2020 (9) TMI 1267 - AT - Income Tax

Addition of difference in excess of 10% between sale value and stamp duty value - AO show caused as to why the difference in stamp duty value and sale value should not be added to the total income in terms of section 43CA - HELD THAT -Admittedly the AO find the difference between sale value and stamp duty value but, did not refer to DVO for determination of fair market value u/s. 50C(2) and 50C(3) of the Act but however he adopted the procedure contemplated u/s. 43CA of the Act wherein it explains the consideration received or accruing as a result of the transfer of an asset is less than the value adopted or assessed or assessable by any authority of a State Government, the value adopted by such authority shall be deemed to be the full value of consideration for the purpose of profits and gains from transfer but however in our opinion is subject to the satisfaction the provisions contemplated in sub-section (2) of section 43CA - Admittedly, there was no occasion left to AO in assessment proceedings to refer the issue to the DVO for determination of fair market value. As discussed above, the assessee placed reliance on the orders of this Tribunal and they are on record by way of legal compilation. This Tribunal in the case of K.K. Nag Ltd. 2012 (6) TMI 184 - ITAT PUNE for A.Ys. 2005-06 and 2006-07, order dated 25-05-2012 held that the AO ought to have referred the matter to the Valuation Officer instead of straightaway deeming the value adopted by the Stamp valuation authority as the full value of consideration. In a such situation where the assessee claims before the AO that the value adopted or assessed by the Stamp valuation authority exceeds fair market value, the AO shall adopt the course mentioned in section 50C(2)(a) of the Act. In the present case, the assessee contended before the CIT(A) about the AO not referring the matter to the file of Valuation Officer but however on the alternative plea the CIT(A) restricted the addition to the extent indicated above. Since, the contention made before us that it is mandatory for AO referring to DVO for determination of fair market value in our considered opinion, we deem it proper to remand the issue to the file of AO to follow the procedure contemplated under the Act. The assessee is liberty to file all evidences in support of its claim. Thus, the order of CIT(A) is set aside. Appeal of assessee is allowed for statistical purpose.

Summary

Issues Involved:
1. Addition of difference between sale value and stamp duty value under Section 43CA.
2. Validity of using stamp duty value for determining fair market value.
3. Requirement of referring the matter to the District Valuation Officer (DVO).

Issue-Wise Detailed Analysis:

1. Addition of Difference Between Sale Value and Stamp Duty Value Under Section 43CA:
The assessee, engaged in construction and development, reported a turnover of Rs. 7,01,53,106/- with a net profit of 10.65%. During assessment, the Assessing Officer (AO) noted a difference of Rs. 78,16,448/- between the sale value and the stamp duty value of the properties sold by the assessee. The AO added this difference to the total income of the assessee under Section 43CA, determining the total income as Rs. 1,08,91,444/- (Return of income Rs. 30,74,996/- + Rs. 78,16,448/-).

2. Validity of Using Stamp Duty Value for Determining Fair Market Value:
The assessee argued before the Commissioner of Income Tax (Appeals) [CIT(A)] that the stamp duty value, based on circle rates, does not reflect the fair market value due to various factors such as location and specific property features. The assessee contended that the stamp duty valuation disregards these factors and is primarily for revenue purposes, not for determining the true market value.

3. Requirement of Referring the Matter to the District Valuation Officer (DVO):
The assessee also argued that the AO should have referred the matter to the DVO as per Section 50C(2) and 50C(3) before applying Section 43CA. The CIT(A) acknowledged that courts and tribunals often adopt a liberal approach when the difference between the reported value and the DVO's value is less than 10%. Consequently, the CIT(A) restricted the addition to Rs. 20,89,083/-, considering a 10% margin.

Further Proceedings and Tribunal's Decision:
The assessee maintained that the stamp duty value is not conclusive for determining fair market value and that the AO should have referred the matter to the DVO. The Tribunal noted that the AO did not refer to the DVO despite finding a difference between the sale value and the stamp duty value. The Tribunal referred to previous decisions, including K.K. Nag Ltd. Vs. Addl. CIT, which emphasized that the AO should refer to the Valuation Officer if the stamp duty value exceeds the fair market value.

Remand to AO:
The Tribunal decided to remand the issue back to the AO to follow the procedure under Section 50C(2) and 50C(3) for determining the fair market value. The assessee is allowed to present all supporting evidence. The Tribunal set aside the CIT(A)'s order and allowed the appeal for statistical purposes.

Conclusion:
The Tribunal concluded that the AO must refer the matter to the DVO for determining the fair market value before making additions under Section 43CA. The appeal was allowed for statistical purposes, and the case was remanded to the AO for further proceedings.