Weikfield Products Co (I) Pvt. Ltd.,, ... vs Assessee

Weikfield Products Co. (I) Pvt. Ltd., C/o Shah Khandelwal Jain & Associates Chartered Accountants, 1st Floor, Alankar Cinema Bldg., Pune - 411 001. PAN : AAACW1865A .... Appellant

Vs.

Dy. Commissioner of Income Tax, Circle- 7, Pune. .... Respondent

Assessee by : Mr. R. G. Nahar Department by : Mr. Rajesh Damor Date of hearing : 12-02-2015 Date of pronouncement : 25-02-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the assessee is directed against an order of

the Commissioner of Income Tax (Appeals)-III, Pune dated 01.09.2009 which,

in turn, has arisen from an order dated 28.11.2008 passed by the Assessing

Officer u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short "the Act"),

pertaining to the assessment year 2004-05.

2. In this appeal, although the assessee has raised multiple Grounds of

Appeal, but essentially the grievance is against an addition of Rs.42,79,000/-

made by the Assessing Officer on account of long term capital gain. Briefly

put, the facts are that the appellant is a company registered under the

provisions of the Companies Act, 1956 and it owned a piece of land bearing

Survey No.30/3, 31/1 & 2A admeasuring 52,527.04 sq.mts in village

Vadgaonsheri, Tal. Haveli, Pune. The appellant company entered into a

single joint venture agreement dated 18.12.2003 with M/s IT Citi Infopark Pvt. 2 ITA No.1319/PN/2009

Ltd. with a desire of developing the property on the terms and conditions

contained therein. The said agreement was registered with the Registering

Authority on 19.12.2003. Further, the assessee also entered into an

addendum to the single joint venture agreement on 10.05.2004. The

addendum provided that the parties to the joint venture agreement have

formed themselves into an Association of Persons (AOP) in the name and

style of M/s Weikfield IT-Citi Infopark and that addendum was being entered

into for the purposes of elaborating and clarifying the method of operations,

management and development of the said property and reduce the same into

writing. In the said addendum, the terms and conditions included, inter- alia,

capital of the AOP, tenure of the business of the AOP, activity of the AOP etc..

In terms of Clause (7) thereof, it was stated that the contribution of the

assessee by way of the land was valued at Rs.4,37,20,550/-, which is stated

to have been the market value of the property as determined by the

Government authorities for the purposes of stamp duty.

3. In this background, the assessee declared long term capital gain on the

transfer of such property into AOP in its return of income for the assessment

year 2004-05, i.e. the year under consideration. While computing the long

term capital gain, the assessee adopted the consideration at Rs.4,37,21,000/-.

Initially the assessment was completed under section 143(3) of the Act on

27.12.2006 wherein, inter alia, the long term capital gain as declared by the

assessee was accepted. Subsequently, the assessment was reopened u/s

148 of the Act on the ground that the actual sale consideration of the property

was to be taken at Rs.4,80,00,000/- as against Rs.4,37,21,000/- adopted by

the assessee. In the consequent assessment finalized u/s 143(3) r.w.s 147 of

the Act, the consideration has been adopted at Rs.4,80,00,000/- thereby

leading to an addition of Rs.42,79,000/- on account of enhanced long term

capital gain.

3 ITA No.1319/PN/2009

4. The basis of such addition is the mention of Rs.4,80,00,000/- as the

consideration in Index No.II annexed to the single joint venture agreement

dated 18.12.2003 while registering the same on 19.12.2003. In the Index

No.II, the consideration has been stated to be Rs.4,80,00,000/- whereas the

value assessed by the registering authority for the purpose of stamp valuation

of property is stated at Rs.4,37,20,550/-. On this basis, the Revenue contends

that the consideration for the purpose of computing long term capital gain is to

be reckoned at Rs.4,80,00,000/- whereas, as per the assessee it has to

correspond to the market value of the property, i.e. Rs.4,37,20,550/- or the

round figure Rs.4,37,21,000/- as mentioned in the addendum to the single

joint venture agreement dated 10.05.2004.

5. Before us, the Ld. Counsel for the assessee submitted that the CIT(A)

has wrongly upheld the action of the Assessing Officer in adopting the

consideration at Rs.4,80,00,000/- and that there was no justification for having

invoked section 50C of the Act in the present case so as to compute the

capital gain with reference to the consideration of Rs.4,80,00,000/-. It is

pointed out that at no stage the consideration between the parties has been

agreed to be Rs.4,80,00,000/-, inasmuch as the value credited to the

assessee in the books of the AOP is only Rs.4,27,20,550/- as evidenced by

the Balance sheet and Profit & Loss Account of the AOP M/s Weikfield IT-Citi

Infopark, copies of which have been placed in the Paper Book at pages 21 to

25. It is further pointed out that when the original joint venture agreement

dated 19.12.2003 was put up for registration with the registering authority, the

amount of Rs.4,80,00,000/- was put in the Index-II only on the advice of the

Advocate of the other party and accordingly, the stamp duty was paid. So

however, on presentation of the document before the registering authority, the

same was valued at Rs.4,37,20,550/- by the registering authority for the

purposes of stamp duty valuation. It was pointed out that though in-effect the 4 ITA No.1319/PN/2009

stamp duty was paid with respect to the value of Rs.4,80,00,000/-, so

however, the same was not the consideration stated in the said agreement.

In-fact, it was only in the addendum to the single joint venture agreement

dated 10.5.2004 that the consideration had been mentioned which is with

reference to the market value of the said property, i.e. at Rs.4,37,20,550/- as

assessed by the stamp valuation authority. The Ld. Counsel also explained

that since stamp duty was to be incurred by other concern, the assessee did

not object to the payment of higher stamp duty on the basis of value of

Rs.4,80,00,000/-, but the same, in no way, can be construed as the actual

consideration, inasmuch as the assessee had transferred the asset to the

AOP at Rs.4,37,20,550/- as stated in the addendum to the single joint venture

agreement dated 10.5.2004. The learned counsel asserted that the value

assessed by the stamp valuation authority for the purposes of payment of

stamp duty continues to be Rs.4,37,20,550/- as mentioned in Index No. II

annexed to the agreement dated 19.12.2003 and that it is at the same value

that the assessee had transferred the same to the AOP and that mere

payment of stamp duty at a higher value does not trigger the provisions of

section 50C of the Act.

6. On the other hand, the Ld. Departmental Representative appearing for

the Revenue has defended the orders of the lower authorities by pointing out

that the stamp duty has been paid after considering the value of the property

at Rs.4,80,00,000/- and, therefore, the same is liable to be treated as value of

sale consideration adopted by the stamp valuation authority and accordingly,

section 50C of the Act has been rightly invoked.

7. We have carefully considered the rival submissions. The controversy in

this appeal is primarily driven by invoking of section 50C of the Act which

permits an Assessing Officer to disregard the consideration actually received 5 ITA No.1319/PN/2009

or accruing as a result of transfer by an assessee in preference to the value

adopted or assessed or assessable by any authority of a State Government

for the purposes of stamp duty in respect of such transfer. Section 50C of the

Act provides that where the consideration received or accruing as a result of

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 for the purpose of payment of stamp duty in respect of such

transfer, then the value so adopted or assessed or assessable shall, for the

purposes of section 48 of the Act, be deemed to be the full value of

consideration received or accruing as a result of such transfer. Quite clearly,

shorn off other details, section 50C of the Act is triggered only in a situation

where the consideration received or accruing as a result of a transfer of a

capital asset being land or building or both is less than the value adopted or

assessed or assessable by the stamp valuation authority for the purpose of

payment of stamp duty in respect of such transfer.

8. In the present case, the assessee entered into a joint venture

agreement with another concern and formed an AOP to which it transferred its

property being land and gain on such transfer is exigible to tax as capital

gains. In terms of the single joint venture agreement dated 19.12.2003 read

with addendum to the single joint venture agreement dated 10.5.2004 the

contribution of the assessee on account of the land has been valued at

Rs.4,37,20,550/-, which has been adopted by the assessee as consideration

for the purpose of computing capital gain. The said consideration is also the

value which has been stated to be the market value in Index-II by the stamp

valuation authority, as is evidenced by the copy of such Index-II to the

agreement registered on 19.12.2003 which is placed on record. In the same

Index-II against the column 'consideration', it is stated to be Rs.4,80,00,000/-. 6 ITA No.1319/PN/2009

9. Now, the consideration as per the assessee contained in its agreement

is Rs.4,37,20,550/- and the same is also assessable as the market value by

the stamp valuation authority. Therefore, in this light there is little justification

to invoke section 50C of the Act. The moot question to be decided is as to

whether the consideration in terms of the impugned agreements which is

received or accruing as a result of the transfer to the assessee is

Rs.4,37,20,550/- or Rs.4,80,00,000/-. To our mind, considering the contents of

the agreements and also the books of account of the AOP, copies of which

have been placed on record, it is evident that the consideration accruing to the

assessee as a result of such transfer is Rs.4,37,20,550/- qua its impugned

contribution to AOP by way of land. Even at this stage, the Revenue contends

that invoking of section 50C of the Act is justified, inasmuch as stamp duty for

the transfer envisaged in the agreement dated 19.12.2003 has been paid with

respect to the value of Rs.4,80,00,000/- as mentioned in the Index-II and,

therefore the amount of Rs.4,80,00,000/- is deemed to be the full value of

consideration for the purpose of section 50C of the Act. On this aspect, we

find that section 50C of the Act talks of the value adopted or assessed or

assessable by any state Government authority for the purpose of payment of

stamp duty in respect of such transfer. In this light, though stamp duty has

been paid with respect to the value of Rs.4,80,00,000/-, so however, it is also

evident in terms of the Index-II that the value assessed or assessable by the

authority for the payment of stamp duty continues to be Rs.4,37,20,550/-. The

assessee has explained the reasons as to under what circumstances the

stamp duty was paid with respect to value of Rs.4,80,00,000/- and ostensibly

consideration was not quantified in the joint venture agreement dated

18.12.2013 executed between the two parties. Therefore, for the purposes of

ascertaining the value adopted or assessed or assessable by any authority of

a State Government for the purposes of payment of stamp duty as referred to

in section 50C of the Act, it is only the sum of Rs.4,37,20,550/- which is 7 ITA No.1319/PN/2009

relevant. It is this amount which is liable to be compared with the actual

consideration and if at all it is found that the former amount is higher, only then

section 50C of the Act would be invocable. Ostensibly, on this count both the

amounts are same, namely, Rs.4,37,20,550/- i.e. the stated consideration in

the two agreements between the parties as also the value assessed by the

stamp valuation authority for the purposes of stamp duty.

10. The controversy can also be looked at from other angle. Even if we

were to go along with the Revenue to say that since the stamp duty has been

paid with reference to the value of Rs.4,80,00,000/- and therefore, the amount

of Rs.4,80,00,000/- should be taken as the value adopted or assessed or

assessable by any authority of a State Government for the purpose of stamp

duty contained in section 50C of the Act, even then section 50C is not

applicable. In his connection, sub-section (2) of section 50C provides that

where an assessee claims before an Assessing Officer that the value adopted

or assessed or assessable by stamp valuation authority exceeds the fair

market value of the property as on the date of transfer, then the Assessing

Officer has been mandated to refer the valuation to the Valuation Officer and

thereafter proceed on that basis. Considered in this light in the present

situation, Index-II of the registered agreement reflects two values, one which is

the value assessed by the stamp valuation authority for the purpose of

payment of stamp duty, and the value on which the stamp duty has been

actually paid, with the latter being higher. In such a situation, if the latter value

is to be adopted as the deemed value for section 50C of the Act, it triggers the

provisions of sub-section (2), inasmuch as the said value clearly exceeds the

fair market value of the property adopted for the payment of stamp duty,

inasmuch as the stamp valuation authority himself has stated the market value

of the property at Rs.4,37,20,550/- which is lower. Therefore, in such a

situation, in our view, it was in the fitness of things that in order to justify 8 ITA No.1319/PN/2009

invoking of section 50C of the Act, the Assessing Officer was required to

compare the consideration stated in the agreement at Rs.4,37,20,550/- with

the value assessed for the payment of stamp duty, i.e. at Rs.4,37,20,550/- as

indicated in Index-II and not the amount of Rs.4,80,00,000/-, on which stamp

duty has been paid. Considered in this light, we therefore find that the

addition of Rs.42,79,000/- is not justified on the strength of invoking of section

50C of the Act. We accordingly set-aside the order of the CIT(A) and the

Assessing Officer is directed to the delete the impugned addition of

Rs.42,79,000/-. Thus, the assessee succeeds on this Ground.

11. In the result, the appeal of the assessee is allowed.

Order pronounced on 25 th February, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 25 th February, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-III, Pune; 4) The CIT-III, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune