2015 (5) TMI 898 - AT - Income Tax

ITAT emphasizes mandatory referral for property valuation under section 50C(2)

The ITAT ruled in favor of the assessee, emphasizing the mandatory referral for property valuation under section 50C(2) when fair market value is ... Capital gains computation - adopting the circle rate u/s 50C or documented price in sale deed - Held that:- In the instant case, the assessee had raised a plea that the fair market value of the impugned property is below the circle rate. Moreover, we find that the assessee had taken up a specific ground before the CIT (A) that the impugned property sold ought to have been referred for valuation since the fair market value was less than the circle rate. In the instant case, since specific claim was raised by the assessee as regards fair market value being less than the circle rate, going by the dictum laid down by the Tribunal in the case of Sarwan Kumar vs. ITO (2014 (1) TMI 1625 - ITAT DELHI), the Assessing Officer ought to have referred the matter to the DVO for valuation of the impugned property. Therefore, this issue is restored to Assessing Officer for the purpose of referring the impugned property for valuation u/s 50C(2) of the Act and thereafter proceed to determine the capital gains on the property in question - Decided in favour of assesse for statistical purposes. Issues:Whether the Income-tax authorities were justified in adopting the circle rate u/s 50C instead of documented price in sale deed for the purposes of capital gains computation.Analysis:The case involved a dispute regarding the adoption of the circle rate under section 50C for computing capital gains instead of the price mentioned in the sale deed. The assessee transferred a plot of land, and the stamp valuation authority valued it higher than the declared consideration in the sale deed. The Assessing Officer invoked section 50C and computed short term capital gains based on the higher valuation. The assessee appealed, seeking to introduce additional evidence, including an affidavit and a valuation report, which was rejected by the CIT (A) on the grounds of untimely submission. The CIT (A) upheld the Assessing Officer's decision. The assessee then appealed to the ITAT, arguing that under section 50C(2), the Assessing Officer should have referred the property for valuation to the DVO if the fair market value was below the circle rate. The ITAT referred to precedents and held that the Assessing Officer should have referred the matter to the Valuation Officer instead of straightway adopting the stamp duty valuation as the full value of consideration. The ITAT set aside the lower authorities' decision and directed the Assessing Officer to refer the property for valuation as per section 50C(2) before determining the capital gains.The ITAT emphasized that when an assessee claims that the fair market value is below the circle rate, the Assessing Officer must refer the property for valuation to the DVO as per section 50C(2). The ITAT cited previous decisions to support this interpretation of the law. The ITAT found that the Assessing Officer had not followed the mandatory requirement of referring the property for valuation and directed the Assessing Officer to do so before determining the capital gains. The ITAT allowed the appeal for statistical purposes, indicating that the case was remanded back to the Assessing Officer for proper valuation as per section 50C(2) and subsequent computation of capital gains.In conclusion, the ITAT ruled in favor of the assessee, highlighting the mandatory nature of referring the property for valuation under section 50C(2) when the fair market value is contested. The ITAT set aside the lower authorities' decision and directed the Assessing Officer to follow the proper procedure outlined in the law before determining the capital gains.