KHIMJI DEVA DAKA,VASHI NAVI MUMBAI vs. ACIT 28(2), MUMBAI, VASHI NAVI MUMBAI

First of all, we have decided to adjudicate the grounds raised by the assessee with regard to the merits of the additions made by the AO and upheld by the Ld. CIT(A). In this regard, we take up Ground Nos. 3 and 4. Both these grounds, raised by the assessee, are inter-related and inter- connected and relates to challenging the order of the Ld. CIT(A) in computing the income from transfer of galas as short-term capital gain and denying the cost of acquisition incurred by the assessee. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we noticed that the assessee filed its return of income for the year under consideration declaring a total income of Rs. 79,65,322/-. The return filed by the assessee was processed under Section 143(1) of the Act, and thereafter the case was selected for limited scrutiny under CASS. In that regard, the necessary notices were issued. From the record, we found that during the year under consideration, the assessee had shown long-term capital gain with regard to the sale of Gala Nos. T/40 to T/46, APMC Market, Vashi, amounting to Rs. 60,72,917/-. The working of the long-term capital gain claimed by the assessee is as under:

However, while adjudicating this issue, the AO was of the view that these galas were purchased by the assessee vide agreement dated 21.08.2012 and were sold on 30.11.2013. Therefore, the AO considered the gain arising out of the sale as short-term capital gain. However, after hearing the counsels at length and upon perusal of the documents placed on record, we found that these seven galas, bearing Gala Nos. T/40 to T/46, APMC Market, were purchased by the assessee by making part payment through receipts dated 09.08.2007, which are placed at Paper Book Pages 62 to 78. All these receipts show that the part payment was made by the assessee through account payee cheques, which were credited into the account of the seller at the relevant point of time.

Therefore, by making part payment towards the purchase of these galas in the year 2007 itself, rights in the said galas were created in favour of the assessee. Moreover, we also noticed that a Power of Attorney was executed by the seller in favour of the assessee on 07.11.2007, a copy of which is placed at Paper Book Pages 34 to 61. The contents of the said Power of Attorney also show that the assessee had acquired dominant control over all the galas, including the power to sell them, through the said Power of Attorney and the receipts executed by the seller while receiving the part payment on 09.08.2007.

However, the agreement to sell/purchase deed was subsequently registered by the assessee on 21.08.2012/27.08.2012, a copy of which is placed at Paper Book Page 79. In our view, since the part payment had already been made by the assessee on 09.08.2007, which was acknowledged by the seller by executing the receipts placed at Paper Book Pages 62 to 78, and apart from this, the seller also executed the Power of Attorney in favour of the assessee on 07.11.2007, granting dominant rights in the property, including the power to sell the property, it clearly shows that the rights created in favour of the assessee in the year 2007 merely got crystallized in the year 2012 upon execution and registration of the purchase deed dated 21/27.08.2012. Thus, the property came into the possession of and was effectively purchased by the assessee on 09.08.2007 itself.

Since it is an admitted fact that the assessee sold all these galas bearing the aforesaid numbers vide sale deed dated 30.11.2013 for a consideration of Rs. 1,78,88,200/-, the AO wrongly concluded that the gain arising from the sale of these galas was short-term capital gain. From the date of acquisition of these galas to the date of sale, there is a gap of approximately six years. Therefore, the gain arising therefrom cannot be termed as short-term capital gain, rather, it is liable to be assessed as long- term capital gain. Accordingly, we set aside the order of the Ld. CIT(A), wherein the Ld. CIT(A) upheld the order of the AO in treating the gain arising from the sale of these galas as short-term capital gain, in view of our detailed findings and discussions made hereinabove.

Even otherwise, the assessee has placed on record a copy of the ledger account at Paper Book Page 111, wherein the assessee has reflected the entire investment made after the purchase of these galas and the expenses incurred, such as APMC charges, property tax, stamp duty, registration charges, etc., including the cost of the galas, aggregating to Rs. 67,86,444/- . Therefore, the assessee is entitled to the benefit of indexation from the year 2007 instead of the year 2012, as held by the AO.

Accordingly, these grounds raised by the assessee stand allowed.

Ground Nos. 5(a) and 5(b) raised by the assessee are inter-related and inter-connected and relates to challenging the order of the Ld. CIT(A) in upholding the order of the AO invoking the provisions of Section 50C of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

In this regard, we have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities.

From the records, we noticed that the purchase value of the galas was Rs. 67,86,444/-, including the expenses incurred by the assessee towards APMC charges, property tax, stamp duty, and registration charges, which have been duly reflected in the ledger account placed at Paper Book Page No. 111, as held by us hereinabove. Thereafter, the indexed cost of acquisition has been computed, and accordingly, the cost of these galas after indexation comes to Rs. 1,15,65,283/-. Admittedly, these galas were sold through a sale deed dated 30.11.2013 for a consideration of Rs. 1,78,88,200/. In this way, the capital gain, after deducting the indexed cost of acquisition along with the brokerage paid by the assessee, comes to Rs. 60,72,917/-, as depicted below:

However, the market value as per the Stamp Valuation Authority was Rs. 2,65,29,000/-. During the course of the assessment proceedings, a DVO report was called for, and the DVO submitted its report dated 15.05.2017. According to the said report, which is available at Paper Book Pages 179 to 185, the value of the said galas has been assessed at Rs. 1,81,47,000/-. Thus, after taking the valuation report into consideration, the difference between the sale consideration and the value assessed by the DVO is less than 5%.

Therefore, the provisions of Section 50C of the Act cannot be invoked, as the amendment to Section 50C by the Finance Act, 2018, providing that where the stamp duty valuation exceeds the sale consideration by not more than the prescribed tolerance limit (subsequently enhanced to 10% with effect from 1st April, 2021), is curative in nature and must be held to relate back to the date of insertion of the statutory provisions of Section 50C. The said principle admittedly applies with equal force to Section 56(2)(vii) of the Act. In this regard, reliance has been placed on the decision of the Coordinate Bench of the Mumbai Tribunal in the case of Maria Fernandes Cheryl and the operative portion of the same is reproduced herein below:

These submissions, however, do not impress us. As noted by the Central Board of Direct Taxes 1 circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that "It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location", Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an "unintended consequence" of Section 50(1) that even in such bonafide situations, this provision, which is inherently in the nature of an anti-avoidance provision, is invoked. Once this situation is sought to be addressed, as is the settled legal position as we will see a little later in our analysis, this situation needs to be addressed in entirety for the entire period in which such legal provisions had effect, and not for a specific time period only. There is no good reason for holding the curative amendment to be only as prospective in effect. Dealing with a somewhat materially identical situation in the case of Rajeev Kumar Agarwal v. ACIT ((2014) 45 taxmnann.com 555 (Agra)) wherein a coordinate bench was dealing with the question whether insertion of a proviso to Section 40(a)(i) to cure intended consequence could have retrospective effect, even though not specifically provided for, and speaking through one of us (Le. the Vice President), the coordinate bench had, after a detailed analysis of the legal position, observed that. "Now that the legislature has been compassionate enough to cure these shortcomings provision, and thus obviate the unintended hardships, such an amendment in law, in view of the wel settled legal position to the effect that a Curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second provise must be given retrospective effect from the point of time when the related legal provision was introduced" Referring to this decision, and extensively reproducing from the same, including the portion extracted above, Hon'ble Delhi High Court, in the case of CIT v. Ansal Landmark Township Pet Lad [(2015) 61 taxmann.com 45 (Del)), has approved this approach and observed that "(/)he Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance" The same was the path followed by another bench of this Tribunal in the case of Dharmashibhai Sonani v. ACIT [(2016) 161 ITD 627 (Ahd)) which has been approved by Hon'ble Madras High Court in the judgment reported as CIT v. Vummudi Amarendran [(2020) 429 ITR 97 (Mad)). The question that we must take a call on, therefore, is as to what is the rationale behind the insertion of the third provise to Section 50C(1), and if that rationale is to provide a rainedy for unintended consequences of the main provision, we must hold that the third proviso to Section 50C(1) comes into force with effect from the same date on which the main provision, unintended provisions of which are sought to be mullified, itself was brought into effect. Let us understand what the nature of the provisions of Section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle rate, this stamp duty valuation report is assumed as sale consideration for the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by understating the sale consideration amount in a sale deed. As noted by the CBDT, while explaining the justification for insertion of Section 50 C, "(r)he Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property". Section 50C, thus, on a conceptual note, is a provision to address capital gains tax evasion on account of understatement of the consideration. Of course, the law provides, under section 500(2), that wherever an assessee claims that the actual market rate is less than the stamp duty valuation, he can have the matter referred to a Departmental Valuation Officer for the ascertainment of the market value, but then it is a cumbersome procedure and, at the end of the day, every valuation, whether by the departmental valuation officer or under the stamp duty valuation notification, is an estimate, and there can always be bonafide variations, though to a certain limited extent, in these estimations. Unless, therefore, some kind of a tolerance band or a safe harbour provision, in respect of such bonafide variations, is implicit in the scheme of law, the assessees are bound to face undue hardships. The mechanism under section 50C proceeds on the assumption that when the sale consideration is less than the stamp duty valuation, the sale consideration is to be treated as understated. This assumption is, however, laid to rest when the variations between the stated consideration and the stamp duty valuation figure are treated as explained. The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between the sale consideration of immovable property as disclosed by the assessee vis-a-vis the stamp duty valuation for the said immovable property. Obviously, therefore, disturbing the actual sale consideration, for the purpose of computing capital gains, and adopting a notional figure, for that purpose, will not be justified in such cases. On a conceptual note, an estimation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis-a-vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a 2026 small variation between the stated sale consideration of a property and stamp duty valuation of the A same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking an anti-avoidance provision Similarly, so far as enhancement of tolerance band to 10% by the Finance Act 2020, is is concerned, as noted in the CBDT circular itself, it was done in response to the representations of the stakeholders for enhancement in the tolerance band. Once the Government acknowledged this genuine hardship to the taxpayer and addressed the issue by a suitable amendment in law, the next question was what should be a fair tolerance band for variations in these values. As a responsive Government, which is truly the hallmark of the present Govemment, even though the initial tolerance band level was taken at 5%, in response to the representations by the stakeholders, this tolerance band, or safe harbour provision, was increased to 10% There is no particular reason to justify any particular time frame for implementing this enhancement of tolerance band or safe harbour provision. The reasons assigned by the CBDT, e, "the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location," was as much valid in 2003 as it is in 2021. There is no variation in the material facts in this respect in 2021 vis-a-vis the material facts in 2003, What holds good in 2021 was also good in 2003. If variations up to 10% need to be tolerated and need not be probed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well

Therefore, considering the totality of the facts and circumstances of the case and the legal proposition discussed above, and since the variation between the sale consideration and the value determined by the DVO is less than 10%, in our view, the same deserves to be ignored and no adjustment is called for under Section 50C. Accordingly, we direct the AO to delete the said addition.

Consequently, these grounds raised by the assessee stand allowed.

Since we have already allowed Ground Nos. 3 to 5 raised by the assessee in the present appeal and deleted the additions, therefore there is no necessity to adjudicate the remaining grounds raised by the assessee in the present appeal in view of our detailed discussion on Ground Nos. 3 to 5.

Consequently, the appeal filed by the assessee stands partly allowed.