The deeming provision of Section 50C of the Income Tax Act cannot be applied to sales of land where the transferor lacks absolute ownership, the property is encumbered by public reservation, and the transaction is legally rooted in a pre-existing MOU dated prior to the section's enactment.

Order under section 254(1) of Income Tax Act

PER PAWAN SINGH, JUDICIAL MEMBER;

1. This appeal by assessee is directed against the order of ld. CIT(A)/NFAC dated 18.07.2024 for Assessment Year (AY) 2004-05.

2. Brief facts of the case are that assessee is a co-operative society. The assessing officer initiated the assessment proceeding pursuant to order of ld. PCIT dated 19.03.2014 passed under section 263. The assessing officer during assessment recorded that assessee along with 13 other co-operative societies owned a common plot conveyance deed (sale deed) of which was executed in their favor by Bombay Housing Board. The assessee owned only 5.00% share of said common plot admeasuring 4780.6 square meters bearing plot no. 4A/7 bearing CTS No. 194A/2 of Village Juhu, part of Juhu Ville Parle Development (JVPD) Scheme at East West Road No. 3, Village Juhu, Taluka Andheri. The said piece of land was sold by assessee and other co-operative societies to Vasundhara Co-operative Housing Society Limited, which is co-operative housing society of Maharashtra cadre of Indian Police Services (IPS) officers. The assessee has shown sale consideration of Rs. 77,14,920/- as per agreement dated 14.05.2003, whereas market value of said property as per Stamp Duty Valuation Authority (SVA) was determined at Rs. 11.88 crore. The assessing officer was of the view that on the sale transaction of such plot the provision of section 50C is applicable. The assessing officer issued show cause notice dated 27.01.2015 proposing addition as per the provisions of section 50C. The assessee filed its reply dated 23.03.2015. The contents of reply of assessee are recorded on page no. 2 to 5 of assessment order. The assessee in its reply submitted that their case has been reopened pursuant to order under section 263 dated 19.03.2014. The order of ld. PCIT under section 263 is a subject matter of appeal before Tribunal and hearing is fixed on 26.11.2015. Therefore, proceeding be kept in abeyance till then. The assessee also stated that similar issue was earlier considered in the order passed under section 147 r.w.s. 143(3).

3. In without prejudice submission, the assessee while explaining the fact stated that impugned plot of land as per the scheme of Government of Maharashtra was reserved for Recreation Ground, Garden, Police Head Quarters as per Development Control Regulations (DCR) 1991. In 1975, the possession of plot was taken by Home Department, Government of Maharashtra. The possession receipt was issued by Public Works Department, Government of Maharashtra. The provisions of section 50C cannot apply to sale of plot of land to Government or where the plot is reserved for particular purpose, possession of which has already been taken. In 2000 officials of Police Department proposed a housing society and entered into a memorandum of understanding (MOU) with 14 co-operative societies of JVPD scheme. As per MOU, a sum of Rs. 14,19,670/- was paid as an advance by the proposed society. A memorandum of understanding (MOU) was executed between the societies of IPS officers and 14 societies of JVPD scheme including of assessee on 14.05.2003 for a total consideration of Rs. 77,14,920/- against the proposed consideration of Rs. 70,98,350/- as agreed in MOU dated 25.01.2000. The provision of section 50C was introduced with effect from 01.04.2003. The execution of conveyance deed dated 14.05.2003 was in furtherance fulfilling of pre-existing obligation and therefore, rigors of section 50C will not apply. As per Circular No. 5/2010 dated 03.06.2010, issued by Central Board of Dir