‘Agreement to Sell’ Date Property Value Assessed by Stamp Valuation Authority relevant for Section 50C

DCIT Vs Nitin Gupta (ITAT Raipur)

Introduction: In a recent case before the Income Tax Appellate Tribunal (ITAT) in Raipur, the matter of DCIT vs. Nitin Gupta revolved around the assessment of property value under Section 50C of the Income Tax Act. This section deals with the computation of the full value of consideration for property transfers. The case originated from an assessment for the fiscal year 2015-16. In this article, we will delve into the details of the case and the ITAT’s ruling on the matter.

Detailed Analysis:

1. Background: The appellant, Nitin Gupta, had filed his income tax return for the assessment year 2015-16, declaring an income of Rs. 82,84,786/-. The original assessment was completed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act on December 11, 2017.

2. Error Identification: Subsequently, the AO noticed an error in the original assessment related to Long Term Capital Gains (LTCG) arising from the sale of agricultural land in Raipur. The AO had accepted the LTCG based on the sale consideration provided by the taxpayer, which was Rs. 66 lakhs. However, this amount did not conform to the provisions of Section 50C of the Act.

3. Rectification Attempt: In light of the identified error, the AO issued a notice under Section 154 of the Act to the taxpayer on June 12, 2020. The notice requested an explanation for the rectification of the mistake.

4. Revised Assessment: As the taxpayer did not respond to the notice, the AO proceeded to rectify the assessment order under Section 154 on August 27, 2021. The rectification involved recalculating the LTCG on the sale of agricultural land by substituting the sale consideration with Rs. 78,99,500/-, which was the Fair Market Value (FMV) as determined by the AO. Consequently, the assessed income was revised to Rs. 95,84,286/-.

5. Appeal to CIT(Appeals): The taxpayer appealed the revised assessment before the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi. The CIT(Appeals) partially allowed the appeal, considering that the taxpayer had received the entire sale consideration for the land in March 2014, based on an “agreement to sell.” The CIT(Appeals) invoked the “1st proviso” to Section 50C(1) of the Act, which led to a modified computation of Long Term Capital Gains.

6. ITAT Raipur Ruling: The crux of the matter before the ITAT Raipur was the interpretation and application of the “1st proviso” to Section 50C(1) of the Act. This proviso, introduced by the Finance Act, 2016, effective April 1, 2017, addresses situations where the date of agreement fixing the amount of consideration differs from the date of registration of the property transfer. The ITAT upheld the CIT(Appeals)’s interpretation and application of the proviso, considering that the “agreement to sell” had been executed on March 6, 2014, and the entire sale consideration was received before March 31, 2014. Consequently, the value assessable by the stamp valuation authority on the date of the agreement was considered for computing the full value of consideration.

Conclusion: The ITAT Raipur’s ruling in the case of DCIT vs. Nitin Gupta highlights the importance of correctly applying the provisions of Section 50C of the Income Tax Act in property transactions. The case demonstrates the significance of the “1st proviso” to Section 50C(1), which allows for the use of the stamp valuation authority’s assessment of property value on the date of the agreement in certain circumstances. Taxpayers and tax professionals should be aware of the implications of this section and ensure accurate compliance with its provisions to avoid disputes and rectifications in income tax assessments.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 30.01.2023, which in turn arises from the order passed by the AO under Sec. 143(3)/154 of the Income-tax Act, 1961 (in short ‘the Act’) dated 27.08.2021 for assessment year 2015-16. The revenue has assailed the impugned order on the following grounds of appeal before us:

“1. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the addition made by the A.O at Rs.12,99,500/- invoking the provision of section 50C of the I.T Act?

2. Any other ground which may be adduced at the time of hearing.”

2. Succinctly stated the assessee had filed his return of income for A.Y.2015-16 on 22.08.2015, declaring an income of Rs.82,84,786/-. Original assessment was framed by the A.O vide his order passed u/s.143(3) of the Act dated 11.12.2017 determining the assessee’s total income at Rs.82,84,786/-.

3. After culmination of the assessment proceedings, it was observed by the A.O that a mistake had crept in his order passed u/s.143(3) of the Act dated 11.12.2017, wherein the Long Term Capital Gain (LTCG) that was disclosed by the assessee on the sale of agricultural land at Iskcon, Raipur on 15.04.2014 by adopting sale consideration of Rs.66 lacs as against Fair Market value (FMV) of Rs.78,97,500/- (as was discernible from sale deed), though not in conformity with the provisions of Section 50C of the Act was summarily accepted by him while framing the assessment. Accordingly, the A.O issued notice u/s.154 of the Act on 12.06.2020 to the assessee and called upon him to put forth an explanation as to why the aforesaid mistake may not be rectified.

4. As the assessee had failed to come forth with any reply, therefore, the A.O vide his order passed u/s.154 of the Act dated 27.08.2021 rectified the assessment order by recasting/reworking out the LTCG on sale of agricultural land situated at Iskcon, Raipur by substituting the sale consideration by an amount of Rs.78,99,500/-, i.e. FMV as against actual sale consideration. On the basis of the aforesaid working, the A.O revised the assessed income of the assessee at Rs.95,84,286/-.

5. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). Observing, that the assessee on the basis of “agreement to sell” had received entire amount of sale consideration in March, 2014, the CIT(Appeals) was of the view that the “1^st proviso” to Section 50C(1) of the Act would get triggered for computing the amount of LTCG in the hands of the assessee. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations partly allowed the appeal of the assessee. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under:

“6.1.1 I find that the AO did not pass the order u/s 154 haste since the period between two notices dated 19.06.2010 and 23.08.2021 were more than one year apart. Further, the issues raised u/s 154 were having merits and unless special circumstances (prior agreement of sale) existed and pointed out, no error in order u/s 154 passed by the AO can be stated. However, the additional evidence were admitted in the interest of natural justice and in view of the claim that intermittent lockdowns affected the normal functioning of the appellant. Hence, ground No 1 & 2 raised by the appellant are dismissed.

6.2 As regards ground No 3 of the appeal, the appellant submitted that the copy of the agreement to sale which coupled with the facts that entire sale consideration was received within March, 2014 lends credence to the claim of the appellant. It is also seen that as per assessment order, AO had verified the deduction claimed u/s 54 of the Act with indexation, purchase and sale cost.

6.2.1 The provision of section 50C (1) first proviso are applicable in the instant case and since the appellant had entered into agreement on 06.03.2014 and received consideration by cheque before 31.03.2014. Accordingly, the ground No 3 of the appeal is allowed.

7. In the result, the appeal is partly allowed.”

6. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

7. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities as well as material available on record.

8. Controversy involved in the present appeal lies in a narrow compass, i.e. sustainability of the order passed by the CIT(Appeals), NFAC, Delhi wherein by referring to the “1^st proviso” to Section 50C(1) of the Act, he had observed that as the assessee had entered into an “agreement to sell” dated 06.03.2014 and received entire amount of sale consideration of Rs.66 lacs by cheque before 31.03.2014, therefore, FMV of the agricultural land sold by him was to be determined on the basis of guidelines rate notified for financial year 2013-14 and not those pertaining to financial year 2014-15 i.e. the year in which registered sale deed was executed by him.

9. Shorn of unnecessary details, the assessee had sold agricultural land situated at Iskcon, Raipur for a consideration of Rs.66 lacs. On a perusal of the “agreement to sell” dated 06.03.2014, Page 15 of APB, it transpires that the assessee had received part of the sale consideration of Rs. 20 lacs vide cheque No.041586 drawn on Union Bank of India, Raipur dated 06.03.2014. Also, as is discernible from the copy of sale deed dated 05.04.2014, the balance amount of sale consideration of Rs.46 lacs (out of Rs.66 lacs) was received by the assessee in the preceding year i.e. F.Y.2013-14. For the sake of clarity, complete details of sale consideration received by the assessee is culled out as under:

10. On a perusal of the order of the CIT(Appeals), it transpires that he had in the course of proceedings called for a “remand report” from the A.O vide letter dated 30.12.2022. In reply, the A.O had, inter alia, stated that though the copy of sale deed was available on record but the “agreement to sell” was not lying in the record. At this stage, we may herein observe that the A.O had in the course of remand proceedings not raised any doubt as regards the genuineness of the “agreement to sell” dated 06.03.2014. Considering the aforesaid facts, we may herein observe that as per the “1^st proviso” to Section 50C(1) of the Act as had been made available vide the Finance Act, 2016 w.e.f.01.04.2017, where the date of agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same then the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purpose of computing full value of consideration for such transfer. For the sake of clarity, the “1^st proviso” to Section 50C(1) is culled out as under:

“Provided that where the date of agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purpose of computing full value of consideration for such transfer”.

Ostensibly, as neither the “agreement to sell” dated 06.03.2014; nor the contents thereof had been doubted by the A.O in the course of the remand proceedings, therefore, as observed by the CIT(Appeals), and rightly so, the value assessable by the stamp valuation authority on the date of the “agreement to sell” i.e. 06.03.2014 was to be taken for computing full value of consideration for such transfer u/s. 50C of the Act. Accordingly, finding no infirmity in the view taken by the CIT(Appeals) who in our considered view had rightly triggered the “1^st proviso” to Section 50C(1) of the Act, we uphold the same. Resultantly, concurring with the view taken by the CIT(Appeals), we uphold his order.

11. In the result, appeal of the revenue is dismissed in terms of our aforesaid observations.

Order pronounced in open court on 07t^h day of September, 2023.