2018 (12) TMI 759 - AT - Income Tax

Tribunal Upholds Addition to Capital Gains Based on DVO's Valuation

The Tribunal upheld the CIT(A)'s decision, affirming the addition of Rs. 4,96,400/- to the capital gains based on the District Valuation Officer's ... Addition by applying the provisions of section 50C - difference between the actual sale consideration and the stamp value/value determined by the DVO - Held that:- On a careful circumspection of section 50C, which is a deeming provision and provides for substituting the sale consideration with the stamp value or the value as determined by the DVO, as the case may be, as the full value of consideration for the purpose of calculating capital gains, there can be no warrant for ignoring the stamp value/value determined by the DVO etc. In case the difference between the actual sale consideration and the stamp value/value determined by the DVO is less than a certain specified percentage. Invariably, the stamp value or the value determined by the DVO etc. will have to be substituted with the sale consideration as the full value of consideration, even if the later is a rupee less than the former. Adverting to the facts of the extant case, it is found that DVO, in all fairness, scaled down the fair market value of the plot at ₹ 46,96,400/- as against stamp value of ₹ 56,19,000/- after taking into consideration the cumulative effect of all the relevant factors and entertaining the objections taken by ld. AR. In view of foregoing facts the argument of the AR to the effect of ignoring the value determined by the DVO and taking the actual sale consideration as full value of consideration, when the former is more than the later, deserves to be and is hereby jettisoned. I, ergo, uphold the impugned order. - Decided against assessee. Issues Involved:1. Applicability of Section 50C of the Income Tax Act, 1961.2. Binding nature of the District Valuation Officer's (DVO) report on the Assessing Officer (AO).3. Objections to the DVO's valuation method and final determination.4. Relevance of litigation status in property valuation.5. Consideration of minor differences between fair market value and sale consideration under Section 50C.Detailed Analysis:1. Applicability of Section 50C of the Income Tax Act, 1961:The core issue in the appeal was the confirmation of an addition of Rs. 4,96,400/- made by applying the provisions of Section 50C of the Income Tax Act, 1961. The assessee sold a plot for Rs. 42,00,000/-, while the stamp value was Rs. 56,19,000/-. The AO referred the matter to the DVO, who determined the fair market value at Rs. 46,96,400/-. Consequently, an addition of Rs. 4,96,400/- was made to the capital gains, which was upheld by the CIT(A).2. Binding Nature of the DVO's Report on the AO:The assessee argued that the CIT(A) erroneously relied on the DVO's report, which should not be binding on the AO. However, the Tribunal clarified that under sub-section (3) of Section 50C, the DVO's report is indeed binding on the AO unless the assessee demonstrates significant errors in the valuation. The Tribunal upheld the CIT(A)'s reliance on the DVO's report, referencing the judgment in CIT vs. Dr. Indra Swaroop Bhatnagar, which affirmed the binding nature of the DVO's report in similar circumstances.3. Objections to the DVO's Valuation Method and Final Determination:The assessee raised several objections to the DVO's valuation:- Comparison with Sale Instances: The DVO considered sale instances with rates of Rs. 10,900/-, Rs. 15,614/-, and Rs. 15,714/- per square meter but determined the fair market value at Rs. 18,808/- per square meter. The Tribunal found no merit in the objection, noting that the DVO appropriately adjusted for time lag, location, shape, and size of the property.- Shape and Size of the Plot: The assessee contended that the plot's small size and irregular shape should warrant a reduction in value. The Tribunal dismissed this argument, stating that smaller plots typically have higher market values due to easier sale potential. The DVO had already factored in these considerations in his valuation.- Litigation Status: The assessee claimed ongoing litigation should reduce the property's value. The Tribunal rejected this claim, noting that litigation was resolved before the sale, and any subsequent litigation was irrelevant to the valuation at the time of sale.4. Relevance of Litigation Status in Property Valuation:The Tribunal addressed the assessee's argument regarding the impact of litigation on property value. It was clarified that since no litigation was pending at the time of sale, this factor was irrelevant. The DVO correctly ignored future litigation in his valuation.5. Consideration of Minor Differences Between Fair Market Value and Sale Consideration Under Section 50C:The assessee argued that the difference between the DVO's valuation and the sale consideration (10.57%) should be ignored. The Tribunal referred to Section 50C, which deems the stamp value as the full value of consideration if it exceeds the sale consideration. The Tribunal emphasized that Section 50C is a deeming provision without any tolerance band for minor differences. The Tribunal noted that the provision mandates substituting the sale consideration with the higher stamp value or DVO's value, regardless of the percentage difference.Conclusion:The Tribunal upheld the CIT(A)'s order, confirming the addition of Rs. 4,96,400/- to the capital gains based on the DVO's valuation. The appeal of the assessee was dismissed, and the Tribunal reiterated the binding nature of the DVO's report and the strict application of Section 50C provisions. The order was pronounced on 13th December 2018.