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Special value for full value of consideration in certain cases Section 50C

By Mr.R.Dhiraj, Mr.V.P.Thangaduurai , Ms.B.Mala Associates, SAPR Advocates

Table of Contents
Brief Introduction Important terms Need History Importance Constitutional Validity Provisions of Section 50C Application of the section Reference to DVO Effect of DVO Valuation Assessment can be rectified u/s 154 Application of Sec 50C to certain transactions Where document not registered Section 50-C can not be applied for purposes of s 69-B Whether 50C applicable for transactions covered under Sec 50, 50A and 50B Issues on Net consideration Manner of Valuation under sec. 263 Provision of Sec 155 Penalty whether leviable Conclusion Annexure

Brief Introduction
People generally declare lesser value of consideration than the actual amount received.

This in practice decreases the revenue of the government.


The section provides a sort of statutory presumption in such cases.

Section 50C has been inserted by the Finance Act of 2002 w.e.f from 1-4-2003 to curb this practice.
The purpose of inserting the section is to avoid tax evasion and undervaluation of transactions. At the same time the section allows a fair play to law abiding citizens.

Important terms
Assessable means the price which the stamp valuation authority would have adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty. Guideline Value of a land is the value of the land as determined by the Government, based on its own metrics of facilities and infrastructure growth in that locality. The Guideline Values are revised periodically to have them in sync with the Market Value The operative force of expression adopted employed in section 50-C to be construed as referring to particular rate adopted in case of an assessee who offered the conveyance deed for registration.

The operative force or expression assessed / assessable employed in sec. 50C relates to the rates determined by the stamp duty valuation authorities for the purpose of the stamp duty valuation in the particular area. Fair market value is the price that a given property or asset would fetch in the marketplace, subject to the following conditions: Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade. A reasonable time period is given for the transaction to be completed.

market value is the price which, in the opinion of the collector or the appellate authority, a property would fetch, if sold, in the open market. Actual Consideration is the amount which the seller of the property has actually received from the buyer as consideration of the transaction.

Need
There is a general belief that real estate transactions provide scope for evasion of tax, it is not only income-tax that has been the cause of it but also the stamp duty payable to the State Government.
To check proliferation of black money in real estate transactions. To enforce disclosure of consideration reflecting the fair market value of the immovable property which is subject-matter of transfer. In some of the States, stamp duty rates have also been reduced to encourage declaration of correct consideration.

History
proviso to section 12B(2) in 1922 Act, a corresponding provision u/s 52 in 1961 Act to achieve the objective in KP Varghese vs. ITO, 131 ITR 597 the Apex Court held that sec. 52(2) cannot apply to genuine transactions. Adoption of notional value was ruled out unless there was evidence to establish understatement of consideration. In view of this, sec. 52(2) withdrawn in 1988. Thereafter, Chapter XXA was inserted providing powers to acquire properties if there was understatement of consideration.

This chapter was in the statue book from 1972 to 1986 and less than 14 properties were acquired exercising the power vested therein. In 1986, Chapter XXC was introduced providing the right of preemptive purchase in favour of the Government. This chapter was in force for about 16 years from 1-10-1986 up to 1-7-2002. By Finance Act 2002 Sec.50C has been inserted.

Therefore from the above historical background it can be understood that under Chapter XXA the target was only high value properties, but the present provisions will apply to all and sundry.

Sec. 50C appears to take a simple method to assess Sale value of a property , however a mere sale consideration of Rs 200000 will also be hit
Does this not increase administration costs and litigation? Suggestion: A base of sale value of Rs 5000000 should be placed for application of these provisions. This would set aside the drawback of the current scenario and serve the purpose of the legislation.

Importance
Section 50C imposes a liability upon the assessee in respect of the full value of the actual sale consideration. The section only goes on a presumption that there is evasion of tax. The section acts as a check on controlling the black money in the economy as real estate transactions provide scope for evasion of tax For example, if A sells his property for 20 lakhs and pays tax for transaction worth 12 lakhs, the difference of 8 lakhs in the hands of A is Black Money.

Constitutional Validity
Sec. 50C specifically introduced to prevent evasion of tax and undervaluation of transaction. Pertains to capital assets being land or building. Contention that provision based on valuation made by stamp valuation authority illegal and beyond field of legislation under Entry 82 of List I of Sch. VII of the Constitution and beyond competence of Parliament rejected by the court.

Section 50C not beyond legislative competence of Parliament or violative of Art. 14.

Bhatia Nagar Premises Co-operative Society Ltd. Vs UOI & Ors (2010) 234 CTR (Bom) 175 and the Madras High court in the case of K. R. Palanisamy & Ors. VS UOI & Ors. (2008) 219 CTR 323 (Mad.) , Held that Sec. 50C has been specifically introduced with a view to prevent evasion of tax and undervaluation of transaction. It pertains to a class of capital assets being land or building. Therefore, the classification is not unreasonable and discriminatory considering the object i.e. to tax the income by way of capital gains.

Provision of Sec 50C


(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1), where (a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court,
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modi-fications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.

What the Provision conveys:


Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset is less than the value assessed by stamp valuation authority, the full value of the consideration is deemed to have been received or accruing as a result of such transfer for the purpose of computation.

For example, if A sells his land for value of 5 lakhs and the guideline value of the land is 7 lakhs, the value adopted by the AO i.e. 7 lakhs will be taken into account for the purpose of computation.

The Assessing officer may refer it to the Valuation Officer if the assessee claims the value adopted exceeds the fair market value of the property as on the date of transfer ; Or

the value so adopted has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, For example, suppose the value of the transaction is 7 lakhs and the guide value is 10 lakhs, the AO may refer the valuation of the capital asset to valuation officer at the request of the assessee.
Suppose in the above example, if the assessee takes up the issue to any other authority competent to hear the matter, then the AO may not refer the matter to the valuation officer.

Where the value ascertained by the valuation officer exceeds the value ascertained by the stamp valuation officer then the latter, i.e., the lower amount will be considered as the full value of consideration of the transfer. For example, if the value ascertained by the valuation officer is Rs 12 lakhs where the DVOs valuation is at 10 lakhs, then Rs.10 lakhs is taken as the full value of consideration.

Reference to Sec 56
By the finance Act of 2010, section 56 was amended with retrospective effect w.e.f October 2009. However, s. 56(2)(vii) , earlier to its substitution, sought to charge the difference in consideration and the fair market value (assessable stamp value) of immovable property in the hands of the purchaser as income. But again, by amending s. 56 (2)(vii)(b), provision to charge the difference is further amended and now it is only where immovable property is received without any consideration, the same will be applicable in the hands of receiver of immovable property being an individual or a HUF.

The Other Side of the Provision :


Though the object of the legislation aimed at curbing the minting of black money by the offenders, it also affects the law abiding citizens in certain cases. The examples includes the following: An individual owning a small piece of land in the vicinity of a large area which is developed An individual owning a residential building between two large complexes An individual owning a building facing a slum as against a building on the same road facing a park A company proposing to allot plots to its employees at a discounted rate An individual making a distress sale

Summary of the Section


Where stamp duty valuation is higher than the stated consideration of transfer, the same is to be adopted for the purpose of computing capital gains. The exception is that in case the assessee can demonstrate that the fair market valuation is less than the stamp duty valuation, the fair market value is to be adopted.

The safeguard is that the assessees challenge to the stamp duty valuation before the tax authorities cannot put the assessee to any disadvantage.
When stamp duty officers valuation of a property is higher than the stated value of sale consideration, the onus to prove the fair market value has been shifted on to the assessee. As long as an assessee can reasonably discharge this onus, even under the scheme of section 50C, the consideration stated by him cannot be disturbed.

Applicability of the Section


Section 50-C is a machinery provision. Provides guidelines to AO as to how to compute the value of a property. As per section 45, capital gain would be chargeable to tax when a capital asset is transferred within the meaning of sec. 2(47) of the Act. The rest of the clauses i.e. sections 48 and 50-C provide the mode of computation.

The Supreme Court in CIT vs. SHAHZADA NAND AND SONS, 60 ITR 392 Held The principle will not apply if two provisions apply to different categories or fields KIRLOSKAR PNEUMATIC Co. Ltd. case 210 ITR 485 (Bom) Held where the sub-sections of sec. 45 specifically prescribe the consideration to be adopted, sec. 50C cannot apply to transactions covered by them

Reference to DVO
In Meghraj Baid VS. ITO (2008) 114 TTJ 841 (Jd) / (2008) 4 DTR 509 (Jd) Held : Where the AO does not agree with the explanation of the assessee with regard to lower consideration disclosed by him, he should refer the matter to DVO for getting its market rate.

In ITO vs. Smt. Manju Rani Jain (2008) 24 SOT 24 (Del.) Held : The AO has taken market value adopted for stamp duty purposes as full value of consideration for purposes of computing capital gains CIT(A) was justified in directing the Assessing Officer to first refer the properties to valuation cell and then do so in view of provisions of S. 50C(2)

M/s. Shah Yarn Tax Private Limited vs. ACIT 2009 TIOL 414 ITAT Mad Held : Where the assessee did not claim before AO that the amount received as sale consideration and mentioned in the conveyance deed was the fair market value of the property, the preliminary burden of the assessee under subsection (2) of sec. 50C was not discharged. Hence AO was not required to make any reference to the Valuation Officer.

N. Meenakshi vs. ACIT (2010) 326 ITR 229 Valuation having been being pending before DVO, assessment order passed by the AO without waiting for report affected the assessee's valuable right conferred under s. 50C. writ petition was maintainable.

The apex Court in R.Sai Bharathi vs. J.Jayalalitha and others (203 (4) L.W. 825) Held - Guideline value is not final but is only a prima facie material for determination of the true market value Apex Court in Ezhilarasi vs The Inspector General Held: - Guideline value is not a final authority on the market value of the property. - It is only a guiding factor to prima facie ascertain the market value, if there is a doubt that the market value has not been truly set forth in the instrument.

Effect of DVO valuation


Where apparent consideration of land and/or building as shown in the document of transfer is less than stamp duty valuation fixed by State Government, the latter will prevail. AO cannot disregard the valuation fixed by DVO. AO bound to adopt valuation made by stamp valuation authority if it is higher than the sale consideration shown by assessee. Where valuation made by the DVO is higher than the valuation by stamp valuation authority, the latter will be adopted as sale consideration declared But where valuation made by DVO is less than valuation made by the stamp valuation authority, then AO may adopt such fair market value to be the full value of consideration. It is unlikely that the AO will adopt the DVOs valuation if it is lower than the stamp valuation

Ravi Kant vs. ITO (2007) 110 TTJ 297 (Del.) : Where apparent consideration in the document of transfer is less than the stamp duty valuation fixed by State Government, it is the latter which shall prevail for computation of capital gains. Assessing Officer cannot disregard the valuation fixed by DVO. In JITENDRA MOHAN SAXENA Vs. ITO (2008) 117 TTJ 974 (Luck.) held : The valuation arrived at by the DVO was higher than that adopted by the stamp valuation authority. Assessing Officer was justified in adopting stamp valuation as full value of consideration. Discretion available to AO is limited to this extent as clarified in CBDT Circular No. 8 (Refer annexure) Report of approved valuer given by assessee is alien to the provisions of S. 50C.

Where consideration is accepted by the Stamp Valuation Authority Punjab Poly Jute Corporation V. ACIT 313 ITR (A.T.) 0178 Held: Consideration declared by assessee in sale deed accepted by stamp valuation authority. Value adopted by stamp valuation authority need not be substituted with value determined by DVO for computation of capital gains. Section 50C would not be attracted Rates prevailing as on date of agreement to be adopted, not rates prevailing on date of registration Moole Rami Reddy Vs ITO 2011-TIOL-135-ITAT-VIZAG The rates prevailing as on the date of agreement are to be adopted instead of rates prevailing on the date of registration of property. Since the value of the property declared by the assessee as on the date of sale agreement is higher than the value shown in the certificate, the value declared by the assessee is to be adopted for computing the capital gain.

Onus on assessee
- M/s. Shah Yarn Tax Private Ltd Vs ACIT 2009-TIOL-414-ITAT Assessee did not claim before the AO that the amount received as sale consideration and mentioned in the conveyance deed was fair market value of the property Preliminary burden of assessee under subsection (2) of sec. 50C not discharged AO not required to make any reference to DVO Adoption of DVOs report without providing opportunity of being heard - ACIT VS Shri Ranjay Gulati 2011-TIOL-528-ITAT Valuation pending before DVO Assessment order passed by AO without waiting for report Affected assessee's valuable right and was against the principles of natural justice Writ petition maintainable.

Assessment can be rectified u/s 154


Mrs Nandita Khosla vs ITO 2011-TIOL-312-ITAT and Kanai Lal Sharma vs. Asst CIT 2011-TIOL-324-ITAT Where the assessee objects to stamp duty valuation, the AO is required to call for the report of the DVO, even if the valuation report is received after the assessment, the value determined may be rectified u/s 154 The rectification provisions ensure that the assessees rights are protected.

However, if the time limit of four years have elapsed, there is no provision for rectification

Applicability in respect of Asset held in Business


Section 50C will apply only to capital gains and not to business income e.g assets held as stock in trade In M/s. Inderlok Hotels Pvt. Ltd. vs. ITO, [122 TTJ 145], held The Provisions of section 50C cannot be applied where the income from transfer is business income. CIT v Thiruvengadam Investments ( P ) Ltd ( 2010 ) 34 DTR 81/ 320 ITR / 229 CTR 284 (Mad) Held: the Provisions of section 50C can be applied only to find out the true value of a capital asset and not for computing business income hence the same cannot be applied when the sale is of stock in trade.

CIT Vs Thiruvengadam Investments Pvt Ltd 2010-TIOL-78-HCMAD Held: Since the property was taken on power of attorney and it was never a capital asset for the assessee, Sec 50C is not attracted in this case DCIT Vs Tejinder Singh 2012-TIOL-147-ITAT-KOL Held : It is sine qua non for application of Section 50 C that the transfer must be of a capital asset, being land or building or both, A leasehold right in such a capital asset cannot be equated with the capital asset per se

CIT VS M/S Kan Construction And Colonizers Pvt Ltd 012TIOL-286-HC held : Section 50C uses the word capital asset. Stock in trade has been excluded from the definition of capital asset. Assessee has treated land as stock in trade Section 50C has no application in the case of transfer of plots held as stock in trade.

Application of Sec 50C to certain transactions


These decisions clarify that only transfer of assets held as capital assets will come under purview of Sec. 50C Transfer of a leasehold right in land or building or both provisions of Section 50C cannot be invoked DCIT VS Tejinder Singh 2012-TIOL-147-ITAT AND ACIT VS Shri Ishverlal Manmohandas Kanakia 2012-TIOL-160ITAT held : a leasehold right in a capital asset, being land or building or both cannot be equated with capital asset per se. when a leasehold right in land or building or both is transferred, provisions of Section 50C cannot be invoked

Applicable to depreciable assets Panchiram Nahata v JCIT ( 2010 ) 127 TTJ (Kol ) (UO ) 128. Held: Stamp duty valuation is not applicable in respect of sale of assets where depreciation has been allowed.

ITO VS United Marine Academy 2011-TIOL-266-ITATMUM-SB no distinction made between a depreciable asset and a nondepreciable asset provisions of section 50C apply to transfer of depreciable capital assets covered by section 50

Property taken on power of attorney CIT vs Thiruvengadam Investments Pvt Ltd 2010-TIOL-78HC-MAD held: property taken on power of attorney it was never a capital asset for assessee, Sec 50C is not attracted in this case Computation of undisclosed income of the block period CIT Vs. Kishan Kumar & Ors 215 CTR 181 held: Stamp Valuation Authoritys rates of property fixed for purposes of registration of sale deeds cannot be taken to be the price for which property was purchased for purpose of computing undisclosed income under s. 158BB

Whether transfer of tenancy right attracts Sec 50C


Smt Kishori Sharad Gaitonde vs ITO 2010-TIOL-297-ITAT held: unless property transferred is a capital asset, being land or building or both registered by sale deed , then section 50C comes into operation. legal fiction confined to restricted operation cannot be widened to include all cases where such property is not covered. The Supreme Court in CIT V. Amar Chand Shroff has held
legal fiction is only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond the legitimate field.

Where there is transfer of tenancy right, though a capital asset ,it is not a capital asset of the nature of land or building or both. section 50C not applicable

Where document not registeredSec 50C whether applicable


An assessee who does not want to get the conveyance deed registered but transfers the capital assets within the meaning of sec. 2(47) The expression assessed employed in sec. 50-C would cover such type of cases In the following cases Smt. Vijay Laxmi Dhaddha VS. ITO 20 DTR (TRIB) 365, Navneet Kumar Thakkar VS. ITO 112 TTJ 76, ITO Vs.M/S Em Pee Cold Storage Pvt Ltd 2010-TIOL-517ITAT, Ahmedabad Ice & Cold Storage Pvt Ltd VS ITO 2011-TIOL264-ITAT

Held Provisions of s. 50C cannot be invoked in absence of a registered document in absence of the value adopted or assessed by any authority of State Government for the purpose of payment of stamp duty in respect of such transfer No registered sale deed to enable AO to adopt or assess the value assessed by the stamp valuation authority for the purpose of s. 48 No evidence that assessee had received higher amount in consideration against the sale of plot than shown by the parties in the agreement to sale. Provisions of s. 50C cannot be invoked

Explanation 2 has been inserted in Section 50C w.e.f. 1-10-2009 It states that value assessable by the stamp valuation authority means the price which would have been adopted/assessed had the transaction been referred to such valuation authority for the payment of stamp duty. Prior to insertion of this Explanation, it had been held in many cases that for invoking the provisions of Section 50C, the transfer of property must first be registered for the purpose of payment of stamp duty. Now, by virtue, of this amendment, the above judgments are rendered redundant and the income-tax authorities are free to refer the property to stamp valuation authority irrespective of whether the same has been registered for stamp duty purposes or not. However, if the sale does not take place at all, and the agreement does not get registered, there is no provision for rectification.

It does not go beyond the cases in which the transferred property has not become the subject-matter of registration and the question of valuation for stamp duty purposes has not arisen. It was further held in the above mentioned case that the value adopted or assessed by the stamp valuation authorities has to be of the very same property, which is the subject-matter of transfer. It is wholly irrelevant to consider the assessed value of another property for stamp duty purposes as full value of consideration.

Section 50-C can not be applied for purposes of s 69-B


Provisions of Sec 50C are applicable only in the hands of seller, and hence the assessee who purchases the land is out of the purview of section 50C. wherever the legislature wanted, stamp duty value is adopted as value of the transaction. Sec. 50C is one such example where stamp duty valuation is taken as sales consideration in the hands of the seller. the same cannot be applied for making addition u/s. 69

CIT Vs HARLEY STREET PHARMACEUTICALS LTD 2011TIOL-391-HC held : deeming fiction of Section 50-C cannot be applied for ascertaining the undisclosed investment u/s 69-B.

Sec 50C cannot be invoked to tax the difference in the hands of the purchaser.

ITO vs. Optec Disc Manufacturing 11 DTR 264 and CIT vs Harley Street Pharmaceuticals Ltd 2011-TIOL-391-HC held : AO not justified in making addition under s. 69B of the difference between consideration stated by assessee for purchase of land the value adopted by State Revenue authority for stamp duty purposes on basis of uncorroborated statement of seller and by relying on s. 50C is not applicable in the context of s. 69B This fiction cannot be extended further to tax the difference in the hands of the purchaser.

However contrary view taken in

ITO vs. Five Star Health Care (P) Ltd. 42 SOT 153 held : Where there was understatement of investment by assessee, the difference being more than three fold, s. 69B was attracted burden on assessee to prove that it had actually paid the amount stated in title deed.

Whether 50C applicable for transactions covered under Sec 50, 50A and 50B
The provisions of sec.50C do not apply to transactions covered under sections 50, 50A & 50B as provisions of sec.50C apply only for computation u/s.48
Applicable to depreciable assets Panchiram Nahata v JCIT ( 2010 ) 127 TTJ (Kol ) (UO ) 128. Held: Stamp duty valuation is not applicable in respect of sale of assets where depreciation has been allowed.

ITO VS United Marine Academy 2011-TIOL-266-ITATMUM-SB no distinction made between a depreciable asset and a nondepreciable asset provisions of section 50C apply to transfer of depreciable capital assets covered by section 50.

Applicability to transaction covered u/s 50B (Slump Sale) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

The explanation to the section specifically states that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees not be regarded as assignment of values to individual assets or liabilities.
Sale is a going concern for a lump sum price

Immovable property transferred along with property within it without assigning them any value. Certain value is shown for assets for paying stamp duty does not attract sec 50C. Therefore, 50C do not apply where no value is ascribed to individual asset.

Issues on Net Consideration


Capital gains on sale of an asset other than a residential house, in the hands of an individual or a Hindu Undivided Family, is eligible for an exemption u/s.54F on purchase or construction of a residential house within the specified period, subject to fulfillment of certain conditions. Should one take the sale consideration recorded in the documents of transfer, or should one take the stamp duty value as per section 50C ? For example, if a plot of land is sold for Rs.1 crore with its stamp duty valuation being Rs.1.5 crores, and if the cost of the new residential house is Rs.1 crore, would the entire capital gains be exempt from tax u/s.54F or would only two-thirds of the capital gains be exempt ?

The Lucknow Tribunal in the case of Modh Shaoib Vs DCIT 1ITR (Trib.) 452 ,held provisions of section 50C were attracted and capital gains would be taxable to the extent of the difference in valuation between the stamp duty valuation and the sale consideration, even in a case where the entire sale consideration was invested in a new asset. Bangalore Bench of the Tribunal in the case of Gouli Mahadevappa v. ITO, 135 TTJ (Bang.) Held: If such an exemption were to be allowed, the very purpose of introducing section 50C would be defeated, because whatever may be the capital gain arrived at by imposing section 50C would be exempt, if the net consideration, however meager it may be, is invested in the new asset. In the case of Gyan Chand Batra v. ITO, 133 TTJ (Jp) 482., held: Since the assessee had invested more than the actual sale consideration specified in the sale deed in the new residential house before the due date of filing of the return, the Tribunal held that the entire capital gains was eligible for exemption u/s.54F.

Computation of undisclosed income of the block period


Commissioner Of Income Tax Vs. Kishan Kumar & ORS (2008) 215 CTR (Raj) 181 Held: Stamp Valuation Authoritys rates of property fixed for purposes of registration of sale deeds cannot, be taken for the purpose of computing undisclosed income u/s. 158BB

Provision of Sec 155


Sec. 155(15) says if such value is revised in any appeal or revision, etc., the Assessing Officer shall amend the order of assessment to recompute the capital gain on the basis of the revised value. CIT Vs. CHAndni Bhuchar (2010) 229 CTR (P&H) 190 : held valuation done by any State agency for the purpose of stamp duty would not ipso facto substitute the actual sale consideration in the absence of any admissible evidence. Supreme Court, in C.B. Goutham vs. Union of India, 199 ITR 530 held the presumption of understatement does not arise if the difference is not more than 15% between the apparent consideration and the market value.

Manner of valuation u/s 263


In CIT Vs. Smt. Tasneem Z Madraswala (2010) 324 ITR 67 (Mad), CIT set aside the order passed by AO by invoking provisions of s. 263 and further directed the AO to pass a fresh assessment order by following the procedure contemplated under sec. 50C(2)(b). Tribunal allowed the appeal filed by the assessee against order passed by CIT in part by deleting the direction given by the CIT regarding invoking the procedure contemplated under s. 50C(2)(b) to value the capital asset in a particular manner. Held CIT ought not to have given a specific direction to complete the assessment in a particular manner..

Penalty whether leviable


Asst CIT vs. Mrs. N. Meenakshi 125 TTJ (Chennai) 856 and M/s JAPFA Comfeed India Pvt Ltd 2011-TIOL-703-ITAT-DEL held: Assessee not guilty of concealment or furnishing of inaccurate particulars of income AO computed higher capital gains by taking fair market value of the property on basis of value obtained from Sub-Registrar's office in preference to the value obtained by assessee from a valuer's report Penalty under s. 271(1)(c) not leviable.

This decision protect Assessees from penalty provisions.


The Department should take a cue from this decision to avoid unnecessary litigation

Conclusion
The purpose of inserting the section is to avoid tax evasion and undervaluation of transactions. The section only provides a sort of statutory presumption where he can evade tax. Section 50C imposes a liability upon the assessee in respect of the full value of sale consideration.

At the same time the section allows a fair play to law abiding citizens.

Annexure
CBDT CIRCULAR NO. 8/2002 Finance Act, 2002 Explanatory Notes on provisions relating to Direct Taxes Computation of capital gains in real estate transactions. 37.1 The Finance Act, 2002, has inserted a new section 50C in the Income tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property. 37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income tax Act.

37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes. 37.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003 04 and subsequent years.

Special provision for computation of capital gains in case of depreciable assets (Sec 50)
Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of section 48 and 49 shall be subject to the following modifications : (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;

(ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.]

Special provision for cost of acquisition in case of depreciable asset.


50A. Where the capital asset is an asset in respect of which a deduction on account of depreciation under clause (i) of sub-section (1) of section 32 has been obtained by the assessee in any previous year, the provisions of section 48 and 49 shall apply subject to the modification that the written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.]

Special provision for computation of capital gains in case of slump sale


(1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets.

(2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of section 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. (3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.

[Explanation 1.For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account : Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth. Explanation 2.For computing the net worth, the aggregate value of total assets shall be, (a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43 [(b) in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, nil; and (c) in the case of other assets, the book value of such assets.]]]