2024 (2) TMI 927 - AT - Income Tax

Capital gain computation - FMV determination - reference to DVO - whether fair market value of the property sold by the assessee could be substituted with the value sought to be determined by the Departmental Valuation Officer (DVO) in terms of section 50C(2) of the Act when the variance between the actual consideration and DVO value is 4.97%? HELD THAT - Variance between the value as determined by the ld DVO and the value as declared of the assessee is just 4.97%. We find that 3rd proviso to section 50C(1) of the Act gives leeway to the assessee to accommodate the variance up to 10% of the actual consideration. We find that though this amendment had been introduced in the statute by the Finance Act, 2018 w.e.f 01.04.2019, this amendment has been held to retrospective in the case of Maria Fernandes Cheryl 2021 (1) TMI 620 - ITAT MUMBAI wherein it was held that amendment made in scheme of section 50C(1) of the Act by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis- -vis stamp duty valuation from 5 per cent to 10 per cent are effective from date on which section 50C, itself was introduced, i.e 1-4-2003. Respectfully following the same, we hold that no substitution of sale consideration need to be made in the case of the present assessee and sale consideration at Rs. 1.10 lakhs reported by the assessee is to be accepted for the purpose of computation of Long Term Capital Gain. Accordingly, grounds raised by the assessee are allowed.

Summary

Issues:
The appeal concerns the determination of fair market value of a property sold by the assessee in relation to the value assessed by the Departmental Valuation Officer (DVO) under section 50C(2) of the Income-tax Act, 1961.

Issue 1: Fair Market Value Determination
The primary issue in the appeal was whether the fair market value of the property sold by the assessee could be substituted with the value determined by the Departmental Valuation Officer (DVO) under section 50C(2) of the Act, given a variance of 4.97% between the actual consideration and DVO value.

The assessee, a partnership firm, had sold a property for Rs. 1.10 crores during the relevant year and declared long term capital gain accordingly. The Assessing Officer sought to substitute this consideration with the value determined by the Stamp Valuation Authorities under section 50C of the Act, which was Rs. 1,96,37,000. The assessee requested valuation by the DVO, who valued the property at Rs. 1,15,47,000, with a variance of just 4.97% from the declared value.

The third proviso to section 50C(1) of the Act allows for a variance of up to 10% of the actual consideration. It was noted that an amendment made in the statute by the Finance Act, 2018, regarding the tolerance band for variations between sale consideration and stamp duty valuation was held to be retrospective by the Mumbai Tribunal. Following this precedent, it was held that no substitution of sale consideration was necessary, and the value reported by the assessee at Rs. 1.10 crores was accepted for computing Long Term Capital Gain. Consequently, the grounds raised by the assessee were allowed, and the appeal was granted in favor of the assessee.