Big Relief for Property Sellers: Section 50C Won’t Apply If Circle Rate Matches Agreement Date:

Big Relief for Property Sellers: Section 50C Won’t Apply If Circle Rate Matches Agreement Date

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961, challenging the ITAT’s order in respect of AY 2014-15. The issue arose from reassessment proceedings under Sections 147/143(3), wherein the AO made a Rs. 20 crore addition under Section 50C, citing undervaluation in the sale of an immovable property initially owned by another company, which later merged with the taxpayer's company. The property, located in Noida, was sold at Rs. 18,000 per sq. m., whereas the circle rate as of the sale deed date was Rs. 28,000 per sq. m.

The AO initiated reassessment on the ground that the sale consideration declared was lower than the prevailing circle rate and computed the fair value at Rs. 56 crore, leading to the addition of Rs. 20 crore under Section 50C.

CIT(A)'s Ruling: The CIT(A) deleted the addition, holding that the parties had entered into a registered agreement to sell, paying stamp duty of Rs. 72 lakh on that date, when the applicable circle rate was still Rs. 18,000 per sq. m.

ITAT's Decision: The Hon'ble ITAT agreed with the decision of CIT(A) that since both the agreement and stamp duty payment occurred before the circle rate hike, the transaction complied with Section 50C rules.

Main Issue: Is it possible to add Section 50C when the sale consideration in a registered agreement to sell is less than the rate at the time the sale deed is executed but matches the circle rate that was in effect on the date of the agreement?

Appeal Before High Court: The High Court dismissed the Revenue’s appeal, ruling that once an agreement is registered and consideration is set based on the circle rate at that time, subsequent rate changes cannot retroactively invoke Section 50C. The Court relied on its previous ruling in Modipon Ltd., which acknowledged such hardships and added a proviso to Section 50C from 01.04.2017. Using the same rationale, the Court concluded no significant question of law was involved and upheld the ITAT’s decision. To Read Full Judgment, Download Judgment Given Below