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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
PER SUSHMA CHOWLA, JM:
This bunch of appeals filed by different assessee are against respective orders of CIT(A)-3, Pune, relating to same assessment year 2007-08 against respective orders passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
All the appeals relating to connected assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, in order to adjudicate the issue, reference is being made to the facts in ITA No.113/PUN/2017.
Briefly, in the facts of the case, the assessee had furnished the return of income declaring total income of ₹ 2,01,031/-. The assessee had declared income from other sources and loss from long term capital gains. The assessee furnished details with regard to sale of two properties. The Assessing Officer noted that the assessee claimed that the said property 89/2, Pimple Gurav was an ancestral property, which was inherited by the assessee from Shri Jaydeep
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Shirole after his death and the assessee had 1/3rd share in the said property. The Assessing Officer noted that as per Index II of sale deed, price was less than fair market value, hence section 50C of the Act was applicable. The assessee had sold the said property for ₹ 36 lakhs, whereas the value adopted by the stamp duty authorities was ₹ 2 crores. The assessee was show caused and asked as to why full value of consideration should not be adopted. The assessee pointed out that the valuation by the stamp valuation authority was done on the premise that the property had clear title, free from all encumbrances and the property was in possession of seller. However, Sai Developers had agreed to buy the ownership rights on ‘as is where is basis’ and agreed to settle the other interested parties directly without affecting Shirole family in any. The onus was on Sai Developers to cancel earlier agreement entered into by the assessee on 06.07.1993 with Vijay Jagtap and eight others and also to cancel the agreement dated 27.07.2000 by making compromise with Mr. Arun S. Patil. Further, Sai Developers had to compromise and settle with Kashid family and other parties with whom Kashid family had entered into an agreement and to obtain possession from them. The assessee pointed out that since the possession of the property was not with her and because of earlier encumbrances, the said property could fetch only ₹ 36 lakhs. The explanation given by the assessee was not accepted by the Assessing Officer, in view of the provisions of section 50C of the Act and he re-computed the income from long term capital gains on account of 1/3rd share in 89, Pimple Gurav, Pune.
Before the CIT(A), the assessee filed written submissions which are reproduced by the CIT(A) at pages 3 to 7 of the appellate order and the same were forwarded to the Assessing Officer, who in turn, filed remand report rejecting the explanation of assessee. The assessee in rejoinder stressed that
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the Assessing Officer having not accepted the plea of assessee should have made reference to the Valuation Cell and the assessee stressed that it had objected to the adoption of stamp duty value before the Assessing Officer and the essential ingredients of objection were complete before the Assessing Officer. However, without considering the assessee’s objection, the Assessing Officer adopted the value of stamp duty and request of assessee to make reference to the Valuation Officer has been objected to by the Assessing Officer in the remand report. The same was un-called for. The CIT(A) observed that the Assessing Officer in the remand report has stated that first the assessee did not request the Assessing Officer to refer the matter to the Valuation Cell and the Assessing Officer on his own was not bound to refer the same. It was further pointed out by the Assessing Officer that for referring to Valuation Cell, the assessee was required to make a claim to the Assessing Officer stating the reasons as to why stamp duty valuation of asset should not be applied. However, reference to the DVO was not mandatory as the term used in the said section was ‘may’ and the Assessing Officer having exercised the discretion available with it, cannot be faulted with. In view thereof, the CIT(A) dismissed the claim of assessee of making reference to the DVO.
The assessee is in appeal against the order of CIT(A).
The learned Authorized Representative for the assessee before the Tribunal has raised elaborate grounds of appeal, which need mention and the same read as under:- 1. The learned CIT(A)-3, Pune and learned ITO, Ward 3(1), Pune, erred in law and on facts in invoking the provisions of section 50C of ITA, 1961 in the present case wherein, appellant has simply transferred husk / title of the property in AY 2007-08. The learned I-T authorities ought to have appreciated that section 50C ought to be applied in the case of a
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de-facto / real / substantive owner of a land and not in the case of a de jure / superfluous / apparent owner of a land. 2. The learned CIT(A)-3, Pune and the learned ITO, Ward 3(1), Pune erred in law and on facts in not appreciating that, right of appellant in the said land at Gat No. 89/2, Pimple Gurav, Pune were much minor and of a nature of HUSK / TITLE of the land, as against complete ownership of the said land. 3. The learned CIT(A) - 3, Pune erred in law and on facts in sustaining the action of the learned ITO, Ward 3(1), Pune in adopting the "full value of consideration" for transfer of rights in land at Gat No.89/2, Pimple Gurav, Pune at Rs.2,00,00,000/- (being the stamp duty value) instead of Rs.36,00,000 (being the consideration realized by the appellant) by invoking section 50C of the ITA, 1961 on a totality basis. The learned I- T authorities ought to have appreciated that the said land was already transferred to various parties since year 1993; and as such; subjecting appellant to rigors of section 50C was incorrect. 4. The learned CIT(A)-3, Pune erred in law and on facts in not appreciating that the amendment vide Finance Act 2016 to section 50C(1) i.e. insertion of proviso stipulating the requirement of adopting the stamp value of earlier transaction (i.e. year 1993) is retrospective / retroactive / clarificatory in nature, and ought to have been applied even in the present case. 5. The learned CIT(A)-3, Pune and the learned ITO, Ward 3(1), Pune erred in law and on facts in not appreciating that, issue of difference in "consideration" and "stamp duty value" as so envisaged in section 50C(1) ought to have been referred to the learned DVO as per section 50C(2) of the ITA, 1961. The learned I-T authorities erred in law in not appreciating that the word “may” referred to in section 50C(2) ought to be understood as “shall” as per the principle of purposive interpretation. 6. The learned CIT(A)-3, Pune and the learned ITO, Ward 3(1), Pune erred in not appreciating that assessee’s objection to adoption of consideration at Rs.2,00,00,000 instead of Rs.36,00,000 was sufficient to make a reference to the DVO. 7. The learned CIT(A) -3, Pune erred in not making a reference to the DVO for locating the rightful quantum of “full value of consideration” for the taxation of long term capital gain arising from transfer of land at Gat No.89/2, Pimple Gurav, Pune. The learned CIT(A)-3, Pune further erred in not appreciating that the powers of the learned CIT(A)-3 were co- terminus and parallel to those of the learned AO and as such, reference to DVO was certainly called for. 8. Without prejudice to the above grounds of appeal, and alternatively, learned I-T authorities erred in not granting deduction for encumbrances of the various other parties involved in the land on a realistic / reasonable basis under section 48(i) of ITA, 1961.
The first issue raised by the assessee before the Tribunal is that provisions of section 50C of the Act are not attracted in the present case as the
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assessee had simply transferred husk / title of the property, since the assessee’s right in the said land was very minor and was not the right to complete ownership of the said land. The connected plea raised by the assessee is that the authorities below had erred in not granting deduction for encumbrances of various other persons involved in the said land. This is the issue raised by way of grounds of appeal No.1, 2, 3 and 8. Further, the assessee is also aggrieved by the order of CIT(A) and the Assessing Officer in not making reference to the DVO as envisaged in section 50C(2) of the Act. The first submission of assessee before the Tribunal is that the Assessing Officer had to first decide the issue of ownership in the hands of assessee and whether the assessee was complete owner or it had only husk / title to the property; since even the possession of property was not with her. In this regard, attention was drawn to various documents executed over the period of time vis-à-vis sale / development of the said property, copies of which are filed in the Paper Book. The first document i.e. unregistered agreement to sale of plot No.89/2, area (3 Hect. 10R) with Mr. Jagtap dated 06.07.1993 along with registered power of attorney is placed at pages 37 to 50 of Paper Book along with English transaction at page 51 of Paper Book. The second document was unregistered Development agreement for plot No.89/2, area (3 Hect. 10R) with Mr. Arun Patil dated 27.07.2000 along with unregistered power of attorney placed at pages 52 to 80 of Paper Book along with English transaction at page 81 of Paper Book. The third document was the Development Agreement with Sai Developers i.e. the transaction in question which was entered into by the assessee during the year under consideration, copy of which is placed at pages 82 to 109 of Paper Book along with English translation at pages 110 to 111 of Paper Book. The case of assessee is that in view of various encumbrances on the said property, under which even the possession of property was not with the assessee and there
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were different agreements i.e. first agreement to sell the plot and then an agreement to develop the plot of land and hence, title in the said property was not with the assessee absolutely. The said facts were made known to Sai Developers with whom the assessee had entered into development agreement dated 12.07.2006. In view of various hindrances to the development of property on account of various stakeholders, the assessee explained that it did not receive the market value of the property on the date of entering into the development agreement i.e. on 12.07.2006. The assessee had 1/3rd share in the said property, 1/3rd each of the other two assessee before the Tribunal.
The question which arises is that in case where there are encumbrances on the property by way of assessee having first agreed to sell the property to one person but the sale had not gone through and then entering into development agreement with another person and the development not taking place and then the assessee having entered into development agreement, under which it received the money, the question which needs to be answered is whether the value received by the assessee in such circumstances, was correct as against the market value of property, which was in respect of unencumbered property. Such aspect has been raised by the assessee before the authorities below but both the authorities below have failed to comment on them. No reference has been made to the said events and documents and the assessee has been held to be absolute owner of the property and the value determined by the stamp valuation authority has been adopted to compute the income from long term capital gains in the hands of assessee. There is no substance in the orders of authorities below, wherein they have failed to take cognizance of various factors which are linked to the said property and also the factum of assessee having no physical possession of the property and there being encumbrances on account
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of different agreements. The said aspects needs to be considered in order to determine the nature of rights held by the assessee, are they absolute and unencumbered and they are partial encumbrances. Once these events are kept in mind and the nature of rights of assessee are determined, then in such circumstances, the assessee would be entitled to claim the benefit of circumstances, which worked against it vis-à-vis property held by it. Once it is held that the assessee did not have complete ownership of property, the next question which arises is whether the provisions of section 50C of the Act are applicable or not. All these aspects have not been considered by the authorities below, though the assessee has raised the issue before them. These are vital aspects which need to be considered both by the authorities below before coming to the conclusion as to the provisions of section 50C of the Act are applicable or not in this regard. In view of peculiar circumstances of the case and following the principles of natural justice, there is need to remit this issue to the file of Assessing Officer in order to adjudicate the said issue on the basic imports of ownership of asset by the assessee and the encumbrances on the said asset which in turn, affects the ownership rights of assessee and whether in such circumstances, the provisions of section 50C of the Act can be applied or not in accordance with thereto. The matter is set aside to the file of Assessing Officer to consider various aspects as pointed out in the paras hereinabove and first decide the issue whether in the circumstances of the case, provisions of section 50C of the Act are attracted or not. In case the same are attracted and applicable, then the second aspect is the plea of assessee for making reference to the DVO. The assessee had raised objections to the valuation done by the stamp valuation authorities during the course of assessment proceedings itself. In other words, the assessee has objected to the stamp valuation done by the stamp valuation authorities. In such circumstances, the Assessing Officer has to
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make reference to the DVO. The word used ‘may’ in section 50C(2) of the Act is not to be used as deterrent i.e. the Assessing Officer does not have authority to refuse to make reference to the DVO, where the assessee under given circumstances pointed out that valuation adopted by the stamp authorities is not correct; there is no merit in the stand of Assessing Officer in this regard. In such circumstances, the Assessing Officer is directed to make reference to the DVO after concluding the first aspect of the issue whether the provisions of section 50C of the Act are applicable or not to the given facts and circumstances. The grounds of appeal raised by the assessee are allowed as indicated above.
The assessee has also raised the issue with regard to retrospective application of amendment brought to section 50C(2) of the Act, which is not being addressed at present. The said ground of appeal raised by the assessee is thus, dismissed.
The facts and issues in ITA Nos.111/PUN/2017 & 112/PUN/2017 are identical to the facts and issues in ITA No.113/PUN/2017 and the decision in ITA No.113/PUN/2017 shall apply mutatis mutandis to ITA Nos.111/PUN/2017 & 112/PUN/2017.
In the result, all the appeals of assessee are partly allowed.
Order pronounced on this 18th day of May, 2018.
Sd/- (SUSHMA CHOWLA) न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 18th May, 2018. GCVSR
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आदेश की प्रयिलऱपप अग्रेपषि/Copy of the Order is forwarded to : अऩीऱाथी / The Appellant; 1. प्रत्यथी / The Respondent; 2. आयकर आयुक्त(अऩीऱ) / The CIT(A)-3, Pune; 3. 4. The Pr.CIT-2, Pune; ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे, एक-सदस्य 5. मामऱा / DR ‘SMC’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune