2020 (8) TMI 150 - AT - Income Tax

Capital gain on sale of land - value as per DLC rate determined by the Sub-Registrar while registering the sale deed - addition u/s 50C - declared sale consideration more than DLC - HELD THAT - If buyer is an individual then the fair market value would be ₹ 3,66,36,487/- and if the buyer is a company or firm or institution then the fair market value of the property would be 1.5 time of the normal value, this cannot be intention of Section 50C which require substitution of fair market value i.e. DLC in place of sale consideration mentioned in the sale deed, if it is found to be lower than DLC. Stamp duty authority levied the stamp duty arbitrary by assessing the value @ 1.5 time of value declared in the sale deed valued for stamp duty purpose at ₹ 7,38,00,000/- for stamp duty purpose as against 1.5 time of normal DLC. As per provisions of Income Tax Act if the AO does not agree with the explanation of the assessee with regard to consideration disclosed by him then he should refer the matter to DVO for getting its market rate estimated as on date of the sale. In case AO is not satisfied with the explanation of the assessee, he 'should' refer the matter to the DVO for the valuation purpose. Thus as per provisions of this section if the assessee raise any sort of objection regarding the value adopted by the registrar authority and if the AO is not satisfied on that then the AO should refer the matter to DVO. This is a legal requirement which must be complied with by the AO. It is undisputed fact that assessee had declared sale consideration more than DLC, accordingly there is no justification for making any addition u/s 50C - Appeal of the assessee is allowed

Summary

Issues Involved:

1. Non-adjudication of Ground No. 1 by CIT(A).
2. Classification of sold land as a capital asset.
3. Applicability of Section 50C on the sold land.
4. Objection to higher DLC rate applied by registrar authorities.
5. Confirmation of addition by CIT(A) as arbitrary and capricious.
6. Confirmation of addition of ?61.50 lacs by CIT(A).

Issue-wise Detailed Analysis:

1. Non-adjudication of Ground No. 1 by CIT(A):
The assessee contended that the CIT(A) erred by not deciding Ground No. 1 of the appeal, considering it as general in nature and not requiring adjudication. This ground was raised in the written submission, but the CIT(A) did not address it.

2. Classification of Sold Land as a Capital Asset:
The assessee argued that the agricultural land sold was not a capital asset under Section 2(14)(iii) of the Income Tax Act, 1961, and thus, no capital gain should be chargeable. The land was situated in a rural area with a population of less than 10,000 and was administered by a Panchayat, not a municipality. The CIT(A) rejected this claim on the grounds that the assessee had declared capital gain on the sale of land as long-term capital gain and had not raised this issue during assessment proceedings. The certificate from the Patwari was also deemed inappropriate by the CIT(A).

3. Applicability of Section 50C on the Sold Land:
The assessee contended that the provisions of Section 50C, which substitute the actual sale consideration with the fair market value (DLC rate), should not apply as the assessee was not the absolute owner but had Khatedari rights. The CIT(A) confirmed the addition made under Section 50C, which was based on the difference between the sale consideration and the value assessed by the stamp duty authority.

4. Objection to Higher DLC Rate Applied by Registrar Authorities:
The assessee objected to the higher DLC rate applied by the registrar authorities, arguing that the land was sold at a value higher than the DLC rate. The stamp duty authority had levied stamp duty by assessing the value at 150% of the sale value declared in the sale deed. The assessee argued that the AO was not justified in applying 1.5 times the DLC rate for capital gain computation. The tribunal found that the AO should have referred the matter to the DVO for valuation if there was any disagreement with the assessee's declared value.

5. Confirmation of Addition by CIT(A) as Arbitrary and Capricious:
The assessee argued that the CIT(A)'s order confirming the addition made by the AO was arbitrary and against the law and facts of the case. The tribunal noted that the sale consideration declared by the assessee was more than the DLC rate, and there was no justification for the addition under Section 50C.

6. Confirmation of Addition of ?61.50 lacs by CIT(A):
The tribunal observed that the sale consideration declared by the assessee was higher than the DLC rate, and the higher rate applied by the stamp duty authority was only for stamp duty purposes. The tribunal concluded that the AO was not justified in substituting the DLC rate with 1.5 times the sale consideration for capital gain computation. The tribunal directed that there was no justification for making any addition under Section 50C of the Act.

Conclusion:
The tribunal allowed the appeal of the assessee, directing that no addition under Section 50C was justified as the declared sale consideration was higher than the DLC rate. The tribunal emphasized that the deeming provisions of Section 50C should not be extended beyond their intended purpose and that the AO should have referred the matter to the DVO if there was any disagreement with the declared value. The order was pronounced in the open court on 03/08/2020.