2011 (3) TMI 969 - AT - Income Tax

Tribunal upholds CIT(A) order on fair market value for Capital Gains

The Tribunal dismissed the revenue's appeal and confirmed the CIT(A)'s order directing the Assessing Officer to adopt the fair market value determined by ... Deemed full value of consideration under section 50C(1) - Assessee's claim and reference to Valuation Officer under section 50C(2) - Where Valuation Officer (DVO) determines fair market value lower than stamp valuation, DVO value must be adopted by Assessing Officer - Assessing Officer's discretion to refer under section 50C(2)Assessee's claim and reference to Valuation Officer under section 50C(2) - Where Valuation Officer (DVO) determines fair market value lower than stamp valuation, DVO value must be adopted by Assessing Officer - Whether the Assessing Officer was obliged to adopt the fair market value determined by the DVO instead of the stamp valuation for computing long term capital gains where the DVO value is lower than the stamp valuation. - HELD THAT: - The Tribunal examined section 50C(1) and (2) and noted that where declared consideration is less than the value adopted by the stamp valuation authority, that stamp value is deemed the full value of consideration. Sub section (2) permits an assessee to claim before the Assessing Officer that the stamp valuation exceeds the fair market value and enables the Assessing Officer to refer the valuation to a Valuation Officer (DVO). The legislative scheme provides that if the DVO's ascertained fair market value is lower than the stamp valuation, the Assessing Officer has to adopt the fair market value determined by the DVO as the full value of consideration; conversely, if the DVO's value exceeds the stamp valuation, the stamp valuation prevails. In the present case the DVO assessed the fair market value at a figure materially lower than the stamp valuation and the assessee accepted that valuation; the CIT(A) had directed reference to the DVO and the Assessing Officer received the DVO report without adverse comment. Applying the statutory mandate in sub section (2), the Tribunal found no error in CIT(A)'s direction and held that the Assessing Officer must adopt the DVO value for computing long term capital gains. [Paras 5, 8, 9]The Tribunal confirms the CIT(A)'s direction that the Assessing Officer adopt the DVO (Valuation Officer) fair market value, because the DVO value is lower than the stamp valuation; revenue's appeal is dismissed.Final Conclusion: The order of the CIT(A) directing the Assessing Officer to adopt the DVO ascertained fair market value for computation of long term capital gains (being lower than the stamp valuation) is confirmed and the revenue's appeal is dismissed. Issues Involved:1. Whether the CIT(A) erred in directing the Assessing Officer (AO) to adopt the fair market value of the property sold as determined by the DVO instead of the value assessed by the Stamp Valuation Authority.Issue-wise Detailed Analysis:1. Background and Facts:The appeal by the revenue arises from the order of CIT(A)-XII, Kolkata, concerning the assessment framed by the ITO, Ward-42(1), Kolkata, under Section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2005-06. The primary issue is whether the CIT(A) was correct in directing the AO to adopt the fair market value of the property sold as determined by the DVO instead of the value assessed by the Stamp Valuation Authority.2. Assessee's Contentions:The assessee, a co-owner of the property, disclosed a sale consideration of Rs. 20 lakhs for her half share and computed Long Term Capital Gains (LTCG) at nil by taking the indexed cost of acquisition at Rs. 30,81,600/-. The AO noticed that the stamp valuation of the property was Rs. 1,32,22,327/-, and invoked Section 50C of the Act to compute LTCG based on this valuation. The assessee argued that the fair market value should be considered, and the property was sold for Rs. 20 lakhs due to its condition, litigation, and tenancy issues.3. CIT(A)'s Decision:The CIT(A) referred the matter to the DVO, who valued the property at Rs. 30,87,675/-. The CIT(A) directed the AO to adopt this value for computing LTCG, as the DVO's valuation was lower than the stamp valuation. The CIT(A) found that the AO should have referred the matter to the DVO as the stamp valuation exceeded the fair market value.4. Revenue's Argument:The revenue argued that under Section 50C(2) of the Act, it is at the AO's discretion to refer the valuation to the DVO, and it is not mandatory. The revenue contended that the stamp valuation adopted by the AO should be upheld.5. Tribunal's Analysis and Conclusion:The Tribunal examined the provisions of Section 50C of the Act, which provides that if the consideration declared for the transfer of property is less than the value adopted for stamp duty purposes, the latter shall be deemed the full value of consideration. However, if the assessee claims that this value exceeds the fair market value, the AO may refer the valuation to the DVO. The Tribunal noted that the CIT(A) correctly referred the matter to the DVO, whose valuation was lower than the stamp valuation. Thus, the Tribunal upheld the CIT(A)'s direction to adopt the DVO's valuation for computing LTCG, finding no fault in the CIT(A)'s order.6. Final Judgment:The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order to adopt the fair market value determined by the DVO for the purpose of computing LTCG.7. Pronouncement:The order was pronounced in open court on the 11th day of March, 2011.