2022 (10) TMI 832 - AT - Income Tax

Tribunal rules in favor of assessee, using correct circle rate for sale consideration calculation. Capital gains classification upheld.

The Tribunal allowed the appeal, ruling that the circle rate on the date of the agreement should be used for computing the sale consideration, leading to ... Long term capital gain - adopting the circle rate of sale consideration prevailing on the date of registry instead of date of agreement to sell - whether assessee is entitled to get benefit of the proviso to Section 50C(1) of the Act or not? - HELD THAT:-In implementation of Section 50C (1) of the Act the parties in many times faced undue hardship and difficulties when agreement to sell of a property was executed in earlier years and transferred took place in later years. During the intervening period price of the property has increased but the vendor is bound to perform agreement and can claim only the agreed consideration.The second proviso to Section 50C(1) of the Act also provided some safeguards and check and balances to ensure that only in genuine case of prior agreements. The assessee had entered into an agreement to sell on 17.01.2012 and received the maximum sale consideration on or before 20.07.2012 itself and also found that the first payment received i.e. on 17/01/2012 was by way of RTGS, thereby the conditions in second proviso of Section 50C(1) has been complied by the assessee. Therefore we have no hesitation to hold that the benefit of the first proviso to Section 50C(1) of the Act has to be extended to the assessee and the rate prevailing as on the date of agreement should be considered for the purpose of computing the full value of consideration of such transfer. The Ld. CIT(A) has committed error by not extending the benefit of the proviso to Section 50C (1) of the Act and sustained the addition, which deserves to be deleted. Appeal filed by the assessee is allowed. Issues Involved:1. Validity of adopting the circle rate of sale consideration on the date of registry instead of the date of agreement.2. Legitimacy of addition made by adopting a wrong circle rate.3. Correct head of income for taxation: business income vs. capital gains.4. Entitlement to set off long-term capital loss against the addition made.Issue-wise Detailed Analysis:1. Validity of Adopting the Circle Rate on the Date of Registry:The assessee contended that the circle rate prevailing on the date of the agreement to sell (17.01.2012) should be considered for computing the full value of consideration, as opposed to the higher circle rate on the date of registry (2014). The assessee received a significant portion of the sale consideration before the registry date. The Tribunal noted that the first proviso to Section 50C(1) of the Act, inserted by the Finance Act 2016, allows the value adopted by the stamp valuation authority on the date of the agreement to be used if the consideration was partly received by account payee cheque or electronic clearing system before the agreement date. The Tribunal ruled that the benefit of this proviso should be extended to the assessee, deeming the circle rate on the agreement date as applicable.2. Legitimacy of Addition Made by Adopting a Wrong Circle Rate:The assessee argued that the addition of Rs. 32,19,000/- was unjust as it was based on an incorrect circle rate. The Tribunal found that the assessee had entered into an agreement to sell at a circle rate of Rs. 30,000/- per sq. mts. in 2012, and received most of the sale consideration by July 2012. The Tribunal concluded that the authorities should have considered the circle rate on the agreement date, thus invalidating the addition made by adopting the 2014 circle rate.3. Correct Head of Income for Taxation:The lower authorities taxed the addition under business income instead of capital gains. The Tribunal, referencing the rectification order dated 28.02.2020, noted that the addition was reduced to Rs. 7,19,295/- as long-term capital gain after allowing indexation. The Tribunal upheld this classification, aligning with the assessee's claim that the transaction should be taxed under capital gains.4. Entitlement to Set Off Long-term Capital Loss:The assessee claimed a set-off of long-term capital loss of Rs. 24,99,705/- against the addition. However, since the Tribunal deleted the addition by allowing grounds 1 to 3, the issue of setting off the loss became moot. Consequently, the Tribunal dismissed this ground as infructuous.Conclusion:The Tribunal allowed the appeal filed by the assessee, ruling that the circle rate on the date of the agreement should be considered for computing the sale consideration, thereby deleting the addition made by the lower authorities. The Tribunal also confirmed the classification of the transaction under capital gains and dismissed the ground regarding the set-off of long-term capital loss as moot. The appeal was thus allowed in favor of the assessee.