2013 (3) TMI 465 - AT - Income Tax

Difference in sale price of plots as undisclosed profit - Assessee has returned business income from sale of plots & the sale consideration received by the assessee was less than the guidelines value fixed by the State Govt. for stamp duty for registration of sale deeds - CIT(A) deleted the addition - Held that - Finding ourselves in agreement with the CIT (A) that section 50C is not applicable to business profits. AO has not found any mistake in the books of accounts submitted by the assessee. Assessee has further submitted that a number of comparative sales instances and the assessee s returned rate is in the same range. Assessee has also submitted valuation report by the registered valuer. As AO has not brought on record any instances of comparative sales whereby the sale consideration received was more than that reflected by the assessee. In this regard, assessee s counsel reliance upon the Commissioner of Income Tax I Versus M/s. Thiruvengadam Investments Pvt, Ltd 2012 (5) TMI 145 - ALLAHABAD HIGH COURT is also germane wherein held that when the property was treated as business asset and not capital asset there was no question of invoking section 50C. Also see C.I.T. vs. Kan Construction & Colonizers P Ltd. (2012 (5) TMI 145 - ALLAHABAD HIGH COURT ) held that section 50C would have no application when it was a case of transfer of plot which was stock in trade and the income from such transaction was treated as business income. No infirmity in the order of the CIT(A) - in favour of assessee.

Summary

Issues:
1. Addition of undisclosed profit by the Assessing Officer.
2. Applicability of section 50C of the Act to business profits.
3. Validity of using Circle Rates for determining business profits.
4. Acceptance of comparative sale instances as evidence.
5. Interpretation of legal precedents regarding the application of section 50C.

Analysis:
1. The Assessing Officer made an addition of Rs. 54,66,400 as undisclosed profit, contending that the sale consideration was less than the guideline value for stamp duty. The assessee argued that the sales were at fair market value, supported by valuation reports and comparable sale instances. The Commissioner of Income Tax (Appeals) noted that the guideline value is general and not specific to the properties, emphasizing the need for specific evidence in income tax proceedings. The Commissioner found no evidence of excess sales consideration and ruled the addition based on conjecture was unjustified.

2. The issue of whether section 50C of the Act applies to business profits was raised. The Commissioner held that section 50C does not apply to business profits, citing a precedent where it was established that stamp duty values are for capital gains, not other income heads. The Commissioner also emphasized that the Assessing Officer failed to provide evidence contradicting the assessee's valuation.

3. The Assessing Officer used Circle Rates to determine the addition, which was challenged by the assessee. The Commissioner agreed that Circle Rates are general and not specific to individual properties. The Commissioner highlighted the importance of specific evidence in income tax cases and accepted the assessee's comparative sale instances as reliable evidence of fair market value.

4. The acceptance of comparative sale instances as evidence was crucial in this case. The Commissioner noted that the Assessing Officer did not present any contradictory instances and accepted the assessee's evidence. The reliance on specific evidence rather than general guidelines was emphasized in determining the fair market value of the properties.

5. Legal precedents regarding the application of section 50C were cited to support the decision. The Tribunal upheld the Commissioner's order based on precedents where it was established that section 50C does not apply to business profits when dealing with properties as stock in trade. The Tribunal found no errors in the Commissioner's order and dismissed the Revenue's appeal.