2025 (5) TMI 787 - AT - Income Tax

Addition made u/s 50C - difference between the sale consideration and the stamp duty value of the immovable properties sold - HELD THAT -As in Ashwin C. Jariwala 2015 (9) TMI 1690 - ITAT MUMBAI following the decision of in M. Syamala Rao 1998 (4) TMI 113 - ANDHRA PRADESH HIGH COURT held that since the registration of sale deed related back to the date on which agreement for sale was executed in favour of the buyer by the owner the capital gain arises from such sale is to be assessed in the year of execution of sale deed and not in the year of registration of the same. We are of the considered view that since the deeds of conveyance were executed amongst the parties in respect of sale of lands on 30.12.2010 addition under section 50C of the Act can only be made during the assessment year 2011-12. Thus in the present case the AO was not justified in making the impugned addition under section 50C in the year under consideration. Accordingly the addition made by the AO under section 50C of the Act is deleted. Appeal by the assessee is allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the addition made under section 50C of the Income Tax Act, 1961 (the Act), based on the difference between the sale consideration and the stamp duty value of the immovable properties sold, was justified in the assessment year 2012-13.

2. Whether the reopening of the assessment under section 147 of the Act was valid and justified.

3. Whether the transfer of the properties took place in the financial year 2010-11 (relevant to assessment year 2011-12) or in the financial year 2011-12 (relevant to assessment year 2012-13), given that the deeds of conveyance were executed on 30.12.2010 but registered on 27.04.2011.

4. Whether the valuation for the purpose of section 50C should be based on the rates prevailing on the date of the first account payee cheques made for the purchase or on the date of registration of the sale deeds.

Issue-wise Detailed Analysis:

Issue 1: Validity of Addition under Section 50C of the Income Tax Act

Relevant Legal Framework and Precedents: Section 50C of the Act mandates that in case of sale of immovable property, if the consideration declared is less than the stamp duty value, the stamp duty value shall be deemed to be the full value of consideration for computing capital gains. The Assessing Officer (AO) made an addition of Rs. 1,39,38,875/- being the difference between sale consideration and stamp duty value.

Court's Interpretation and Reasoning: The Tribunal examined whether the addition under section 50C was rightly made in the assessment year 2012-13, considering the timing of the transfer. The Tribunal noted that the sale deed was executed and possession handed over on 30.12.2010, with full consideration received and stamp duty paid on the same date, but the registration of the deed occurred on 27.04.2011.

Key Evidence and Findings: The conveyance deeds, payment of stamp duty, possession delivery, and receipt of full consideration all occurred on 30.12.2010, which falls in the financial year 2010-11, relevant to assessment year 2011-12. The registration was a formal act completed in the subsequent financial year.

Application of Law to Facts: The Tribunal relied heavily on the Supreme Court's interpretation of Section 47 of the Registration Act, 1908, which provides that a registered document operates from the date it would have operated if no registration was required, i.e., the date of execution. The Supreme Court in Kanwar Raj Singh (D) Th. LRS. vs. Gejo (D) Th. LRS. & Ors. clarified that the registration relates back to the date of execution where the entire consideration is paid and possession delivered.

Treatment of Competing Arguments: The Revenue argued that since the deeds were registered in the year under consideration, the addition under section 50C was rightly made in that year. The assessee contended that the transaction was complete in the previous year based on execution, possession, and consideration receipt. The Tribunal found the assessee's argument persuasive, supported by judicial precedent.

Conclusions: The addition under section 50C should have been made in the assessment year 2011-12 and not in 2012-13. Therefore, the addition made in the impugned assessment year was deleted.

Issue 2: Validity of Reopening of Assessment under Section 147

Relevant Legal Framework and Precedents: Section 147 allows reopening of assessments if the AO has reason to believe that income has escaped assessment. The assessee challenged the reopening notice as bad in law.

Court's Interpretation and Reasoning: Since the Tribunal granted relief on merits by holding that the addition under section 50C was not justified in the assessment year 2012-13, the issue of validity of reopening became academic.

Conclusions: The Tribunal left the question of reopening open and did not adjudicate on it further.

Issue 3: Date of Transfer of Property for Capital Gains Assessment

Relevant Legal Framework and Precedents: Section 54 of the Transfer of Property Act, 1882 defines sale as transfer of ownership in exchange for price, which for immovable property above Rs. 100 requires registration. The Supreme Court in Kanwar Raj Singh (supra) held that the registered document operates from the date it would have operated if no registration was required, i.e., date of execution.

Court's Interpretation and Reasoning: The Tribunal noted that the sale deed was executed, possession delivered, and consideration paid on 30.12.2010, though registration was done later on 27.04.2011. The Tribunal referred to the Supreme Court's ruling that the sale deed operates from the date of execution, not registration.

Key Evidence and Findings: The documents showed all sale formalities completed on 30.12.2010, including payment of stamp duty and possession delivery.

Application of Law to Facts: The Tribunal applied the principle that the sale is complete on execution and possession with consideration paid, and registration is a formality that relates back to the execution date.

Treatment of Competing Arguments: The Revenue's argument that registration date governs the transfer date was rejected based on binding Supreme Court precedent and Tribunal decisions.

Conclusions: The transfer of property is deemed to have taken place in the financial year 2010-11, relevant to assessment year 2011-12.

Issue 4: Valuation Date for Section 50C Purposes

Relevant Legal Framework and Precedents: Section 50C requires valuation based on stamp duty value prevailing on the date of transfer. The assessee argued valuation should be based on rates prevailing on the date of first account payee cheque.

Court's Interpretation and Reasoning: The Tribunal did not explicitly decide this issue separately but implicitly held that since transfer took place on the date of execution, valuation should correspond to that date.

Application of Law to Facts: The date of execution and possession delivery being 30.12.2010, valuation should be considered as of that date, not later.

Conclusions: Valuation for section 50C purposes must be based on the date of execution/transfer, not the date of registration or payment.

Significant Holdings:

"When a compulsory registerable document is registered according to the Registration Act, it shall operate from a date before the date of registration, i.e., the date on which it is executed."

"Section 47 of the Registration Act does not deal with the issue when the sale is complete. It only permits a document when registered, to operate from a certain date which may be earlier than the date when it was registered."

"If in a given case, a sale deed is executed and the entire agreed consideration is paid on or before execution of the sale deed, after it is registered, it will operate from the date of its execution."

"The addition under section 50C of the Act can only be made in the assessment year relevant to the financial year in which the sale deed was executed and possession handed over, and not in the year of registration if registration happens later."

The Tribunal concluded that the impugned addition under section 50C made in assessment year 2012-13 was not justified as the transfer of property was completed in the financial year 2010-11 (assessment year 2011-12). Consequently, the addition was deleted and the appeal was allowed. Other grounds including challenge to reopening under section 147 were left open as academic.