2024 (1) TMI 553 - AT - Income Tax

LTCG on sale of property - reference to ld. DVO - adopting the value adopted by the Departmental Valuation Officer (DVO) ignoring the guideline value determined u/s 50C of the Act - HELD THAT - The provisions of section 50C of the Act (which is a special provision) are very clear by stating that the full value of consideration shown by the assessee is less than the value fixed by the stamp valuation authority for the purpose of levy of stamp duty, then the value as fixed by the stamp valuation authority shall be deemed to be the full value of consideration. Accordingly, if the sale consideration shown by the assessee itself is equal to or less than the value fixed by the stamp valuation authority, the value shown by the assessee is to be adopted as the full value of consideration Viewing from this angle, we hold that there is absolutely no need for the ld. AO to refer the valuation of the land to ld. DVO u/s 55A of the Act. We hold that the reference made per se thereon is illegal and against the provisions of section 50C of the Act which is a specific provision. Hence we hold that the sale consideration value adopted by the ld. AO by relying on ld. DVO report at Rs. 3,56,93,000/- is patently illegal. The ld. AO is directed to adopt the sale consideration figure at Rs. 2,20,00,000/- only. Purchase cost of land value claimed by the assessee is more than the fair market value determined by the ld. DVO. Accordingly, the reference per se made u/s 55A of the Act becomes illegal in terms of section 55A(1)(a) of the Act. Our view is further fortified by the decision of Puja Prints 2014 (1) TMI 764 - BOMBAY HIGH COURT wherein it was held that prior to 1.7.2012, reference to valuation officer u/s 55A of the Act could not be made if the value of asset given by the assessee was more than its market value. From 1.7.2012, the Act is amended by stating that the value so claimed is at variance with its fair market value . Hence the reference made u/s 55A of the Act in the facts and circumstances of the instant case to determine the fair market value as on 1.4.1981 for determining cost of acquisition is patently illegal and does not gain support from the provisions of the Act. Accordingly, the indexed cost of acquisition should be considered at Rs. 2,17,20,240/-. Appeal of the assessee is allowed.

Summary

Issues:
The main issue in this case is whether the addition made on account of long term capital gains (LTCG) on the sale of property by adopting the value determined by the Departmental Valuation Officer (DVO) instead of the guideline value determined under section 50C of the Income Tax Act was justified.

Long Term Capital Gains (LTCG) on Sale of Property:
The appellant sold land and disclosed LTCG based on the sale consideration of Rs. 2,20,00,000, which was the same as the value fixed by the Sub-Registrar for stamp duty purposes. The Assessing Officer (AO) disregarded this value and adopted the DVO's valuation at Rs. 3,56,93,000, resulting in a higher LTCG. The ITAT held that if the sale consideration shown by the assessee is equal to or less than the value fixed by the stamp valuation authority, it should be considered as the full value of consideration. Referring the valuation to the DVO was deemed illegal and against the provisions of section 50C of the Act. Therefore, the AO was directed to adopt the sale consideration figure of Rs. 2,20,00,000 only.

Cost of Acquisition of Land:
Regarding the purchase cost of land, the appellant adopted the cost at Rs. 37,32,000 based on a registered valuer's report, excluding the cost of construction. The AO, however, referred to the DVO for fair market value determination as of 1.4.1981, which was lower at Rs. 14,84,738. The ITAT noted that the reference to the DVO should only be made if the value claimed by the assessee is less than the fair market value. As the appellant's claimed value was higher, the reference under section 55A of the Act was considered illegal. Citing a decision of the Bombay High Court, the ITAT emphasized that such references could not be made if the value claimed by the assessee exceeded the market value. Therefore, the indexed cost of acquisition was directed to be considered at Rs. 2,17,20,240.

Conclusion:
The ITAT allowed the appeal of the assessee, emphasizing the importance of adhering to the provisions of the Income Tax Act in determining long term capital gains and the cost of acquisition of property.