2025 (9) TMI 1649 - AT - Income Tax

Tribunal directs adoption of residential circle rate and Rs. 2,842,400 deemed consideration under Section 50C for plot

ITAT (Chandigarh) held the plot to be residential, finding neither the provisional allotment nor Revenue proved a commercial character; the registered ... Long Term Capital Gain (LTCG) - deemed consideration u/s 50C of the immovable property sold on 20.09.2016 - HELD THAT:- It is a fact that this is a residential plot as per the provisional allotment letter, which does not clearly depict whether it is commercial or residential and no enquiry has been conducted. The Registered Valuer has verified and found that this is a residential plot and even the developer Shri Salasar Overseas Pvt. Ltd. has categorized it is a 500 sq. yard plot, whether the same is residential or commercial it has nowhere proved by Revenue. Hence, we take it residential and direct the AO to adopt the rate of residential as information received from Sub-Registrar of circle rate/DLC rate at 6800 per sq. meter. We direct the AO to recomputed the Long Term Capital Gain after taking the DLC value of the above plot rate at Rs. 6800 sq meter x 418 sq. meter had comes to Rs. 28,42,400/-. AO will re-compute the Long Term Capital Gain accordingly. Appeal of the assessee is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer correctly invoked section 50C of the Income Tax Act to adopt the circle/DLC value as deemed consideration for computing capital gains on sale of the immovable property. 2. Whether the property sold was a commercial unit (as treated by the AO) or a residential plot (as claimed by the assessee), and the consequent applicable circle/DLC rate. 3. Whether the matter required referral to a District Valuation Officer (DVO) for determination of fair market value before invoking section 50C. 4. Whether leasehold character (patta/ provisional allotment) of the rights in the property excludes applicability of section 50C. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 50C and adoption of circle/DLC value as deemed consideration Legal framework: Section 50C provides that where consideration for transfer of a capital asset being land or building is less than the value adopted or assessed or assessable by any authority of the Government for the purpose of stamp duty, such stamp duty value (circle/DLC value) shall be deemed to be the full value of consideration for computing capital gains. Precedent Treatment: No reported precedents were cited or relied upon in the recorded order. Interpretation and reasoning: The Tribunal accepted that the AO, on being unable to obtain circle rate from the assessee, procured DLC/circle rates from the Sub-Registrar and applied the commercial exterior rate to compute deemed consideration under section 50C. The Tribunal treated the use of DLC/circle rate by the AO as an admissible exercise under section 50C once the relevant circle/DLC figures were available to the revenue. Ratio vs. Obiter: Ratio - section 50C can be invoked by the AO using circle/DLC rates provided by the appropriate authority where those rates are available and the declared sale consideration is lower. Conclusions: Section 50C is a valid basis for adoption of deemed consideration where circle/DLC values are shown; the AO's methodology of converting area into square meters and multiplying by the DLC rate was procedurally acceptable subject to correct classification of the property for applicable rate. Issue 2 - Characterisation of the property: commercial unit versus residential plot and correct DLC rate Legal framework: The applicable circle/DLC rate for computing deemed consideration under section 50C depends on the correct classification of the property (e.g., residential vs commercial) as per the rates published/communicated by the relevant authority. Precedent Treatment: No authority was followed or distinguished in the order; the Tribunal relied on documentary material within the record and the valuation by a Registered Valuer. Interpretation and reasoning: The Tribunal examined (i) the provisional allotment letter produced by the assessee which indicated plot rights (not clearly commercial), (ii) the Registered Valuer's report that, on local enquiry and site verification, the plot was an unapproved residential plot and valued it at a residential rate for 2016, (iii) the fact that the developer categorized the parcel as a 500 sq. yard plot, and (iv) absence of any evidence from Revenue proving commercial character. Given these materials and the absence of enquiry by Revenue to establish commercial classification, the Tribunal concluded the factual position favoured residential status. Consequently the Tribunal directed adoption of the residential DLC/circle rate of Rs. 6,800 per sq. meter (as provided by the Sub-Registrar) for computation under section 50C, rather than the commercial rate applied by the AO. Ratio vs. Obiter: Ratio - where available documentary evidence (provisional allotment, developer categorization, valuer's on-site verification) establishes residential character and Revenue adduces no countervailing proof, the residential circle/DLC rate must be applied for section 50C purposes. Obiter - the Registered Valuer's separate valuation figure (Rs. 7,95,500) was noted but the Tribunal preferred adoption of the Sub-Registrar/respective authority's published DLC rate for section 50C computation. Conclusions: The Tribunal held the property to be residential for the purpose of section 50C and directed recomputation of deemed consideration using the residential DLC rate (Rs. 6,800 per sq. meter × 418 sq. meter = Rs. 28,42,400) and consequent recomputation of Long Term Capital Gain. Issue 3 - Necessity of referring the matter to a District Valuation Officer (DVO) Legal framework: Determination of fair market value (or obtaining a professional valuation) in assessment proceedings can involve reference to a DVO where appropriate. Precedent Treatment: No prior judicial guidance was cited in the order concerning mandatory referral to a DVO. Interpretation and reasoning: The assessee argued for DVO referral to ascertain fair market value; Revenue's representative sought remand to AO for possible DVO reference. The Tribunal observed that complete facts were available on record, including the provisional allotment, developer categorization, Sub-Registrar DLC rates and a Registered Valuer's report. Viewing the matter as small and factually determinable from existing material, the Tribunal declined to remand for DVO determination and instead directed the AO to adopt the residential DLC rate supplied by the Sub-Registrar and recompute gains. Ratio vs. Obiter: Ratio - referral to DVO is not mandatory where sufficient documentary and valuation material is already on record to enable correct application of section 50C; the Tribunal may direct computation on the basis of authoritative DLC rates where classification is determinable from record. Obiter - the Tribunal implicitly recognizes DVO referral as an available option in appropriate cases but not required here. Conclusions: No referral to DVO was ordered; Tribunal directed the AO to recompute deemed consideration and LTCG using the residential DLC rate available on record. Issue 4 - Effect of leasehold/patta status on applicability of section 50C Legal framework: Section 50C applies to transfer of capital assets being land or building; the impact of leasehold tenure on applicability depends on factual character of rights transferred and legislative scope of section 50C. Precedent Treatment: The order records the assessee's contention that patta/leasehold rights might exclude section 50C applicability, but no authorities were cited or applied. Interpretation and reasoning: The Tribunal noted the contention that the property was held on patta/leasehold but did not find any factual or legal record establishing that such leasehold character excluded section 50C application. The Tribunal did not accept leasehold contention as a ground to negate section 50C in absence of supporting evidence to that effect and proceeded to determine proper DLC rate for section 50C computation. Ratio vs. Obiter: Obiter - the order records the suggestion that leasehold status could affect applicability but does not decide any broad principle; the Tribunal's decision rests on classification and rate application rather than on leasehold-exclusion principle. Conclusions: Leasehold/patta contention was not accepted as a basis to avoid application of section 50C on the facts of this case; the Tribunal proceeded to apply section 50C after treating the property as residential. Disposal and Direction Having concluded the property to be residential and that sufficient material existed on record to determine the applicable DLC rate, the Tribunal allowed the appeal in part and directed the Assessing Officer to recompute Long Term Capital Gain adopting the residential DLC rate of Rs. 6,800 per sq. meter applied to 418 sq. meters (deemed consideration Rs. 28,42,400) and to proceed accordingly.