2018 (10) TMI 1849 - AT - Income Tax

Long term capital gain - Reference to DVO - whether it is discretion of the AO to refer or not to refer to DVO for valuation of a capital asset u/s Section 50C(2) in the peculiar facts of the case ? - assessee had sold its ancestral property at Etah (U.P) for a consideration of ₹ 36,00,000/- whereas for the purpose of payment of stamp duty the property was valued at ₹ 3,06,86,000/- - HELD THAT - AO 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) despite specific prayer made by the assessee at the first stage. AO has also not found or alleged that the assessee received any excess amount over the sale consideration mentioned in the deeds. On the failure of the AO to follow the course as prescribed under section 50C(2) no infirmity in the order of the CIT(A) in quashing the addition made by the AO. Department cannot be allowed a second inning, by sending the matter back to AO, enabling it to fill in the lacunae and shortcomings of the assessment order, and putting the assessee virtually to face a re-trial for no fault of hisandto again put him to prove before the AO that the sale consideration was the fair market value of the property sold by him. This would amount to giving life to an order which on the basis of facts on records is unsustainable in law. In view of our findings in the cases of Tarun Agarwal 2018 (8) TMI 1989 - ITAT AGRA and Dr. Sanjay Chaubey (HUF) 2018 (7) TMI 133 - ITAT AGRA and ANIMA INVESTMENT LTD. 2000 (1) TMI 150 - ITAT DELHI-D with LALITHA KARAN, HYDERABAD 2017 (1) TMI 505 - ITAT HYDERABAD we hold that at this stage, the AO cannot be allowed a second inning, by sending the matter back enabling him to make good his own shortcomings and putting the assessee virtually to face a re-trial for no fault on his part 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. Discretion of the Assessing Officer (AO) to refer valuation of a capital asset to the Departmental Valuation Officer (DVO) under Section 50C(2) of the Income Tax Act, 1961.
2. Applicability of Section 50C in computing long-term capital gains.
3. Quantum of deduction allowable under Section 54F of the Income Tax Act, 1961.
4. Whether the matter should be remanded to the AO for re-assessment after valuation by DVO.

Detailed Analysis:

1. Discretion of AO to Refer Valuation to DVO:
The sole issue for adjudication was whether it is at the discretion of the AO to refer or not to refer the valuation of a capital asset to the DVO under Section 50C(2) of the Income Tax Act, 1961. The Revenue argued that the AO has the discretion to refer the valuation to the DVO only if deemed necessary. The Tribunal, however, emphasized that the AO, discharging a quasi-judicial function, has a bounden duty to act fairly and follow the course provided by law, which includes referring the valuation to the DVO when the assessee disputes the stamp duty valuation. The Tribunal referred to the judgment of the Hon’ble Calcutta High Court in Sunil Kumar Agarwal v. CIT, which mandates that the AO must act fairly and refer the valuation to the DVO when the fair market value is disputed.

2. Applicability of Section 50C in Computing Long-Term Capital Gains:
The assessee sold an ancestral property for ?36,00,000, while the stamp duty valuation was ?3,06,86,000. The AO adopted the stamp duty valuation for computing long-term capital gains under Section 50C, resulting in an addition of ?2,70,86,000. The CIT(A) quashed this addition, observing that the AO was not justified in not referring the matter to the DVO despite the assessee's objections and the peculiar facts of the case, such as the property being under dispute and illegal occupation by tenants.

3. Quantum of Deduction Allowable Under Section 54F:
The CIT(A) also addressed the issue of the quantum of deduction allowable under Section 54F. It was held that the fiction of Section 50C cannot be carried to the provisions of Section 54F when arriving at the figures of capital gain and net consideration. The Tribunal upheld this view, noting that the Revenue did not challenge the findings of the CIT(A) regarding the deduction under Section 54F.

4. Remanding the Matter for Re-Assessment:
The Revenue prayed for remanding the matter to the AO for re-assessment after valuation by the DVO. The Tribunal, however, dismissed this plea, stating that the AO had failed to follow the statutory procedure by not referring the matter to the DVO despite the assessee’s specific request. The Tribunal emphasized that the AO’s failure to act as per the legal mandate cannot be rectified by allowing a second inning to the Revenue, which would amount to giving a fresh lease of life to an otherwise unsustainable order. The Tribunal cited various judicial precedents, including the Hon’ble Supreme Court’s judgment in Parashuram Pottery Works Co. Ltd. v. ITO, emphasizing the need for finality in legal proceedings and the AO’s duty to follow the prescribed procedure.

Conclusion:
The Tribunal upheld the order of the CIT(A), quashing the addition made by the AO under Section 50C and allowing the deduction under Section 54F. The appeal of the Revenue was dismissed, and it was held that the AO’s failure to refer the valuation to the DVO, despite the assessee’s request and the peculiar facts of the case, rendered the assessment order unsustainable in law. The Tribunal refused to remand the matter for re-assessment, emphasizing the AO’s duty to follow the statutory procedure and the principle of finality in legal proceedings.

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