2019 (3) TMI 315 - AT - Income Tax

Capital gain computation - reference to DVO - adoption of full value consideration as per the stamp duty valuation u/s 50C - AO referred to the value to the DVO who determined the fair market value at ₹ 15,33,800/- of each share - assessee has objected to the adoption of full value consideration U/s 50C and submitted that the registered valuer has given the specific reasons for lesser value of the property in question - HELD THAT - We find that the DVO has determined the fair market value of the property at ₹ 15,33,800/- whereas the registered valuer has determined the fair market value of the property at ₹ 13,22,227/- for each share of the assessee. Thus, it is clear that the determination of fair market value is subjective to the individual decision and therefore, to adopt a fair and proper value average of two fair market value determined one by the DVO and another by the registered valuer can be adopted as fair market value U/s 50C which comes to ₹ 14,28,013/-. Accordingly, the AO directed to adopt fair market value of the each share of the property at 14,28,013/-. Disallowance of cost of renovation and brokerage charges - Each of the joint owner has claimed renovation expenses - HELD THAT - Once the shop was used after the renovation for business purpose and the nature of expenditure is not any addition to the shop but it is an ordinary and repair work therefore, the current repair charges cannot be allowed as cost of acquisition. As regards the brokerage charges of ₹ 81,000/- we find that the assessee has produced a receipt from the broker however, the charges of ₹ 81,000/- each are very high in comparison to the prevailing rate of brokerage in the real estate transaction. Accordingly, we allow 2% of the sale consideration declared in the sale deed as brokerage charges which comes to ₹ 26,000/- each for both the assesseess. Accordingly, the brokerage charges are allowed partially to the extent of 2% of the sale consideration declared by the assessee. Appeals of the assessees are partly allowed.

Summary

Issues:
1. Validity of reassessment
2. Adoption of full value consideration as per stamp duty valuation
3. Disallowance of cost of renovation and brokerage charges

Issue 1: Validity of reassessment
The two assessees, a husband and wife, appealed against the orders of the ld. CIT (A) for the assessment year 2008-09. The controversy arose when the Assessing Officer (AO) referred the valuation of a property owned by the assessees to the Departmental Valuation Officer (DVO) and adopted the full value consideration under Section 50C of the Income Tax Act. The assessees challenged the AO's actions before the ld. CIT(A) but were unsuccessful. Ground No. 1 of the appeal questioned the validity of reassessment. During the hearing, the assessees' counsel stated that they do not press this ground, which was subsequently dismissed. Therefore, the validity of reassessment was not pursued further.

Issue 2: Adoption of full value consideration
The second issue revolved around the adoption of full value consideration as per the stamp duty valuation under Section 50C of the Act. The AO determined the fair market value of the property at a higher amount than the declared sale consideration by the assessees. The assessees contested this decision, presenting a Valuation Report from a registered valuer justifying the lower value declared by them. The ld. CIT(A) upheld the AO's decision. The assessees argued that the registered valuer's valuation was reasonable due to specific factors affecting the property's value. They cited a Delhi High Court case to support their contention. On the other hand, the DR supported the AO's compliance with Section 50C. The Tribunal considered both parties' submissions and the valuation reports. It concluded that a fair and proper value should be an average of the DVO's and the registered valuer's valuations. Thus, the Tribunal directed the adoption of a revised fair market value for each share of the property.

Issue 3: Disallowance of cost of renovation and brokerage charges
The final issue pertained to the disallowance of renovation expenses and brokerage charges. The assessees had claimed renovation expenses incurred after purchasing the property, which were disallowed as they were considered ordinary repair work and not part of the property's acquisition cost. Regarding brokerage charges, the assessees' claimed amount was deemed excessive compared to prevailing rates. The Tribunal allowed a partial deduction for brokerage charges based on 2% of the sale consideration declared in the sale deed. Consequently, the appeals of the assessees were partly allowed, with specific adjustments made to the renovation and brokerage charges.

In conclusion, the judgment addressed the validity of reassessment, the adoption of full value consideration, and the disallowance of renovation and brokerage charges. The Tribunal provided detailed analyses for each issue, considering the arguments presented by the assessees and the revenue authorities. The decision reflected a balanced approach, ensuring fair treatment based on legal provisions and factual circumstances.