2018 (1) TMI 582 - AT - Income Tax

Distress sale by public entity not subject to Section 50C, ITAT rules

The ITAT upheld the CIT(A)'s decision, ruling that Section 50C could not be invoked in this case. The sale consideration of Rs. 12 crores received from ... Capital gain computation - AO has invoked section 50C merely relying on the SRO value for the purpose of stamp duty - sale of assets by the bank through action due to default in paying debts - Held that:- The sale was distress sale - AO cannot adopt the sale consideration at ₹ 21,88,97,000/- and invoke section 50C. See CIT Vs. Shr. Chandra Narain Chaudhri [2013 (9) TMI 646 - ALLAHABAD HIGH COURT] . Accordingly, we deem it fit to dismiss the grounds raised by the revenue. Issues Involved:1. Applicability of Section 50C of the Income Tax Act, 1961, in cases where the purchaser is a government undertaking.2. Determination of the sale consideration for the purpose of calculating Long Term Capital Gains (LTCG).3. Validity of the sale transaction as a distress sale.Detailed Analysis:1. Applicability of Section 50C:The primary issue was whether Section 50C could be invoked when the purchaser is a government undertaking, Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC). The Assessing Officer (AO) adopted the stamp duty value of Rs. 21,88,97,000 as the sale consideration instead of the actual sale consideration of Rs. 12 crores received by the assessee. The CIT(A) held that Section 50C could not be invoked in this case because the transaction was conducted by a public sector entity (APIIC) through a public auction, leaving no scope for unaccounted money. This decision was supported by the ITAT Pune Bench's ruling in the case of Krishi Utpanna Bazaar Samitee vs. DCIT, which stated that the highest price in a public auction should be considered the fair market value for stamp duty purposes.2. Determination of Sale Consideration:The AO's decision to adopt the stamp duty value was challenged by the assessee, who argued that the actual sale consideration of Rs. 12 crores should be considered for calculating LTCG. The CIT(A) agreed with the assessee, noting that the sale was conducted through a public auction by IDBI, a public sector entity, and the purchaser was also a government entity. The CIT(A) emphasized that the entire transaction was transparent and involved no unaccounted money. This was further supported by the valuation report from a registered valuer, which assessed the property value at Rs. 8.02 crores, much lower than both the stamp duty value and the actual sale consideration.3. Validity of the Sale Transaction as a Distress Sale:The assessee argued that the sale was a distress sale, conducted under the supervision of the Board of Industrial Financial Reconstruction (BIFR) and IDBI, due to the company's financial difficulties. The CIT(A) and the ITAT both agreed that the sale was indeed a distress sale, as the company was declared a sick industrial company and the sale was part of a revival package. The ITAT noted that the AO failed to provide any evidence that the assessee received any other benefit directly or indirectly from the sale. The ITAT also cited the Allahabad High Court's ruling in CIT vs. Shr. Chandra Narain Chaudhri, which held that Section 50C is a rebuttable presumption and does not apply if the actual sale consideration reflects the fair market value in a distress sale.Conclusion:The ITAT upheld the CIT(A)'s decision, ruling that Section 50C could not be invoked in this case. The sale consideration of Rs. 12 crores received from the public auction conducted by IDBI was deemed appropriate for calculating LTCG. The appeal by the revenue was dismissed, reinforcing the principle that distress sales conducted transparently by public sector entities should not be subjected to the deeming provisions of Section 50C.