2008 (2) TMI 476 - AT - Income Tax

Capital gain computation - Property sold for a value less than the DLC rate - determination of the valuation on the date of the sale of the property in question - invoking section 50C - HELD THAT - The provisions of s. 50C are deeming provisions and according to which if the assessee declares sale consideration for the purposes of computation of the capital gain which are lower than the DLC rate the DLC rates have to be replaced as the actual cost of consideration. We are of the opinion that in case the AO does not agree with the explanation of the assessee with regard to lower consideration disclosed by him then he should refer the matter to DVO for getting its market rate established as on date of the sale to arrive at the correct sale consideration. If this provision is read in the sense that if the AO is not satisfied with the explanation of the assessee then he may or may not send the matter for valuation to the DVO then in that case this provision would be rendered redundant. Ld AR has relied on the decision of the Hon ble Supreme Court in the case of Ashok Leyland Ltd. vs. Union of India Ors. 1997 (2) TMI 451 - SUPREME COURT held that the deeming provisions are rebuttable one In our considered opinion the befitting reply of all the queries arouse in our minds as well as raised by the parties is that the matter should be restored back to the file of the learned AO with a direction that he shall refer this matter of valuation in the light of sub-s. (2) of s. 50C to the DVO for determining the consideration of this plot sold by the assessee under s. 50C of the Act. The other connected grounds are also related to this main ground. Therefore the entire appeal is restored back to the file of the AO with the direction that he would do as directed above and also give opportunity of hearing to the assessee as per law. In the result the appeal is allowed for statistical purposes.

Summary

Issues:
1. Applicability of section 50C of the Income Tax Act for determining property sale consideration.
2. Correct procedure for valuation of property under section 50C.
3. Disallowance of brokerage and improvement cost in computation of capital gains.

Analysis:
1. The primary issue in this case is the applicability of section 50C of the Income Tax Act, which deals with deeming provisions for property sale consideration. The Assessing Officer (AO) applied section 50C to determine the property's sale value based on the rate adopted by the Sub-Registrar, resulting in an addition to the assessee's income. The assessee contended that due to ongoing legal issues and the presence of a Nala adjacent to the property, the sale price was below the District Level Committee (DLC) rate. The Income Tax Appellate Tribunal (ITAT) emphasized that section 50C deems the DLC rate as the actual consideration if the declared value is lower. The tribunal noted that the AO has the discretion to refer the valuation to a Valuation Officer if the assessee disputes the stamp valuation authority's assessment. The ITAT ultimately directed the AO to refer the matter to the Valuation Officer for determining the correct sale consideration, following the principles of section 50C.

2. Regarding the correct procedure for property valuation under section 50C, the ITAT interpreted the provision to mandate the AO to refer the matter to the Valuation Officer if unsatisfied with the assessee's explanation for lower consideration. The tribunal highlighted that the use of the term 'may' in the provision implies that the AO should refer the valuation to the DVO in such cases, as per the decision in Ashok Leyland Ltd. vs. Union of India & Ors. The ITAT concluded that the matter should be remanded to the AO for valuation in accordance with section 50C(2), emphasizing the rebuttable nature of deeming provisions and the necessity for proper valuation procedures to determine capital gains accurately.

3. Additionally, the ITAT addressed the disallowance of brokerage and improvement costs in the computation of capital gains. The tribunal's decision to remand the entire appeal to the AO included instructions for providing the assessee with a hearing opportunity as per the law. By allowing the appeal for statistical purposes, the ITAT ensured a comprehensive review of all issues related to the property sale transaction and valuation under section 50C, emphasizing the importance of following proper procedures and principles outlined in the Income Tax Act for determining taxable income from property transactions.