2015 (1) TMI 1479 - AT - Income Tax

Tribunal upholds CIT(A) decision on Section 50C addition, rejects Revenue's appeal

Dy. CIT Range IV, Lucknow Versus M/s Kaysons Builders Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision in a case involving the deletion of an addition made under Section 50C(1) of the Income-tax Act. The CIT(A) ... Capital gain computation - adoption of the value of the property taken for the purpose of stamp duty as sale consideration - determination of the fair market value of the land sold in the light of provisions of section 50C - difference between the valuation declared and fair market value estimated by the DVO - HELD THAT:- CIT(A) has noticed the irregularities committed by AO by not making reference to the DVO on the objections raised by the assessee with regard to the fair market value of the property and directed the Assessing Officer to make reference to the DVO as per provisions of section 50C(2) of the Act and consequently the DVO has determined the fair market value and report was submitted to the ld. CIT(A) by the Assessing Officer. We do not find any infirmity or illegality in this exercise, as effort was made by the ld. CIT(A) to make compliance of the provisions of the Act in order to determine the fair market value of the land. - difference in the estimated value by the DVO and the sale consideration declared by the assessee was only 11.9% of the value estimated by the DVO. Since the difference was nominal, CIT(A) has directed the Assessing Officer to adopt the sale consideration declared by the assessee. In this direction also, we do not find any infirmity or illegality. We, therefore, having agreed with the order of the ld. CIT(A), confirm his order. -Decided against revenue. Issues Involved:1. Deletion of addition made by the Assessing Officer (A.O.) under Section 50C(1) of the Income-tax Act, 1961.2. Failure of the Commissioner of Income-tax (Appeal) [CIT(A)] to appreciate the necessity of a reference for valuation under Section 50C(2).3. Direction by the CIT(A) to the A.O. to adopt the actual sale consideration instead of the valuation by the District Valuation Officer (DVO) for computing Long-Term Capital Gain (LTCG).4. Rejection of the DVO's valuation by the CIT(A) under Section 50C(2) read with Section 50C(3).Issue-wise Detailed Analysis:1. Deletion of Addition under Section 50C(1):The Revenue contested that the CIT(A) erred in deleting the addition of Rs. 61,14,377/- made by the A.O. under Section 50C(1). The A.O. had adopted the market value of the land at Rs. 2,01,14,377/- for stamp duty purposes, leading to the addition. However, the CIT(A), upon re-examination and considering the DVO's valuation, directed the A.O. to adopt the actual sale consideration of Rs. 1.40 crores declared by the assessee, as the difference in valuation was deemed nominal.2. Necessity of Reference for Valuation under Section 50C(2):The CIT(A) was criticized for not appreciating that the assessee did not claim during assessment proceedings that the stamp valuation exceeded the fair market value, which would necessitate a reference under Section 50C(2). However, the assessee had indeed raised objections regarding the fair market value being lower than the stamp duty valuation, obligating the A.O. to refer the matter to the DVO. The CIT(A) directed this reference, which the A.O. initially failed to do.3. Direction to Adopt Actual Sale Consideration:The CIT(A) directed the A.O. to adopt the actual sale consideration instead of the DVO's valuation for computing LTCG. The DVO valued the property at Rs. 1,58,90,358/-, which was less than the stamp duty valuation but close to the actual sale consideration. The CIT(A) found the difference of Rs. 18,90,358/- (11.9%) to be nominal and directed the A.O. to use the actual sale consideration for capital gains computation.4. Rejection of DVO's Valuation:The CIT(A) rejected the DVO's valuation, finding the difference insignificant and the objections raised by the assessee valid. The CIT(A) noted that the fair market value could be lower due to specific property drawbacks, such as restricted land use and future road widening. The CIT(A) concluded that the nominal difference justified adopting the actual sale consideration, providing relief to the assessee.Conclusion:The Tribunal, after examining the lower authorities' orders and submissions, upheld the CIT(A)'s decision. It confirmed that the A.O. was obligated to refer the valuation dispute to the DVO, which was correctly directed by the CIT(A). The Tribunal agreed that the nominal difference between the DVO's valuation and the actual sale consideration justified adopting the latter for computing capital gains. Consequently, the Revenue's appeal was dismissed, and the CIT(A)'s order was affirmed.