ITAT Mumbai Remands Section 50C Capital Gains Adjustment Back to CIT(A) for Fresh Consideration

The Mumbai Bench of the Income Tax Appellate Tribunal in Quality Chemicals Industries Vs DCIT (ITAT Mumbai) examined whether a Section 50C addition, made by the Centralized Processing Centre (CPC) while processing a return under Section 143(1), could be sustained when the assessee had already raised a detailed objection invoking the first proviso to Section 50C(1).

The Tribunal did not adjudicate on the correctness of the addition of ₹43,18,446 made under Section 50C. Instead, it restored the matter to the file of the Commissioner of Income Tax (Appeals) [CIT(A)] to re-examine the factual and legal contentions, particularly in light of the additional evidence now produced by the assessee. The appeal was thus allowed only for statistical purposes.

Background of the Dispute

Filing of Return and CPC Adjustment

  • The assessee, Quality Chemicals Industries, a partnership firm, originally engaged in manufacturing of chemicals and later shifted to trading activity, filed its return of income for AY 2021-2022 under Section 139 on **11.03.2022`.
  • The returned income was ₹2,04,48,030, comprising:
    • Short Term Capital Gain (STCG): ₹27,94,421
    • Long Term Capital Gain (LTCG): ₹1,74,15,956
    • Business income: ₹1,67,877
    • Income from other sources: ₹69,776
  • In computing STCG on transfer of a building (short-term capital asset), the assessee adopted a sale consideration of ₹65,82,588.
  • While processing the return, the CPC noticed that the stamp duty authority had adopted a value of ₹1,09,01,034 for the same property.
  • On this basis, CPC issued a communication dated 09.08.2022, proposing an adjustment of ₹43,18,446 (difference between ₹1,09,01,034 and ₹65,82,588) to the STCG disclosed in the return.

Assessee’s Objection Before CPC

The assessee filed its response to the CPC proposal on 26.08.2022, objecting to the adjustment and explaining the factual matrix as follows:

  • According to the assessee, the transaction effectively commenced on 07.10.2019, when the buyer paid the full sale price, and an understanding was reached.
  • Completion of registration and handing over of possession took place only on 26.02.2021.
  • The intervening delay was attributed to the requirement of obtaining necessary permissions, including those from MIDC, before the sale could be formally concluded.
  • Relying on these facts, the assessee invoked the first proviso to Section 50C(1), arguing that the stamp duty value relevant for capital gains purposes should be the value as on the date of the agreement (or closely corresponding date), not the date of registration.
  • The assessee stated that it had adopted ₹65,82,588 as per an independent registered valuer’s report, treating this as the fair market value (FMV) aligned with the conditions of the first proviso to Section 50C(1).
  • The assessee also placed reliance on Section 50C(2), contending that its case fell within the scope of that sub-section as well.

The core contention was that the CPC could not, in the limited summary processing under Section 143(1)(a), engage in a fact-intensive determination involving dates of agreement, receipt of consideration, permissions, valuation reports, and applicability of the proviso to Section 50C(1).

Despite this detailed objection, CPC proceeded to issue an intimation under Section 143(1) on 02.11.2022, making the addition of ₹43,18,446 by simply adopting the stamp duty valuation of ₹1,09,01,034 as on the registration year.

Proceedings Before the CIT(A)

Grounds Raised in Appeal

The assessee challenged the CPC’s intimation before the CIT(A), disputing both jurisdiction and merits.