2019 (3) TMI 648 - HC - Income Tax

Court emphasizes thorough valuation in capital gains tax appeal, Assessee's objections must be considered

M/s. Jagannathan Sailaja Chitta Versus The Income Tax Officer

The Court held that the Assessee's objections against the higher valuation were not adequately considered by the authorities. It emphasized the need for a ... Computation of capital gain - 'real' capital gains V/S presumptive capital gains - CIT (A) held that the 'Guidance Value' as per Section 50C as determined by the State Government, could be adopted as the 'Fair Market Value' for sale consideration for imposition of Capital Gains Tax - Why 'Guidance Value' u/s 50C (1) should not be taken as a Gospel Truth and why Section 50C (2) provided for reference to DVO in case an objection is raised by Assessee? - Exemption u/s 54F on account of reinvestment of the sale consideration in acquisition of the new property HELD THAT:- The presumptive value u/s 50C giving rise to the additions to the extent of ₹ 2,61,05,992/- to the declared sale value, as disclosed by the assessee, was adopted by the Appellate Authorities, without meeting the objections of the assessee at all. The presumption under Section 50C (1) even though rebuttable in law, was never allowed to be rebutted by the Assessee at all. The so called 'careful consideration' of objections by CIT (A) or by DVO himself is not borne out at all on record and, therefore, nothing can be said about that. But, in any case, the consideration of objections of the Assessee by the Assessing/Appellate Authorities was a must to be undertaken exercise. But, that was not done. The Departmental authorities failed to meet the objections of the Assessee, which were raised before CIT (A) for the first time at the appeal stage, but were never overruled by a speaking order and the Guidance Valuation as per Section 50C (1) was taken as a Gospel Truth against the disclosed and declared value of the sale by the Assessee. This was not permitted in law. The 'Guidance Value' fixed for stamp duty purposes is fixed by the authority concerned, taking into account the location, current market price of property in particular area etc., as a standard measure to iron out the differences of personal factors, such as, sale in distress for meeting financial emergency, sale to related parties and a host of such other factors. But, in Income Tax Act, the concept of levy of tax on 'real income' exists. Therefore, Capital Gains Tax can also be levied on 'real' capital gains and not on the presumptive capital gains. The need to determine a Fair Market Value upon a fact finding exercise is a sine qua non. But, such fact finding exercise by the Departmental authorities, be that Assessing Authority or even the Appellate Authority, was not really undertaken in the present case and that is where, failure and miscarriage of justice has occurred. It would be an insult to the honest tax payer to adopt an assumed higher market value to impose Capital Gains Tax without allowing him or her an opportunity to rebut even the legal presumption under Section 50C (1) even though law itself provides for a further fact finding exercise to be undertaken by reference to DVO under Section 50C (2) and thereupon meeting the objections of the Assessee and allowing him full opportunity to prove that the value declared in the sale deeds is the true and fair Market Value of the Capital Asset and the actual consideration received by him and, therefore, Capital Gains Tax can be imposed only on that basis. A bare reading of Scheme of Section 50C would show that Assessee can object to presumptive value as per Section 50C (1) and, therefore, it is only after hearing the objections of the Assessee, the Fair Market Value of the Capital Asset as per 'Guidance Value' can be determined by the authorities. The Assessee cannot be denied an opportunity to raise his objections even against the presumptive Fair Market Value under Section 50C (1) or Report of DVO under Section 50C (2) and the Assessing Authority or the Appellate Authorities, whose powers are co-extensive with those of the Assessing Authority, cannot refuse to meet those objections point by point. The Fair Assessment Procedure under the scheme of assessment in the Income Tax Act has it at the root the principles of natural justice and the same has not been denied by presumptive provisions, such as Section 50C of the Act and several other provisions in the scheme of the Act. In the present facts we are of the opinion that CIT (A), where, for the first time, the Report of DVO came up, could either deal with the objections of Assessee himself or remit the matter back to the Assessing Authority for dealing with the said objections in an appropriate and detailed manner. But, such an exercise does not seem to have been undertaken by him in the present case. Therefore, we are constrained to remit the matter back to the Assessing Authority even at this stage, even though belatedly, and allow the Appeal of the Assessee for the said purpose. We, accordingly, allow this Appeal and set aside the orders passed by the learned CIT (A) and also the learned Tribunal and remit the matter back to the Assessing Authority to decide both the questions about the valuation of the property to be taken while dealing with the objections of the assessee against the Report of Departmental Valuation Officer as well as the presumptive value under Section 50C of the Act and then compute 'Fair Market Value' under Section 48 and the relief under Section 54F - Decided in favour of the Assessee and against the Revenue. Issues Involved:1. Adoption of fair market value under Section 50C of the Income Tax Act.2. Whether the Appellate Authorities could decide the objections of the Assessee or should have remitted the matter back to the Assessing Authority.3. Claim of exemption under Section 54F of the Income Tax Act.Issue-wise Detailed Analysis:1. Adoption of Fair Market Value under Section 50C of the Income Tax Act:The primary issue was whether the Tribunal was justified in adopting the fair market value under Section 50C of the Income Tax Act without considering the objections of the Assessee. The Assessee disclosed a sale consideration of Rs. 17,09,80,000/-, but the Stamp Value Authority adopted a value of Rs. 19,70,85,992/-, leading to an addition of Rs. 2,61,05,992/- for the purpose of capital gains tax. The Assessee objected to this higher valuation and sought a fresh valuation from the Departmental Valuation Officer (DVO). However, the DVO's report valued the property even higher at Rs. 27,36,04,000/-. The Tribunal upheld the adoption of the stamp duty value as the fair market value for computing capital gains tax, dismissing the Assessee's objections.2. Whether the Appellate Authorities could decide the objections of the Assessee or should have remitted the matter back to the Assessing Authority:The Assessee argued that the objections against the higher valuation were not properly considered by the CIT (A) and the Tribunal. The CIT (A) did not remit the matter back to the Assessing Authority for a detailed examination of the objections. The Tribunal also did not address these objections adequately. The Court observed that the objections raised by the Assessee were never dealt with in detail by any of the authorities, and the presumptive value under Section 50C was adopted without allowing the Assessee an opportunity to rebut the presumption.3. Claim of Exemption under Section 54F of the Income Tax Act:The Tribunal directed the Assessing Officer to recompute the taxable income after allowing the claim of exemption under Section 54F based on the full value of consideration as determined under Section 50C. The Assessee claimed exemption on account of reinvestment of the sale consideration in acquiring new property. The Tribunal's decision to adopt the stamp duty value for both capital gains computation and exemption under Section 54F was upheld.Conclusion:The Court held that the objections of the Assessee against the higher valuation by the DVO and the presumptive value under Section 50C were not adequately addressed by the CIT (A) or the Tribunal. The Court emphasized that the fair market value for capital gains tax should be based on a thorough fact-finding exercise, allowing the Assessee to rebut the presumptive value under Section 50C. The matter was remitted back to the Assessing Authority to reconsider the valuation of the property, addressing the Assessee's objections, and then compute the fair market value under Section 48 and the relief under Section 54F. The substantial questions of law were answered in favor of the Assessee, and the appeal was allowed.