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Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI Before Sh. N. K. Saini, AM And Smt. Beena Pillai, JM Asstt. Year : 2008-09 Assistant Commissioner of Vs M/s Uttrakhand Construction Co. Income Tax, Circle, Haridwar, Pvt. Ltd., 1, Gole Market, D-29 & 30, Industrial Area, Rishikesh, Uttrakhand Haridwar (APPELLANT) (RESPONDENT) PAN No. AAACU7007L Assessee by : Sh. Gautam Jain, Adv. Revenue by : Sh. J. P. Chandrakar, Sr. DR Date of Hearing : 03.09.2015 Date of Pronouncement : 27.11.2015 ORDER Per N. K. Saini, AM:
This is an appeal by the department against the order dated 23.11.2011 of CIT(A)-1, Dehradun.
Following grounds have been raised in this appeal:
“1. Whether, the Ld. CIT(A) has erred in law and on facts in allowing full value of consideration at Rs. 51,00,000/- in place of Rs. 1,16,25,000/- as the circle rate as on the date of registration with stamp duty officer was Rs. 1,16,25,000/-. 2. Whether, the Ld. CIT(A) has erred in law and on facts and was not justified in ignoring the fact that the Assessee never claimed before the AO that the value 2 Uttrakhand Construction Co. Pvt. Ltd. adopted by the stamp valuation office exceeded the fair market values as on the date of transfer, and, therefore, the valuation by the stamp valuation authority at Rs. 1,16,25,000/- was not subject to substitution by any other valuation.
Whether, the Ld. CIT(A) has erred in law and on facts by relating the transaction to the demise of the purchaser in the light of the fact that only the date of transaction when a document is registered, is considered and put to test and no other date is relevant.
4. Whether, the Ld. CIT(A) has erred in law in as much as he did not have any evidence in support of the contention of the assessee that the value of the property was lower than the valuation made by the stamp valuation authority.
Whether, the Ld. CIT(A) has erred in law and on facts by upholding the submission of the assessee ignoring the scheme of the provisions of Section 50C of the Act which squarely covers the case.
6. Whether, the Ld. CIT(A) has erred in law and on facts by accepting the valuation of the property adopted by the assessee while the valuation made by the stamp valuation authority had not been disputed on ground of the Fair Market Value being lower.
7. The order of the Ld. CIT(A) be set aside and that of the AO be restored.”
3 Uttrakhand Construction Co. Pvt. Ltd. 3. From the above grounds it is clear that only grievance of the department relates to the deletion of the addition made by the AO by substituting the Fair Market Value of the property sold by the assessee at Rs. 1,16,25,000/- as against Rs. 51,00,000/- shown by it, in the return of income.
Facts of the case in brief are that the assessee, a private ltd. company filed the return of income electronically on 19.09.2008 declaring total income of Rs. 20,26,650/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings the AO noticed that the assessee agreed to sell a piece of land owned by it to Sh. Pradeep Kumar for Rs. 51,00,000/- and part of the sale consideration had been received as per following details:
26.12.2002 Rs. 15,00,000/- 18.01.2003 Rs. 20,00,000/- 5. However, the sale deed could not be executed due to death of Sh. Pradeep Kumar. After his death the transaction was concluded by his legal heirs Sh. Purushotam Kumar and Smt. Manju Devi. The sale deed of the land was registered on 23.02.2008 after payment of balance amount of Rs. 16,00,000/-, during the year under consideration. The valuation of the said property was adopted by the registering authority for the purpose of stamp duty at the time of registration of the sale deed at Rs. 1,16,25,000/-. The AO applied the provision of Section 50C of the 4 Uttrakhand Construction Co. Pvt. Ltd. Income Tax Act, 1961 (hereinafter referred to as the Act) and substituted this amount for an amount of Rs. 51,00,000/- shown by the assessee as the full value of consideration.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:
“i) The agreement had been entered as far back as December, 2002 and the sale consideration had also been received substantially by January, 2003. It is a different matter that, due to sudden death of the prospective purchaser Shri Pradeep Kumar, the sale deed could not executed. But the assessee was under obligation to honour its commitment as per the agreement and was not entitled to any further consideration. Even otherwise, there is nothing on record to suggest that it actually received additional consideration. The provision of section 50C of the I.T. Act was introduced to curb the practice of under valuation of immovable property transactions. The provision should not apply in the peculiar circumstances of the case where there was a genuine agreement to sell in the year 2002 and the agreed consideration was not below the circle rate prescribed for stamp duty purposes at that time. ii) Even though stamp duty was charged as per the circle rate prescribed by the registering authority, the fair market value of the property even on the date of execution of the sale deed was much below that value. The property was south facing which is not considered good by people. A factory had been set up on the land. The owner suffered huge losses. Hence, the property had to be auctioned by the U.P. Finance Corporation in order to settle its loan dues. The assessee acquired the property in the said auction. But the main director, namely, 5 Uttrakhand Construction Co. Pvt. Ltd. Mr. Natha Singh Pokhriyal, died soon after taking its possession. It decided to sell the property to Shri Pradeep Kumar. But he also died before the sale deed could be executed. Due to the series of unfortunate events, the property got a tag of being inauspicious. Moreover, the assessee’s land was quite big in size and big properties generally get lower rate as compared to the circle rate fixed by the registering authority.”
The ld. CIT(A) after considering the submissions of the assessee deleted the addition by observing in paras 1.4 to 1.7 of the impugned order which read as under:
“1.4 The provision of section 50C of the I.T. Act was introduced in the I.T. Act in view of large scale under valuation of immovable property transactions. It seeks to adopt the value adopted for stamp duty purpose as the fair market value for income tax purposes if the same exceeds the declared sale value. But this rule is not absolute. The taxpayer is entitled to challenge such adoption and claim before the AO that the value so adopted exceeds the fair market value of the property as on the date of the transfer. The AO may make reference to the departmental valuation officer and ask the latter to determine the fair market value. If the FMV determined by the latter is less than the value adopted for stamp duty purposes, the lesser value only is applied and is deemed to be the full value of consideration. 1.5 In this case, the assessee represented before the AO that, due to historical reasons as discussed above, the fair market value of the property as on date of registration of the sale deed was much below the value adopted for stamp duty purposes. The series of unfortunate events in the past could have left a 6 Uttrakhand Construction Co. Pvt. Ltd. tag of inauspiciousness being attached to the property in public mind and that, in turn, could have affected its value adversely. The AO’s view that reference to the valuation officer was not called for unless the assessee “proves with supporting evidences that value adopted by stamp valuation authority exceeds market value for the property on the date of transfer” is wrong. If the assessee is in a position to ‘prove’ this fact with supporting evidences, what is left for the valuation officer to do? What is required for such a reference is that the assessee should be able to make a prima facie case in support of his claim and opinion of an expert officer i.e. D.V.O. is required in order to determine the FMV of the property. In this case, the assessee had made such a prima facie claim. Hence, the AO was not justified in refusing to make a reference to the valuation officer. 1.6 As mentioned above, the provision of section 50C is aimed at checking tax evasion. In this case, as discussed above, the seller had agreed to sell the immovable property long back. It had also received substantial part of the consideration soon after the agreement. According to it, it could not execute the sale deed due to the sudden demise of the purchaser. There is nothing on record to show that the assessee’s explanation is incorrect or that he actually received any additional consideration for the delayed execution of the sale. In this factual situation, the applicability of the section itself is doubtful. It is true that law does not provide for an exception to application of the section 50C of the I.T. Act in such cases of genuine hardship. Hence, the AO could be technically justified in applying the said section in this case. But law does provide for protection to the assessee against this provision by way of sub-section (3), requiring determination of the FMV by the valuation officer in case the assessee makes a prima facie case that value so adopted exceeds the fair market value of the property as on the date of the transfer. The AO did not 7 Uttrakhand Construction Co. Pvt. Ltd. disbelieve or disprove the assessee’s claim and yet refused to make such reference. As discussed above, such refusal was not valid in the eyes of law. Given the facts and circumstances of the case, mechanical application of provision of Section 50C and the consequent enhancement of the full value of consideration cannot be justified. 1.7 In this case, the fact that the agreement had been made and the sale price had been determined long back is also a relevant consideration. The assessee had received the substantial part of the consideration which was shown by it in its books of account as “advance against land”. The AO observed that, if the assessee had no intention to transact below the circle rate, it should have shown the capital gains in A.Y. 2003-04 only when the agreement was made. This observation is also wrong. The definition of the word ‘transfer’ is given in section 2(45) of the I.T. Act and the assessee is not free to offer capital gains unless there is a transfer of the capital asset in the first place. According to the assessee, there was no transfer earlier. If the AO was in a position to show that transfer had taken place, she was free to tax the income in the earlier previous year. On the other hand, if the assessee was in a position to execute the sale deed earlier, there is no reason why it should not have done so because, by doing so the buyer would have saved stamp duty (as the value in 2002 was much lower) and the seller could have also avoided the application of section 50C of the I.T. Act. The AO’s suspicion that the delayed execution of the sale deed resulted in enhanced consideration to the assessee is not wholly without basis. But, such a suspicion, without any material evidence to support it, cannot be a good basis to conclude that the assessee actually received any additional consideration. The legal fiction of section 50C of the I.T. Act was also a useful tool in her hand. But, by refusing to entertain the inherent protection given to the assessee by law, 8 Uttrakhand Construction Co. Pvt. Ltd. she lost the legitimacy of its application. On overall consideration of the facts and circumstances of the case, it is held that the AO’s decision to substitute the declared sale value by rate adopted for stamp duty purposes was incorrect. Consequently, the addition is deleted.”
Now the department is in appeal. The ld. DR reiterated the observations made by the AO and strongly supported the assessment order dated 16.12.2010. It was further submitted that the sale rate adopted by the assessee was less than the circle rate. Therefore, the provisions of Section 50C of the Act were rightly applied by the AO and the ld. CIT(A) was not justified in deleting the addition made by the AO.
In his rival submissions the ld. Counsel for the assessee submitted that when the agreement was entered to purchase the property, the circle rate was the same as was the sale rate. However, the sale deed could not be executed due to the death of the purchaser and later on the sale deed at the price which was in accordance with the agreement was entered into. The reliance was placed on the following case laws: � M/s Lahiri Promoters Vs ACIT in order dated 22.06.2010 � ITO Vs M/s Modipon Ltd. in ITA No. 2049/D/2009 order dated 09.01.2015 � Sanjeev Lal Vs CIT 365 ITR 389 (SC) � Sarwan Kumar Vs ITO 150 ITD 289 (Del.-Trib.) � K. P. Varghese Vs ITO 131 ITR 597 (SC)
9 Uttrakhand Construction Co. Pvt. Ltd.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the assessee executed an agreement to sale with Sh. Pradeep Kumar and agreed to sale a piece of land owned by it for Rs. 51,00,000/- and also received the part of sale consideration amounting to Rs. 35,00,000/-. However, the sale deed could not be executed due to the death of Sh. Pradeep Kumar (the purchaser), after his death transaction was concluded by the legal heirs of the deceased purchaser and the balance amount was paid. In the present case, nothing is brought on record to substantiate that when the sale agreement was executed the market rate of this property was more than what was the agreed sale price. In the present case no reference was made to the D.V.O, as such the provisions of Section 50C of the Act were wrongly applied by the AO. We, therefore, by considering the totality of the facts, do not see any valid ground to interfere with the findings given by the ld. CIT(A). In that view of the matter we do not see any merit in this appeal of the department.