Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) has recently held that section 50C of the Income Tax Act, 1961 cannot be invoked in case of a distress sale where the assessee transferred land to a Government undertaking.
The main issue in the case was whether section 50C can be invoked when the purchaser is a government company. The assessee, a public company engaged in manufacturing cold rolled strips and started commercial production. During the assessment year the assessee filed its return and declared the total income as nil. The assessee suffered continuous losses resulting in erosion of the entire net worth of the company. Later the company declared as sick industrial company by Board of Industrial Financial Reconstruction (BIFR) and also appointed Industrial Development Bank of India (IDBI) as the operating agency of the company.
During the year the assessee has transferred its factory land to Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) which is a public sector undertaking under the Andhra Pradesh government for a sum of Rs.12 crores.
The assessee has calculated Long Term Capital Gains from the sale of land and claimed set off of brought forward unabsorbed depreciation and current year’s loss and declared the net taxable income at NIL.
During the assessment proceeding period the Assessing Officer found that for the purpose of stamp duty, the market value of the property was assessed at Rs. 21,88,97,000/-. Therefor the AO had invoked provisions of section 50C and adopted sale consideration at Rs. 21,88,97,000/- as against Rs. 12 crores adopted by the assessee and arrived at LTCG at Rs. 11,29,46,806/- and made the addition accordingly.
The assessee has filed an appeal before the CIT (A) and contented that the transaction was under distress sale and it was with a government undertaking also.
In the light of the relevant material facts the CIT (A) concluded that this transaction was conducted by the IDBI bank through a public auction and the property was purchased by a government undertaking and paid Rs.12 crores to IDBI bank against another public sector undertaking. However the entire transaction took place between two public sector undertakings, hence there is no scope for payment of unaccounted money. Therefor section 50C cannot be invoked in this transaction and take a decision in favorable to the assessee to deleting the addition made by the AO.
The ITAT bench comprising of Judicial Member P.Madavi Devi and Accountant Member S.Rifaur Rahman observed that material facts reflected that the entire transaction took place between two government undertakings and the AO has invoked section 50C by mistake and also uphold the impugned order of CIT (A).They also held that the AO cannot adopt the sale consideration at Rs. 21,88,97,000/- and invoke section 50C. The bench has dismissed the appeal of the revenue relied up on the orders pronounced by the Pune bench on the similar issues by declaring that section 50C cannot be invoke when the purchaser is a government undertaking.
Subscribe Taxscan Premium to view the Judgment
