2017 (5) TMI 1108 - HC - Income Tax

Appeal Dismissed: Importance of Factual Analysis in Interpreting Tax Law

Pr. Commissioner of Income Tax-6 Versus Modipon Limited

The Court dismissed the appeal, emphasizing the importance of factual analysis and external evidence in interpreting Section 50(C) of the Income Tax Act. ... Addition u/s 50(C) - circle rate had undergone an upward revision by 16.09.2004 - Held that:- Where there is adequate external evidence supporting the assessee’s case that the transaction has been recorded and been reflected objectively in the form of a registered instrument (agreement to sell dated 27.05.2004), and all subsequent payments made have adhered to the time schedule agreed upon in respect of the amounts, the application of Section 50(C) would be unwarranted. ITAT’s conclusion that the transaction was covered by two deeds, both of which characterised as sale deeds though not strictly correct in one sense, describes the nature of the agreements between the parties. Quite possibly there can be a situation like the present one where transaction recorded in the agreement to sell are acted upon over a period of time - and in the interregnum the circle rates are increased. Application of Section 50 (C) in such cases would result in extreme hardship. Parliament has recognized this mischief and has added proviso to Section 50 (C) (i) w.e.f. 01.04.2017. No substantial question of law. Issues:1. Interpretation of Section 50(C) of the Income Tax Act, 1961 regarding additions made by the Revenue in the assessment for Assessment Years 2005-06.Analysis:The primary issue in this case revolved around the interpretation and application of Section 50(C) of the Income Tax Act, 1961 concerning the additions made by the Revenue during the assessment for the years 2005-06. The case involved the sale of a plot by the assessee, with the Assessing Officer invoking Section 50(C)(1) due to an upward revision in circle rates. The Assessing Officer adopted the higher circle rate for the entire transaction, leading to additions in the capital gains reported by the assessee. The CIT (A) upheld the gains determined by the Assessing Officer, which was further contested by the assessee.The ITAT referred to previous judgments, including the ruling in Sanjeev Lal v. CIT and the ITAT (Vizag) decision in M/s Lahri Promoters v. ACIT, to support its decision. The Revenue argued that Section 50(C)(1) mandated the use of the circle rate prevailing on the date of the ultimate sale as the transaction value, and the Assessing Officer was justified in making the additions. The ITAT, however, conducted a detailed factual analysis and found that the transaction value was reflected in the registered sale deed, which was executed after an agreement to sell dated 27.05.2004. The payments were made in accordance with the agreed schedule, and an upward revision in circle rates occurred before the sale deed was registered.The Court acknowledged that in cases where there is external evidence supporting the transaction, such as a registered instrument like an agreement to sell, and payments are made as per the agreed schedule, the application of Section 50(C) may not be warranted. The Court highlighted the potential hardship that strict application of Section 50(C) could cause in situations where transactions are acted upon over a period of time, especially when circle rates are revised. It noted that Parliament recognized this issue and added a proviso to Section 50(C)(i) from 01.04.2017 to address such situations. Ultimately, the Court found no question of law arising and dismissed the appeal.In conclusion, the judgment delved into the nuances of Section 50(C) of the Income Tax Act, emphasizing the importance of factual analysis and external evidence in determining the applicability of the provision. It highlighted the need to consider the specific circumstances of each case to prevent undue hardship to taxpayers and recognized legislative amendments addressing such concerns.