2014 (3) TMI 506 - AT - Income Tax

Valuation of property - Addition made on the basis of the value of the property adopted by the SR for stamp duty purposes Held that - The factors cannot be acted upon by the authorities for the reason that section 50C is a deeming section - Any relief granted to the assessee must be on the basis of a reason - The reason must be within the four corners of the law - Whatever may be the problems suffered by an assessee, in reality, those reasons cannot be permitted to go beyond the scope of section 50C - When section 50C says that the sale consideration shall be the guidelines value, if the stated consideration is less than that, it means the law has already decided the course of action - Nothing can persuade the situation including the genuine and valid difficulties of an assessee. It is to alleviate the difficulties of an assessee that a provision for reference to DVO is given in the section - while considering the report of the DVO and other such factors to interfere in the valuation of the property, it is not permissible for the appellate authorities to consider personal and individual reasons - The relief granted by the appellate authority should be on the basis of apparent features of the property - The misfortunes happened to the assessee or the difficulties faced by the assessee or the matter of distress sale, etc. cannot be a ground to modify the valuation - If such extraneous factors are relied upon, the deeming provision of law stated in section 50C of the Act would be contravened the order of the CIT(A) set aside Decided in favour of Revenue.

Issues Involved:
1. Application of Section 50C of the Income-tax Act, 1961.
2. Determination of Long Term Capital Gains (LTCG).
3. Validity of market value adopted by Registration Authorities.
4. Consideration of distress sale and pending litigations.
5. Reference to Valuation Officer for property valuation.

Issue-wise Detailed Analysis:

1. Application of Section 50C of the Income-tax Act, 1961:
The primary issue revolves around the applicability of Section 50C, 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 value shall be deemed as the full value of consideration for computing capital gains. The Revenue argued that the CIT(A) should have confirmed the addition based on the stamp duty value.

2. Determination of Long Term Capital Gains (LTCG):
The assessee sold a property for Rs. 15,10,200, while the Registration Authorities valued it at Rs. 44,57,000. Consequently, the AO invoked Section 50C, resulting in an additional LTCG of Rs. 29,46,800. The assessee contended that the property was sold at a lower price due to distress and pending litigations, and thus, the actual sale consideration should be accepted.

3. Validity of Market Value Adopted by Registration Authorities:
The assessee provided two certificates from the Joint Sub Registrar, one indicating a market value of Rs. 12,000 per sq. yard and another Rs. 12,000 per acre. However, the AO dismissed these certificates and adopted the value of Rs. 44,57,000 as per the Registration Authorities. The CIT(A) noted the inconsistency in the certificates and highlighted the distress sale due to litigations.

4. Consideration of Distress Sale and Pending Litigations:
The assessee argued that the property was sold at a lower price due to ongoing litigations and the advanced age of the owners. The CIT(A) acknowledged these factors and suggested that the AO should have considered the distress sale and the property's condition, which was over 70 years old and in litigation, affecting its market value.

5. Reference to Valuation Officer for Property Valuation:
The CIT(A) criticized the AO for not referring the valuation to a Valuation Officer as per Section 50C(2) when the assessee disputed the stamp duty value. The CIT(A) suggested that the AO should have examined the property's value in light of the provided certificates and the property's condition.

Judgment:
The Tribunal noted that Section 50C is a deeming provision that must be strictly applied. Since the sale consideration was less than the guideline value, the AO correctly adopted the higher value. The Tribunal emphasized that personal hardships or distress sales cannot influence the application of Section 50C. The Tribunal also clarified that the decision in CIT vs. Chandni Buchar, cited by the assessee, was not applicable as it pertained to the purchaser, not the seller. Consequently, the Tribunal allowed the Revenue's appeal, upholding the AO's addition of Rs. 29,46,800 to the LTCG.

Conclusion:
The Tribunal's judgment reinforces the mandatory application of Section 50C, emphasizing that the deeming provision must be strictly followed, irrespective of personal circumstances or distress sales. The AO's reliance on the higher stamp duty value was upheld, and the appeal by the Revenue was allowed.

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