2011 (2) TMI 937 - AT - Income Tax

Tribunal directs AO to refer valuation matter to DVO under section 50C, favors assessee in appeal

The tribunal allowed both grounds of appeal raised by the assessee, directing the A.O. to refer the valuation matter to the DVO under section 50C and to ... Section 50C - adoption of stamp duty valuation as consideration - Referral to District Valuation Officer under section 50C(2) - Section 55A - reference to Valuation Officer for fair market value as on 1.4.1981 - Validity of DVO valuation when lower than assessee's registered valuerSection 50C - adoption of stamp duty valuation as consideration - Referral to District Valuation Officer under section 50C(2) - Whether the Assessing Officer was required to refer the stamp-duty valuation to the District Valuation Officer under sub-section (2) of section 50C when the assessee claimed that the stamp valuation exceeded the fair market value. - HELD THAT: - Section 50C is a deeming provision which mandates adoption of the stamp-duty valuation as 'consideration' if that valuation exceeds the declared sale consideration. Sub-section (2) authorises the Assessing Officer to refer to the Valuation Officer where the assessee claims that the stamp valuation exceeds the fair market value and such claim has not been the subject of litigation. The CIT(A) had declined the assessee's request on the basis that the word 'may' confers discretion on the AO. The Tribunal, following the reasoning in Meghraj Baid (as referred to in the order), held that where the AO is not satisfied with the assessee's explanation that the stamp valuation exceeds fair market value, the AO should refer the matter to the District Valuation Officer for determination under sub-section (2). The Tribunal therefore directed the AO to refer the valuation to the DVO for determining the fair market value as provided by section 50C(2). [Paras 3]Directed the Assessing Officer to refer the stamp-duty valuation to the District Valuation Officer for determination of fair market value under section 50C(2); ground no.1 allowed.Section 55A - reference to Valuation Officer for fair market value as on 1.4.1981 - Validity of DVO valuation when lower than assessee's registered valuer - Whether the reference by the Assessing Officer to the District Valuation Officer under section 55A for ascertaining fair market value as on 1.4.1981 was valid where the assessee's registered valuer's report declared a higher value than that determined by the DVO. - HELD THAT: - The assessee had adopted a fair market value as on 1.4.1981 supported by a registered valuer's report, which exceeded the value later determined by the DVO pursuant to the AO's reference under section 55A. The Tribunal, relying on the reasoning in the cited Mumbai precedents reproduced in the order, concluded that a DVO determination that results in a lower value than the value declared by the assessee's government-registered valuer is not valid for the purpose of fixing the indexed cost of acquisition. Applying that principle, the Tribunal held the AO's reference and the DVO-based lower valuation to be invalid and directed the AO to adopt the fair market value as declared by the assessee's valuer for computing indexed cost. [Paras 7, 8]Directed the AO to accept the assessee's declared fair market value as on 1.4.1981 based on the registered valuer's report; ground no.2 allowed.Final Conclusion: The assessee's appeal is allowed: the AO is directed to refer the stamp-duty valuation to the District Valuation Officer under section 50C(2) for determination of fair market value, and to adopt the assessee's declared fair market value as on 1.4.1981 (supported by a registered valuer's report) in place of the lower DVO determination for computing indexed cost. Issues:1. Applicability of provisions of section 50C regarding valuation of property for capital gain computation.2. Validity of reference to Valuation Officer under section 55A for ascertaining the value of property as on 1/4/1981.Analysis:Issue 1: Applicability of provisions of section 50CThe case involved a challenge to the action of the Assessing Officer (A.O.) in adopting the valuation made by Stamp Duty Authorities as the sale consideration for computing long-term capital gains under section 50C. The assessee contended that the A.O. should have referred the matter to the District Valuation Officer (DVO) as per sub-section (2) of section 50C. The contention was supported by references to relevant case laws. The Income Tax Appellate Tribunal (ITAT) held that the word 'may' used in sub-section (2) of section 50C signifies that if the A.O. is not satisfied with the explanation of the assessee, he should refer the matter to the DVO for valuation. Following the precedent set by the ITAT in a similar case, the tribunal allowed the ground taken by the assessee and directed the A.O. to refer the matter to the DVO for determining the fair market value as per the provisions of sub-section (2) of section 50C.Issue 2: Validity of reference to Valuation Officer under section 55AThe second issue pertained to the A.O.'s reference to the DVO under section 55A for ascertaining the fair market value of the property as on 1/4/1981. The assessee had submitted a valuation report by a registered valuer, but the DVO determined a lower fair market value. The tribunal, after considering relevant provisions and precedents, held that the reference by the A.O. to the DVO for valuation was not valid because the fair market value declared by the assessee was higher than the value estimated by the DVO. Citing a specific case precedent, the tribunal directed the A.O. to accept the fair market value declared by the assessee as per the valuation report. Consequently, the tribunal allowed this ground of appeal as well.In conclusion, the tribunal allowed both grounds of appeal raised by the assessee, directing the A.O. to refer the valuation matter to the DVO under section 50C and to adopt the fair market value declared by the assessee for the property as on 1/4/1981. As a result, the assessee's appeal was allowed, and the order was pronounced in favor of the assessee on 15th February 2011.