Section 50C not applies to transfer of Leasehold Right in Land or Building or both

Facts of the case

1. That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) has erred in confirming the total income at Rs. 28,23,540/- as against the returned total income of Rs. 84,540/-.

2. That on the facts and in law, the Ld. Commissioner of Income tax (Appeals) has erred in law in confirming the addition of Rs. 27,39,000/- by invoking section 50C of the Income tax Act.

3. The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing officer in determining the sale consideration at Rs.46,39,000/- as against the actual sale consideration of Rs.19,00,000/-.

4. The learned Commissioner of Income-Tax (Appeals) ought to have considered the detailed explanation submitted before him and ought to have directed the Assessing Officer to adopt the sale consideration at Rs.19 lakhs.

5. That on the facts and in law, Commissioner of Income tax (Appeals) has erred in law in considering the value of circle rate as sales consideration at Rs 46,39,000/- without appreciating the facts that the appellant has only sold the rights in the property on which section 50C is not applicable.

6. That on the facts and in law, the Ld. Assessing officer and Id Commissioner of Income tax (Appeals) has erred in law in not having the valuation report of property from valuation officer as mandatorily required under the Act, therefore, order passed by the officers is not valid in law.

7. That the grounds of appeal are without prejudice to each other.

8. The appellant craves leave to add, alter, remove and modify any grounds of appeal, which are without prejudice to one another, before or at the time of hearing of the appeal.”

The only effective ground in this appeal is against the sustaining of addition of Rs.27,39,000/- i.e. difference between the sale consideration disclosed by the assessee and the value adopted by the Stamp Valuation Authority.

The facts of the case are the present appeal are that income tax return declaring income of Rs.84,540/- was filed on 22.07.2016 which was duly processed u/s 143(1) of the Income Tax Act, 1961 (“the Act”). Thereafter, the case was selected for limited scrutiny. The reason for taking up for limited scrutiny was regarding the value of the property as per Stamp Valuation Authority was Rs.46,39,000/- whereas the assessee had disclosed sale consideration only Rs.19,00,000/- while computing the capital gain on the transfer of property. The AO issued statutory notices to the assessee. In response thereto, the assessee made submissions. However, the submissions of the assessee was not found acceptable to the assessing authority and he proceeded to make addition of Rs.27,39,000/- as undisclosed income u/s 69 of the Act.

Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who sustained the addition as made by the AO instead of section 69A of the Act. Ld.CIT(A) confirmed the addition u/s 50C of the Act.

Aggrieved against the order of Ld.CIT(A), the assessee preferred appeal before the Tribunal.

Ld. Counsel for the assessee vehemently argued that the action of the authorities below is contrary to the mandate of law. He contended that firstly, the AO invoked the provision of section 69A of the Act which is ex-facie, illegal and without authority of law. He further contended that Ld.CIT(A) confirmed the addition u/s 50C of the Act. Here again, Ld.CIT(A) grossly exceeded the jurisdiction as conferred u/s 250 of the Act. Further, he contended that section 50C of the Act would not be applicable under the facts and circumstances of the present case as the assessee has only transferred sold right of the property which do not fall in the ambit of the section 50C of the Act.

Observation by the court

The court has heard the contentions of the rival parties and perused the material available on record and gone through the orders of the authorities below. The undisputed facts in the present case are that the AO invoked provision of section 69A of the Act on the basis that there was a difference between sale consideration as disclosed by the assessee and the Circle rate as prevalent at that point of time. The AO has considered the difference amount as the undisclosed money received by the assessee. However, Ld.CIT(A) ruled that the addition ought not to have been made u/s 69A of the Act as it does not meet the requirement of law. However, he sustained the addition u/s 50C of the Act. There is no dispute with regard to the fact that the property which was sold by the assessee, was a lease hold property. The lease hold right was granted by Nitishree Builders Pvt.Ltd. in favour of the mother of the assessee. The fact that the lease hold rights were transferred is not disputed by the Revenue. The Revenue has not brought any contrary material on record to rebut the contention of the assessee. I find that there are series of decisions on this issue by the Division Bench of the Tribunal, confirmed by the Hon’ble Bombay High Court .

Further, the Division Bench of Tribunal in Dy. Commissioner of Income Tax Central Circle VI, Kolkata versus Tejinder Singh C.O No. 62/Kol/2011 arising out of I.T.A No.1457/Kol./2011 also ruled that where there is a transfer of lease hold rights, there would not be application of section 50C of the Act.

Further, the Division Bench of the Tribunal in the case of Shri Atul G. Puranik vs ITO in ITA No.3051/Mum/2010 [Assessment Year 2006-07] order dated 13.05.2011 ruled that “As section 50C applies only to a capital asst, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee transferred lease right for sixty years in the plot and not land itself, the provisions of section 50C cannot be invoked. We, therefore, hold that the full value of consideration in the instant case be taken as Rs.2.50 crores.” Further, the assessee has placed on record the report of the registered valuer who has valued the fair market value of the property of Rs.20,21,000/-.

Therefore, looking to the facts of the present case where the authorities below have taken contrary stands about the taxability of the difference between the value declared by the assessee and value adopted by the Stamp Valuation Authority. Moreover, in the light of the binding precedents, I hereby direct the AO to delete the addition.