TMI Blog2022 (7) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... nced by the apparent consideration being lower than the fair market value by 15% or more. It is pertinent to note that although the observations of Supreme Court that pre-requisite for passing the order of compulsory acquisition of property by Central Government, viz., where, in an agreement to sell an immovable property in an urban area, there is significant under valuation of the property by 15% is not incorporated in the amended provision of section 269UD of the Act but the law declared by Supreme Court is the law of the land in view of Article 141 of the constitution and the Central Government while resorting to compulsory acquisition of immovable property had adhered to test laid by Hon ble Supreme Court. Hon ble Supreme Court finally laid down the principle that where there is a significant under valuation of the property to the extent of 15% or more in the agreement of sale, as evidenced by the apparent consideration being lower than the fair market value by 15% or more, in that case only the provisions of chapter XX-C can be resorted to. As in the present case before us, the issue is whether assessment framed by the AO is erroneous and prejudicial to the interest of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regards to the order of PCIT assuming jurisdiction u/s.263 of the Act and consequently revising the assessment order by directing the AO to add back a sum of Rs.25 lakhs being difference in the purchase price of property as per the consideration recorded in the sale deed and value fixed as per guideline of sub registrar of the registration department to be added as per the provisions of section 56(2)(viib)(ii) of the Act. 4. Brief facts are that the assessee is an individual engaged in the business of construction of residential and commercial buildings i.e., real estate business. The assessee filed his return of income for assessment year 2015-16 on 28.03.2017 and accordingly, assessee s case was selected for scrutiny assessment under CASS. The assessment was completed u/s.143(3) after verifying the details called for. Subsequently, the PCIT on perusal of assessment records noticed that the assessee has purchased a property for which sale deed was registered for a sum of Rs.3.25 crores but the guideline value fixed by Stamp Valuation Authority was at Rs.3.50 crores, thereby difference of Rs.25 lakhs. The PCIT in his showcause notice issued vide letter No.ITBA/COM/F/17/2019- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been considered by legislature lately in section 56(2)(viib)(ii) which is substituted by 56(2)(x)(b)(A) of the Act and in which a concession is given or a mark-up is given whereby if the difference is 5% of the consideration, the same has to be ignored. The ld.AR took us through the relevant provision of section 56(2)(x)(b)(A) of the Act, which reads as under:- 56. Income from other sources. (1) . (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head ―Income from other sources, namely:- (i) (ii) . (ix) (x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,- (a) . (b) any immovable property,- (A) (B) for a consideration the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely (i) the amount of fifty thousand rupees; and (ii) the amount equal to ten per cent of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the ld. CIT-DR stated that ld.AR only arguing the equity principle and equity does not apply to income tax proceedings because equity is stranger to tax jurisprudence. The ld.CIT-DR stated that provisions of section 50C of the Act are independent and similarly a deeming provision of section 56(2)(viib)(ii) of the Act as applicable in the present case are independent and once deeming provisions are to be applied, these are to be applied as it is and no violence can be done to the deeming provision. 7. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the Co-ordinate bench of this Tribunal, Mumbai Bench in the case of Maria Fernandes Cheryl, supra, has considered this issue in detail and further considered the Finance Act, 2018 inserting second proviso to section 50C of the Act, whereby the tolerance limit of 5% was introduced and similarly in the provisions of section 56(2)(x)(b)(A) of the Act, tolerance limit of 5% is increased, which was increased subsequently by the Finance Act, 2020 to 10%. We noted that the Co-ordinate Bench in the case of Maria Fernandes Cheryl, supra, has considered this issue and also consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al estate sector, section 43CA, section 50C and section 56 of the Income-tax Act have been amended to provide that no adjustments shall be made in a case ITA No. 4850/Mum/2019 Assessment year: 2011-12 Page 4 of 9 where the variation between stamp duty value and the sale consideration is not more than five per cent of the sale consideration. 16.4 Applicability: These amendments take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years Explanatory Notes to Finance Act 2020 Increase in safe harbour limit of 5 per cent. under section 43CA, 50C and 56 of the Act to 10 per cent.. Section 43CA of the Act, inter alia, provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (i.e. 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 purpose of computing profits and gains from transfer of such assets, be deemed to be the full valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d requesting that the said safe harbour of five per cent may be increased. It is, therefore, proposed to increase the limit to ten per cent.. This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years. Thus, the safe harbour limit of 5% is applicable upto AY 2020-21 and 10% is specifically from AY 2021-22 onwards. It is humbly submitted that in the present case the variation is 6.55% which is more than specified safe harbour limit of 5%. It is further humbly submitted that a) The value determined by Valuation officer is statutorily required to be adopted u/s 50C(2) of Act and in the present case, the AO has already referred the matter to valuation officer and the same is awaited. Hence, it is humbly submitted that deemed sale consideration may be taken as determined u/s 50C(2) of the Act b) the third proviso is applicable prospectively especially as retrospective effect is neither mentioned in the provisions of section 50C nor in the Explanatory Notes to Finance Act 2018 issued vide Circular 8/2018 c) the variation permissible is only 5% as on date and the enh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced . Referring to this decision, and extensively reproducing from the same, including the portion extracted above, Hon'ble Delhi High Court, in the case of CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 61 taxmann.com 45 (Del)], has approved this approach and observed that (t)he Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance . The same was the path followed by another bench of this Tribunal in the case of Dharmashibhai Sonani Vs ACIT [(2016) 161 ITD 627 (Ahd)] which has been approved by Hon'ble Madras High Court in the judgment reported as CIT Vs Vummudi Amarendran [(2020) 429 ITR 97 (Mad)]. The question that we must take a call on, therefore, is as to what is the rationale behind the insertion of the third proviso to Section 50C(1), and if that rationale is to provide a remedy fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as explained. The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti-avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between the sale consideration of immovable property as disclosed by the assessee vis- -vis the stamp duty valuation for the said immovable property. Obviously, therefore, disturbing the actual sale consideration, for the purpose of computing capital gains, and adopting a notional figure, for that purpose, will not be justified in such cases. On a conceptual note, an estimation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis- -vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be held to relate back to the date when the related statutory provision of Section 50C, i.e. 1st April 2003. In plain words, what is means is that even if the valuation of a property, for the purpose of stamp duty valuation, is 10% more than the stated sale consideration, the stated sale consideration will be accepted at the face value and the anti-avoidance provisions under section 50C will not be invoked. 7.1 Another aspect of apparent consideration, although used for the purpose of purchase or compulsory acquisition of property by Central Government u/s.269UD of the Act, Hon ble Supreme Court in the case of C.B. Gautum vs. Union of India, (1993) 199 ITR 530 (SC) held the provisions of chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Department. Paragraph 3 of the Instruction makes it clear that the right of pre-emptive purchase has to be exercised by the appropriate authority only when it has good reason for acquiring the property. When the property purchased by the Central Government by an order of an appropriate authority is put up for sale the reserve price is required to be fixed at a minimum of 15% above the purchase price shown as the apparent consideration under the agreement between the parties. Thus it is pointed out by the Board that the right of pre-emptive purchase has to be exercised only if the fair market value is found to be at least 15% more than the apparent consideration. The Instruction further provides that in coming to a conclusion as aforestated a reasonable margin of probable errors in estimation needs to be kept in view particularly as the law does not provide for any opportunity of being heard. The contents of the affidavit filed by one H.K. Sarangi, Under Secretary, Central Board of Direct Taxes, Department of Revenue is also to the effect that the provisions of the said Chapter ought to be resorted to only in cases of under valuation of immovable properties in agreements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of what we have observed above, we are clearly of the view that the requirement of a reasonable opportunity being given to the concerned parties, particularly, the intending purchaser and the intending seller must be road into the provisions of Chapter XX-C. In our opinion, before an order for compulsory purchase is made under Section 269UD, the intending purchaser and the intending seller must be given a reasonable opportunity of showing cause against an order for compulsory purchase being made by the appropriate authority concerned. As we have already pointed out the provisions of Chapter XX-C can be resorted to only where there is a significant under-valuation of property to the extent of 15% or more in the agreement of sale, as evidenced by the apparent consideration being the lower than the fair market value by 15% or more. We have further pointed out that although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in case of the aforesaid circumstances being established, but such a presumption is rebuttable and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to show cause being given before an order for purchase by the Central Government is made by an appropriate authority under Section 269UD must be read into the provisions of Chapter XXC. There is nothing in the language of Section 269UD or any other provision in the said Chapter which would negate such an opportunity being given. Moreover, if such a requirement were not read into the provisions of the said Chapter, they would be seriously open to challenge on the ground of violations of the provisions of Article 14 on the ground of non-compliance with principles of natural justice. The provision that when an order for purchase is made under Section 269UD-reasons must be recorded in writing is no substitute for a provision requiring a reasonable opportunity of being heard before such an order is made. 7.2 Further, as discussed by Hon ble Madras High Court in the case of CIT vs. Smt. Padmavathi, [2020] 120 taxmann.com 187 (Madras), considering the very issue of revision proceedings u/s.263 of the Act, noted that in case there is some difference between the sale consideration as per sale deed and the guideline value fixed by Stamp Valuation Authority and merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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