Silk Mills Ltd v. Union of India AIR 2000 SC 33; Union of India v. Sampat Raj Dugar AIR 1992 SC 1417). The principle waspropounded pithily by the Supreme Court in Bengal Immunity Co. Ltd. u. State of Bihar AIR 1955 SC 661 as follows: "a legal fiction is to be limited to the purpose for which it was created and should not be extended beyond that legitimate field.."
This Court also recollects the decision in K.P. Varghese (supra) where it was held (in the context of amendment to Section 52 and insertion of Subsection (2) that: "...This condition of 15% or more difference is merely intended to be a safeguard against the undue hardship which would be occasioned to the assessee if the inflexible rule of thumb enacted in sub-section (2) were applied in marginal cases and it has nothing to do with the question of burden of proof for, the burden of establishing that there is an understatement of the consideration in respect of the transfer always rests on the revenue. The postulate underlying sub-section (2) is that the difference between one honest valuation and another may range up to 15% and that constitutes the class of marginal cases which are taken out of the purview of sub-section (2) in order to avoid hardship to the assessee. It is, therefore, clear that sub-section (2) cannot be invoked by the revenue unless there is understatement of the consideration in respect of the transfer and the burden of showing that there is such understatement is on the revenue. Once it is established by the revenue that the consideration for the transfer has been understated or, to put it differently, the consideration actually received by the assessee is more than what is declared or disclosed by him, sub-section (2) is immediately attracted, subject of course to the fulfilment of the condition of 15% or more difference, and the revenue is then not required to show what is the precise extent of the understatement or in other words, what is the consideration actually received by the assessee. That would in most cases be difficult, if not impossible, to show and hence subsection (2) relieves the revenue of all burden of proof regarding the extent of understatement or concealment and provides a statutory measure of the consideration received in respect of the transfer. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It merely provides a statutory best judgment assessment of the consideration actually received by the assessee and brings to tax capital gains on the footing that the fair market value of the capital asset represents the actual consideration received by the assessee as against the consideration untruly declared or disclosed by him. This approach in the construction of sub- section (2) falls in line with the scheme of the provisions relating to tax on capital gains. It may be noted that section 52
is not a charging section but is a computation section. It has to be read along with section 48 which provides the mode of computation and under which the starting point of computation is "the full value of the consideration received or accruing".
What in fact never accrued or was never received cannot be computed as capital gains under section 48. Therefore, sub- section (2) cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received by him and it must be confined to cases where the actual consideration received for the transfer is understated and since in such cases it is very difficult, if not impossible, to determine and prove the exact quantum of the suppressed consideration, sub-section (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the revenue to take the fair market value of the capital asset as the full value of the consideration received in respect of the transfer."
This Court is of the opinion that the express provision of Section 50- C enabling the revenue to treat the value declared by an assessee for payment of stamp duty, ipso facto, cannot be a legitimate ground for concluding that there was undervaluation, in the acquisition of immovable property. If Parliamentary intention was to enable such a finding, a provision akin to Section 50-C would have been included in the statute book, to assess income on the basis of a similar fiction in the case of the assessee who acquires such an asset. No doubt, the declaration of a higher cost for acquisition for stamp duty might be the starting point for an inquiry in that regard; that inquiry might extend to analyzing sale or transfer deeds executed in respect of similar or neighbouring properties, contemporaneously at the time of the transaction. Yet, the finding cannot start and conclude with the fact that such stamp duty value or basis is higher than the consideration mentioned in the deed. The compulsion for such higher value, is the mandate of the Stamp Act, and provisions which levy stamp duty at pre-determined or notified dates. In the present case, the revenue did not rely on any objective fact or circumstances; consequently, the Court holds that there is no infirmity in the approach of the lower authorities and the Tribunal, granting relief to the assessee. This question is accordingly answered in favour of the assessee, and against the revenue. ”
15. In the present case also the assessee had entered into an agreement to sell on 17.01.2012 and received the maximum sale consideration on or before 20.07.2012 itself and also found that the first payment received i.e. on 17/01/2012 was by way of RTGS, thereby the conditions in second proviso of Section 50C(1) has been complied by the assessee. Therefore we have no hesitation to hold that the benefit of the first proviso to Section 50C(1) of the Act has to be extended to the assessee and the rate prevailing as on the date of agreement should be considered for the purpose of computing the full value of consideration of such transfer. The Ld. CIT(A) has committed error by not extending the benefit of the proviso to Section 50C (1) of the Act and sustained the addition, which deserves to be deleted. Accordingly the grounds of appeal No. 1 to 3 of the assessee are allowed, the addition made by the A.O which has been sustained by the Ld. CIT(A) is hereby deleted.
16. In view of deleting the addition by allowing Ground No. 1 to 3, Ground No. 4 which is regarding setting off the loss claimed by the assessee against the addition has become in-fructuous. Accordingly, Ground No. 4 is dismissed.
17. In the result, the Appeal filed by the assessee is allowed.
Order pronounced in the Open Court on : 18.10.2022.