Case Law Details
ITO Vs. Southern Steel Ltd. (ITAT Hyderabad)
The moot point in this case is whether Sec. 5OC can be invoked when the purchaser is a government undertaking i.e, Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC). In the real estate business it is prevalent that the substantial part of the consideration is unaccounted. In order to tax this unaccounted portion of consideration deeming provision was introduced as Section 5OC wherein when the consideration is less than stamp duty value, such stamp duty value is to be treated as full value consideration for the purpose of capital gain.
However, in the instant case the sale transaction was carried out by IDBI by way of public auction and the property was purchased by a government entity namely Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC). In this circumstances, I consider that it is too much to impute that APIIC paid unaccounted money. Further as per the sale deed dated 17-5-2011 the APIIC paid Rs. 12 crores to IDBI bank which is again a public sector undertaking. Therefore the entire transaction took place between two government entities where there is no scope for payment of any unaccounted money.
In this back ground it is pertinent to mention the decision of Krishi Utpanna Bazaar Samitee Vs DCIT in ITA 2043/PN/2012 dtd 20-3-20 14. The facts in this case were, the assessee Krishi Utpanna Bazaar Samitee was a state body of a Govt. of Maharashtra. It sold two properties in a public auction and received an amount of Rs.91,00,000/- and Rs. 15,51,000/-. The stamp duty value of these properties were Rs. 26, 14,,000/- and Rs.26, 14,000/- respectively, and the same value was adopted for 5OC purpose. While adjudicating the issue, the Hon’ble Pune Tribunal observed that the Govt. Maharashtra issued a circular dated 30/06/2005 wherein it was stated for the purpose of stamp duty the value to be adopted is the amount recovered in public auction. The facts in the above case are identical to that of appellant case. Keeping in view the above discussion when the property was purchased by the government entity in public auction for an amount of Rs. 12 crores. The Assessing Officer cannot adopt the sale consideration at Rs.21,88,97,000/- and invoke Section 5OC. In such circumstances when the consideration actually received was Rs. 12 crores and there is no scope for payment of any unaccounted money, the provisions of Section 5OC cannot be invoked.
Full Text of the ITAT Order is as follows:-
This appeal filed by the revenue is directed against the order of the learned Commissioner of Income-tax (A) – 3, Hyderabad, dated 21-06-2016 for AY 2012-13.2. Briefly the facts of the case are that the assessee filed its return of income for AY 2012-13 on 26/09/2012 admitting income of Rs. Nil. The return of income was processed u/s 143(1) on 31/03/2014. The case was selected for scrutiny under CASS and accordingly notices u/s 143(2) and 142(1) of the Act was issued.
2.1 Assessee is engaged in manufacturing cold rolled strips and started commercial production in 1972. Over the years, assessee suffered continuous business losses resulting in erosion of the entire net worth of the company. The matter was referred to Board of Industrial Financial Reconstruction (BIFR), which declared the company as sick industrial company and appointed Industrial Development Bank of India (IDBI) as the operating agency (OA). As per the direction of BIFR, IDBI constituted assets sale committee (ASC) comprising the following members:
1. Chairman, IDBI
2. Zonal Manager, Bank of India
3. Joint Secretary, Govt. of AP and the Assessee.
The above committee identified the factory land of 6.46 acres belonging to the assessee located at Industrial Estate Moulali, Secunderabad as surplus land which can be sold. Accordingly, in order to fix the reserve price, IDBI obtained valuation report from V. Jagannath Rao & Associates dated 07/12/2009, as per which, sale value was determined at Rs. 8.02 crores. Subsequently, news paper advertisements were given in leading newspapers like business standards, the Hindu, Eenadu on 12/05/2010 for inviting tenders for sale of factory land. The Committee received various tenders and the tenders were opened by ASC Committee on 26/06/2010. It has received highest bid from Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC), which is a public sector undertaking of Govt. of AP for an amount of Rs. 12 crores. As per the decision of ASC Committee, assessee transferred factory land to APIIC vide sale deed dated 17/05/2011.
2.2 Assessee has calculated Long Term Capital Gains from the sale of land and claimed set off of brought forward unabsorbed depreciation and current year’s loss and declared the net taxable income at NIL.
2.3 Although, as per sale deed dated 17/05/2011, the sale consideration received by assessee was Rs. 12 crores, for the purpose of stamp duty, the market value of the property was assessed by Sub-registrar, Malkajgiri at Rs. 21 ,88,97,000/-. Therefore, the AO had invoked provisions of section 50C and adopted sale consideration at Rs. 21,88,97,000/- as against Rs. 12 crores adopted by the assessee and arrived at LTCG at Rs. 11,29,46,806/- and made the addition accordingly, after adjusting the indexed cost of acquisition, rejected the contention of the assessee that the transaction was under distress sale and transferred to the corporation controlled State Govt.
3. Aggrieved by the order of the AO, assessee preferred an appeal before the CIT(A). The CIT(A) after considering the submissions of the assessee and the facts of the case, deleted the addition by observing as under:
“ I have gone through the relevant information on the record. The moot point in this case is whether Sec. 5OC can be invoked when the purchaser is a government undertaking i.e, Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC). In the real estate business it is prevalent that the substantial part of the consideration is unaccounted. In order to tax this unaccounted portion of consideration deeming provision was introduced as Section 5OC wherein when the consideration is less than stamp duty value, such stamp duty value is to be treated as full value consideration for the purpose of capital gain.
However, in the instant case the sale transaction was carried out by IDBI by way of public auction and the property was purchased by a government entity namely Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC). In this circumstances, I consider that it is too much to impute that APIIC paid unaccounted money. Further as per the sale deed dated 17-5-2011 the APIIC paid Rs. 12 crores to IDBI bank which is again a public sector undertaking. Therefore the entire transaction took place between two government entities where there is no scope for payment of any unaccounted money.
In this back ground it is pertinent to mention the decision of Krishi Utpanna Bazaar Samitee Vs DCIT in ITA 2043/PN/2012 dtd 20-3-20 14. The facts in this case were, the assessee Krishi Utpanna Bazaar Samitee was a state body of a Govt. of Maharashtra. It sold two properties in a public auction and received an amount of Rs.91,00,000/- and Rs. 15,51,000/-. The stamp duty value of these properties were Rs. 26, 14,,000/- and Rs.26, 14,000/- respectively, and the same value was adopted for 5OC purpose. While adjudicating the issue, the Hon’ble Pune Tribunal observed that the Govt. Maharashtra issued a circular dated 30/06/2005 wherein it was stated for the purpose of stamp duty the value to be adopted is the amount recovered in public auction. The facts in the above case are identical to that of appellant case. Keeping in view the above discussion when the property was purchased by the government entity in public auction for an amount of Rs. 12 crores. The Assessing Officer cannot adopt the sale consideration at Rs.21,88,97,000/- and invoke Section 5OC. In such circumstances when the consideration actually received was Rs. 12 crores and there is no scope for payment of any unaccounted money, the provisions of Section 5OC cannot be invoked. The Hon’ble Pune Tribunal also observed that the stamp duty paid by the purchaser on SRO value is of no relevance.”
4. Aggrieved by the order of the CIT(A), the revenue is in appeal before us raising the following grounds of appeal:
1. The learned CIT (A) erred in both in law and on facts of the case.
2. The learned CIT(A) erred in directing the A.O. to adopt the actual sale consideration received of Rs. 12.00 Crs. as against the full value of the consideration as per stamp duty of Rs. 2 1,88,97,000/- as per Section 5OC.
3. The learned ClT(A) failed to apply the provisions of Sec. 5OC to the facts of the case in proper perspective.
4. Any other ground(s) that may be urged at the time of hearing.”
5. The DR relied on the order of AO while the ld. AR of the assessee relied on the order of the CIT(A) as well as placed reliance on few cases, in particular, the decision of the ITAT Pune Bench in the case of Krishi Utpanna Bazar Samittee, ITA No. 2043/PN/2012, dated 20/03/2014, a copy of which is placed on record.
6. Considered the rival submissions and perused the material facts on record. It is a known fact that assessee is the declared sick company by BIFR on 18/05/1997 and IDBI is appointed as operating agency u/s 17(3) of the Act of the SIC Special Provisions of the Act, 1985. In order to examine viability of the company and formulating revival package for the company. Since the assessee has become sick, operation of the assessee company was taken over by operating agency i.e. IDBI in order to rehabilitate the company. Accordingly, IDBI has constituted Asset Sale Committee (ASC) to identify surplus assets in the company. Accordingly, it has identified factory land of 6.64 acres belonging to the company located at Industrial Estate, Moula Ali, Secunderabad. In order to fix the reserve price, IDBI obtained valuation report from the Registered Valuer i.e. Mr. V. Jagannath Rao and Associates on 07/12/2009, as per which, the registered value was at Rs. 8.02 crores. ASC invited tenders by advertising in the leading news papers. The Committee has received highest bidder from APIIC i.e. public undertaking of Govt. of AP for an amount of Rs. 12 cores. The same was finalized and the factory land was sold to APIIC vide sale deed dated 17/05/2011. AO has invoked section 50C on the above transaction by merely relying on the SRO value for the purpose of stamp duty. In our considered view, AO cannot adopt SRO value u/s 50C for the following reasons:
a) Sale was made by ASC Committee wherein the assessee is one of the Member as Joint Secretary.
b) Assessee was never a decision maker in the above process of sale and always remain as a sick industrial undertaking under distress for revival.
c) The purchaser is another public sector undertaking of Govt. of AP.
d) The operating agency i.e. IDBI has obtained valuation report from the registered valuer determining the value of the property at Rs. 8.02 crores, which is far below both the SRO value as well as the value at which it was sold.
e) Moreover, the AO has not brought on record any finding that the Assessee has received any other benefit directly or
By considering the above facts, in our considered view, the sale was distress sale. In this connection, we refer to the ratios laid down in the following cases, on which, inter-alia, reliance is placed by the assessee:
i) In the case of CIT Vs. Shr. Chandra Narain Chaudhri vide ITA No. 287 of 2011, dated 29/08/2013, the Allahabad High Court has held as under:
“Section 50-C of the Act is a rule of evidence in assessing the valuation of property for calculating the capital gain. The deeming provision under Section 50C(1) of the Act is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. In the present case, it is stated that the property was under the tenancy of father of the purchaser since 1969 and thus the assessee being land lord of the property, offered it for sale to the tenant, which could not have attracted fair market value, as a willing purchaser may have offered for a property in vacant condition. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value in the condition the property is a offered for sale and is purchased. He is required to value the property in accordance with the circle rates fixed by the Collector. The object of the valuation by the Stamp Valuation Authority is to secure revenue on SUch sale and not to determine the true, correct and fair market value on Which it may be purchased by a Willing purchaser Subject to and taking into consideration its situation, condition and of her attributes such as it occupation by tenant, any charge or legal encumbrances.”
ii) In the case of Krishi Utpanna Bazar Samittee Vs. DCIT, in ITA No. 2043/PN/2012 and others vide order dated 20/03/2014, on similar issue as in the case under consideration, observed as under:
8. We have carefully considered the rival submissions. Section 50C of the Act is a special provision which provides a deeming fiction. In terms of section 50C of the Act in cases where the consideration received or accruing as result of the transfer of a capital asset being land or building or both, is lower than the value adopted or assessed by any authority of State of Government for the purposes of payment of stamp duty in respect of such transfer, then the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for the purposes of computing capital gain in terms of section 48 of the Act. In the present case, the Revenue has sought to justify invoking of section 50C of the Act primarily on the ground that the value adopted by the Stamp Valuation Authority for the purposes of payment of stamp duty in respect of transfer of the two properties in question is higher than the actual consideration accruing to the assessee as a result of their sale. The defence of the assessee is that the sale consideration stated in the sale-deed is liable to be taken as the fair market value even for the purposes of payment of stamp duty in the present case because the sale/transfer in the present case is by way of a public auction conducted by a statutory body. Pertinently, the assessee is a statutory body incorporated under the provisions of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963 and is inter-alia, engaged in the activity of marketing of agricultural produce as a public utility. The moot question is as to whether the aforesaid proposition of the assessee is in accordance with law or not.
9. As noted earlier, the objective of section 50C of the Act is to substitute the value adopted by a Stamp Valuation Authority as the full value of consideration in cases where the actual consideration received or accruing to an assessee is lower than the value assessed by Stamp Valuation Authority. In other words, in such situations, the value determined by the Stamp Valuation Authority is to be taken as the full value of consideration in order to compute the capital gains. In this context, assessee has referred to the provisions of rule 4(6) of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995, especially the proviso which we have reproduced in the earlier part of this order. In terms of the said proviso, the Government of Maharashtra has issued a Circular dated 30.06.2005 (supra) dealing with the cases where sale is conducted by Debt Recovery Tribunal and other Government or non-government organizations by Public auction. Considering the provisions of rule 4(6) of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995, the said Circular prescribes that in aforesaid cases the highest price as certified shall be considered as the fair market value for the purposes of payment of stamp duty. The relevant portion of the Circular, a copy of which has been placed on record, reads as under :-
“1. While registering the documents in respect of Sale conducted by Debt Recovery Tribunal and other Govt./ non govt. organizations or their competent authorities by public auction on as is where is basis and along with the encumbrances and as per terms and conditions of the auction sale, the highest price as certified in the sale certificate or other order issued by such authority should be considered as fair market value for the purposes of stamp duty and in such cases the price as per ready reckoner should not be considered.
2. The registering authority should assess the stamp duty on the value mentioned in the Sale certificate and the said Sale certificate and extract of property card should be made annexure of the document to be registered.
3. The market value as defined in Section 2 [na] of The Bombay Stamp Act, 1958 in respect of such property should be restricted to the value declared in sale certificate only for registration of such document. Therefore if such property is / subsequently sold, the value as per ready reckoner should be taken for that transaction.”
10. In the present case, assessee before us is a statutory body and the sale of properties in question has been made through the route of Public auction, which is not in dispute. The CIT(A) has also reproduced the submissions of the assessee before him which inter-alia contain averments that the sale of the properties was conducted in Public auction, after seeking necessary permissions from the Director of Panan of Maharashtra State. Factually speaking, in our considered opinion, the impugned transfers effected by the assessee by way of public auction fall within the purview of the Circular issued by Government of Maharashtra dated 30.06.2005 (supra) for the purposes of payment of stamp duty. In terms of the said Circular, the highest price in the sale auction is considered to be the fair market value for the purposes of payment of stamp duty. This would mean that the consideration stated in the sale-deed is to be accepted as the fair market value for the purposes of payment of stamp duty in the present case and not the prices worked out as per the ready reckoner. Ostensibly, in such a situation the invoking section 50C of the Act for the purposes of substituting the full value of consideration in order to compute the capital gain would fail since there would not be any differential between the stated consideration and the Value to be considered by the stamp valuation authority of the state government for the payment of stamp duty. However, it has been pointed out by the Revenue that the buyers of the properties have paid stamp duty at the value determined on the basis of rates prescribed in the ready reckoner, which are higher than stated consideration. In our considered opinion, the aforesaid factum would not make any difference to the rationale of invoking section 50C of the Act, which has to be decided on the basis of the prevailing legal position, and not on the basis of the position taken by a party. Pertinently, the purchaser of the properties are liable to bear expenses of stamp duty and it was not within the domain of the assessee and therefore assessee cannot be put to a jeopardy of invoking of section 50C of the Act merely because of the fault of the buyers of the properties.
11. In view of the aforesaid discussion and having regard to the facts and circumstances of the present case, in our view, the CIT(A) erred in affirming the invoking of section 50C of the Act in relation to the two properties sold by the assessee through Public auction. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to allow appropriate relief to the assessee as per law.”
As the issue under consideration is materiallly identical to that of case decided by the Pune Bench as above, respectfully following the same, we uphold the order of the CIT(A), who inturn, followed the said case and held that the AO cannot adopt the sale consideration at Rs. 21 ,88,97,000/- and invoke section 50C. Accordingly, we deem it fit to dismiss the grounds raised by the revenue.
7. In the result, appeal of the revenue is dismissed.
Pronounced in the open court on 10th November, 2017.
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