ARVIND RAMNIKLAL MEHTA,MUMBAI vs. ITO 17(2)(1), MUMBAI

At the outset, the learned Counsel for the assessee has filed 7 grounds originally, which are argumentative and repetitive, hence, he revised the grounds which reads as under: - “1. On the facts and in law, the Hon. CIT (A) erred in holding that re-opening of assessment by issue of notice u/s 148 on 26.03.2010 was valid in law, not appreciating that the Id. AO did not hold a valid belief that the income of the assessee had escaped assessment and the re-opening of assessment u/s 147 of the I.T Act 1961 was bad-in- law and the assessment orders framed u/s 143(3) r.w.s 147 was required to be quashed and set aside.

From the above grounds, the first issue is against the order of CIT(A) upholding the action of the AO in reopening of assessment under section 147 read with section 148 of the Act is bad in law and require to be quashed.

The second issue on merits is regarding addition made by AO and confirmed by CIT(A) on account of sale of plot by enhancing the sale consideration in view of the provisions of section 50C of the Act.

Brief facts are that during the year under consideration i.e. FY 2004-05 relevant to AY 2005-06 assessee sold a plot at Bhavnagar, Gujarat, on the basis of an agreement for an amount of Rs. 57,24,800/-. This was unregistered agreement. The AO during the course of assessment proceedings noticed that the stamp duty valuation of the plot was not available on the registered agreement and hence, the case was referred to the District Valuation Officer. The DVO estimated the value of the property at Rs. 69,48,800/-. Thereby, the AO noted the differential amount being long term capital gain under the provisions of section 50C of the Act. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved now assessee is in second appeal before Tribunal.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the first argument of the learned Counsel for the assessee is that the provisions of section 50C of the Act does not supply. The assessee’s case is that there is neither sale deed nor registered agreement for sale of this agreement. The learned Counsel for the assessee stated that, once there is registered sale deed 4 and transfer is not that basis, as per the provisions of section 50C(1) of the Act, the word “or assessable” are introduced by the Finance (No.2) Act, 2009 w.e.f 01.10.2009. According to him, once the provisions of section 50C does not apply to the assessee because the assessment year is 2005-06 and transaction took place in FY 2004-05. According to the learned counsel, this issue has been dealt with by Hon’ble Madras High court in the case of CIT vs. R.Sugantha Ravindran (2013) 352 ITR 488 (Mad.), wherein it is held that once there is no sale deed registered in respect of said transfer, the provisions of section 50C as amended with effect from 01.10.2009 is neither a Clarificatory nor explanation to the already existed provision and hence, not applicable retrospectively. According to Hon’ble High Court, this is applicable from 01.10.2009 and not to earlier assessment years. Hon’ble Madras High Court has considered this issue vide Para 6 to 10 as under: - “6. The issue involved in this case is as to whether the assessing officer is entitled to take the value of the property assessable by the authority of the State Government for the purpose of payment of stamp duty in respect of said transfer or not. Admittedly, in this case, no registration of sale deed had taken place. It is the case of the Revenue that only in pursuance of the agreement of sale, the assessee had transferred the property and received the sale consideration. In such circumstances, whether Section 50C of the Act would be made applicable even in respect of cases where the registration had not taken place, is the only issue to be decided in this case.

Learned counsel for the Revenue is not disputing about the existence of such circular issued by the Board. If the Board has issued a circular clarifying the applicability of Section 50C in pursuance of the amendment made by Amendment Act 2 of 2009, we fail to understand as to how the Revenue can canvass the same issue in this case which in effect 6 is against the circular issued by the Board. Certainly, the Revenue is bound by the circular issued by the Board. At this juncture, it is pertinent to note that in a decision made in the case of State of Tamil Nadu v. India Cements Ltd. [2011] 40 VST 225 (SC), the Honourable Supreme Court has held that the circulars issued by the Revenue are binding on the Department and therefore, they cannot repudiate that they are inconsistent with the statutory provisions. Relevant paragraphs 21 and 22 are extracted hereunder:

In Paper Products Ltd. v. Commissioner of Central Excise [2001] 247 ITR 128 SC: [1999] 7 SCC 84, while interpreting Section 37B of the Central Excise Act, 1944, which is 7 in pari materia with Section 28A of the TNGST Act, this Court had held that the circulars issued by the Central Board of Excise and Customs are binding on the Department and the Department is precluded from challenging the correctness of the said circulars, even on the ground of the same being inconsistent with the statutory provision. It was further held that the Department is precluded from the right to file an appeal against the correctness of the binding nature of the circulars and the Department's action has to be consistent with the circular which is in force at the relevant point of time."

Even otherwise, we are of the firm view that the insertion of words "or assessable" by amending Section 50C with effect from 01.10.2009 is neither a clarification nor an explanation to the already existing provision and it is only an inclusion of new class of transactions namely the transfers of properties without or before registration. Before introducing the said amendment, only the transfers of properties where the value adopted or assessed by the stamp valuation authority were subjected to Section 50C application. However after introduction of the words "or assessable" after the words "adopted or assessed", such transfers where the value assessable by the stamp valuation authority are also brought into the ambit of Section 50C. Thus such introduction of new set of class of transfer 8 would certainly have the prospective application only and not otherwise. Hence the assessee's transfer admittedly made earlier to such amendment cannot be brought under Section 50C.

Applying the above said decision of the Honourable Apex Court to the facts and circumstances of the case as well as by considering the scope of Section 50C, we hold that the Revenue is not entitled to canvass the correctness of the order passed by the Tribunal, more particularly in the light of the circular issued by the Board. Accordingly, the Tax Case Appeal is dismissed and the substantial question of law is answered against the Revenue. No costs.”

As the issue is squarely covered by the decision of Hon’ble Madras High Court in the case of R.Sugantha Ravindran (supra), we are of the view that the reopening is bad in law and even on merits, for the purpose of computation of long term capital gain, the value as registered in the document i.e. agreement is to be accepted as it is. Hence, we quash the reopening and set aside the assessment order and the order of CIT(A).

In the result, the appeal of assessee is allowed.