2014 (9) TMI 13 - HC - Income Tax

Applicability of section 50C Adoption of valuation made by DVO - Evidentiary value of registered document LTCG on transfer of capital asset - Held that - Relying upon S.Muthuraja V. CIT 2013 (8) TMI 40 - MADRAS HIGH COURT -when an objection is made by the assessee to the AO with regard to the adoption of market value u/s 50C(1) of the Income Tax Act - The provision of Section 50C(2) of the Income Tax Act gets attracted - even though the assessee had made an objection for invoking Section 50C(1), the AO had not referred the valuation to the Valuation Officer as per Section 50C(2) of the Income Tax Act - Without doing so, the AO had estimated the capital gains tax, which was confirmed by the Tribunal - mere assertion by the assessee is suffice - while upholding the reasoning of the Tribunal in so far as Section 50C of the Income Tax Act, the assessee has made out a case for consideration as claimed in terms of sub-clause (2) of Section 50C, which has not been done thus, the order of the Tribunal is set aside - matter remanded back Decided in favour of Assessee.

Summary

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act.
2. Assessment of Long Term Capital Gains (LTCG) based on sale deeds dated 17.05.2006.
3. Consideration of the fair market value under Section 50C(2) of the Income Tax Act.

Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act:

The primary issue revolves around the applicability of Section 50C, which was introduced from the assessment year 2003-04. The assessee entered into sale agreements in 2001 but the sale deeds were executed in 2006. The authorities applied Section 50C, which deems the value assessed by the stamp valuation authority as the full value of consideration if it exceeds the actual sale consideration. The Tribunal upheld this application, emphasizing that the evidentiary value of a registered document surpasses that of an unregistered document.

2. Assessment of Long Term Capital Gains (LTCG) Based on Sale Deeds Dated 17.05.2006:

The Assessing Officer (AO) reopened the case under Section 148 after discovering that the sale consideration reported by the assessee was significantly lower than the value assessed by the stamp authorities. The AO computed the LTCG based on the higher value assessed by the stamp valuation authorities, resulting in a substantial addition to the assessee's income. The Commissioner of Income Tax (Appeals) and the Tribunal confirmed this assessment, rejecting the assessee's contention that the transaction should be considered based on the sale agreements of 2001.

3. Consideration of the Fair Market Value Under Section 50C(2) of the Income Tax Act:

The assessee argued that the sale was a distress sale due to financial difficulties and that the market value should reflect this. The key contention was that the AO should have referred the valuation to a Valuation Officer under Section 50C(2) when the assessee objected to the stamp authority's valuation. The Tribunal did not address this adequately, leading to the High Court's intervention.

The High Court noted that the AO failed to refer the valuation to a Valuation Officer despite the assessee's objections, which is a mandatory requirement under Section 50C(2). The Court referenced the case of S. Muthuraja V. CIT, emphasizing that when an objection is made, the AO must refer the matter to a Valuation Officer. The Court found that the AO's failure to do so was a significant oversight.

Conclusion:

The High Court set aside the Tribunal's order and remanded the matter back to the AO to reassess the capital gains by invoking Section 50C(2). The Court upheld the principle that mere assertion by the assessee regarding the valuation is sufficient to trigger the AO's obligation to refer the matter to a Valuation Officer. The appeal was disposed of with this directive, ensuring that the fair market value is accurately determined in compliance with the statutory provisions.