2012 (8) TMI 394 - AT - Income Tax

Addition u/s 50C - reference to DVO - dispute regarding value of the property in hand regarding which unregistered agreement has been executed in September 2006 - Held that - Word assessable has been incorporated only w.e.f. 1.10.2009 (Finance Act 2009 w.e.f. 1.10.2009). The same cannot be made operative for earlier Assessment Years i.e. AY 2007-08 in hand. The assessment proceedings before the said point of time have to governed by the words adopted or assessed . Even otherwise also, the Coordinate Bench in cases of Carlton Hotel had rightly held that sec. 50C is not applicable in cases of unregistered agreements. Once sec. 50C itself is not applicable qua the facts of the instant case, there is no other provision in the Act which could govern the peculiar circumstances in hand. Therefore, we hold that the CIT (A) has not committed any irregularity in deleting the addition, made by the AO - Decided against the Revenue

Summary

Issues:
1. Valuation of property for long term capital gain computation.
2. Applicability of section 50C of the Income Tax Act, 1961.
3. Burden of proof on the revenue regarding understatement of consideration.

Issue 1: Valuation of Property for Long Term Capital Gain Computation:

The case involved the valuation of a property for the computation of long term capital gain. The appellant had sold a plot in Kolkata and declared a long term capital loss of Rs. 2.21 lacs. The Assessing Officer (AO) determined the value of the plot as Rs. 73.93 crores based on a report from the District Valuation Officer (DVO). The appellant argued that it was a distress sale due to encroachment by local mafias and illegal occupants, making it difficult to find a buyer at market price. The Ld. CIT (A) accepted the appellant's arguments, stating that the application of section 50C, which deems the stamp duty value as the full consideration, was not valid in this case. The Ld. CIT (A) emphasized the burden of proof on the revenue to establish understatement of consideration, citing relevant case laws. The addition of Rs. 70,57,31,976/- was deleted, and the long term capital loss of Rs. 2,21,100/- was accepted.

Issue 2: Applicability of Section 50C of the Income Tax Act, 1961:

The applicability of section 50C of the Income Tax Act, 1961 was a crucial point of contention in the judgment. The learned AR argued that since the word "assessable" was introduced in the Finance Act, 2009, applicable from 1.10.2009, and the agreement in question was executed in September 2006 for AY 2007-08, the case did not fall under section 50C(1). The AR referred to case laws supporting the stance that in the absence of a registered instrument of transfer, section 50C cannot be invoked. The unregistered nature of the agreement and the timing of the statutory amendment were central to the argument against the applicability of section 50C in this case.

Issue 3: Burden of Proof on the Revenue Regarding Understatement of Consideration:

The judgment highlighted the burden of proof on the revenue regarding the understatement of consideration by the appellant. The Ld. CIT (A) emphasized that the revenue needed to establish with concrete evidence that the declared consideration was understated. Citing various legal precedents, including the K.P. Varghese case, it was reiterated that the burden lies on the revenue to prove any understatement of consideration. The absence of additional evidence from the Assessing Officer to support the claim of understatement led to the deletion of the addition of Rs. 70,57,31,976/- and acceptance of the declared long term capital loss of Rs. 2,21,100/-.

In conclusion, the judgment by the Appellate Tribunal ITAT, Mumbai, addressed the valuation of property for long term capital gain computation, the applicability of section 50C of the Income Tax Act, 1961, and the burden of proof on the revenue regarding understatement of consideration. The decision favored the appellant, emphasizing the specific circumstances of the case, the timing of statutory provisions, and the lack of concrete evidence supporting the revenue's claims. The appeal was dismissed, affirming the deletion of the addition and acceptance of the declared long term capital loss.