JUDICIAL PRECEDENTS W.R.T SECTION 50C

Section 50C has been introduced with the aim of curbing under-reporting of sales consideration in case of transaction of land and building. Provision 50C(1) is reproduced for ready reference-

“Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer”

1. APPLICABILITY OF SECTION 50C IN CASE OF COMPULSORY ACQUISITION OF LAND- 

Section 50C resulted in a complication, where land which got compulsorily acquired by the government came under the ambit of the provision of section 50C(1). As a result, where the consideration paid by the government was less than the value adopted for the stamp duty valuation purpose, sellers were still forced to pay Capital Gain tax in accordance with the value determined u/s 50C. On this matter, Calcutta High Court in the case of DURGAPUR PROJECTS LTD. [2023] 196 TAXLOK.COM (IT) 542 (CAL) passed a judgment providing necessary relief to the taxpayer. Relevant extracts of which are as under-

“Unlike the transaction between the private parties where quite often the actual sale consideration paid for acquiring the immovable property is more than the sale consideration disclosed in the sale deed. With a view to curb such transactions, Section 50C of the Act was introduced so as to adopt the market value determined by the stamp duty authorities as the sale consideration for the purpose of computing capital gains under the provisions of the Income Tax Act. The CIT(A) relied on the decision of the Hyderabad tribunal in the case of Southern Steel Limited and granted relief to the assessee. This finding of the CIT(A) was affirmed by the tribunal.

The learned senior standing counsel for the revenue seeks to distinguish the decision in the case of Southern Steels by contending that it was not the case of the transfer of the immovable consisting of land and building but it is the case of transfer of their rights to receive the amount of compensation and the TDR rights and both the assets do not fall under the category of immovable property. Though it may be true that in the case of Southern Steels the facts were slightly different, the Hyderabad tribunal had analyzed the scope of Section 50C of the Act and the purpose for introducing the said provisions in the statute namely to curb the menace of unaccounted cash being infused in the real estate transaction. Therefore, the principle which was culled out by the Hyderabad tribunal is a correct interpretation of the provisions of the Section 50C in the case of the compulsory acquisition of land. Thus, the findings rendered by the CIT(A) as affirmed by the tribunal on this issue does not call for any interference.”

HC affirmed the decision of CIT(A) in the assessee’s own case wherein CIT(A) deleted the addition made under section 50C of the Act in the case of land which was compulsorily acquired.

2. WHETHER THE BENEFIT OF DIFFERENCE UPTO 10 % BETWEEN THE SALE CONSIDERATION AND STAMP DUTY VALUATION CAN BE ALLOWED FOR YEARS PRIOR TO IT’S INTRODUCTION I.E., BEFORE 01.04.2019-

ITAT Chennai on the aforesaid held as under-

“There is no dispute with regard to the fact that there is a difference between stated consideration for sale of property and guideline value fixed for payment of stamp duty. In fact, the assessee has admitted the fact that there is a difference of Rs. 85,36,200/-, when compared to guideline value of the property. The arguments of the assessee is that as per 3rd proviso to section 50C(1) of the Act, inserted by the Finance Act, 2018 w.e.f. 01.04.2019, if difference between stated consideration and guideline value does not exceed 10% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall be deemed to be the full value of consideration. We find that, although said amendment came into statue by Finance Act, 2018 w.e.f. 01.04.2019, but the co-ordinate bench of the Tribunal in the case of Amrapalli Cinema vs ACIT [2021] 185 TAXLOK.COM (IT) 629 (ITAT-DELHI), held that amendment made in scheme of section 50C(1), by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis-à-vis stamp duty valuation from 5% to 10% are effective from date on which section 50C, itself was introduced in the statue. A series of Tribunal decisions have reiterated said legal position and held that amendment in section 50C(1) is curative in nature and must be held to relate back to the date of introduction of section 50C i.e., 01.04.2003 onwards.

The ITAT, Chennai benches in the case of Doraisamy Suresh, (HUF) vs ACIT [2022] 191 TAXLOK.COM (IT) 424 (ITAT-CHENNAI), had also considered an identical issue and held that if difference between stated consideration and guideline value is less than 10% as prescribed under 3rd proviso to section 50C(1), then there cannot be any addition by substituting full value of consideration. In this case, there is no dispute with regard to the fact that difference between stated consideration and guideline value of the property is less than 10% and thus, we are of the considered view that there is no error in the reasons given by the Ld. CIT(A) to delete additions made towards difference between consideration received for sale of property and guideline value of the property and thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the revenue.”

3. CAN PENALTY BE LEVIED U/S 271(1)(C) ON ADDITION U/S 50C MADE TO THE TOTAL INCOME BY AO?

Guidance can be taken from the decision of ITAT Jaipur in the case of Virendra Singh Verma Vs ITO [2022] 191 TAXLOK.COM (IT) 526 (ITAT-JAIPUR) wherein the assessee filed his return declaring a total income of Rs. 1,30,00,000/- and paying taxes on the long-term capital gains based on the actual sale consideration. However, the assessee received a notice under section 148, citing a difference between the sale consideration disclosed in the tax return and the stamp duty valuation (which amounted to Rs. 1,91,50,085/-). The matter was then referred under section 50C(2) to the departmental valuer, who assessed the value at Rs. 1,71,72,400/-. Consequently, an additional amount of Rs. 23,23,310/- was made to the assessee`s income. The Assessing Officer issued a notice and consequently issued an order u/s 271(1)(c) against which matter reached the Tribunal, wherein it was held that-

“Therefore, we are of the opinion that said claim made under the provisions of the Act is disallowed by the AO would not attract the penalty provisions of Section 271(1)(c) of the Act. The Hon’ble Supreme Court in case of CIT vs. Reliance Petroproducts Pvt. Ltd. [2010] 120 TAXLOK.COM (IT) 559 (SC) has held that where the information given by the assessee is not found to be incorrect the assessee cannot be held guilty of furnishing inaccurate particulars of income for the purpose of levying the penalty U/s 271(1)(c) of the Act.

The Hon’ble Supreme Court has also observed that merely making a wrong claim does not amount to furnishing inaccurate particulars of income in the absence of finding that any detail by the assessee is incorrect or false. Based on the ld. AR for the assesee has referred to various decisions of the High Courts and Coordinate Bench of the Tribunal on the point that penalty order passed by the AO based on different charges in the show cause notice is not valid. Accordingly, in view of the facts and circumstances of the case the penalty levied by the AO U/s 271(1)(c) of the Act is not sustainable and the same is deleted.”