2024 (10) TMI 1202 - AT - Income Tax

AO cannot modify assessment order post-limitation based on delayed valuation report under Section 50C

Lalit Kumar Jalan Versus ITO, WARD-1 (1), Cuttack

ITAT Cuttack allowed the assessee's appeal regarding LTCG computation under Section 50C. The AO had substituted the declared sale consideration of Rs. ... LTCG - Applicability of Section 50C - refence to the valuation officer - substitution of sale consideration with the stamp duty value - HELD THAT:- When the valuation officer is guilty of breach of the law by not submitting the valuation report within a reasonable time period thus for the breach of all such legal provisions, the lower authorities should not get some premium by enhancing the limitation period by leaving the assessment open with such condition for indefinite period. We are live to the issue that though the interest of revenue is vital, such interest cannot override considerations of probity and fairness in tax governance. A fair tax regime where no assessee is harassed is equally crucial. The reference was made to the valuation officer on 22.03.2021 and thereafter the assessment was completed on 18.04.2021 as by making reference of limitation for completing the assessment, the same cannot be extended now solely for want of the valuation report, at the same time, necessary steps should have been taken by the concerned officials to ensure that the report from the office of the valuation officer should reach to the office of the AO within a reasonable time period which both the lower authorities have miserably failed to do. If we allow the AO to modify the order after the receipt of the report from the valuation officer which otherwise is barred by limitations such action would not only reward the revenue with an enhanced limitation period but embolden unscrupulous tax officials to manipulate orders or otherwise mistreat the assessee. Therefore, we delete the addition made by AO who computed the amount of capital gains by taking Rs. 1,15,51,737/- being the value taken by stamp authorities as sale consideration as against Rs. 17,64,150/- as declared by the assessee - Appeal of assessee allowed. Issues Involved:1. Applicability of Section 50C regarding the substitution of sale consideration with the stamp duty value.2. Validity of the assessment completed without the valuation officer's report.3. Limitation period for the valuation officer to submit the report.4. Consideration of negative factors affecting the fair market value of the property.5. Impact of the delayed valuation report on the assessment.Detailed Analysis:1. Applicability of Section 50C:The primary issue revolves around the applicability of Section 50C of the Income Tax Act, which mandates that if the consideration received from the transfer of a capital asset is less than the value adopted by the stamp valuation authority, the latter shall be deemed as the full value of consideration for computing capital gains. In this case, the assessee sold land for Rs. 17,64,150/-, but the stamp valuation authority assessed it at Rs. 1,15,51,737/-. The assessee contested this valuation, arguing that the fair market value was lower due to various negative factors, and requested a valuation by the District Valuation Officer (DVO).2. Validity of the Assessment Completed Without the Valuation Officer's Report:The assessment was completed by the Assessing Officer (AO) without waiting for the DVO's report, substituting the sale consideration with the stamp duty value. The Tribunal noted that the AO made a reference to the DVO to determine the fair market value, but no report was received by the time the assessment was completed. The Tribunal highlighted that the AO should have waited for the DVO's report before finalizing the assessment, as the report could potentially alter the assessed capital gains.3. Limitation Period for the Valuation Officer to Submit the Report:The Tribunal discussed the absence of a specific time limit in Section 50C for the DVO to submit the valuation report. However, it drew parallels with Section 142A(6), which mandates a six-month period for the submission of valuation reports. The Tribunal emphasized that while Section 50C does not specify a time limit, a reasonable timeframe should be adhered to, and any report submitted after an undue delay should be considered time-barred. In this case, the DVO failed to submit the report even after more than three years, which was deemed unreasonable.4. Consideration of Negative Factors Affecting the Fair Market Value of the Property:The assessee provided several reasons for selling the property at a lower price, including its remote location, lack of basic amenities, poor connectivity, and the urgent need for funds. These factors were not considered by the stamp authorities or the AO. The Tribunal acknowledged these factors and criticized the authorities for not taking them into account when determining the property's fair market value.5. Impact of the Delayed Valuation Report on the Assessment:The Tribunal concluded that the delay in receiving the DVO's report should not penalize the assessee. It held that the sale consideration declared by the assessee should be accepted as the fair market value for computing capital gains. The Tribunal expressed concerns that allowing indefinite delays in obtaining the DVO's report could lead to arbitrary assessments and unfair treatment of taxpayers. Consequently, the Tribunal directed the deletion of the additions made by the AO based on the stamp duty value.Conclusion:The Tribunal allowed the appeal, directing that the sale consideration declared by the assessee be accepted for computing capital gains, thereby deleting the additions made by the AO. The judgment emphasized the importance of timely and fair assessments, considering all relevant factors affecting the property's value, and criticized the authorities for procedural lapses and delays.