AO must refer to DVO under Section 50C(2) when sale consideration is below stamp duty value

The ITAT held that the Assessing Officer erred in not referring the matter to the DVO under Section 50C(2) despite the sale consideration being significantly lower than the stamp duty value. The tribunal found that the fair market value claimed by the assessee was less than the stamp duty value, and the AO was mandated to obtain the DVO's valuation to resolve this discrepancy. The CIT(A) and NFAC wrongly upheld the AO's decision, failing to conduct the necessary enquiry under Section 250(4) & (6). The ITAT ruled that the order of the CIT(A)/NFAC was arbitrary and bad in law, allowing the assessee's appeal and directing adherence to the statutory provisions for fair market value determination.

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ISSUES:

Whether the Assessing Officer (A.O.) is obligated under Section 50C(2) read with Section 55A of the Income Tax Act to refer the valuation of the capital asset to a Valuation Officer (DVO) when the stamp valuation authority's value exceeds the sale consideration and the assessee disputes the stamp duty value as exceeding the fair market value.Whether the difference between the stamp duty value and the actual sale consideration can be added as income without reference to the DVO for determination of fair market value.Whether the failure of the A.O. and the Commissioner of Income Tax (Appeals) to refer the matter to the DVO renders the assessment and appellate orders void or liable to be set aside.

RULINGS / HOLDINGS:

It is mandatory for the Assessing Officer to refer the matter to the Valuation Officer for determination of fair market value under Section 50C(2) read with Section 55A of the Act when the value adopted by the stamp valuation authority exceeds the sale consideration and the assessee claims that the stamp duty value exceeds the fair market value.The addition made solely on account of the difference between the stamp duty value and the sale consideration without making a reference to the DVO is not in accordance with the statutory mandate and is therefore unsustainable.The failure to refer the matter to the DVO as prescribed by the Act renders the assessment and appellate orders arbitrary and bad in law, justifying setting aside the impugned orders.

RATIONALE:

The Court applied the statutory framework of Section 50C and Section 50C(2) read with Section 55A of the Income Tax Act, 1961, which mandates a reference to the Valuation Officer where the stamp valuation authority's value exceeds the sale consideration and the assessee disputes such valuation.The Court relied on the conditions enumerated in Section 50C(2), namely (i) the valuation done by the Stamp Valuation Authority (SVA) is more than the apparent sale consideration, and (ii) the assessee makes a claim before the A.O. that the fair market value is less than the valuation done by the SVA, as mandatory preconditions for the reference to the DVO.The Court noted that the appellate authority failed to conduct the necessary enquiry as per Section 250(4) & (6) of the Act and incorrectly upheld the non-referral to the DVO, which was contrary to the facts and statutory provisions.The decision reflects the principle that the circle rate or stamp duty value is not conclusive of the fair market value and that the statutory provisions exist to protect the assessee's grievance regarding any dispute arising from the difference between these values.

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