2021 (9) TMI 97 - AT - Income Tax

Capital gain computation - reference matter to the DVO for determining fair market value as per section 50C(2) - difference in the value of the property as determined by the assessee and the SRO value - HELD THAT - As per the definition of transfer as per section 2(47) of the Act, the arguments advanced by the ld. AR in this regard is hereby rejected. From the assessment order, we observe that the AO has referred the matter to the DVO for determining fair market value as per section 50C(2) of the Act, but, it was not mentioned in the order the details of reference to DVO. He has completed the assessment without waiting for the report of the DVO. As per the judgment of the Hon ble Calcutta High Court in the case of Sunil Kumar Agarwal Vs. CIT 2014 (6) TMI 13 - CALCUTTA HIGH COURT if there is a difference in the value of the property as determined by the assessee and the SRO value, the AO is bound to refer the matter to the DVO and the assessment should be done on the basis of DVO report. We deem it fit and proper to remit the issue back to the file of the AO with a direction to determine the market value of the property as on the date of transfer of capital asset in accordance with law after providing reasonable opportunity of being heard to the assessee in the matter. The assessee is directed to produce all the relevant documents before the AO to substantiate its claim. CIT(A) power to take up this issue as not born out of the assessment order - Transfer expenses disallowance - HELD THAT - We find that the AO has accepted the transfer expenses which was not a subject matter of appeal before the CIT(A). CIT(A) cannot be taken up this issue which was not born out of the assessment order. In this connection, we rely on the decision of the ITAT, Pune in the case of NARESH SUNDERLAL CHUG 2018 (6) TMI 351 - ITAT PUNE and THE UNITED PROVINCES SUGAR COMPANY LTD. 2021 (4) TMI 633 - ITAT KOLKATA - Order of CIT(A) set aside. - Decided in favor of assessee.

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act.
2. Validity of the assessment under Section 143(3) without following the procedure of Section 50C(2) & (3).
3. Adoption of sale consideration for capital gains computation.
4. Disallowance of expenditure by CIT(A) not contested in the original assessment.
5. Consideration of oral agreement and its implications on sale consideration.
6. Reference to the District Valuation Officer (DVO) and its necessity.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act:
The Assessee argued that Section 50C should not apply to their case, highlighting that the property sold was under litigation, adjacent to a dumping yard, and near a graveyard and government park, which affected its market value. The Assessee contended that the actual sale consideration of ?15,00,00,000/- should be considered instead of the SRO value of ?17,68,83,350/-. The Tribunal noted that the AO had adopted the SRO value for computing long-term capital gains without waiting for the DVO's report, which was required as per Section 50C(2).

2. Validity of the Assessment under Section 143(3) without Following the Procedure of Section 50C(2) & (3):
The Assessee claimed that the assessment completed under Section 143(3) was invalid as the AO did not follow the procedure laid down in Section 50C(2) & (3). The Tribunal observed that the AO had referred the matter to the DVO but completed the assessment without waiting for the DVO's report. Citing the Calcutta High Court judgment in Sunil Kumar Agarwal Vs. CIT, the Tribunal emphasized that the AO must wait for the DVO's valuation report before completing the assessment.

3. Adoption of Sale Consideration for Capital Gains Computation:
The Assessee argued that the sale consideration should be based on the actual amount received, which was ?15,00,00,000/-, and not the SRO value of ?17,68,83,350/-. The Tribunal noted that the property transfer date as per Section 2(47) of the Act should be considered as 24th January 2011, the date of the registered sale agreement, and not the date of the first payment received. The Tribunal directed the AO to determine the market value of the property as on the date of transfer in accordance with the law after providing a reasonable opportunity to the Assessee.

4. Disallowance of Expenditure by CIT(A) Not Contested in the Original Assessment:
The Assessee contested the CIT(A)'s disallowance of ?1,35,00,000/- as transfer expenses, which was not a subject matter of appeal before the CIT(A). The Tribunal held that the CIT(A) could not take up this issue as it was not part of the assessment order. Citing the ITAT Pune and ITAT Kolkata judgments, the Tribunal set aside the CIT(A)'s order on this issue and allowed the Assessee's ground.

5. Consideration of Oral Agreement and Its Implications on Sale Consideration:
The Assessee argued that there was an oral agreement for the sale of the property on 27th May 2010, and the first payment received should be considered as the date of the agreement. The Tribunal rejected this argument, stating that the transfer date should be the date of the registered sale agreement, which was 24th January 2011, as per Section 2(47) of the Act.

6. Reference to the District Valuation Officer (DVO) and Its Necessity:
The Tribunal emphasized the necessity of referring the matter to the DVO when there is a discrepancy between the sale consideration declared by the Assessee and the SRO value. The Tribunal cited the ITAT Bengaluru judgment in Shri Somashekar Venkataswamappa Vs. ACIT, which held that the AO must complete the assessment based on the DVO's report. The Tribunal remitted the issue back to the AO to determine the market value of the property after obtaining the DVO's report and providing the Assessee with a reasonable opportunity to be heard.

Conclusion:
The Tribunal allowed the Assessee's appeal for statistical purposes, directing the AO to reassess the market value of the property based on the DVO's valuation and to provide the Assessee with a fair opportunity to present their case. The Tribunal also set aside the CIT(A)'s disallowance of transfer expenses, emphasizing that the CIT(A) cannot address issues not part of the original assessment order.

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