Sec 50C(1) Is Anti-Avoidance Provision To Prevent Evasion Of Tax By Showing Lesser Consideration, Reiterates Mumbai ITAT

While setting aside the order passed by CIT(A) and emphasizing on the safe harbour limit, the Mumbai ITAT held that the assessee is entitled to the benefit of Section 50C of Income Tax Act, 1961.

The Bench comprising CV Bhadang (President) and BR Baskaran (Accountant Member) observed that, “the CBDT had acknowledged that there can be genuine cases, where there would be a variance between the “stamp duty value” and the “actual consideration received” in respect of similar properties depending upon variety of factors”. It can be seen that such variance indeed occurs on the basis of location, dimension, access and other facilities which a particular property may enjoy. It is necessary to note that the stamp duty value or the ready reckoner value is essentially an estimate. Section 50C(1) is an anti-avoidance provision to prevent evasion of tax by showing lesser consideration in the transactions. However, after acknowledging the fact of variance between the stamp duty value and the actual consideration, the proviso was initially introduced by Finance Act 2018 from A.Y. 2019-20, introducing the “safe harbour limit” of 5%”. (Para 13)

As per the brief facts of the case, the Assessee's return was selected for scrutiny under CASS, wherein AO found that the appellant had sold immovable property in which there is a difference between sale consideration and market value. AO by invoking the provisions of section 50C added back the difference in amount and same was brought to tax as per the order passed u/s. 143(3). The CIT(A) although has noticed the proviso to section 50C has refused to give benefit of the same on the ground that the said proviso introduced by Finance Act, 2018 applied from A.Y. 2019-20 onwards.

The Coram noted that the difference between the sale consideration and the value adopted for the purpose of stamp duty therein was 6.55% which prompted the Assessing Office to make an addition.

The Bench observed that the amendment was essentially brought about to cure 'unintended consequences' of section 50(1) even in a bona-fide situation, as sub section (1) of section 50 was essentially an anti-avoidance provision.

The Bench stated by the plain reading of Section 50C that where the value adopted or assessed or assessable by stamp valuation authority does not exceed one hundred and five percent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purpose of section 48, be deemed to be the full value of the consideration.

The Bench further noted Circular 8 of 2018 by the Central Board of Direct Taxes (CBDT) viz. explanatory notes to the Finance Act 2018, which intended the rationalization of section 43CA, section 50C and section 56 of the said Act.

Referring to the decision of Co-ordinate Bench in Rajeev Kumar Agarwal vs. ACIT (2014) 45 taxmann.com 555 (Agra), the Coram reiterated that, “Now that the legislature has been compassionate enough to care these shortcomings of provision, and thus obviate the unintended hardships, such as amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was intended.”

Therefore, on relying on the Co-ordinate Bench's decision, the ITAT set aside the impugned order passed by CIT(A).

Counsel for Appellant/ Taxpayer: Hitesh Shah

Counsel for Respondent/ Department: Suni Mathews

Case Title: Rajpal Mehra verses ACIT

Case Number: ITA No.2817/Mum/2023

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