2010 (3) TMI 886 - AT - Income Tax

Application of section 50C for the computation of unexplained investment u/s 69B - Computation of capital gains in real estate transactions - Addition on unaccounted investment - investment in GIDC plot not fully disclosed in the books of account - whether the provision of section 50C of the Act applies to purchaser or not? - It is found that assessee has purchased land along with building through deed of assignment and stamp duty was paid thereon. AO has treated seller and the buyer on the same footing in making addition referring to higher value taken for stamp duty purpose - CIT(A) deleted the addition made by AO u/s 69B. HELD THAT - We find from the Memorandum Explaining the provision of section 50C in the Finance Bill, 2002, which clearly states that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a State Government for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed, u/s 48. Section 50C creates a legal fiction thereby apparent consideration is substituted by valuation done by Stamp Valuation Authorities and capital gains are calculated, accordingly. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. the High Court in the case of Addl. CIT v. Durgamma 1986 (9) TMI 58 - ANDHRA PRADESH HIGH COURT held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. AO has applied this provision of section 50C for the computation of unexplained investment u/s 69B and which is not permissible under the Act. Apart from the stamp duty valuation, there is nothing on record which suggests that the revenue has proved that the assessee has accepted over and above, what has been recorded as purchase consideration of the land in the instrument, i.e., the sale deed. Therefore, We are in full agreement with the arguments of the assessee that section 50C is not applicable in the case of purchaser and this provision being a deeming provision will apply for determining the full value of consideration as a result of transfer of capital assets for the purposes of computation of capital gains u/s 48. further there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed, has been made by the assessee and in the absence of the same, no addition of undisclosed investment can be made by invoking the provision of section 69B. Accordingly, we confirm the order of CIT(A) deleting the addition and this issue of the revenue s appeal is dismissed.

Summary

Issues Involved:
1. Legality of the CIT(A)'s decision to delete the addition made by the Assessing Officer under section 69B of the Income-tax Act.
2. Applicability of section 50C of the Income-tax Act to the purchaser.

Detailed Analysis:

1. Legality of the CIT(A)'s Decision:

The revenue contested the CIT(A)'s decision to delete the addition of Rs. 31,04,100 made by the Assessing Officer under section 69B of the Income-tax Act. The Assessing Officer had noted that the assessee purchased land and building for Rs. 18.90 lakhs, but the Sub-Registrar valued the property at Rs. 49,91,400 for stamp duty purposes. Consequently, the Assessing Officer treated the difference of Rs. 31,01,400 as unaccounted investment under section 69B.

The CIT(A) deleted this addition, stating that the Assessing Officer had not provided evidence that the assessee paid more than what was recorded in the sale deed. The CIT(A) emphasized that section 50C, which deals with the valuation of property for capital gains, does not extend to section 69B for determining undisclosed investments. The CIT(A) concluded that the addition was based on presumption rather than concrete evidence.

2. Applicability of Section 50C to the Purchaser:

The Tribunal examined whether section 50C of the Income-tax Act, which deals with the valuation of property for capital gains, applies to the purchaser. Section 50C states that if the sale consideration of a property is less than the value adopted by the stamp valuation authority, the latter value shall be deemed the full value of consideration for the seller for capital gains purposes.

The Tribunal noted that section 50C creates a legal fiction for the seller's capital gains computation, not for the purchaser's investment valuation. Legal fictions are limited to their specific purposes and cannot be extended beyond their intended scope. The Tribunal cited several judicial precedents supporting this view, including decisions from the Andhra Pradesh High Court, Kerala High Court, Allahabad High Court, and the Supreme Court, which emphasized that legal fictions should not be extended beyond their legitimate fields.

The Tribunal also referred to the Departmental Circular No. 8 of 2002 and the Finance Bill, 2002, which clarified that section 50C applies to the computation of capital gains for the seller. The Tribunal concluded that section 50C does not apply to the purchaser and cannot be used to tax the difference between the apparent consideration and the stamp valuation as undisclosed investment under section 69B.

The Tribunal found no evidence that the assessee paid more than what was recorded in the sale deed. Therefore, the addition under section 69B was not justified. The Tribunal upheld the CIT(A)'s decision to delete the addition.

Conclusion:

The Tribunal dismissed the revenue's appeal, confirming that section 50C applies only to the seller for capital gains computation and not to the purchaser for determining undisclosed investments under section 69B. The addition made by the Assessing Officer was based on presumption without concrete evidence, and the CIT(A)'s decision to delete the addition was upheld.