2024 (1) TMI 165 - AT - Income Tax

Taxability of long term capital gain on sale of immovable property - difference in value determined by the SVA and DVO - CIT(A) adopting the value of the property as per section 50C of the Act by taking into account the date of registration of sale instead of adopting the value of the said property as it existed at the time of finalization of deal for sale - what should be the fair market value (FMV) of the disputed property on the date of execution of sale deed on 12/01/2015? HELD THAT - It is a fact on record that in course of assessment proceedings, the Assessing Officer had made a reference to the DVO for determining the FMV of the property. Since, the report of the DVO was not received in time, the Assessing Officer had proceeded to complete the assessment by adopting value determined by the SVA Stamp Valuation Authority as deemed sale consideration. However, before the first Appellate Authority DVO report was available. Additionally, the assessee had also furnished a valuation report of the Govt. Registered Valuer. As very same property, the value determined by the SVA under no circumstances reflects the FMV as there is wide variation of more than Rs. 2,00,00,000/- between the value determined by SVA and the DVO. It is further observed that the Govt. Registered Valuer has determined the value of the property at Rs. 5,36,00,000/-. Valuation of property involves some kind of guess work and estimation and there cannot be any consensus in the opinion of two valuers. This fact is very much evident from three different FMVs determined by three valuers. Assessee has brought on record the mitigating circumstances resulting in sale of the property for the actual sale consideration of Rs. 5,50,00,000/-. We have further noted that in the same locality the assessee had two properties, one was sold at Rs. 32,258/- per sq. mtr. and disputed property at Rs. 45,156/- per sqm. The aforesaid facts show that the rate of property even in the same locality differs depending upon locational advantage and other factors. It is also revealed that though the Assessing Officer has brought to the notice of DVO certain sale instances in the same locality at higher price, however, DVO has not accepted them. These facts clearly establish that there can be difference in valuation of property at the same locality . Thus, considering the fact that difference in FMV as per actual sale consideration received by the assessee and DVO is much lesser in comparison to the difference in value as per SVA and DVO, in our view, deeming provisions of section 50C cannot be pressed into action. More so, when the registered valuer has valued the same property at Rs. 5,36,00,000/-. Thus, considering the overall facts and circumstances of the case, we hold that the addition sustained by Ld. First Appellate Authority deserves to be deleted. Assessee appeal allowed.

Summary

Issues involved:
The judgment involves the taxability of long term capital gain on the sale of immovable property.

Issue 1: Valuation of Property at B-6, Sector-8, Noida
The appellant contested the valuation of the property at B-6, Sector-8, Noida, arguing that the value should be based on the deal finalized, not the date of registration. The Assessing Officer relied on the Stamp Valuation Authority's valuation of Rs. 8,38,38,000, leading to a dispute. The appellant provided reasons for the delay in registration, citing illness and distress sale. The First Appellate Authority adopted the value determined by the Departmental Valuation Officer at Rs. 6,38,58,500, directing the capital gain computation based on this value.

Issue 2: Application of Section 50C and Fair Market Value
The crux of the issue was determining the fair market value (FMV) of the property at B-6, Sector-8, Noida on the sale deed execution date. Various valuations were presented: the appellant's value of Rs. 5,50,00,000, SVA's value of Rs. 8,38,38,000, DVO's value of Rs. 6,38,00,000, and a Registered Valuer's value of Rs. 5,36,00,000. The Tribunal noted significant discrepancies between the valuations, emphasizing the subjective nature of property valuation. Considering the mitigating circumstances and differences in property rates in the same locality, the Tribunal concluded that the deeming provisions of section 50C should not apply. The addition sustained by the First Appellate Authority was therefore deleted, and the appeal was allowed.

Judgment Summary:
The Appellate Tribunal ITAT DELHI addressed the issues of valuation of property at B-6, Sector-8, Noida and the application of Section 50C in determining fair market value for tax purposes. The appellant's challenge to the valuation based on registration date versus deal finalization was upheld, with the Tribunal emphasizing the subjective nature of property valuation and differences in rates within the same locality. The Tribunal ruled in favor of the appellant, deleting the addition sustained by the First Appellate Authority. The appeal was allowed, highlighting the complexities involved in property valuation and tax assessments.