2016 (12) TMI 52 - AT - Income Tax

Addition in difference in valuation of property arrived at by DVO - Held that - In the instant case, the transactions were entered during the financial year 2006-2007 i.e., 1st April 2006 to 31st March 2007 which is prior to 01/10/2009. Therefore, as per CBDT, circular provisions of Section 50C are not applicable in so far as sales deed so executed were not registered with the Stamp Duty Violation Authority. We are also inclined to agree with learned AR Mr. Shashank Dandu that in view of the decision of Co-ordinate Bench in case of Rahul Construction (2012 (1) TMI 229 - ITAT PUNE) since the difference between the sale consideration of the property shown by the assessee and the FMV determined by the DVO under Section 50C(2) being less than 10 per cent, AO was not justified in substituting the value determined by the DVO for the sale consideration disclosed by the assessee. We are also in agreement with AR that decision of Madras High Court in case of Sugantha Ravindran 2013 (3) TMI 271 - MADRAS HIGH COURT is squarely applicable to the facts of the instant case where it has been held that since transfer was made prior to the amendment of Section 50C w.e.f. 1/10/2009, the provisions of section 50C would not be applicable. Unregistered property was sold on 07/08/2006 which means, since the unregistered property was sold before the clarification was issued under Circular No.5/2010 dated 03/06/2010 where it clearly states that the scope of the provisions do not include transactions which are not registered with stamp duty valuation authority, and executed through agreement to sell or power of attorney and hence the provisions of Section 50C will not be attracted since the sale is before 01/10/2009, which is the date on which the circular becomes applicable. - Decided in favour of the assessee.

Summary

Issues:
- Appeal against order of CIT(A) for assessment year 2007-08 regarding addition of property valuation difference by DVO
- Applicability of Section 50C to unregistered property sale before 01/10/2009

Analysis:
- The appeal was filed against the CIT(A)'s decision upholding the addition of ?10,91,130 as the difference in property valuation by the District Valuation Officer (DVO). The Assessee, engaged in construction and sale of flats, sold 4 flats on 07/08/2006 for ?1,96,60,000. The AO referred the valuation to the DVO, who valued the property at ?2,07,51,130, resulting in the addition by the AO under Section 50C. The CIT(A) affirmed the AO's action, leading to the appeal before ITAT.
- The Assessee argued that the difference in valuation was only 5.5% of the declared sale consideration, which should be ignored for computing Long Term Capital Gains. Reference was made to a previous decision supporting this argument. It was contended that Section 50C did not apply as the property was unregistered and sold before 01/10/2009, as clarified in Circular No.5/2010. The Assessee cited relevant circulars and judicial decisions to support this position.
- The Revenue, however, supported the lower authorities' decision, emphasizing that the DVO's valuation was expert-based and justified. The Revenue argued that the addition to Long Term Capital Gain was correct and should be upheld.
- After considering the contentions and relevant provisions, ITAT found that the transactions were executed before 01/10/2009, making Section 50C inapplicable to unregistered property sales. ITAT agreed with the Assessee's arguments regarding the valuation difference and applicability of Section 50C. Referring to judicial precedents and circulars, ITAT concluded that the AO's substitution of DVO's value was unjustified. Consequently, the lower authorities' orders were set aside, and the appeal was allowed in favor of the Assessee. The decision was pronounced on 23/11/2016.