2025 (7) TMI 321 - HC - Income Tax

Addition on account of Capital Gains u/s 50C - information received from Investigation Wing of the Income Tax Department Noida - whether the proviso to Section 50C of the Act is applicable retrospectively? - HELD THAT - As in view of the express finding that the transaction was at the value which is commensurate with the Circle rate at the material time the fact that the circle rate had been increased subsequently would have little effect for the purposes of Section 50C of the Act. The issue involved in the present case is also covered by an earlier decision of this Court in Modipon Limited 2017 (5) TMI 1108 - DELHI HIGH COURT the parties had entered into an agreement to sell which was duly registered prior to 16.09.2004. The said agreement stipulated a schedule for payment of consideration of the subject immovable property. The parties had adhered to the said schedule and had thereafter entered into a sale deed on 16.09.2004. However on 16.09.2004 the circle rate was revised upwards. In the aforesaid context the Revenue had contended that the circle rate as on the date of the sale deed was required to be considered for the purposes of Section 50C of the Act. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

A. Whether the Income Tax Appellate Tribunal (ITAT) was justified in deleting the addition of Rs. 20 Crores made under Section 50C of the Income Tax Act, 1961, based on information received from the Investigation Wing of the Income Tax Department, regarding the valuation of an immovable property transaction?

B. Whether the ITAT was justified in granting relief to the assessee by applying the proviso to Section 50C of the Income Tax Act, which was made applicable from 01.04.2017, in respect of a transaction relating to the Financial Year 2013-14?

2. ISSUE-WISE DETAILED ANALYSIS

Issue A: Justification for Deletion of Addition under Section 50C

Relevant Legal Framework and Precedents: Section 50C of the Income Tax Act mandates that if the consideration received or accruing as a result of the transfer of an immovable property is less than the value adopted or assessed by any authority for the purpose of payment of stamp duty, then the value so adopted or assessed shall be deemed to be the full value of consideration for computing capital gains. The proviso to Section 50C, introduced with effect from 01.04.2017, provides that where the consideration is less than the value adopted or assessed, but the difference is not more than ten percent, the consideration declared by the assessee shall be deemed to be the full value of consideration.

The Court also relied on a precedent involving similar facts, where the transaction was entered into prior to the enhancement of the circle rate, and the Court held that application of Section 50C based on the increased circle rate after the agreement date would cause hardship and was unwarranted.

Court's Interpretation and Reasoning: The Court noted that the transaction between the vendor and purchaser was evidenced by a registered agreement to sell dated 30.05.2013, on which stamp duty was paid at the then-prevailing circle rate of Rs. 18,000 per square meter. The sale deed was executed later on 11.10.2013, after the circle rate had increased to Rs. 28,000 per square meter effective from 01.08.2013.

The Court observed that the transaction value was not below the circle rate applicable at the time of the agreement to sell and that part of the sale consideration was received prior to the date of the sale deed. The Revenue's contention that the higher circle rate effective before the sale deed execution date should apply was rejected by both the CIT(A) and the ITAT, and the Court concurred.

Key Evidence and Findings: The registered agreement to sell dated 30.05.2013, stamp duty payment on the same date, and the timeline of payment of sale consideration were critical evidence. The circle rate applicable on 30.05.2013 was Rs. 18,000 per square meter, consistent with the transaction value. The subsequent increase in circle rate effective 01.08.2013 did not affect the transaction value agreed earlier.

Application of Law to Facts: Since the transaction was completed and consideration paid in accordance with the circle rate prevailing at the time of the agreement to sell, the application of Section 50C based on the later increased circle rate was not justified. The Court emphasized that Section 50C is intended to prevent undervaluation but should not be applied retrospectively to transactions already agreed upon at a prior date.

Treatment of Competing Arguments: The Revenue argued that the circle rate effective at the date of the sale deed should be applied. The Court rejected this, holding that the transaction was effectively completed at the earlier date of the agreement to sell, with appropriate stamp duty paid. The Revenue's reliance on information from the Investigation Wing was insufficient to override the registered agreement and payment evidence.

Conclusions: The deletion of the addition of Rs. 20 Crores under Section 50C was justified, as the transaction value was consistent with the circle rate at the time of the agreement to sell.

Issue B: Applicability of the Proviso to Section 50C to the Assessment Year 2013-14

Relevant Legal Framework and Precedents: The proviso to Section 50C was introduced with effect from 01.04.2017 and provides relief where the difference between the consideration declared and circle rate value is not more than ten percent. The question was whether this proviso could be applied retrospectively to the assessment year 2013-14.

Court's Interpretation and Reasoning: The Court held that no substantial question of law arises regarding retrospective applicability of the proviso. The key finding was that the transaction value was already in accordance with the circle rate prevailing at the time of the agreement to sell, making the proviso's applicability moot in this case.

Key Evidence and Findings: The Court relied on the fact that the transaction was recorded and registered prior to the increase in circle rate and that stamp duty was paid accordingly. This external evidence supported the assessee's position.

Application of Law to Facts: Since the transaction value was not lower than the circle rate at the time of agreement, the proviso to Section 50C, which provides relief for minor differences, was not determinative. The Court referenced a prior decision where similar facts led to the conclusion that the proviso could not be applied retrospectively to cause hardship.

Treatment of Competing Arguments: The Revenue sought to rely on the proviso to Section 50C to justify the addition, despite the proviso's effective date being after the assessment year in question. The Court rejected this, emphasizing the absence of any question of law on this point.

Conclusions: The proviso to Section 50C was not applicable retrospectively to the assessment year 2013-14, and thus could not be invoked to sustain the addition.

3. SIGNIFICANT HOLDINGS

The Court held:

"This Court is of the opinion that where there is adequate external evidence supporting the assessee's case that the transaction has been recorded and been reflected objectively in the form of a registered instrument (agreement to sell dated 27.05.2004), and all subsequent payments made have adhered to the time schedule agreed upon in respect of the amounts, the application of Section 50(C) would be unwarranted. The ITAT's conclusion that the transaction was covered by two deeds, both of which characterised as sale deeds though not strictly correct in one sense, describes the nature of the agreements between the parties. Quite possibly there can be a situation like the present one where transaction recorded in the agreement to sell are acted upon over a period of time - and in the interregnum the circle rates are increased. Application of Section 50(C) in such cases would result in extreme hardship. Parliament has recognized this mischief and has added proviso to Section 50 (C) (i) w.e.f. 01.04.2017."

The Court concluded that no substantial question of law arises, and the appeal was dismissed.

Core principles established include:

• Section 50C is to be applied based on the circle rate prevailing at the time of the transaction agreement, not at the date of subsequent sale deed execution, where payments and stamp duty align with the earlier date.
• The proviso to Section 50C, effective from 01.04.2017, cannot be applied retrospectively to transactions prior to its commencement.
• Registered agreements and adherence to payment schedules provide strong external evidence to determine the transaction value for capital gains purposes.
• Application of Section 50C in cases where circle rates increase after the agreement date may cause undue hardship and is to be avoided.