The assessee was given power of attorney by the vendor and the assessee was engaged in the business of investment in shares and property development. Because of this, the activities of the assessee were treated as business. Therefore, while computing the income, the question of indexation cost was not considered and the cost of the land was taken as ` 3.19 crore. In the balance sheet, the value of the property was shown as ` 2.55 crore under current assets. The Assessing Officer held that though the apparent sale consideration was ` 5 crore, the sale price should be taken at the amount as fixed by the registering authority on the basis of the guideline value of ` 6,94 crore. Accordingly, the Assessing Officer computed the profit on the sale of the property.
The assessee was aggrieved by this order of the Assessing Officer. Hence, the assessee filed an appeal before the CIT (Appeals) by contending that the Assessing Officer was not correct in invoking Section SOC of the IT. Act since that section would apply only to computation of income under capital gains and not for computation of business income. It was also contended that the payment to the land owners in a sum of ` 63.61 lakh and the brokerage paid in a sum of ` 12.5 lakh should also be reduced. The CIT (Appeals) directed the Assessing Officer to verify the claim. However, he agreed with the assessee’s contention that the provisions of Section 50C of the IT. Act would apply only for computation of capital gains and not for computation of business income. Therefore, he directed the Assessing Officer to adopt the sale consideration of ` 5 crore.
Aggrieved by the order of the CIT (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal which held that the provisions of Section 50C were not applicable when the income was treated as business income. On that ground it dismissed the appeal. The correctness of the order was canvassed by the Department.