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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S.R.RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the common order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 29.05.2024 and pertains to assessment year 2013-14.
The assessee has raised the following grounds of appeal:
1. The order of the CIT(A) NFAC dismissing the appeal and confirming the assessment order passed under sec.147 is contrary to law, erroneous and unsustainable on the facts of the case. JURISDICTION :
:-2-: ITA. No:1849/Chny/2024 2. The CIT(A) NFAC ought to have seen that there was clear absence of jurisdiction to issue notice under sec.148 and complete the assessment under sec.147 of the Act.
3. The CIT(A) NFAC failed to appreciate that the Proviso to Sec.147 applies to the case of assessee and hence the notice for reopening issued for the asst. year 2013-14 on 08.04.2021 is barred by limitation and hence the notice and all consequent proceedings are untenable in law.
4. The CIT(A) NFAC further failed to appreciate that the condition precedent for the reopening of assessment under sec.147 beyond the 4 year period as per the Proviso to the section, is that escapement of income should arise out of the failure of assessee to disclose fully and truly all material facts and in the absence of the same, the notice under Sec.148 for reopening the assessment is without jurisdiction.
The CIT(A) NFAC further failed to appreciate that TOLA and the SC decision in Ashish Agarwal case would not extend the time limit for issue of notice u/s.148, for which in the case of assessee, notice could not have been issued beyond 31.3.2018 as per Proviso to the unamended sec.147 of the Act in the absence of any fresh tangible material to reopen the assessment.
6. The CIT(A) NFAC further failed to appreciate that the notice for reopening was issued to apply sec.50C of the Act on the LTCG returned and accepted in the order u/s.143(3) dated 12.02.2016, which cannot be a reason for issuance of notice under sec.148 and would only amount to change of opinion. MERITS: 7. The CIT(A) NFAC erred in confirming the addition of Rs.82,69,145/- to the Long Term Capital Gains returned by assessee.
8. The CIT(A) NFAC failed to appreciate that sec. 50C value of the demised property was well within the tolerance limit of 10% as per the amended provisions of sec.50C and hence did not call for any adjustment to the returned value for capital gains purposes.
9. The CIT(A) NFAC further failed to appreciate that the amendment by Finance Act 2020 increasing the tolerance limit was a beneficial legislation intended to remove hardship :-3-: ITA. No:1849/Chny/2024 and applies to all pending proceedings and hence was not justified in confirming the addition treating it as prospective.
10. The CIT(A) NFAC ought to have seen that assessee having objected to the application of sec.50(1), the officer had to take recourse to sec.50C(2) and refer it for valuation and the failure to do so would make the valuation untenable in law.
11. The CIT(A) NFAC further failed to appreciate that it is settled law by a catena of decisions that the non-application of the statutory mandate u/s.50C(2) would render the unilateral valuation by the officer null and void. 12.The CIT(A) NFAC, in any event, ought to have seen that there is variation in the escapement of income in sec.148A(b) notice and that stated in the order u/ s.148A(d) and since there was variation in the amounts stated to have escaped assessment, the addition needs to be deleted and accept the LTCG returned by assessee.”
The assessee-HUF filed the return of income for the A.Y.2013-14 on 29.08.2013 admitting a taxable income of Rs.1,47,99,538/-. This entirely comprised of the Long Term Capital Gains from the sale of the property at Pallavaram, Chennai. The assessee had 1/6 share in the property. The total sale consideration was Rs.37.00 crores and the share of assessee was Rs.6,16,66,667/-. The LTCG was computed at Rs.1,47,99,538/- after reducing the commission paid of Rs.13.32 lacs and indexed cost of acquisition of Rs.68,97,143/- and claiming deduction u/s.54F of Rs.3,85,91,226/-. The assessment was completed u/s.143(3)
:-4-: ITA. No:1849/Chny/2024 of the Act by order dated 12.02.2016 by the DCIT, Non-Corp. Circle-3, Madurai determined the LTCG at Rs.1,54,65,540/-. The AO held the actual commission paid was Rs.6,66,000 and recomputed the LTCG.
Assessment u/s.147 :
The assessment was reopened by issue of notice u/s.148 dated 08.4.2021. The reason for reopening was that the value of the property as per sec.50C is Rs.39,50,97,000/- and is to be taken as the total sale consideration. In the notice under section 148A(b) dated 30/5/2022, the income escaping assessment was stated as Rs.43,66,729/-. On 13/6/2022, the assessee filed reply objecting to the notice. The AO passed the order u/s.148A(d) dated 29/7/2022, in which the total escaped income was increased to Rs.82,69,145/- and a notice u/s.148 on the same date was issued. The assessee filed the ROI in response to notice u/s.148 and furnished all the details called for. The Notice u/s.142(1) was issued on 13/01/2023 calling for various details with regard to the asset transferred along with sale deed copy, deductions claimed along with supporting documents, calculation of capital gains, copy of bank
:-5-: ITA. No:1849/Chny/2024 statement, etc. In response, the assessee filed replies dated 20/01/2023 and 30/01/2023. In these replies, it was stated that the Proviso to sec.50C enhancing the limit to 110% of sale consideration is retrospective and the amendment would apply to the case of assessee. A SCN was issued on 30/03/2023 asking assessee as to why provision of sec.50C should not be applied for calculation of capital gains and the difference of Rs.82,69,145/- should not be added to the total income. The assessee submitted a detailed reply dated 04/04/2023. Apart from other aspects, it was stated in the reply as follows:
(a) Actual total sale consideration Rs.37,00,00,000/- (b) 110% equals to Rs.40,70,00,000/- (c) As per proceedings u/s.148A(d), Applying sec.50C, consideration is Rs.39,50,97,000/- (d) It is clear that stamp duty value as mentioned (c) is less than 110% of the value as mentioned in (b) above The Assessment Unit in the impugned order held that "The contention of the assessee is not acceptable as the Finance Act 2020 has amended Proviso to section 50C from the A.Y.2021-22, so as to enhance the tolerance band from 5% to 10%. Therefore, the said proviso is not applicable in this :-6-: ITA. No:1849/Chny/2024 case." Thus, the Assessment Unit re-computed the capital gains and made the addition of Rs.82,69,145/-.
5. Proceedings of CIT(A), NFAC :
Before the CIT(A), NFAC, the assessee reiterated the submissions made before the AO and stated that the Mumbai Tribunal has decided the similar issue and prayed to delete the addition.
The ld.CIT(A) dismissed the appeal vide order dated 29/05/2024. On limitation, the NFAC held that TOLA had extended the time limits and hence the AO had passed the order within the period of limitation. On the contention of assessee that Proviso to Sec.50C was retrospective, the NFAC held that the Proviso has only prospective effect and no retrospective operation was allowed. With regard to the issue raised by assessee that as there was variance in the income escaping assessment between the notice u/s.148A(b) and the order passed u/s.148A(d), so the notice u/s.148 was invalid, this contention was rejected by NFAC by stating that the AO formed only a prima fade opinion and not conclusive one. With regard to the contention of assessee that the reopening
:-7-: ITA. No:1849/Chny/2024 is bad in law, since it was a change of opinion on the same set of facts that were available before the officer while framing the assessment u/s.143(3) of the Act, the ld.CIT(A) held that " .... It is seen that the same is on the basis of material available on record and could not be treated as a change of opinion since Assessing Authority had proceeded strictly in accordance with provisions of section 148 of the Act."
The ld.AR for the assessee argued on jurisdiction as per the Ground Nos.2 to 6 and stated that the Proviso to sec.147 applies to the case of assessee and the notice u/s.148 for reopening dated 08.04.2023 was barred by limitation. There is no failure on assessee to fully and truly disclose material facts for assessment. That TOLA would not extend the time limit where the 4 year period for reopening expires much earlier to the date on which TOLA came into force. In the assessment order, the AO in Page 2 of the order states that the value of property as per sec.50C is Rs.39,50,97,000/- which is to be taken as total sale consideration. This was the sole reason for issuing notice beyond the period of 4 years from the end of the relevant asst. year.
The ld.AR stated that the AO has not stated anything about the failure on the part of assessee to disclose fully and :-8-: ITA. No:1849/Chny/2024 truly material facts and there is also no mention of any tangible material showing income escaping assessment, due to which notice u/s.148 was issued beyond the 4-year period. Therefore, as per Proviso to sec.147, there was clear lack of jurisdiction for the officer to reopen the assessment.
Further on the merits of the addition the ld.AR supported the ground Nos.7 to 11 stating that as per the registered Sale Deed placed on record, the sale consideration was Rs.37,00,00,000/-. In the assessment completed u/s.143(3), the stated consideration was accepted by AO and only accepted part of the commission paid by assessee as deductible. In the show cause notice and in the order passed u/s.147 r.w.s.144B of the Act, the AO reworked the LTCG by substituting the value of property as per sec.50C of the Act. This amount was Rs.39,50,97,000/- and the difference was added in the hands of assessee, being 1/6 share in the property.
It is submitted by the ld.AR that the differential amount is Rs.2,50,97,000/-, which is 6.35% less than 10% as per proviso to section 50C of the Act. The Third Proviso to :-9-: ITA. No:1849/Chny/2024 sec.50C was inserted by Finance Act, 2018 w.e.f. 01.04.2019 stating thus: "Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and [five] per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer, shall, for the purposes of section 48, be deemed to be the full value of the consideration.
The Finance Act 2020, w.e.f. 01.04.2021, substituted the word 'ten' for 'five', thus meaning that the acceptable variation is 110% of the stated consideration.
The ld.AR submitted that since the variation in the case of assessee is 6.35% and is below the limit envisaged in the Proviso, the stated consideration shall be deemed to be the full value of consideration. That apart, before the AO and CIT(A)-NFAC, it was canvassed by assessee that the Tamilnadu Government had acquired 1518 sq. ft. of land by paying compensation of Rs.65,69,143/-, which works out to Rs.4,327.50 per sq.ft.. Applying the same yardstick on the entire extent of land of 46,482 sq.ft., the value of total extent of land would be Rs.20,11,50,855. While the stamp duty value is arrived at Rs.39,50,97,000/-. Whereas, the Sale consideration as per registered document is Rs.37.00 crores.
:-10-: ITA. No:1849/Chny/2024 It is submitted that for this reason also, the application of value as per sec.50C is uncalled for.
The ld.AR stated that the lower authorities had rejected the contentions of assessee stating that the amendment does not have retrospective operation and operates only from the specified date, 01.04.2021. The ld.CIT(A), NFAC also wrongly understood the Hon'ble Madras High Court decision in the case of CIT Vs Vummudi Amarendran, reported in 429 ITR 97. In Pages 16-17 of the order at Para 8.1., the ld.CIT(A) referring to Madras High Court observed that "wherein, it was held that "Proviso to section 50C(1) should be taken to be effective from the date when Proviso was introduced. By applying the ratio of the above decision, it is held that proviso to section 50C shall be effective from 01/04/2021 only and cannot be held to be effective retrospectively." The CIT(A) thus confirmed the addition made by the AO.
The ld.AR submitted that the Madras High Court in this judgement was dealing with the first proviso to sec.50C, which was introduced by Finance Act 2016, w.e.f. 01.04.2017 and its applicability for the asst. year 2014-15
:-11-: ITA. No:1849/Chny/2024 on that assessee. The first proviso stated that the value fixed on the date of agreement may be taken for the purpose of computing full value of consideration for such transfer. The Madras High Court held that "The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment." Thus, the substantial question of law raised in the Tax Case Appeal as to "Whether the Tribunal was right in holding that the amendment to Section 50C which was introduced with effect from 2017-18 prospectively was applicable retrospectively for the assessment year 2014-15 when the language used in the proviso does not indicate that it was inserted as a clarification?", was answered against the revenue and in favour of assessee.
A similar situation as in the case of assessee, arose in the case of Maria Fernandes Cheryl Vs ITO, International Taxation, Mumbai. The Mumbai Bench of the ITAT vide order dated 15/01/2021, reported in While, the stamp duty value is arrived at 85 ITR (Trib.) 674, held that "the amendment in the scheme of section 50C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration visa'-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 to back to the date when the related statutory provision of Section 50C, i.e., 1' April 2003."
:-12-: ITA. No:1849/Chny/2024 The Mumbai Bench, amongst other decisions, also referred to the Madras High Court cited above.
It is therefore the ld.AR submitted that as held in the judicial precedents, the amendment to Third Proviso to Sec.50C made w.e.f. 01/04/2021 should be considered to operate from the inception of sec.50C itself, as it was curative in nature and in so far as the case of assessee for the asst. year 2013-14 is concerned, the variation being the stated consideration and the value for stamp duty purposes, i.e, sec.50C value being 6.35% and is below the tolerance band of 10%, the stated consideration is to be deemed as the sale consideration and thus the addition of Rs.82,69,145/- as undisclosed Long Term Capital Gains needs to be deleted and thus render justice.
We have heard the rival contentions perused the material available on record and gone through the orders of the authorities. The assessee HUF filed its return of income by declaring the long term capital gain as 1/6th share of the immovable property sold for the A.Y.2013-14 for an amount of Rs.37.00 Crores. The LTCG was computed at :-13-: ITA. No:1849/Chny/2024 Rs.1,47,99,538/- after reducing the commission paid of Rs.13.32 lacs and indexed cost of acquisition of Rs.68,97,143/- and claiming deduction u/s.54F of Rs.3,85,91,226/-. The assessment was completed u/s.143(3) of the Act by order dated 12.02.2016 by the DCIT, Non-Corp. Circle-3, Madurai determined the LTCG at Rs.1,54,65,540/- by reducing the deduction claimed on account of commission paid to Rs.6,66,000/-.
Further, the assessment was reopened by issue of notice u/s.148 dated 08.04.2021. The reason for reopening was that the value of the property as per sec.50C is Rs.39,50,97,000/- and is to be taken as the total sale consideration. The assessee raised an objection for reopening the assessment beyond 4 years, since the AO has not found any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. However, the AO rejecting the submissions of the assessee continued the proceedings and passed the order U/s.147 of the Act by making re computation of Long term capital gain of the assessee based on the guidance value as per Section 50C of the Act. We note that the assessee has made claim
:-14-: ITA. No:1849/Chny/2024 before the lower authorities that the difference between the guidance value as per Section 50C of the Act and the market value was only 6.35% which is less than 10% (Guidance value Rs.39,50,97,000/- (-) Sale consideration considered Rs.37,00,00,000/- = Rs.2,50,97,000/-) and hence the sale consideration of the immovable property considered for computation cannot be treated as under valued. However, both the AO and that of ld.CIT(A) have not considered the argument of the assessee stating that the amendment to proviso of Section 50C to increase the tolerance band of guidance value from 5% to 10% has been brought into statute w.e.f the A.Y.2021-22 and confirmed the addition as per the revised computation of capital gain based on the guidance value of Rs.39,50,97,000/-.
In the present facts and circumstances of the case, it is gainful to take the support of the Hon'ble Madras High Court decision in the case of CIT Vs Vummudi Amarendran, reported in 429 ITR 97, wherein their lordship in this judgement was dealing with the first proviso to sec.50C, which was introduced by Finance Act 2016, w.e.f. 01.04.2017 and its applicability for the asst. year 2014-15
:-15-: ITA. No:1849/Chny/2024 on that assessee. The first proviso stated that the value fixed on the date of agreement may be taken for the purpose of computing full value of consideration for such transfer. The Hon’ble Madras High Court held that "The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment." Thus, the substantial question of law raised in the Tax Case Appeal has been answered as the proviso applicable restrospectively by holding as under: "Whether the Tribunal was right in holding that the amendment to Section 50C which was introduced with effect from 2017-18 prospectively was applicable retrospectively for the assessment year 2014-15 when the language used in the proviso does not indicate that it was inserted as a clarification?", was answered against the revenue and in favour of assessee.
We note that a similar situation as in the case of assessee, arose in the case of Maria Fernandes Cheryl Vs ITO, International Taxation, Mumbai bench of ITAT vide order dated 15/01/2021, reported in 85 ITR (Trib.) 674, held that "the amendment in the scheme of section 50C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration visa'-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 to back to the date when the related statutory provision of Section 50C, i.e., 1' April 2003."
:-16-: ITA. No:1849/Chny/2024 In this case, the Mumbai tribunal has followed the jurisdictional Hon’ble Madras High Court decision (supra). In the present facts and circumstances of the case and respectfully following the judicial precedents cited supra, we are of the considered view that the ld.CIT(A) has erred in confirming the addition of capital gain based on guidance value u/s.50C of the Act, even though the difference in guidance value and actual sale consideration is less than 10% (i.e. 6.35% in the present case) and hence we are setting aside the order of ld.CIT(A) and delete the additions made by the AO. Thus, we allow the grounds of appeal of the assessee.
In the result the appeal of the assessee is allowed.