2024 (6) TMI 923 - AT - Income Tax

Property sale valuation dispute under section 50C requires Departmental Valuation Officer reference before applying deeming provisions

Rajdeep Sodhani Versus ITO, Ward-40 (2), Kolkata

ITAT Kolkata allowed the assessee's appeal for statistical purposes regarding capital gains computation under section 50C. The assessee sold property for ... Capital gain computation - addition by invoking the deeming provisions of section 50C - HELD THAT:- Since the assessee has claimed and received the sale consideration amounting to Rs. 35 lakh which is equivalent to the fair market value of the said property and not the value as adopted by the Stamp Valuation Authority at Rs. 45 lakh, therefore, the lower authorities ought to have referred the matter to the Departmental Valuation Officer for valuing the fair market value of the property. Therefore, grounds raised in the assessee’s appeal are allowed for statistical purposes and the matter is restored to the jurisdictional AO for carrying out necessary exercise of referring the matter to the Departmental Valuation Officer and decide the issue in accordance with law as discussed herein above. Appeal of the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the deeming provisions of section 50C can be invoked by the Assessing Officer/processing system to adopt stamp duty valuation as full value of consideration where the assessee has declared a lower contract sale consideration in the return of income. 2. Whether, in circumstances where the assessee disputes the stamp valuation and maintains that the contract price represents the fair market value, the Assessing Officer is obliged to refer the matter to the Departmental Valuation Officer (DVO) under section 50C(2) (or otherwise provide the statutory option) before confirming any addition based on stamp valuation. 3. Whether confirmation of an addition based solely on the stamp valuation picked up in processing under section 143(1) without offering or ordering DVO valuation and appropriate opportunity to the assessee is sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: applicability of section 50C deeming provisions where stamp valuation exceeds contract sale consideration Legal framework: Section 50C deeming provision treats value adopted or assessed by Stamp Valuation Authority (SVA) as full value of consideration where it exceeds declared sale consideration; section 50C(2) contemplates valuation by Departmental Valuation Officer when the assessee disputes SVA value and satisfies conditions of sub-section (2)(a) and (b). Precedent treatment: The controlling approach of the Jurisdictional High Court (Sunil Kumar Agarwal) is authoritative on the application of section 50C and the obligation to consider DVO valuation where the assessee asserts the contract price as fair market value. Interpretation and reasoning: The Court recognizes that the legislature provided the DVO mechanism to ensure fair treatment and to avoid fixing capital gain merely on SVA valuation. Where the assessee claims the contract price equals fair market value and the SVA value is higher, the statutory machinery (DVO) should be used to assess true market value rather than mechanically adopting the SVA figure. Ratio vs. Obiter: The requirement that the assessing officer should, as a matter of fairness and as contemplated by section 50C(2), give the assessee the option of DVO valuation (and in appropriate cases refer the matter to the DVO) is treated as ratio from the High Court decision and is applied by the Tribunal. Conclusions: Invocation of section 50C to substitute SVA value for declared contract price is not automatic where the assessee asserts the contract price as fair market value; the statutory DVO route must be availed to determine market value before confirming additions based solely on SVA figures. Issue 2 - Obligation to refer to Departmental Valuation Officer and duty of fairness / principles of natural justice Legal framework: Section 50C(2) allows/mandates valuation by the Departmental Valuation Officer where conditions are met; assessing officer performs a quasi-judicial function and must act fairly. Precedent treatment: The High Court held that absence of referral to the DVO in analogous facts amounted to denial of the statutory machinery and potential miscarriage of justice, and set aside earlier orders directing de novo assessment after DVO valuation. Interpretation and reasoning: Where the assessee had no control over the SVA determination (stamp duty is payable by purchaser and SVA fixation is not the assessee's acceptance of market value) and contends that the agreed sale consideration was the highest prevailing market price, inference against the assessee cannot be drawn merely from SVA entry. The assessing officer therefore has a bounden duty to offer/use the DVO mechanism and provide the assessee the option to obtain such valuation before finalizing assessment. Ratio vs. Obiter: The Tribunal treats the High Court's direction-assessing officer should give option to the assessee to refer to the DVO and, if necessary, refer the matter himself-as binding ratio to be followed in similar circumstances. Conclusions: Failure to refer the matter to the DVO (or to afford the assessee the statutory option) when the assessee disputes SVA value renders confirmation of an addition based on SVA value unsustainable; matter should be remitted for DVO valuation and fresh adjudication in accordance with law. Issue 3 - Validity of addition confirmed on processing under section 143(1) relying on system-picked SVA value Legal framework: Processing under section 143(1) may adopt values from available records or system defaults; however, any addition impacting capital gains must conform to statutory safeguards under section 50C and principles of natural justice. Precedent treatment: The Tribunal follows the High Court's holding that mechanical reliance on SVA valuation without availing DVO machinery where dispute exists is improper. Interpretation and reasoning: In the facts before the Tribunal the ITR declared the contract sale consideration (Rs.35 lakh) while the Stamp Valuation Authority value (Rs.45 lakh) was picked up by the processing system, producing an automatic addition of Rs.10 lakh. Given the assessee's consistent position that the contract price represented fair market value, a mechanical adjustment without offering or obtaining DVO valuation was procedurally and substantively incorrect. Ratio vs. Obiter: The Tribunal treats the conclusion that additions arising solely from system-picked SVA values without recourse to DVO valuation are not sustainable as part of the operative reasoning (ratio) applied to remit the matter. Conclusions: Confirmation of the Rs.10,00,000 addition based solely on the SVA value as picked up in processing under section 143(1) is not justified; the matter is to be remitted to the Assessing Officer to refer to the DVO and complete assessment de novo in accordance with law. Disposition and remedial direction Conclusions drawn from combined issues: The Tribunal, following the Jurisdictional High Court precedent, held that the lower authorities erred in confirming the addition without utilizing the DVO mechanism and remanded the matter to the Assessing Officer with a direction to refer the valuation to the Departmental Valuation Officer and thereafter complete assessment afresh in accordance with law; appeal allowed for statistical purposes and matter restored for appropriate exercise.