ITAT rules in favor of assessees, rejects Section 50C application for TDR rights transfer

The ITAT Hyderabad allowed the appeals of two assessees against the CIT (A) order invoking Section 50C of the Act for AY 2007-08. The tribunal held that as the assessees had only transferred future compensation and TDR rights, not immovable property, Section 50C should not apply. It emphasized the need for actual market value determination and concluded that in this case, the distress sale nature and absence of cash compensation warranted the exclusion of Section 50C. The tribunal directed the AO to delete the additions made under Section 50C for both assessees, citing a Mumbai Tribunal decision and the impact of the Covid-19 lockdown on the delayed order.

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Issues:
Appeals filed against CIT (A) order invoking Section 50C of the Act for AY 2007-08.

Analysis:
The appeals were filed by two assessees against the CIT (A) order confirming the Ld. AO's invocation of Section 50C of the Act. The issue revolved around the Ld. CIT (A) confirming the order of the Ld. AO who applied Section 50C of the Act, leading to an increase in the sale consideration for computing Capital Gains.

The assessees jointly sold property, and discrepancies were noted in the disclosed sale consideration and the SRO value for stamp duty purposes. The Ld. AO invoked Section 50C, enhancing the sale consideration based on the SRO value. The assessees contended that the property's market value was lower due to impending acquisition and loss of marketability, making the SRO value irrelevant.

The Ld. AO considered the property as land and building, applying Section 50C. However, the assessees argued that they transferred only their right to receive future compensation and TDR rights, not the immovable property itself. They maintained that Section 50C should not apply in their case.

The ITAT Hyderabad held that Section 50C aims to prevent tax evasion in real estate transactions. It noted the provision for valuation officer referral under Section 50C(2) to determine actual market value. In this case, the assessees had not transferred the immovable property but only future compensation and TDR rights, which do not qualify as immovable property. The tribunal found no evidence that the transferred rights equaled the SRO value.

Considering the distress sale nature and absence of cash compensation, the tribunal concluded that Section 50C should not be invoked. It set aside the CIT (A) order and directed the AO to delete the additions made under Section 50C for both assessees.

The tribunal justified the delayed order due to the Covid-19 lockdown situation and referenced a Mumbai Tribunal decision. Ultimately, the appeals of the assessees were allowed, and the order was pronounced in open court on 22-07-2020.

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