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Facts
The assessee purchased an immovable property for Rs. 1,50,00,000/- against the government valuation of Rs. 2,88,38,000/-. The AO added the difference of Rs. 1,38,38,000/- to the assessee's income. Subsequently, after receiving the valuation report, the AO reduced the addition to Rs. 10,51,000/-.
Held
The Tribunal held that the amendment to Section 50C, increasing the tolerance band for variations between sale consideration and stamp duty valuation to 10%, is curative and retrospective. Since the difference in this case was 6.55%, Section 50C is not applicable.
Key Issues
Whether the amendment to Section 50C enhancing the tolerance band to 10% is retrospective and applicable to the current assessment year, thus negating the addition made by the AO.
Sections Cited
250, 154, 56(2)(vii)(b), 45, 2(47), 50C
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Present for: Assessee by : Ms. Niyati Hakani, Ld. A.R. & Mr. Rahul Kahani, Ld. A.R. (Virtual) Revenue by : Shri Kiran Unavekar, Ld. Sr. D.R. Date of Hearing : 16 . 01 .2025 Date of Pronouncement : 16 . 01 .2025 O R D E R Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 23.09.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2015-16.
Shri Shamoon Ahmed Mulla 2. In the instant case, the Assessee being engaged in the business of trading in almond shells had declared his total income at Rs.3,77,350/- by filing his return of income for the AY under consideration on dated 31.03.2017, which was selected for scrutiny through CASS and accordingly statutory notices were issued to the Assessee and the Assessee was asked to submit various details including the computation of income, books of accounts and reason for receipts as per Form 26AS being more than that shown in ITR.
The Assessee in response submitted various relevant details, on verification of the same, the Assessing Officer (AO) observed that the Assessee had purchased an immovable property at Village- Juveli, Badlapur Gaon, Badlapur, Thaluka Amberntah, Thane for a total consideration of Rs.1,50,00,000/- as against the Government valuation of Rs.2,88,38,000/-. The agreement for sale was entered into on 30.07.2012, however, the sale deed was entered into on 05.12.2014.
The AO accordingly, show caused the Assessee “as to why the difference of Rs.1,38,38,000/- (Rs.2,88,38,000 Government valuation – Rs.1,50,00,000/- consideration shown by the Assessee) should not be added to the total income of the Assessee as income from other sources”.
The Assessee, in response to the same, vide letter dated 27.12.2017, claimed that the said property is agricultural land with encroachment by workers and with less buyers for the said land, hence there was a reason to purchase the property far below to the Government valuation. The Assessee also asked for the appointment of the Government Valuation Officer for getting proper valuation of the property.
The AO accepted the request of the Assessee and vide letter dated 20.12.2017 referred the valuation of property under consideration to the Government Valuation Officer for appropriate report. Though due to change of incumbent, reminder letter was also issued by the subsequent AO to the DVO on 31.05.2018 for calling of report regarding valuation of the said property, however, of no avail. Thus, the AO again show caused the Assessee “as to why the difference of valuation at Rs.1,38,38,000/- should not be added to the total income of the Assessee u/s 56(2)(vii)(b) of the Act”. The Assessee reiterated his claim as made earlier as mentioned above.
The AO ultimately by considering the submissions of the Assessee and on the material available on record and the relevant provisions of law, held that the property was transferred in the year 2014 and the provisions of section 56(2)(vii)(b) of the Act are squarely applicable as per sections 45 and 2(47) of the Act. Conveyance of the property and the possession of the same is very important and it is immaterial when two parties agreed to the sale/purchase of the property. It is also immaterial that the major part of the payment was made before the conveyance. The AO ultimately made the addition of Rs.1,38,38,000/- in the total income of the Assessee,
8. The AO subsequently on receiving the valuation report dated 05.10.2018 on dated 16.10.2018, passed the rectification order dated 14.11.2018 u/s 154 of the Act, whereby the AO accepted the FMV of the said property as determined by the Government Valuation Officer to the tune of Rs.1,60,51,000/- and consequently reduced the addition of Rs.1,38,38,000/- to Rs.10,51,000/- Shri Shamoon Ahmed Mulla (Rs.1,60,51,000/- valuation as determined by the Government valuation officer- Rs,1,50,00,000/- sale consideration shown by the Assessee) and added the same in the income of the Assessee.
9. The Assessee, being aggrieved, challenged the said addition made by the AO vide order dated 14.11.2018 u/s 154 of the Act by filling 1st appeal before the Ld. Commissioner, however, could not get succeeded, as the Ld. Commissioner vide impugned order dated 23.09.2024 dismissed the appeal of the Assessee affirming the said addition.
The Assessee, being aggrieved, is in appeal before this Tribunal. Admittedly, on the basis of report of Government Valuation Officer, the addition as restricted to the tune of Rs.10,51,000/- by the AO and affirmed by the Ld. Commissioner, is lower than 10% of the amount of consideration of Rs.1,50,00,000/- as paid/shown by the Assessee. And therefore question emerge whether such addition made on differential amount is sustainable or liable to be deleted.
We observe that the Hon’ble Co-ordinate Bench of the Tribunal in the case of Maria Fernandes Cheryl vs. ITO (International Taxation), Mumbai (2021) 123 taxmann.com 252 (Mumbai – Trib.) also dealt with identical issue and by taking into consideration the provisions of section 50C of the Act and the amendment made vide Finance Act, 2018, “whereby the limit of differential amount of 5% between the valuation determined by the valuation officer and the valuation offered by the Assessee, has been increased to 10%”, has held that the enhancing tolerance band for variations between stated sale consideration vis-à-vis stamp duty valuation from 5% to 10% are curative in nature. For ready
“7. These submissions, however, do not impress us. As noted by the Central Board of Direct Taxes 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 Assessment year: 2011-12 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 Vs 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 (i.e. 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 of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well 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 proviso 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 Vs Ansal Landmark Township Pvt Ltd [(2015) 61 taxmann.com 45 (Del)], has approved this approach and observed that "(t)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 Shri Shamoon Ahmed Mulla 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 Vs ACIT [(2016) 161 ITD 627 (Ahd)] which has been approved by Hon'ble Madras High Court in the judgment reported as CIT Vs 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 proviso to Section 50C(1), and if that rationale is to provide a remedy 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 nullified, 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 a 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, "(t)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 50C(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 Assessment year: 2011-12 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 Shri Shamoon Ahmed Mulla 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-à-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-à-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 small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful 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 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 Government, 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 Assessment year: 2011-12 of tolerance band or safe harbour provision. The reasons assigned by the CBDT, i.e., "the variation between stamp duty value and actual Shri Shamoon Ahmed Mulla 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-à-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. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis-à- vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be held to relate back to the date when the related statutory provision of Section 50C, i.e. 1st April 2003. In plain words, what is means is that even if the valuation of a property, for the purpose of stamp duty valuation, is 10% more than the stated sale consideration, the stated sale consideration will be accepted at the face value and the anti-avoidance provisions under section 50C will not be invoked.
Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of Section 50 C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, anti- avoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to be retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that "relief is being provided as a special case and Shri Shamoon Ahmed Mulla this decision may not be considered as a precedent". Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of "equality before the law," which is one of our most cherished constitutional values. Our judicial functioning has to be even-handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea of the assessee.
We have noted that as against the stated consideration of Rs 75,00,000, the stamp duty valuation of the property is Rs 79,91,500. The difference is just Rs 4,91,500, which is about 6.55% of the stated sale consideration. As the difference between the stated consideration vis-à-vis the stamp duty valuation is admittedly less than 10% of the stated consideration in this case, and in the light of the above discussions, we are of the considered view that Section 50C will have no application in the matter. The enhancement in capital gain Assessment year: 2011- 12 computation, as made by the Assessing Officer, thus stands disapproved. The assessee gets the relief accordingly.”
Admittedly in this case, the differential amount between the valuations as determined by the Government Valuation Officer and consideration amount paid/declared by the Assessee is not more than 10% of the value/consideration declared/paid by the Assessee and therefore this Court by respectfully following the aforesaid decision of the Tribunal, is inclined to delete the addition under consideration. Thus, the addition Rs.10,51,000/- is accordingly deleted.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 16.01.2025.