Court Upholds Assessee's Property Valuation; DVO's 4.97% Variance Within 10% Tolerance u/s 50C(2) of Income-tax Act.

The appeal focused on whether the fair market value of a property sold by the assessee could be replaced with the Departmental Valuation Officer's (DVO) assessment under section 50C(2) of the Income-tax Act, 1961. The DVO's valuation showed a variance of 4.97% from the declared sale price, within the permissible 10% tolerance. The court, following the Mumbai Tribunal's precedent on retrospective application of the 10% variance allowance, ruled in favor of the assessee, accepting the declared value of Rs. 1.10 crores for computing Long Term Capital Gain. The appeal was granted in the assessee's favor.

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Issues:
The appeal concerns the determination of fair market value of a property sold by the assessee in relation to the value assessed by the Departmental Valuation Officer (DVO) under section 50C(2) of the Income-tax Act, 1961.

Issue 1: Fair Market Value Determination
The primary issue in the appeal was whether the fair market value of the property sold by the assessee could be substituted with the value determined by the Departmental Valuation Officer (DVO) under section 50C(2) of the Act, given a variance of 4.97% between the actual consideration and DVO value.

The assessee, a partnership firm, had sold a property for Rs. 1.10 crores during the relevant year and declared long term capital gain accordingly. The Assessing Officer sought to substitute this consideration with the value determined by the Stamp Valuation Authorities under section 50C of the Act, which was Rs. 1,96,37,000. The assessee requested valuation by the DVO, who valued the property at Rs. 1,15,47,000, with a variance of just 4.97% from the declared value.

The third proviso to section 50C(1) of the Act allows for a variance of up to 10% of the actual consideration. It was noted that an amendment made in the statute by the Finance Act, 2018, regarding the tolerance band for variations between sale consideration and stamp duty valuation was held to be retrospective by the Mumbai Tribunal. Following this precedent, it was held that no substitution of sale consideration was necessary, and the value reported by the assessee at Rs. 1.10 crores was accepted for computing Long Term Capital Gain. Consequently, the grounds raised by the assessee were allowed, and the appeal was granted in favor of the assessee.

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