2013 (11) TMI 519 - AT - Income Tax

Tribunal mandates DVO valuation for STCG calculation under Income Tax Act

INCOME TAX OFFICER, MUMBAI Versus M/s NARENDRA G KANAKIA (HUF)

INCOME TAX OFFICER, MUMBAI Versus M/s NARENDRA G KANAKIA (HUF) - TMI Issues Involved:1. Whether the CIT(A) erred in directing the Assessing Officer (AO) to consider the deemed sale consideration of the property as per the value determined by the District Valuation Officer (DVO) for the calculation of Short Term Capital Gain (STCG) on the sale of property.2. Whether the reference to the DVO under Section 50C(2) of the Income Tax Act, 1961, is mandatory or discretionary.Detailed Analysis:1. Direction to Consider DVO's Valuation for STCG Calculation:The CIT(A) directed the AO to consider the deemed sale consideration of the property as per the value determined by the DVO for the calculation of STCG. The assessee had sold a flat for Rs. 47,10,000, but the stamp duty authorities valued it at Rs. 65,79,710. The AO initially did not refer the matter to the DVO, arguing that the provision under Section 50C(2) is discretionary. However, during the appellate proceedings, the CIT(A) directed the AO to refer the issue to the DVO, who valued the property at Rs. 52,78,714. The CIT(A) concluded that the DVO's valuation should be adopted, as the AO did not provide sufficient material to justify that the DVO's report was erroneous or unreliable.2. Mandatory or Discretionary Reference to DVO under Section 50C(2):The CIT(A) held that the reference to the DVO under Section 50C(2) is mandatory when the assessee objects to the adoption of the stamp valuation as deemed sale consideration and has not filed any appeal before the stamp valuation authorities. The CIT(A) noted that both conditions were satisfied in this case. The CIT(A) cited various precedents to support the view that the word 'may' in Section 50C(2) should be interpreted as 'shall,' making the reference to the DVO mandatory. The CIT(A) rejected the AO's argument that the valuation by stamp authorities, based on a larger database, could substitute the DVO's valuation. The CIT(A) emphasized that the DVO's valuation is specifically mandated under the IT Act and cannot be replaced by the stamp authorities' valuation.Conclusion:The tribunal upheld the CIT(A)'s decision, stating that the AO had no discretion but to refer the valuation to the DVO when the assessee objected to the stamp valuation. The tribunal cited various decisions supporting the view that the reference to the DVO is mandatory. The tribunal also noted that having referred the matter to the DVO, the AO could not question the CIT(A)'s direction to adopt the DVO's valuation. Consequently, the tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order directing the AO to compute the STCG based on the DVO's valuation of Rs. 52,78,714.