2010 (12) TMI 618 - AT - Income Tax

Tribunal rules in favor of assessee, overturns CIT(A) decision on capital gains computation.

Moole Rami Reddy Versus ITO

The Tribunal ruled in favor of the assessee, holding that the value declared by the assessee on the date of the sale agreement should be used for ... Addition u/s 50C - Date of sale agreement versus date of execution / completion of sales agreement - This section provides for adoption of value assessed/determined by the Stamp valuation authority for the purpose of payment of stamp duty (hereinafter 'stamp duty value'), if the sale consideration disclosed in the sale deed is less than the stamp duty value - Section 50C was inserted by the Finance act 2002 w.e.f. 1.4.2003 - Held that:- since the value of the property declared by the assessee as on the date of sale agreement is higher than the value shown in the certificate issued by the Joint Sub Registrar, Visakhapatnam, regarding market value of the impugned property as on the date of the sale agreements, the value declared by the assessee is to be adopted for computing the capital gain. Therefore, no addition is called for - Decided in favour of assessee. Issues Involved:1. Confirmation of addition under Section 50C of the Income Tax Act, 1961.2. Application of the amended provision of Section 50C to sale agreements.3. Consideration of cash advance in the sale transaction.4. Dispute over the value adopted by the stamp valuation authority.Issue-wise Detailed Analysis:1. Confirmation of Addition under Section 50C of the Income Tax Act, 1961:The core issue in this appeal was the correctness of the addition made by the Income Tax Officer (ITO) under Section 50C of the Income Tax Act, 1961. The assessee contested the addition of Rs.5,56,000/- (50% of Rs.11,12,000/-) being the difference between the sale consideration in the sale deed and the market value adopted by the Registrar for stamp duty purposes. The assessee argued that the circumstances under which the sale deed was executed were not considered. The Tribunal noted that the assessee had declared 50% share of taxable short-term capital gains on the sale of the plot, adopting the sale value of the property at Rs.16,02,000/-. However, the market value of the property sold was shown at Rs.27,14,000/- as per the sale deed dated 3.2.2006. Consequently, the market value of Rs.27,14,000/- was adopted as per Section 50C, and the assessee's share of 50% was calculated as Rs.5,74,268/-. The CIT(A) upheld the ITO's action, leading to the appeal.2. Application of the Amended Provision of Section 50C to Sale Agreements:The assessee contended that the latest amended position of Section 50C, which applies to sale agreements, was not considered. The assessee argued that the conditions of Section 50C were fulfilled at the time of the sale agreement, where the market value of the sold property for stamp duty purposes was less than the actual sale consideration. The Tribunal referred to its earlier decision in the case of Koduru Satya Srinivas vs. ACIT, where it was held that the rates prevailing on the date of the agreement should be adopted instead of the rates prevailing on the date of registration of the property. The Tribunal emphasized that the provisions of Section 50C should be applied based on the date of the sale agreement.3. Consideration of Cash Advance in the Sale Transaction:The assessee argued that a cash advance was taken as soon as the deal was finalized through the agreement, and this was mentioned in the regular sale deed. The assessee was in a desperate mood to sell, and the transaction proceeded naturally without any afterthought arrangement. The Tribunal considered this argument and noted that the assessee had furnished a valuation certificate from the sub-registrar's office as on 5.9.2005, showing the market value of the property at Rs.14,43,750/-, which was less than the actual sale consideration of Rs.16,02,000/- agreed upon by the parties.4. Dispute over the Value Adopted by the Stamp Valuation Authority:The assessee disputed the value adopted by the stamp valuation authority under Sub-section (1) of Section 50C before the CIT(A). The Tribunal, referring to the Supreme Court's decision in K.P. Verghese vs. ITO, emphasized that a strictly literal reading of Section 50C should not be adopted if it leads to unreasonable and absurd consequences. The Tribunal noted that the object of introducing Section 50C was to prevent undervaluation of property to defraud revenue by pumping in black money. The Tribunal concluded that the character of the transaction should be determined based on the conditions prevailing on the date the transaction was initially entered into, i.e., the date of the sale agreement.Conclusion:The Tribunal decided in favor of the assessee, holding that since the value of the property declared by the assessee as on the date of the sale agreement was higher than the value shown in the certificate, the value declared by the assessee should be adopted for computing the capital gain. Consequently, no addition was called for, and the order of the CIT(A) was set aside. The A.O. was directed to delete the addition made in this regard. The appeal of the assessee was allowed.Result:The appeal of the assessee was allowed, and the order was pronounced in the open Court on 10.12.2010.