ITAT Chennai on Section 50C: Addition Deleted Where Price Was Pre-Fixed Under BIFR Rehabilitation

1. Background of the Dispute

This case concerns Coimbatore Pioneer Trading & Warehousing Limited and the application of Section 50C of the Income Tax Act 1961 to a land sale made during Assessment Year 2014-15. The Chennai Bench of the ITAT examined whether higher stamp valuation adopted subsequent to a statutory rehabilitation arrangement could be substituted as deemed consideration for computing long-term capital gains.

The appeal arose from the order dated 05.12.2025 passed by the CIT(A), National Faceless Appeal Centre, Delhi, which had affirmed an addition of Rs.4,31,39,853/- to long-term capital gains under Section 50C. The assessment itself had been completed under Section 143(3) r.w.s. 147 by the DCIT, Corporate Circle 2, Coimbatore, vide order dated 24.12.2019.

The assessee, an unlisted public company engaged in textile manufacturing, had transferred land to Pioneer Trust in two tranches forming one composite transaction. The core legal question was: when consideration has already been fixed and partly paid pursuant to a binding BIFR rehabilitation process, can stamp duty value revised at a later point be forced upon the assessee as deemed full value of consideration under Section 50C?

2. Key Facts and Transaction Structure

2.1 Return and Original Scrutiny Assessment

  • The assessee filed its return of income for AY 2014-15 on 26.09.2014, declaring total income of Rs.1,33,00,940/-.
  • The case was selected under scrutiny and assessment was completed under Section 143(3) on 01.12.2016.
  • During the original assessment, the AO scrutinised the long-term capital gains computation on sale of land and obtained a revised working from the assessee.
  • Long-term capital gains were finally determined at Rs.3,15,97,417/-, and a total addition of Rs.1,01,72,091/- was made, culminating in a demand of Rs.65,33,190/-.

2.2 Property and Consideration

The assessee held 19.44 acres of land at Perianaickenpalayam Village, already under a long-term lease in favour of Pioneer Trust. The overall transfer occurred through two sale deeds:

  • Sale deed dated 18.10.2012

    • Land: 7.37 acres
    • Consideration: Rs.2,08,57,024/-

  • Sale deed dated 12.08.2013

    • Land: 12.07 acres
    • Consideration: Rs.3,41,57,976/-

Total consideration under both deeds: Rs.5,50,15,000/-, which exactly tallied with the figure envisaged under a BIFR sanctioned rehabilitation scheme.

2.3 Reopening of Assessment

Subsequently, the assessment was reopened on two stated reasons:

  • Alleged understatement of profit on sale of land aggregating to Rs.4,48,06,356/-; and
  • Alleged failure to disclose material relating to the true sale value.

Timeline:

  1. Notice under Section 148 issued on 26.10.2018.
  2. The assessee filed return in response on 18.01.2019.
  3. Reasons for reopening were provided on 06.09.2019.
  4. The assessee objected to the reopening on 31.10.2019, asserting full disclosure in the original assessment and contending that the reopening was merely a change of opinion.

Despite the objections, the AO continued the reassessment and ultimately made an addition to long-term capital gains of Rs.4,31,39,853/- by invoking Section 50C, assessing total income at Rs.3,25,14,753/-.

Later, a Section 154 notice dated 17.03.2020 was also issued to rectify the figure of assessed LTCG, proposing that it should be Rs.7,47,37,270/- instead of Rs.4,31,39,853/-.

3. How Section 50C Came Into Play

3.1 District Revenue Officer’s Order and Guideline Value

The reassessment was anchored on the order of the District Revenue Officer (Stamps), Coimbatore dated 10.08.2016. Key points:

  • The sale of 12.07 acres via sale deed dated 12.08.2013 showed consideration of Rs.3,41,57,976/-, working out to approximately Rs.64.85 per sq.ft.
  • The Sub-Registrar’s records showed guideline values as:
    • Rs.220/- per sq.ft. for Survey No. 397; and
    • Rs.500/- per sq.ft. for Survey No. 387.
  • The purchaser objected to different rates for the same composite property. The issue was referred to the District Revenue Officer.
  • The DRO, through order dated 10.08.2016, fixed a uniform guideline value of Rs.150/- per sq.ft. for both survey numbers.

Based on the DRO’s order:

  • Area: 5,26,205 sq.ft.
  • Stamp value at Rs.150/- per sq.ft.: Rs.7,89,30,750/-
  • Difference vis-à-vis consideration taken by the assessee (Rs.3,41,24,394/- as per the AO’s working): Rs.4,48,06,356/-

The AO treated this difference as understatement of sale consideration and adopted Rs.7,89,30,750/- as deemed full value of consideration under Section 50C.

3.2 Stand of the AO and CIT(A)

The AO rejected the assessee’s argument that the appropriate value for Section 50C was the guideline value prevailing when consideration was actually fixed and advances were received, i.e., around 2010. The AO held:

  • The DRO order constituted fresh material.
  • The assessee had not disclosed that order in the original assessment.
  • The amended proviso to Section 50C(1) (relating to agreement date vs registration date) applied only prospectively from 01.04.2017 (Finance Act 2016), and could not benefit the assessee for AY 2014-15.

The CIT(A):