2017 (1) TMI 505 - AT - Income Tax

Determining value of the property - Addition made adopting the guide line value of the property for stamp duty purpose - Addition u/s 50C - adoption the value adopted by the stamp valuation authority for the purpose of computation of capital gains - AO chose to brush aside the submissions by not referring the matter to the DVO - whether the AO can be given a second opportunity to make good his deficiencies at the cost of expenditure to be incurred by the assessee by continuing the litigation for a further period particularly in view of the period of limitation prescribed u/s 153? Held that - Referring to the speech of the Finance Minister as well as circular issued by the CBDT bringing the intention of the legislature whereby it was held that the AO is duty bound to refer the matter to the Valuation officer when the reasons were thoroughly mentioned by the assessee for the FMV that the assessee could fetch in these circumstances. Despite making request to refer the matter to the DVO the AO purposely did not refer the matter to the DVO on the ground that he is duty bound to go by the valuation adopted by the stamp valuation authority. Litigation in the Bombay particularly under the Maharashtra Rent Control Act is well known and needs to be taken judicial notice. A property which is in the occupation of tenants for more than 60 years one cannot fetch full market value and in fact the party who purchased the property had agreed to the terms and conditions i.e. the property was purchased on as is where is condition with a specific clause that any further litigation will be dealt with by the purchaser and under those circumstances generally market value cannot be adopted. In these circumstances the Courts time and gain held that reference u/s 50C(2) of the IT Act is mandatory and the AO having failed to follow the provisions of the Act he should not be given one more chance to refer the matter to the DVO. Recently the Hon ble Supreme Court in the case of Manish Mahaeswari Vs. ACIT and another and Indore Construction P. Ltd. Vs. CIT 2007 (2) TMI 148 - SUPREME COURT OF INDIA vis- -vis the provisions of section 153C of the Act observed that if the AO has not recorded his satisfaction for issue of notice u/s 153C of the Act the proceedings deserve to be quashed rather than giving the AO another chance to record proper reasons. The same principle holds good even in this case; when the AO has not followed the procedure prescribed in law the addition made deserved to be deleted. Under these circumstances the order of the CIT(A) in deleting the addition made by the AO does not call for any interference. Accordingly we uphold the order of the CIT(A) and dismiss the grounds raised by the revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Adoption of stamp duty valuation for computation of capital gains under section 50C of the Income-tax Act.
2. Mandatory reference to the Departmental Valuation Officer (DVO) under section 50C(2)(a).
3. Remanding the issue to the Assessing Officer (AO) for valuation by the DVO.

Issue-wise Detailed Analysis:

1. Adoption of Stamp Duty Valuation for Computation of Capital Gains:
The primary issue revolves around whether the AO was correct in adopting the stamp duty valuation of Rs. 1,35,57,500/- for the purpose of computing capital gains, contrary to the sale consideration of Rs. 19,50,000/- declared by the assessee. The AO observed that as per section 50C(1) of the Income-tax Act, the value adopted by the stamp valuation authority must be used for capital gains computation. The AO dismissed the assessee's objections regarding the property's lower sale price due to its tenanted status and ongoing litigation, leading to a computed long-term capital gain of Rs. 62,52,550/-.

2. Mandatory Reference to the Departmental Valuation Officer (DVO):
The CIT(A) held that the AO should have referred the matter to the DVO as mandated by section 50C(2) when the assessee contested the stamp duty valuation. The CIT(A) noted that the AO ignored the valid reasons provided by the assessee for the lower sale consideration and did not follow due process, thus invalidating the addition made by the AO. The CIT(A) emphasized that the AO's failure to refer the valuation to the DVO was a significant procedural lapse.

3. Remanding the Issue to the AO for Valuation by the DVO:
The Revenue contended that the CIT(A) should have remanded the issue back to the AO with instructions to refer the valuation to the DVO. However, the Tribunal noted that the CIT(A) has no power to set aside issues under section 250 of the Act. The Tribunal also highlighted the principle of finality in legal proceedings, referencing the Supreme Court's observation in Prashuram Pottery Works Co. Ltd. Vs. ITO, that litigation should not continue indefinitely and that procedural lapses by the AO should not be corrected at the cost of prolonged litigation for the assessee.

The Tribunal further observed that the AO did not find any evidence of the assessee receiving excess money beyond the declared sale consideration and did not address the specific plea regarding the property's tenanted status and litigation under the Maharashtra Rent Control Act. The Tribunal concluded that the AO's failure to refer the matter to the DVO, despite the assessee's request and the statutory mandate, justified the CIT(A)'s decision to delete the addition.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal confirmed that the AO's non-compliance with section 50C(2) and failure to refer the valuation to the DVO invalidated the addition made to the assessee's income. The Tribunal emphasized the importance of adhering to procedural requirements and the principle of finality in legal proceedings, thereby supporting the CIT(A)'s deletion of the addition without remanding the issue back to the AO.