ISSUE IS - Whether Sections 50C / 56(2)(vii)(b) can be invoked in cases of difference in the rates charged by a builder company from its customers in respect of similar flats. NO is the verdict.
Facts of the case:
The assessee is a builder/developer following the project completion method of accounting. During the previous year, the assessee offered net profit of Rs. 3.63 crores on completion of a project called 'Orchid Towers'. During assessment proceedings, the assessee was asked to furnish party-wise details of flats sold with details of name and addresses of the buyers, area of flat sold, total sale consideration, date of agreement, date of receipt of first payment etc. On the perusal of details as furnished, the AO concluded that there were variations in prices charged by the assessee to different customers. Therefore, he made addition of Rs.15.22 lakhs on the basis of difference between the rates charged in respect of similar flats. However, as a consequence to rectification application made by assessee, the AO reduced the addition of Rs.4.45 crores. On appeal, the CIT(A) sustained the addition to Rs.8.53 crores, on ground that value of the flats had to be considered not on the basis of consideration received but on application of the provisions of section 50C as well as section 56(2)(vii)(b)(ii). On further appeal, the ITAT held that Section 50C which had been invoked by the CIT (A) would have no application in the facts of the present case. Further, the impugned order also held that section 56(2)(vii)(b)(ii) would have no application as it applies to an individual or HUF only. Moreover, the impugned order held that section 56(2)(vii)(b)(ii) seeks to levy tax in the hands of the transferee of the flat i.e. purchase of flat without consideration or for consideration which was less than stamp duty value of the property in excess of Rs.50,000/-. In this case section 56(2)(vii)(b) (ii) was sought to be applied admittedly to a transferor. In the present facts the consideration received on sale of flats was offered as income under the head 'Profits and gains of business or profession'.
On appeal, the HC held that,
++ it is self evident from reading of section 50C that it would not have any application while determining 'Profits and gains of business or profession'. This is so as its application is only limited to computation of income chargeable under the head 'Capital gains' as is evident from specific reference in sub-section (1) of section 50 to section 48 of the Act i.e. mode of computation of capital gains. In fact section 50C can only govern the valuation of property to determine capital gains and cannot govern valuation of transfer of assets i.e. stock in trade. This view is further strengthened by the fact that section 43CA has been introduced into the Act w.e.f. 1st April, 2014 which governs taking of full value of consideration for transfer of assets other than capital assets on the basis of stamp duty valuation. This section 43CA finds a place as a part of Chapter IV-D - Profits and gains of business or profession. Therefore, with effect from 1st April, 2014 the stamp duty valuation of assets sold could be taken as full value of consideration. Our above view that section 50C has no application to value stock in trade is also a view taken by Allahabad High Court in Commissioner of Income Tax vs. Ken Construction and Colonizers (P) Ltd. section 50C of the Act cannot be invoked to arrive at full consideration of sale of business asset;
++ so far application of section 56(2)(vii)(b)(ii) is concerned, it is self evident that it only applies to individuals and Hindu Undivided Family. Moreover, it seeks to tax the transferee of the property for having given consideration for which is less than the stamp value by Rs.50,000/- or more for purchase of the property. Thus, the observations of the Tribunal that it has no application is unexceptional. Lastly, the finding of Tribunal that the Assessing Officer did not deal with explanation offered by the assessee justifying the difference in prices of similar flats, is a finding of fact. This has not been shown to be perverse.