2020 (7) TMI 623 - AT - Income Tax

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

Sri Justice B. Subhashan Reddy (HUF) Hyderabad Versus Asst. Commissioner of Income Tax, Circle-4 (1), Hyderabad

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 ... Capital gain computation - Applicability of section 50C - HELD THAT:- Provisions of section 50C was introduced to curb the menace of unaccounted cash being infused in the real estate transactions. Quite often the actual sale consideration paid for acquiring immovable property is more than the sale consideration disclosed in the sale deed executed. In order to overcome the escapement of Capital Gain Tax on such transactions, Section 50C was introduced in the Statute, so as to at least adopt the market value of the State Revenue Authority as the sale consideration for the purpose of computing Capital Gain under the provisions of the Act. To avoid genuine hardships to the assessee, the provisions of Section 50C(2) provided for referring the matter to the Valuation officer of the Revenue to determine the actual market value of the immovable property sold by considering all the relevant factors which may not have been considered by the State Valuation Authority. In the case of the assessee, the value of the property is already determined by the State Government which is nothing but the amount of ₹ 46,22,878/- coupled with certain TDS rights. No compensation is paid by way of cash for acquisition of the land in the case of both the assessee. It is apparent that the assessee have not actually transferred their immovable property consisting of land and building but have only transferred their right to receive the amount of the compensation and the TDR rights and both these asset do not fall under the category of immovable property. There is no finding by the Ld. Revenue Authorities that the market value of the TDR rights received by the assessees coupled with the amount is at par with the SRO value of the property. It is also evident that the transaction is a distress transaction causing mental agony due to loss arising out of land acquisition and wastage of land. Provisions of section 50C of the Act cannot be invoked in the hands of both these assessee. Hence set aside the order of the CIT (A) and direct the Ld. AO to delete the addition made invoking the provisions of section 50C of the Act in the case of both the assessee. Appeals of the assessee are allowed. 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.