The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has held that an assessee cannot be denied the benefit of the provisos to Section 50C  of the Income Tax Act merely because the agreement to sell was not registered, provided the sale consideration had already been fixed under the agreement and received through banking channels before execution of the registered sale deed. 

The bench of Aby T Varkey (Judicial Member) and S.R.Raghunatha (Accountant Member) deleted an addition of ₹99.06 lakh made by the Assessing Officer on account of the difference between the declared sale consideration and the stamp duty value. 

The appellant/assessee, engaged in the real estate business under the proprietary concern “Vaibav Foundation,” filed the income tax return for Assessment Year 2017-18 declaring a total income of ₹28.54 lakh. Subsequently, the assessment was reopened under Section 147 of the Income Tax Act on the ground that the property sold by the assessee had been registered for ₹94 lakh, whereas the guideline value adopted for stamp duty purposes on the date of registration was ₹1.93 crore. 

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Invoking Section 50C, the Assessing Officer treated the difference of ₹99.06 lakh as deemed consideration and added the amount to the assessee’s income. The Commissioner of Income Tax (Appeals) upheld the addition, holding that the earlier agreement to sell could not be relied upon because it was not a registered document. The appellate authority also questioned the genuineness of the transaction after observing that amounts initially reflected as unsecured loans were subsequently treated as sale consideration. 

Before the Tribunal, the assessee explained that an agreement to sell had been executed on 11 July 2013 fixing the total sale consideration at ₹94 lakh. Out of this amount, ₹48.50 lakh was received through RTGS on the very date of the agreement, while the balance ₹45 lakh was received through RTGS on 23 March 2015. The registered sale deed was eventually executed on 7 March 2017 pursuant to the earlier agreement. The assessee argued that the provisos to Section 50C entitled him to adopt the stamp duty value prevailing on the date of the agreement rather than the date of registration. 

The department contended that since the agreement to sell had not been registered, it lacked legal sanctity. Therefore, according to the department, the stamp duty value prevailing on the date of registration alone had to be adopted for the purposes of Section 50C. 

The Tribunal noted that the controversy revolved around whether the Assessing Officer was justified in adopting the guideline value as on the date of registration despite the sale consideration having been fixed much earlier and fully received through banking channels before execution of the registered sale deed. 

Examining the statutory scheme, the Bench observed that the first proviso to Section 50C specifically contemplates situations where the agreement fixing the sale consideration and the registration of the property occur on different dates. The second proviso merely requires that the whole or part of the consideration should have been received through prescribed banking modes before the date of the agreement. 

According to the Tribunal, both these statutory conditions were fully satisfied in the present case. The registered sale deed itself acknowledged that the sale consideration had been received through RTGS transfers from the purchaser’s bank account to the assessee’s account. 

Rejecting the reasoning adopted by the tax authorities, the Tribunal made it clear that the provisos to Section 50C do not require the agreement to sell to be a registered document.

The Bench observed that an agreement to sell merely records contractual obligations between parties and does not by itself transfer title in immovable property. Registration may be essential for a conveyance deed, but the statute nowhere makes registration of the agreement a condition for claiming the benefit of the provisos to Section 50C. Courts, it said, cannot read into the legislation a condition that Parliament has consciously omitted. 

The Tribunal further held that once the agreement, fixation of consideration, and receipt of consideration through banking channels are established by contemporaneous documentary evidence, the statutory benefit cannot be denied solely because the agreement remained unregistered. 

The Tribunal also rejected the Commissioner (Appeals)’ observation regarding the amount having initially been shown as an unsecured loan.

According to the Bench, the true nature of a transaction must be determined from the overall documentary evidence and surrounding circumstances rather than from the accounting nomenclature used at an earlier stage. In the absence of any evidence suggesting that the agreement was fabricated or sham, the accounting treatment alone could not override the substantive documentary evidence supporting the transaction. 

The Bench relied upon its earlier decision in Ashok Kumar Muraka v. ITO, where similar principles had been applied under Section 56(2)(vii)(b), observing that the provisos to Sections 50C and 56(2)(vii)(b) are identically worded and operate in the same field. The Tribunal held that where consideration is fixed under an earlier agreement and payments are made through banking channels before registration, the stamp duty value prevailing on the agreement date should be adopted. 

The Tribunal also followed the Madras High Court’s judgment in CIT v. Vummudi Amarendran, which held that the provisos to Section 50C are curative and beneficial provisions introduced to remove genuine hardship caused by escalation in guideline values between the agreement date and registration date. Consequently, these provisos have retrospective application. 

Allowing the appeal, the Chennai ITAT held that the assessee was entitled to the benefit of the provisos to Section 50C. It ruled that the tax authorities had erred in rejecting the agreement merely because it was unregistered, particularly when the sale consideration had been fixed earlier and received through RTGS well before execution of the registered sale deed.

Accordingly, the Tribunal held that adoption of the stamp duty value prevailing on the date of registration was unsustainable and deleted the addition of ₹99.06 lakh made under Section 50C of the Income Tax Act. 

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