2021 (9) TMI 97 - AT - Income Tax

Tribunal directs reassessment based on DVO valuation. Invalid assessment without following procedures. Disallowance of transfer expenses set aside.

Chandra Lok Hotels Ltd., Hyderabad. Versus Dy. Commissioner of Income-tax, Circle – 1 (2), Hyderabad.

Chandra Lok Hotels Ltd., Hyderabad. Versus Dy. Commissioner of Income-tax, Circle – 1 (2), Hyderabad. - TMI Issues Involved:1. Applicability of Section 50C of the Income Tax Act.2. Validity of the assessment under Section 143(3) without following the procedure of Section 50C(2) & (3).3. Adoption of sale consideration for capital gains computation.4. Disallowance of expenditure by CIT(A) not contested in the original assessment.5. Consideration of oral agreement and its implications on sale consideration.6. Reference to the District Valuation Officer (DVO) and its necessity.Issue-wise Detailed Analysis:1. Applicability of Section 50C of the Income Tax Act:The Assessee argued that Section 50C should not apply to their case, highlighting that the property sold was under litigation, adjacent to a dumping yard, and near a graveyard and government park, which affected its market value. The Assessee contended that the actual sale consideration of Rs. 15,00,00,000/- should be considered instead of the SRO value of Rs. 17,68,83,350/-. The Tribunal noted that the AO had adopted the SRO value for computing long-term capital gains without waiting for the DVO's report, which was required as per Section 50C(2).2. Validity of the Assessment under Section 143(3) without Following the Procedure of Section 50C(2) & (3):The Assessee claimed that the assessment completed under Section 143(3) was invalid as the AO did not follow the procedure laid down in Section 50C(2) & (3). The Tribunal observed that the AO had referred the matter to the DVO but completed the assessment without waiting for the DVO's report. Citing the Calcutta High Court judgment in Sunil Kumar Agarwal Vs. CIT, the Tribunal emphasized that the AO must wait for the DVO's valuation report before completing the assessment.3. Adoption of Sale Consideration for Capital Gains Computation:The Assessee argued that the sale consideration should be based on the actual amount received, which was Rs. 15,00,00,000/-, and not the SRO value of Rs. 17,68,83,350/-. The Tribunal noted that the property transfer date as per Section 2(47) of the Act should be considered as 24th January 2011, the date of the registered sale agreement, and not the date of the first payment received. The Tribunal directed the AO to determine the market value of the property as on the date of transfer in accordance with the law after providing a reasonable opportunity to the Assessee.4. Disallowance of Expenditure by CIT(A) Not Contested in the Original Assessment:The Assessee contested the CIT(A)'s disallowance of Rs. 1,35,00,000/- as transfer expenses, which was not a subject matter of appeal before the CIT(A). The Tribunal held that the CIT(A) could not take up this issue as it was not part of the assessment order. Citing the ITAT Pune and ITAT Kolkata judgments, the Tribunal set aside the CIT(A)'s order on this issue and allowed the Assessee's ground.5. Consideration of Oral Agreement and Its Implications on Sale Consideration:The Assessee argued that there was an oral agreement for the sale of the property on 27th May 2010, and the first payment received should be considered as the date of the agreement. The Tribunal rejected this argument, stating that the transfer date should be the date of the registered sale agreement, which was 24th January 2011, as per Section 2(47) of the Act.6. Reference to the District Valuation Officer (DVO) and Its Necessity:The Tribunal emphasized the necessity of referring the matter to the DVO when there is a discrepancy between the sale consideration declared by the Assessee and the SRO value. The Tribunal cited the ITAT Bengaluru judgment in Shri Somashekar Venkataswamappa Vs. ACIT, which held that the AO must complete the assessment based on the DVO's report. The Tribunal remitted the issue back to the AO to determine the market value of the property after obtaining the DVO's report and providing the Assessee with a reasonable opportunity to be heard.Conclusion:The Tribunal allowed the Assessee's appeal for statistical purposes, directing the AO to reassess the market value of the property based on the DVO's valuation and to provide the Assessee with a fair opportunity to present their case. The Tribunal also set aside the CIT(A)'s disallowance of transfer expenses, emphasizing that the CIT(A) cannot address issues not part of the original assessment order.