2017 (8) TMI 844 - AT - Income Tax

Sale of land at consideration less than the market value of the land - Applicability of section 50C - addition based on the inference that the assessee could have sold land at higher price as reflected in the records of the stamp valuation authorities - Held that - The tax authorities assumed that the provisions of Section 50C are applicable in such cases overlooking the fact that Section 50C is only applicable with respect to sale of capital assets and in respect of the transfer of the stock-in-trade, a new provision has been inserted but the same comes into play only w.e.f. 01-04-2014 which clarifies that for the year under consideration, the market value cannot be substituted by the A.O. merely on ipsi dixit. There is no provision under the Act, applicable for the A.Y. 2008-09, under which the A.O. can substitute the market value to the rate at which the assessee sold the property. Therefore, set aside the orders of the A.O. as well as the CIT(A) and hold that only the value at which the assessee sold the land should be taken into consideration for the purpose of computing the assessable income and the provisions of Section 50C are not applicable in the instant case. - Decided in favour of assessee.

Issues:
- Applicability of section 50C on sale of land considered as stock-in-trade
- Consideration of market value in determining business income
- Interpretation of provisions under section 50C and section 43CA

Analysis:

1. Applicability of section 50C on sale of land considered as stock-in-trade:
The case involved the sale of land by an assessee engaged in construction activities, claiming the loss as business loss due to selling the land at a price lower than the market value. The Assessing Officer contended that section 50C applied as the sale price was lower than the market value. The assessee argued that the land was stock-in-trade and not a capital asset, thus section 50C did not apply. The Tribunal noted that for the year under consideration, there was no provision to substitute market value for the actual sale consideration in the case of stock-in-trade. Relying on case law, the Tribunal held that section 50C did not apply to the sale of business assets, and the market value could not be substituted by the Assessing Officer.

2. Consideration of market value in determining business income:
The Assessing Officer and the CIT(A) based their decision on the assumption that the assessee could have sold the land at a higher price, considering the stamp valuation records. However, the Tribunal pointed out that stamp duty is usually paid by the purchaser, not the seller. It was emphasized that the provisions of section 50C, applicable to capital assets, did not extend to stock-in-trade. The Tribunal held that for the assessment year in question, the market value could not be substituted for the actual sale consideration. Therefore, only the value at which the land was sold should be considered for computing the assessable income.

3. Interpretation of provisions under section 50C and section 43CA:
The Tribunal highlighted that section 43CA, introduced from April 1, 2014, allowed for considering market value in the case of stock-in-trade sales. However, since this provision was prospective, it did not apply to the relevant assessment year. The Tribunal referred to various High Court decisions supporting the view that section 50C did not apply to business assets. The Tribunal emphasized that the Assessing Officer could not arbitrarily substitute market value for the actual sale consideration in the absence of a specific provision allowing such substitution. Consequently, the addition made by the Assessing Officer was deleted, and the appeal by the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, holding that section 50C did not apply to the sale of land considered as stock-in-trade, and the Assessing Officer could not substitute the market value for the actual sale consideration in the absence of a specific provision. The decision was based on the absence of statutory provisions enabling such substitution for the relevant assessment year, as supported by legal precedents cited during the proceedings.

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