Revision 263 for non application of section 50C. The order held erroneous and also prejudicial to the interest of Revenue – ITAT

Revision 263 for non application of section 50C. The order of the AO was held not only erroneous but also prejudicial to the interest of Revenue – ITAT 

ABCAUS Case Law Citation:
ABCAUS 1250 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the Pr. Commissioner of Income Tax  passed under section 263 of the Income Tax Act, 1961 (‘the Act’), holding the assessment order passed by the Assessing Officer (‘AO’) as erroneous in so far prejudicial to the interest of revenue for non application of the deeming provisions of section 50C.

Assessment Year : 2011-12
Date/Month of Pronouncement: May, 2017

Important Case Laws Cited/relied upon:
Malabar Industrial Co. Ltd. 243 ITR 83 (SC)
Panchiram Nahata V / s. Jt. CIT 127 TTJ 128 (Kol),
United Marine Academy 138 TTJ 129 (Mumbai SB)
ACE Builders Pvt. Ltd. 281 ITR 210
CIT V/s. V. S. Dempo Co. Ltd. 387 ITR 354
CIT V / s. Ansal Properties & Industries Pvt. Ltd. 315 ITR 225 (Delhi)
CIT V / s. Suresh Gupta 297 ITR 322
ITO vs. United Marines Academy
Rallis India Ltd., vs. Addl. CIT

Brief Facts of the Case:
The assessee was a private limited company.The CIT observed that the assessee company had sold a residential property forming block of its fixed assets to its managing director. To compute the short term capital loss on residential property, from the WDV the value of sale consideration was reduced. It was seen from the sale deed that against the stamp duty valuation of the property of Rs. 1,42,83,000/- the sale consideration was only Rs. 30 lakhs . On perusal of the records, it was found that the AO had failed to adopt value of the property as per stamp duty valuation as per the provisions of section 50C, while computing the short term capital gain or loss. In the light of the above facts, the Pr. CIT held that the order passed by the AO was erroneous in so far prejudicial to the interest of revenue.

Contentions of the appellant assessee:
It was argued that section 50C of the Act do not apply to the depreciable assets and the issue is debatable till it is finally settled by the judgment of the Supreme Court. Also, it was submitted that the CIT had not dealt with the assessee’s submissions that it was eligible for exemption under section 54EC of the Act in respect of short term capital gains made under section 50 where the assets were held for more than three years.

Observations made by the Tribunal:
The tribunal observed that the provisions of the Section 50C are applicable in the case of transfer of land and building including depreciable capital asset. The provision of section 50C contains a special provision for determining full value of consideration and as per provisions of section 50C when the consideration received or accruing as a result of the transfer by an Assessee of capital asset being land or building or both, is less than the value adopted or assessed by an authority of the State Government for the payment of stamp duty in respect of such transfer, the value so adopted or assessed shall for the purpose of Section 48, be the full value of consideration received or accruing as a result of such transfer.

The ITAT noted that while passing the order u/s 143(3), the AO had not uttered a single word with regard to applicability of provisions of Section 50C in respect of building sold by assessee to its Managing Director.

It was observed that the Hon’ble Bombay High court considering the scope of section 50C held that section 50C is a measure provided to bridge the gap as it was found that the assessee were not correctly declaring the full value of consideration or in other words resorting to the practice of under valuation.

It was further observed that the decision of Special Bench in the case of ITO vs. United Marines Academy had clarified that section 50C will be applicable on the sale value of depreciable asset.  

It was observed that in the instant case, the AO had erred by not taking the sale value of the property as adopted by the Stamp Duty Authority .i.e sale value as per Section 50C of the Act. Further, the ITAT in case of Rallis India Ltd. also held that the applicability of provisions of Section 50C in the case of depreciable asset is now squarely covered by the ITAT Mumbai Special Bench decision in United Marine Academy.

The ITAT concluded that not applying the provisions of Section 50C to the facts of the instant case had rendered the order of the AO not only erroneous but also prejudicial to the interest of Revenue, accordingly, CIT had correctly invoked the provisions of Section 263.

The ITAT also observed that CIT had nowhere disturbed the order of the AO with regard to exemption allowed u/s 54EC of the IT Act. Therefore, the argument was held as not relevant as the assessee will continue to enjoy the exemption u/s 54EC of the Act.

Held:
The appeal of the assessee was dismissed.