2021 (2) TMI 215 - AT - Income Tax

Taxation of long term capital gains arising on transfer of the Site - AO Noticed that sale consideration was less than the guidance value and for the purpose of computation of capital gains, when the sale value is less than the guidance value calculated by stamp valuation authority, provisions of section 50C are attracted - HELD THAT - In the present case, the enforceable agreement was entered into on 8.3.1993 by payment of major portion of the Sale Consideration and only formal Sale Deed was executed on 9.3.2007. The assessee has produced all the relevant documents for demonstrating the authenticity of the Sale Agreement with corroborative evidence in the form of Katha Certificate in the name of M/s. KPCBPPL dated 1.7.1997, the address of R.K. Sipani, Sipani Automobiles Ltd. in Form 32 before the Registrar of Companies on 17.12.1996 and the payment details through Cheques. The payment mentioned in the Sale Deed towards sale consideration clearly demonstrated that these payments have been passed between the parties vide Sale Agreement dated 8.3.1993 and possession of property has already been handed over on 24.10.1989. Therefore, transfer has taken place vide Sale Agreement dated 8.3.1993 and full value of consideration for the purpose of computing long term capital gain in the hands of the assessee has to be adopted on the basis of guidance value of this property as on the date of Sale Agreement only, not on the date of Sale Deed dated 9.3.2007. Accordingly we allow the grounds taken by the assessee as there was no applicability of section 50C in the year 2007-08.

Issues Involved:
1. Validity of the reassessment order.
2. Applicability of Section 50C of the Income Tax Act.
3. Determination of the date of transfer for capital gains calculation.
4. Imposition of interest under Sections 234-A, 234-B, and 234-C of the Income Tax Act.

Detailed Analysis:

1. Validity of the Reassessment Order:
The assessee challenged the reassessment order, arguing that the mandatory requirements to assume jurisdiction under Section 148 were not met. The assessee contended that the reasons recorded for reopening the assessment were not properly furnished, and there was no conclusive proof of income escapement at the time of issuing the notice under Section 148. However, the tribunal upheld the reopening of the assessment, stating that at the time of issuing the notice, the Assessing Officer (AO) only needed to have a reason to believe that income had escaped assessment, not conclusive proof. The tribunal found that the AO had valid reasons to believe that income had escaped assessment based on the documents found during the survey of M/s. Suraj Properties.

2. Applicability of Section 50C of the Income Tax Act:
The main issue was whether the provisions of Section 50C, which deems the guidance value as the full value of consideration for capital gains calculation when the sale consideration is less than the guidance value, were applicable. The assessee argued that Section 50C should not apply as the possession of the property was given in 1989, long before Section 50C was enacted in 2003. The AO and CIT(A) held that the transfer took place in 2007 when the sale deed was executed, thus attracting Section 50C. The tribunal, however, concluded that the transfer had effectively taken place in 1993 when the sale agreement was executed, and the possession was handed over, making Section 50C inapplicable for the year 2007-08.

3. Determination of the Date of Transfer for Capital Gains Calculation:
The tribunal examined whether the transfer occurred in 1993 or 2007. The assessee had entered into an unregistered sale agreement in 1993 and handed over possession, receiving most of the sale consideration. The tribunal noted that the sale agreement created an enforceable right in favor of the purchaser, and the transfer of property rights occurred in 1993. The tribunal emphasized that the formal sale deed executed in 2007 was merely a formality and did not constitute a new transfer. Therefore, the capital gains should be calculated based on the guidance value as of 1993, not 2007.

4. Imposition of Interest under Sections 234-A, 234-B, and 234-C:
The assessee contested the imposition of interest under Sections 234-A, 234-B, and 234-C, arguing that it was not liable for such interest. However, the tribunal did not provide a detailed analysis or ruling on this issue, focusing primarily on the applicability of Section 50C and the date of transfer for capital gains calculation.

Conclusion:
The tribunal allowed the appeal of the assessee, concluding that the transfer of property occurred in 1993 and not 2007, thereby making Section 50C inapplicable for the year 2007-08. The reassessment was upheld, but the capital gains calculation based on the guidance value of 2007 was overturned in favor of the guidance value of 1993. The tribunal did not explicitly address the imposition of interest under Sections 234-A, 234-B, and 234-C.

← Previous Next →