2018 (8) TMI 1989 - AT - Income Tax

Computation of capital gain - transfer of a capital asset - Invoking provisions of section 50C - Non speaking order by AO - total sale consideration fell short in comparison to values adopted for stamp value purposes which the Ld AO added to the income of the assessee under the deeming provision of section 50C - AO not making of a reference to the DVO - HELD THAT - Order as passed by the AO is an epitome of a non-speaking order which itself cannot be appreciated in law. In the light of facts submitted by the assessee that had impacted the fair market value of the property sold if the AO intended to go ahead with the proposed action of substituting the value as provided u/s 50C he was duty bound to have demonstrated with reasons, evidences and legal position as to how the facts as stated by the assessee are unbelievable or calls for rejection. In the matter of valuation, law is fairly well settled that value mentioned in the registered document can be substituted by following the process prescribed under the law.The assessment order is silent on this material aspect. Appellant has a statutory right and is fully entitled to know the reason for disagreement on the detailed submissions filed during the course of assessment proceedings before the AO. AO being a quasi-judicial authority, the assessment order passed by him must be a speaking order, giving full reasons for the conclusions arrived at. This requirement derives its authority from the maxim that justice should not only be done but also be seen to be done. Thus, the impugned order passed by the AO does not meet the requirement of law and cannot be allowed to stand. AO not only passed a cryptic order without disputing any of the grounds of dispute raised by the assessee but also failed to follow the procedure prescribed in law i.e. making of a reference to the DVO as mandated by section 50C (2) of the Act.Therefore, the addition made by the AO cannot be approved. Whether the case be set aside to the AO for following the said procedure and then pass fresh order? - In the present case, it is noted that the Assessing Officer neither discussed the contentions of the assessee for taking actual consideration as fair market value of the property sold nor referred the matter to the DVO as was required u/s 50C(2) of the Act. The AO has also not found or alleged that the assessee received any excess amount over the sale consideration mentioned in the deeds. Department cannot be allowed a second inning, by sending the matter back to AO, enabling it to fill the lacunae and shortcomings and putting the assessee virtually to face a re-trial for no fault of him and to again prove before the AO that the sale consideration was the fair market value of the property sold by him. This would amount to giving a lease of life to an order which on the basis of facts on records is unsustainable in law. Failure of the AO to follow the procedure as prescribed under section 50C (2) in particular, we do not find any infirmity in the order of the CIT(A) in quashing the addition made by the AO. - Decided against revenue.

Issues Involved:
1. Application of Section 50C of the Income Tax Act.
2. Definition and interpretation of "Capital Asset" under Section 2(14).
3. Procedural errors by the Assessing Officer (AO).
4. Requirement for a reasoned and speaking order.
5. Reference to Valuation Officer under Section 50C(2).

Detailed Analysis:

1. Application of Section 50C of the Income Tax Act:
The primary issue in the case was whether the Assessing Officer (AO) correctly applied Section 50C of the Income Tax Act, which deals with the valuation of property for the purpose of calculating capital gains. The AO added ?56,08,000 to the income of the assessee based on the difference between the sale consideration and the stamp value. The CIT(A) quashed this addition, noting that the AO did not refer the matter to a Valuation Officer despite the assessee’s objections.

2. Definition and Interpretation of "Capital Asset" under Section 2(14):
The Revenue argued that the CIT(A) erred in law and on facts by allowing the assessee's claim without appreciating that the income was assessed under Section 50C as a result of the transfer of a "capital asset" as defined under Section 2(14). The CIT(A) and the Tribunal found that the AO did not properly consider the assessee’s objections regarding the fair market value of the property.

3. Procedural Errors by the Assessing Officer (AO):
The Tribunal noted that the AO failed to refer the matter to the Valuation Officer as mandated by Section 50C(2) when the assessee disputed the stamp value as the fair market value. The AO's order was described as a "non-speaking order" because it did not provide reasons or evidence to counter the assessee’s claims. The Tribunal emphasized that the AO must act fairly and follow the procedure prescribed by law.

4. Requirement for a Reasoned and Speaking Order:
The Tribunal highlighted the necessity for a reasoned and speaking order, which is essential for ensuring transparency and fairness in quasi-judicial proceedings. The AO’s failure to provide reasons for rejecting the assessee’s claims and not referring the matter to the Valuation Officer was a significant procedural lapse. The Tribunal underscored that a speaking order is crucial for the affected party to understand the rationale behind the decision and to challenge it if necessary.

5. Reference to Valuation Officer under Section 50C(2):
The Tribunal reiterated that when an assessee claims that the stamp valuation exceeds the fair market value, the AO is bound to refer the valuation to a Valuation Officer. This was supported by judicial precedents, including the Hon’ble Calcutta High Court’s decision in Sunil Kumar Agarwal v. CIT, which held that the AO must act fairly and follow the prescribed legal procedure. The Tribunal found that the AO’s failure to make this reference invalidated the addition made under Section 50C.

Conclusion:
The Tribunal upheld the CIT(A)’s order quashing the addition of ?56,08,000 made by the AO. It emphasized the importance of following the procedural requirements under Section 50C(2) and the necessity for a reasoned and speaking order. The appeal of the Revenue was dismissed, reaffirming the requirement for fair treatment and adherence to legal procedures in the assessment process.

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