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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri P.M. Jagtap, Vice- & Shri A.T. Varkey
Per Shri P.M. Jagtap, Vice-President:- This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-12 Kolkata dated 09.10.2018.
The issue raised in Ground No. 1 of this appeal relates to the addition of Rs.34,75,731/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of deemed capital gains by invoking the provisions of section 50D of the Income Tax Act, 1961. 1 Assessment Year: 2013-2014 Trincas Vinimay (P) Limited
The assessee in the present case is a Company, which is engaged in the business of investment in securities, lending and sale of property. The return of income for the year under consideration was filed by it on 30.01.2014 declaring total income of Rs.18,31,130/- as determined by the Assessing Officer. The assesee-company by virtue of two agreements dated 25.12.2011 with the builder was allotted two flats bearing no. 1101 and 1201 in Orange County Project at Ghaziabad. The possession of the said flats was to be handed over by the builder to the assessee-company in the month of April/May, 2012. Just before the date of handover over the possession, the assessee-company transferred the right to purchase the said two flats to Mr. Deepak Jain and Nr, Deepak Mahajan by means of self-made affifavits. During the course of assessment proceedings, the assessee-company failed to furnish any agreement for the said transfer. The only document produced by the assessee in this regard was self-made affidavits, wherein the consideration for transfer of flats was not mentioned. The assessee-company, therefore, was required by the Assessing Officer to show-cause as to why the capital gain arising from the said transfer of flats should not be computed by invoking the provisions of section 50D of the Act. In this regard, it was explained on behalf of the assessee-company that even though only terms and conditions of transfer were mentioned in the affidavits without any consideration, the flats were tranfered for a consideration of Rs.52,85,185/- and Rs.48,59,000/- to Shri Deepak Jain and Shri Depak Mahajan respectively. Copies of accounts of the said parties were also produced by the assessee to show the sale consideration as agreed between the parties. It was also submitted on behalf of the assesese- company that the capital gain duly computed by taking into consideration the sale consideration was declared in the return of income filed for the year under consideration. The Assessing Officer did not find merit in the submission made on behalf of the assesese-company. According to him, since the only document evidencing the transfer in the form of self-made Assessment Year: 2013-2014 Trincas Vinimay (P) Limited affidavit did not indicate any consideration for transfer, the consideration received or accruing as a result of transfer of the rights of the two flats was not ascertainable and could not be determined. He accordingly invoked the provisions of section 50D and by adopting the fair market value of the said flats on the date of transfer as ascertained from the website of “Magic Bricks” at Rs.79,94,457/- and Rs.55,19,016/-, he worked out the capital gain arising from the transfer of two flats by the assessee at Rs.37,41,673/-. Since the capital gain to the extent of Rs.2,65,942/- was already offered by the assessee to tax in the return of income, the balance amount of Rs.34,75,731/- was added by the Assessing Officer to the total income of the assessee on account of capital gain.
The addition of Rs.34,75,731/- made by the Assessing Officer on account of capital gain was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and the following submission was made on behalf of the assessee before the ld. CIT(Appeals) in support of its case on this issue:- “The primary basis for the addition made u/s. 50D of the Income-tax Act by the Ld. A.O. pivots on his fallacious inference that the transfer price of the booking rights in the flats by the assessee could not be ascertained except only by means of copies of accounts of the transferee. It is our humble contention that application of s. 50D has been wrongly invoked in your assessee's case. But before we delve into the aspect of non- applicability of s. 50D of the Act to the given facts and circumstances in the assessee' case, it is vehemently important to contemplate the meaning of the provision under section 50D with its intended purpose of insertion vide the Finance Bill, 2012. A bare reading of the section 50D, as inserted with effect from the lS1 day of April, 2013, is as follows- "50D. Fair market value deemed to be full value of consideration in certain cases.-Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset -on the date-of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer. ".
Assessment Year: 2013-2014 Trincas Vinimay (P) Limited
As per the Finance Bill of 2012, relating to direct taxes seeking to amend the Income-tax Act, the following insertion was proposed (pertaining to section 50D);
Extract from the Memorandum explaining the provision (s_ 50D) in the Finance Bill, 2012:
"FAIR MARKET VALUE TO BE FULL VALUE OF CONSlDERATION IN CERTAIN CASES
Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable under the existing provisions of the income tax act, then as the machinery provision fails, the gains arising from the transfer of such assets is not taxable.
It is, therefore, proposed that where in the case of a transfer, consideration for the transfer of a capital asset(s) is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market value of consideration.
Accordingly, it is proposed to insert a new provision (section 50D) in the Income-tax Act to provide that fair market value of the asset shall be deemed to be the full value of consideration if actual consideration is not, attributable or determinable.
This amendment will take effect from 1st day of April, 2013 and will accordingly apply to assessment year 2013- 14 and subsequent assessment years,
[Clause 17}" From a bare reading of the provision and the memorandum of the Finance Bill, 2012, explaining the insertion of the new provision (s. 50D), it is amply clear that for its applicability there has to be a fact situation where the consideration "is not ascertainable or cannot be determined", Thus, its applicability and any subsequent addition under this provision cannot be accommodated by the Revenue Department in a case where the quantum of consideration is ascertainable or can be determined.
Now, building our submissions on the propounded premise of s. 50D of the Act, we ought to analyze whether the consideration of the two flats was not ascertainable or could not be determined in the assessee's case. it is humbly submitted that the value of the two flats (Residential Flat bearing No. 1201 and No. 1101 in Block No. DC - 4 and 11, respectively, situated in the residential complex was at a matter of fact, determinable fro9m the page Assessment Year: 2013-2014 Trincas Vinimay (P) Limited no. 2 of the assessment order itself wherein the consideration value was specifically mentioned as under: Flat NO. Transferred to Consideration value as available from the copy of accounts with the party and date of transfer 1201 Mr. Deepak Jain S/o Mr. Rs.52,85,185/- by virtue R,C. Jain resident of 36, of affidavit dated GF Suryaniketan, Delhi- 11.04.2012 of Deeptak 110092 Jain and transfer affidavit to builders on 11,04.2012 1101 Mr. Deepak Mahajan, s/o Rs.48,59,000/- (by virtue Mr. Sudesh Kr. Mahajan, of affidavit dt. 20.05.12 resident of B-22, Sita of Deepak Mahajan and Shree Aptt., sectgor-14, transfer affidavit to Rohini, Deli-110085 builders on 20.05.12.
It is further submitted that the assessee received total consideration amount of Rs.1,01,44,185/- (Rs.52,85,185/- + Rs.48,59,000/-j against transfer rights and claimed short term capital gains to the tune of Rs.2,65, 942/- after deducting the amount ojR-;98, 78,243/- (Rs.S7,20,789/- + Rs.41,S8,374/- paid for booking of flats (Extract of I. T Return for the relevant year herewith and marked as Annexure: 'B'). It is important to emphasize at this juncture that the Ld. AO. has made a self- contradictory observation in his order wherein on Page - 2 he mentions:
"During the course of hearing, the AR. of the assessee company produced the books of accounts along with other requisite details which have also been perused and verified on test check basis. He also furnished other details/ document' which have also been perused and examined.
In the course of assessment proceedings, it was noticed that the assessee company had applied for allotment of two flats to the Developers (ABA Builders Ltd.) in "Orange County Project" at GH-4, Ahinsa Khand-L, Indirapuram, Ghaziabad - 201014. By virtue of two agreements dated 25/12/2011 with the builders, two flats were allotted bearing nos. 1201 & 1101. Details of flat & amount paid are as follows ... "
Whereas on Page - 3 of the assessment order he says: "In the course of hearing, the assessee company was asked as to why the Fair Market Value of the two flats should not be taken for computation of capital gain by virtue of section 50D, when the right to transfer flat being an immovable property has been transferred without any agreement/registration. The assessee company filed only two copies of accounts one with Mr. Deepak Jain or sale of flat no. 1201 and the other with Mr. Deepak Assessment Year: 2013-2014 Trincas Vinimay (P) Limited
Mahajan for flat no. 1101 to substantiate the transfer of flat & amount of consideration for transfer of flats. Affidavit would show on the terms & conditions of transfer M, without any consideration. So, the transfer price can't be ascertained only by means of copies of accounts with the transferee."
Thus, his adverse inference that the transfer price could not be ascertained for the two flats based on the affidavits and that the right to transfer the flat had been transferred without any agreement/ registration is in contradiction to this earlier observation in the assessment order itself wherein he acknowledges receiving and scrutinizing books of accounts and other details. The respective affidavits and transfer endorsements were diligently produced before the AO. By simply going through the bank statements, the consideration received for the sale of the rights in the two flats (under construction) is verifiably ascertainable. As a matter of fact, the assessee company has also disclosed in its ITR the short term capital gains arising from the transfer of the rights in the two flats, which could otherwise would not have been possible to compute lest the consideration was ascertainable. Inexorably, we emphatically assert before your honour that the copies of the Flat Buyer Agreements along with the transfer documents viz. affidavits and transfer endorsements had been duly submitted before the Ld. AO. and scrutinized by him as is amply evident from his order. The jurisdiction and applicability of s. 50D is clearly ousted and hence, has been wrongly invoked by the Ld. AO.
As far as the applicability of s. 50C is concerned, it is humbly stated that numerous judgments have clarified the position of law so far as the transfer of rights in a flat is concerned. The ITAT 'B' Bench of Ahmedabad Tribunal in order dated 13.04.2012 in the case of Income Tax Officer vs. Silri Yasin Moosa Godil, -under similar facts and circumstances at para-16 held as follows: -
"16. From the readrng of Sec. Soc, It IS evident that Sec. 50C is a deeming provision and It extends to only to land or building or both. Section 50C can come into play only m a situation where the consideration received or accruing as a result of the transfer by an appellant of a capital asset, being land or both IS less than the value adopted or assessed or assessable by any authority of state Government therefore for the purpose of payment of stamp duty in respect of such transfer It is settled leg 1 proposition that deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Clearly therefore, it is essential that for application of Sec. 50C that the transfer must be of a capital asset, being land or building or both. If the capital asset under transfer cannot be described as "land or building or both" then section 50C will cease to apply. From the facts of the case Assessment Year: 2013-2014 Trincas Vinimay (P) Limited narrated above, it is seen that the assessee has transferred booking rights and received back the booking advance. Booking advance cannot be equated with the capital asset and therefore section 50C cannot be invoked."
This view was also followed by the Hon'ble Kolkata Bench of the ITA Tin M Is. Baniara Engs. Pvt. Ltd. v. lTO (ITA No. 635/Ko1/2018. Similarly, in our case as well, the assessee acquired certain rights to purchase the said flats. Before the construction of the two flats were complete, the assessee sold his rights so acquired to purchase the flats by nominating the ultimate purchasers for registration of the said two fiats and endorsing the transfer. Hence, the jurisdiction of the deeming section 50C is also ousted.
In the assessment order, the Ld. A.D. has observed (Page - 2, 2nd last para) that the assessee company has transferred the right to purchase the two flats to the ultimate buyers just before the date of handing over the possession. Thus, it is an uncontested fact that the possession was never given to the assessee company and thus, by virtue of the transfer endorsement, the assessee company has just become a confirming party. In ITD v. Mailesil Kumar Singilania HUF (ITA No. 1387/Kol/2017 the Hon'ble lTAT Kolkata Bench held that s. 50C was not applicable to those set of facts because tile assessee had not taken possession of the flats and had nominated tile final buyers in its place. Thus, in situations where booking rights were simply transferred, it cannot be said that capital asset, being land or building or both have been transferred and hence, s. 50C cannot apply”.
The ld. CIT(Appeals) did not find merit in the submissions made on behalf of the assessee-company on this issue and proceeded to confirm the addition made on account of capital gain for the following reasons given in his impugned order:-
“I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AO has already discussed the issue in detail while passing the order in the matter I agree with the view as taken by the AO in the matter. Keeping in view of the facts as mentioned above, in the absence of any cogent material evidence, I do not find any infirmity in the order of the assessing officer and the same is hereby upheld. Ln view of the above, this ground of appal is dismissed”.
Assessment Year: 2013-2014 Trincas Vinimay (P) Limited
The ld. Counsel for the assessee mainly reiterated before us the submissions made on behalf of the assessee before the ld. CIT(Appeals) on this issue. He submitted that even though the consideration for transfer of two flats in question was not specifically mentioned in the affidavits filed by the asseesee-company, the copies of account of the transferees were furnished by the assessee-company before the Assessing Officer during the course of assessment proceedings showing the agreed sale consideraetion for flat no. 1101 and 1201 at Rs.49,59,000/- and Rs.52,85,185/- respectively. He also submitted that the sale consideration so agreed between the assesese-company and the transferees for transfer of the said two flats was taken into consideration by the assesese-company for computing the capital gain and the capital gain so computed at Rs.2,65,942/- was duly declared by the assessee- company in its return of income. He contended that the consideration for transfer of two flats as agreed between the assessee-company and transferees thus was ascertainable and the provisions of section 50D of the Act were not applicable. He contended that the Assessing Officer, therefore, was not justified in invoking the said provisions without even making any enquiry whatsoever with the transferees to ascertain the factual position regarding the consideration agreed for transfer of two flats as claimed by the assessee.
The ld. D.R., on the other hand, strongly supported the orders passed by the authorities below on this issue. He contended that the only documentary evidence filed by the assessee evidencing the transfer of two flats was in the form of self-made affidavit and since the consideration of transfer was not mentioned in the said affidavit, the authorities below were fully justified in arriving at the conclusion that the consideration received or accruing as a result of transfer of the two flats by the assessee was not ascertainable and invoking the provisions of section 50D to compute the capital gain chargeable to tax by adopting the Assessment Year: 2013-2014 Trincas Vinimay (P) Limited fair market value of the two flats on the date of transfer as deemed consideration received or accruing to the assesese as a result of transfer.
We have considered the rival submissions and also perused the relevant material available on record. It is observed that even though the consideration for transfer of two flats received or accruing to the assessee was not mentioned in the affidavit filed by the assessee evidencing the said transfer, copies of accounts of the concerned transferees were produced by the assessee to show the consideration for transfer of the two flats as agreed between the parties. We, therefore, do not agree with the contention of the revenue that there was no evidence produced by the assessee-company to show the consideration received or accruing as a result of the transfer of the two flats. As matter of fact, the said consideration so agreed was taken into consideration by the assesee- company for computing the capital gain arising from the transfer which was duly declared in its return of income and as rightly contended by the ld. Counsel for the assessee, there was no justification on the part of the authorities below to doubt or dispute the said consideration as claimed to be mutually agreed by the asseeese-company to arrive at the conclusion that the consideration received or accruing as a result of the transfer of the two flats was not ascertainable or could not be determined without even making any inquiry whatsoever with the concerned transferees. Keeping in view all these facts and circumstances of the case, we are of the view that the provisions of section 50D are not applicable in this case and the impugned addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by invoking the said provision is not sustainable. We accordingly delete the same and allow Ground No. 1 of the appeal.
As regards the issue raised in Ground No. 2 regarding the disallowance of Rs.80,717/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A of the Act, the limited relief that is sought by the ld. Counsel for the assessee is that the amount of Assessment Year: 2013-2014 Trincas Vinimay (P) Limited disallowance so made cannot be added while computing the book profit of the assessee-company under section 115JB of the Act. Since this issue is squarely covered by the various judicial pronouncements including the decision of Special Bench of this Tribunal in the case of ACIT –vs.- Vireet Investment (P) Limited 165 ITD 27 (SB) (Delhi), we direct the Assessing Officer to delete the addition made on account of disallowance under section 14A while computing the book profit of the assessee-company under section 115JB of the Act. Ground No. 2 of the assessee is accordingly allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on December 18, 2020.