2018 (12) TMI 1551 - AT - Income Tax

Tribunal emphasizes DVO reference for FMV in Income Tax Act case

The Tribunal partially accepted the assessee's appeal, stressing the requirement for a District Valuation Officer (DVO) reference to ascertain the Fair ... Addition u/s 56(2)(vii) being the difference between value mentioned in the Conveyance Deed and the stamp duty value of Immovable properties - Capital gain computation - FMV determination - Held that:- Sec.56(2)(vii)(b) is applicable in case of an individual or an HUF receiving any immovable property having stamp value exceeding ₹50,000/- rupees without consideration or such a consideration to be less than stamp price of the property by an amount exceeding ₹50,000/- rupees. As learned counsel vehemently contended that both the lower authorities have erred in law as well as on facts in invoking the impugned statutory provision find no merit in this argument since the legislature has made it clear in last proviso to sec. 56(2)(vii) that this clause does not apply to any sum of money or any property received from any relative or donor as per clauses (a) to (g) therein. This is not the assessee’s case that his four transactions are in any way covered in the last proviso. No reason to interfere with the lower authorities’ action invoking section 56(2)(vii)(b) clause (ii) of the Act. For fair market value of the assets it is an admitted fact that neither of the lower authorities made any reference to the DVO. Section 56 first proviso make it clear that where the stamp duty of immovable property is disputed on grounds mentioned in sec. 50C(2), the Assessing Officer’s may refer such a valuation to the DVO. Hon'ble jurisdictional high court’s decision in Sunil Kumar Agarwal vs. CIT [2014 (6) TMI 13 - CALCUTTA HIGH COURT] holds that a reference u/s 50C has to be mandatorily made even if the assessee concerned fails to make such request therefore apply the said ratio mutatis mutandis in light of proviso hereinabove to restore the fair market value issue back to the Assessing Officer for afresh adjudication after making necessary reference to the DVO as per law.- Assessee’s appeal is partly allowed for statistical purposes . Issues Involved:1. Applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961.2. Determination of Fair Market Value (FMV) and the necessity of reference to the District Valuation Officer (DVO).Issue-wise Detailed Analysis:1. Applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961The primary issue in this case revolves around the addition of Rs. 6,62,962/- under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961. The assessee contended that this provision should not apply to transactions involving consideration, arguing that it was intended to tax only gift transactions. However, the CIT(A) rejected this argument, stating that the law is clear and applies to both types of transactions: those without consideration (gifts) and those where the consideration is less than the fair market value (FMV). The CIT(A) noted that the FMV, benchmarked to the stamp duty value, was higher than the consideration mentioned in the conveyance deed, thereby justifying the addition.The assessee further argued that the provision should not apply to the sale of immovable property executed through a registered conveyance deed. However, this contention was also rejected, as the legislature's intent was deemed to include both gift transactions and sales where the consideration is less than the stamp duty value. The CIT(A) emphasized that the provision is applicable to individuals and Hindu Undivided Families (HUFs), and not to other entities like companies or firms.2. Determination of Fair Market Value (FMV) and the Necessity of Reference to the District Valuation Officer (DVO)The second issue pertains to the determination of the FMV of the assets in question. The assessee argued that the Assessing Officer (AO) had arbitrarily adopted the stamp duty value without any positive evidence to support the price assessed by the state government. The CIT(A) and the Tribunal noted that neither of the lower authorities had made any reference to the DVO, which is a mandatory requirement under Section 50C(2) when the stamp duty value is disputed.The Tribunal cited the Hon'ble jurisdictional High Court's decision in Sunil Kumar Agarwal vs. CIT, which mandates a reference to the DVO even if the assessee does not request it. Therefore, the Tribunal restored the issue of FMV back to the AO for fresh adjudication, directing the AO to make the necessary reference to the DVO as per the law.ConclusionThe Tribunal partly accepted the assessee's appeal for statistical purposes, emphasizing the necessity of a DVO reference for determining the FMV. The order was pronounced in open court on 05/10/2018.