Deemed Value Provision Mandatory in Land Sale Dispute: ITAT Upholds Section 263 Revision for Non-Invocation of Section 50C [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) upheld the revisionary order passed by the PrincipalCommissioner of Income Tax (PCIT) under Section 263, holding that the Assessing Officer’s (AO) failure to invoke the mandatory provisions of Section 50C rendered the assessment order erroneous and prejudicial to the interest of the Revenue.

M/s. New India Cooperative Housing Society Ltd., the assessee, was a co-owner of a plot in JVPD Scheme, Juhu, with a 6.1% share. The assessee sold this land to Vasundhara Cooperative Housing Society Ltd. , comprising IPS officers for a consideration of Rs. 4,52,486/-. The Stamp Duty Authority, however, valued the total property at Rs. 11.88 crore, fixing the assessee's share at Rs. 72,49,435/-.

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During the reassessment proceedings for Assessment Year 2004-05, the AO computed capital gains based on the declared consideration. The PCIT later invoked Section 263, observing that the AO failed to apply Section 50C, which mandates adopting stamp duty value as the full value of consideration if it exceeds the declared sale price. The PCIT set aside the assessment, directing the AO to recompute gains based on the higher stamp duty value.

Aggrieved by the order, the assessee approached the ITAT. The assessee argued that the PCIT lacked jurisdiction as the "Doctrine of Merger" applied, a previous CIT(A) order had already dealt with capital gains regarding the cost of acquisition. The assessee also contended that Section 50C did not apply to transfers involving government authorities or compulsory acquisition and that the issue was pending before the jurisdictional High Court.

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The Revenue counsel supported the PCIT’s action, submitting that Section 50C is a mandatory deeming provision with no exemption for the status of the transferee. It was argued that since the AO did not examine this issue, the assessment was indeed erroneous.

The bench comprising Kavitha Rajagopal (JM) and Om Prakash Kant (AM) observed that the earlier appellate proceedings were limited to determining the "cost of acquisition," while the applicability of Section 50C regarding "sale consideration" was never examined by the AO or the CIT(A). The Tribunal applied the principle of "Doctrine of Partial Merger," stating that the PCIT retains jurisdiction over matters not previously considered and decided.

The Tribunal further ruled that Section 50C is mandatory and applies to any transfer of a capital asset being land or building, irrespective of the nature of the transferee.

The ITAT upheld the revision order under Section 263 but granted liberty to the assessee to raise objections regarding the stamp duty valuation before the AO. The Tribunal directed the AO to provide a proper opportunity for the assessee and refer the matter to the Departmental Valuation Officer if required.

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