2018 (10) TMI 500 - AT - Income Tax

Capital gain computation - Valuation as per stamp value authorities u/s 50C - AO instead of referring the same to the DVO adopted the circle rate valuation - Held that - AO had not discussed anything about the valuation report filed by the assessee during the course of assessment proceedings. The representations filed by the trade organization before the then Chief Minister of Delhi about the arbitrary adoption of circle rate by the stamp valuation authority was also ignored by the Assessing Officer and instead of referring the matter to the DVO he made addition being the difference between the circle rate and actual sale consideration. When the assessee submitted various details including two sale instances below the circle rate in the same area, the ld. CIT(A) called for a remand report from the Assessing Officer and the Assessing Officer at that time also did not refer the matter to the DVO. Therefore, under these circumstances, the decision of the Hon ble Delhi High Court in the case of Jansampark Advertising and Marketing Ltd. (2015 (3) TMI 410 - DELHI HIGH COURT) as relied on by the Revenue in the grounds of appeal will not be applicable to the facts of the present case. We find identical issue had come up before the Tribunal in the case of Aditya Narain Verma (HUF) (2017 (6) TMI 542 - ITAT DELHI) Tribunal after considering the various submissions made by the assessee rejected such request of the Revenue as held Assessing Officer should have referred the valuation of the capital asset to a valuation officer instead of adopting the value taken by the state authority for the purpose of stamp duty. The very purpose of the Legislature behind the provisions laid down under sub section (2) to section 50C is that a valuation officer is an expert of the subject for such valuation and is certainly in a better position than the Assessing Officer to determine the valuation. Thus, non-compliance of the provisions laid down under sub section (2) by the Assessing Officer cannot be held valid and justified - decided against revenue

Summary

Issues Involved:
1. Applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961.
2. Validity of the addition made by the Assessing Officer based on the circle rate valuation.
3. Requirement of referring the valuation to the District Valuation Officer (DVO).

Issue-wise Detailed Analysis:

1. Applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961:
The Assessing Officer (AO) invoked Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, to add the difference between the circle rate value and the purchase price of the property to the total income of the assessee. The property was jointly purchased by the assessee and her ex-spouse for ?75,00,000, while the circle rate value was ?2,80,00,000. The AO added ?1,02,50,000 to the assessee's income, being 50% of the difference between the circle rate and the purchase price. The assessee contested this addition, arguing that the circle rates were arbitrarily high and did not reflect the actual market value. The CIT(A) agreed with the assessee, noting that the AO had not considered the valuation report from a registered valuer and the representations made by the Industrial Complex Welfare Association regarding the inflated circle rates.

2. Validity of the Addition Made by the Assessing Officer Based on the Circle Rate Valuation:
The CIT(A) found that the AO had not given the assessee an opportunity to file relevant documents and had not issued a show-cause notice before making the addition. The CIT(A) also noted that the AO had ignored the valuation report from a registered valuer and the representations made by the Industrial Complex Welfare Association. The CIT(A) concluded that the AO was not justified in making the addition based on the circle rate valuation without referring the matter to the DVO. The CIT(A) deleted the addition, stating that the AO had failed to bring any material evidence to justify the addition and had not exercised the power to refer the matter to the DVO.

3. Requirement of Referring the Valuation to the District Valuation Officer (DVO):
The CIT(A) emphasized that the AO should have referred the matter to the DVO as per the proviso to Section 56(2)(vii)(b)(ii) and Section 50C(2) of the Income Tax Act, which mandates such a reference when the valuation by the stamp valuation authority is disputed by the assessee. The CIT(A) noted that the AO had ignored the valuation report from the registered valuer and the representations made by the Industrial Complex Welfare Association, which indicated that the circle rates were not reflective of the actual market value. The CIT(A) concluded that the AO's failure to refer the matter to the DVO was a significant oversight, and the addition made on the basis of the circle rate valuation was not justified.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO. The Tribunal noted that the AO had not considered the valuation report from the registered valuer and the representations made by the Industrial Complex Welfare Association. The Tribunal also emphasized that the AO should have referred the matter to the DVO as mandated by the proviso to Section 56(2)(vii)(b)(ii) and Section 50C(2) of the Income Tax Act. The Tribunal found that the AO's failure to refer the matter to the DVO and the reliance on the circle rate valuation without considering the assessee's evidence was not justified. The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order.