DR KONDABOLU BASAVAPUNAIAH & DR LAKSHMI PRASAD TRUST,GUNTUR vs. INCOME TAX OFFICER (EXEMPTION WARD), GUNTUR

The assessee has filed the present appeal against the impugned order dated 22.07.2024, passed under section 250 of the Income Tax Act, 1961 (in short ‘Act’) by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”], for the A.Y. 2017-18.

Having considered the submissions of both sides and perusal of the material available on record, we are of the considered view that there was sufficient cause which prevented the assessee from filing the present appeal within the prescribed limitation period. Accordingly, we condone the delay in filing the present appeal by the assessee and proceed to decide the appeal on merits.

In this appeal, the assessee has raised the following grounds of appeal: -

The Ld. CIT(A) erred in law and on facts by denying the exemption u/s.11 of the IT Act on the ground that the property was allegedly sold at an undervalued price. The CIT(A) failed to appreciate that the full consideration was received in accordance with the prevailing market value. Consequently, the CIT(A)'s finding in this regard is unsustainable.

The Ld. CIT(A) erred in concluding that the assessee failed to provide sufficient documentary evidence to substantiate its claims, which is factually incorrect.

For these and other grounds that may be raised at the time of hearing, the appellant respectfully prays that the order passed u/s. 250 of the IT Act be set aside, and the additions made by the Assessing Officer and confirmed by the Ld. CIT(A) be deleted.”

The brief facts pertaining to this issue are that the assessee is a Charitable Trust registered under section 12A of the Act and Section 80G of the Act. For the year under consideration, the assessee filed its return of income on 31.03.2018 declaring a total income of Rs.2,13,63,753/-. The return filed by the assessee was selected for scrutiny under CASS in order to verify the sale of shares, securities or other property to Specified Persons. Accordingly, statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. During the course of assessment proceedings, from the perusal of the Audit Report in Form 10B, it was observed that the assessee has declared that the property was sold by the assessee to one of its Trustees, viz., Dr Kondabolu Vara Prasad, during the year under consideration. As per the sale deed filed, it was noticed that the assessee Trust sold its land admeasuring 1675 Sq. Yards at Koritipadu for a total consideration of Rs.1,00,50,000/- as against the market value of Rs.1,67,50,000/-vide sale deed dated 12.05.2016 and paid stamp duty on the value of Rs.1,67,50,000/- and given possession and all rights over the property to the buyer Dr. Kondabolu Vara Prasad, i.e. Trustee of the assessee Trust. Thus, it was observed that the assessee benefited its Trustee by selling the property for lower consideration and also by handing over the possession of the entire property

The Ld. CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the denial of exemption claimed by the assessee under section 11 of the Act.

We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the basic facts that the land admeasuring 1675 Sq. Yards was sold by the assessee Trust to one of its Trustees. Since the Market value of the said land was Rs.1,67,50,000/, and the Trustee only paid an amount totalling Rs.1,50,50,000/-, the lower authorities held that there is a clear violation of the provisions of section 13(1)(c) r.w.s. 13(2)(f) of the Act, as the property of the Trust was sold at a lesser consideration to one of the Trustees, who is a Specified Person as per the provisions of section 13(3) of the Act. According to the assessee, the proposal for the sale of the land to one of the trustees was approved in 2013, and subsequently, the Trustee also made the part payment in advance prior to the execution of the sale deed on 12.05.2016. It is further the plea of the assessee that Rs.50 Lakhs was paid by the Trustee on 30.08.2013, another payment of Rs.50 lakhs was made by the Trustee through cheque on 01.10.2014, and on 12.05.2016, i.e. on the date of execution of sale deed, the Trustee again made a payment of Rs.50,50,000/- to the assessee as a consideration for the purchase of the said land. Therefore, as per the assessee, consideration of Rs.1,50,50,000/- was paid by the Trustee to the assessee for the purchase of the aforementioned land. Since the entire consideration paid by the trustee was not recorded in the sale deed executed on 12.05.2016, due to an inadvertent error on the part of the Page No. 6 Dr. Kondabolu Basavapunaiah & Dr. Lakshmi Prasad Trust document writer, a rectified sale deed was executed on 31.01.2018, mentioning the total sale consideration of Rs. 1,50,50,000/-.

It is evident from the record that the Revenue has not disputed the fact that the payment of Rs.1,50,50,000/- was received by the assessee from the sale of the aforementioned land. However, as the market value of the said property on the date of registration of the sale deed, i.e., 12.05.2016, was Rs.1,67,50,000/-, it is the contention of the Revenue that the Assessee-Trust has sold the property for a consideration less than the market value to its Trustee, which has violated the provisions of section 13(1)(c) r.w.s. 13(2)(f) of the Act.

During the hearing, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that the resolution to sell the land to the Trustee was passed by the assessee Trust in the year 2013. The Trustee, at the outset, gave an advance of Rs.50 lakhs to the assessee-Trust on 13.08.2013 through cheque, and thereafter steps were taken to generate the funds for payment of the remaining amounts. By referring to the subsequent payments, as noted in the foregoing paragraphs, Ld.AR submitted that till the date of registration of the sale deed on 12.05.2016, the assessee had paid a total consideration of Rs. 1,50,50,000/-. Thus, as per the Ld.AR, since prior to the execution of the sale deed itself, the Trustee had already made a payment of Rs. 1,00,00,000/-, the assessee decided not to charge the balance sum of Rs. 17,00,000/- from the Trustee, as the assessee had enjoyed the Page No. 7 Dr. Kondabolu Basavapunaiah & Dr. Lakshmi Prasad Trust interest-free payments from the Trustee received much prior to the execution of the sale deed on 12.05.2016. Ld.AR by referring to the bank statement of the assessee forming part of the bank statement of the assessee submitted that the balance payments of Rs.17,00,000/- was also paid by the Trustee on 19.12.2018, and therefore the transaction was ultimately carried out at a consideration equivalent to the market price, which is not in violation of the provisions of section 13 of the Act.

Having considered the submissions of both sides and perused the material available on record, we are of the considered view that the basic purpose of section 13(1)(c) r.w.s. 13(2)(f) r.w.s. section 13(3)(cc) of the Act is to prohibit the assessee Trust from transferring the benefit, inter alia, of any property of the Trust to its Trustees by selling the property for a consideration which is less than adequate. As noted in the foregoing paragraphs, until the date of registration of the sale deed on 12.05.2016, which was further rectified on 13.01.2018, the Trustee made a total payment of Rs. 1,50,50,000/- in different tranches from the year 2013 to the date of registration of the sale deed in the year 2016. Further, even the balance consideration of Rs. 17,00,000/- was also paid by the Trustee on 29.03.2018. Therefore, in the facts of the present case, it is evident that the property was sold to the Trustee at the market price of Rs.1,67,50,000/-. Thus, we are of the considered view that there is no violation of provisions of section 13(1)(c) r.w.s. 13(2)(f) of the Act as alleged by the Revenue in the present case.

Since the relief has been granted to the assessee on merits, the additional ground of appeal raised by the assessee has been rendered academic, and therefore, the same is kept open.

In the result, the appeal by the assessee is allowed.