2007 (7) TMI 361 - AT - Income Tax

Computation of capital gains - Addition u/s 50C - Determination of sale consideration of residential property - valuation considered as on the date of sale - non-speaking order of the learned CIT(A) - HELD THAT - In the present case, the assessee had shown a sale consideration of Rs. 21,50,000, the stamp valuation authority had adopted the value at Rs. 37,51,480. The DVO has determined the value at Rs. 37.75 lacs which is higher than valuation made by the stamp valuation authority. The AO has, therefore, adopted the valuation as made by stamp valuation authority and accordingly calculated the capital gains. The learned CIT(A) has confirmed the same. We do not find any infirmity in the action taken by the authorities below and the ld AR has also not been able to point out any error. The argument of the ld AR has been that the DVO had not considered the post-purchase construction made by the purchaser but we notice that the DVO had actually considered such construction by the purchaser and given effect to by only adopting the area and space as existing on the date of the sale as per sale deed. Therefore, we do not find any material which would substantiate the argument of the assessee. The next objection of the assessee is that the AO has not given any importance to the quality of construction. The sale deed showed that construction was simple and it was six years old before being sold. However, we do not find any material to show that valuation made by the DVO was anyway adversely affected because of this factor or that he has not taken these factors into account while valuing the property u/s 50C(2). Another objection was that the AO has not given any credence to the report of the Government approved valuer, whose report was made the basis for determination of sale price and the property was sold accordingly as per sale deed. In our considered view, this objection has no merit because what has to be compared as per s. 50C(3) is the DVO's report and stamp duty valuation and nothing else. For the purposes of invoking s. 50C(1) what is to be compared is the sale consideration as shown by the assessee and the valuation shown by stamp valuation authorities. The report of the approved valuer is an alien evidence for the purpose of applying s. 50C(1) or s. 50C(3). Accordingly, we do not find any merit in various contentions raised by the ld AR. Where s. 50C is invoked, then there is no scope of any discretion and the AO is duty bound to adopt the valuation made by stamp valuation authority if it is higher than the sale consideration shown by the assessee. However sub-s. (3) of s. 50C does provide some latitude. Where valuation made by DVO is higher, then the valuation by stamp valuation authority will be adopted for sale consideration declared but where the valuation made by DVO is less than the valuation made by the stamp valuation authority, then he may adopt such fair market value to be the full value of consideration. Thus, the discretion available to the AO, if any, is limited to this extent and as clarified in the Departmental Circular referred. In the present case, we do not find any material to come to the conclusion that valuation adopted by the DVO was lesser or could have been lesser than the valuation made by stamp valuation authority and therefore, we do not find any discretion available to the AO within the sub-s. (3) of s. 50C. As a result, we do not find any force in the appeal filed by the assessee. The order of the learned CIT(A) is upheld and the appeal filed by the assessee is dismissed.

Issues Involved:
1. Sustaining the addition of Rs. 16,01,480 in capital gain.
2. Reliance on submissions and valuation basis.
3. Consideration of DVO's report and valuation.
4. Interpretation and application of Section 50C of the IT Act.
5. Credence to the Government approved valuer's report.
6. Legislative competency and constitutional validity of Section 50C.
7. Real income versus deemed income.
8. Discretion of the AO in adopting valuation.

Detailed Analysis:

1. Sustaining the Addition of Rs. 16,01,480 in Capital Gain:
The assessee declared the sale consideration of a residential property at Rs. 21,50,000, while the fair market value as per the District Magistrate for stamp duty purposes was Rs. 37,51,480. The AO adopted the higher value under Section 50C of the IT Act, leading to an additional long-term capital gain of Rs. 16,01,480. The CIT(A) upheld this addition, stating that the provisions of Section 50C are mandatory and correctly applied by the AO.

2. Reliance on Submissions and Valuation Basis:
The assessee argued that the CIT(A) did not consider the submissions and documentary evidence provided, including the CPWD rates and the Government approved valuer's report. The CIT(A) was criticized for being biased towards revenue and not determining the correct fair market value. The Tribunal found no merit in these objections, noting that the DVO's valuation was conducted scientifically and realistically.

3. Consideration of DVO's Report and Valuation:
The AO referred the property to the Departmental Valuation Officer (DVO), who determined the fair market value at Rs. 37.75 lakhs. The DVO's report was based on a physical inspection and considered the existing built-up area as of the date of transfer. The Tribunal found that the DVO's valuation was appropriate and did not support the assessee's objections regarding post-purchase construction and quality of construction.

4. Interpretation and Application of Section 50C of the IT Act:
Section 50C was introduced to substitute the sale consideration with the stamp duty valuation if the declared consideration is less. The Tribunal emphasized that the provisions are mandatory, and the AO is bound to adopt the higher value for capital gains computation. The Tribunal rejected the argument that "shall" in Section 50C could be interpreted as "may," affirming the mandatory nature of the provision.

5. Credence to the Government Approved Valuer's Report:
The assessee argued that the AO ignored the Government approved valuer's report, which was the basis for the sale price. The Tribunal clarified that Section 50C requires comparing the DVO's report with the stamp valuation authority's value, not the approved valuer's report. Therefore, the approved valuer's report was deemed irrelevant for applying Section 50C.

6. Legislative Competency and Constitutional Validity of Section 50C:
The assessee challenged the legislative competency to insert Section 50C and its constitutional validity, arguing that it taxes deemed income, which violates the right to property. The Tribunal stated that it lacks jurisdiction to adjudicate on the legislative competency or constitutional validity of statutory provisions, which are matters for the High Court or Supreme Court.

7. Real Income versus Deemed Income:
The assessee contended that only real income should be taxed, not deemed income. The Tribunal acknowledged that while real income is the general principle, deeming provisions like Section 50C are valid and enforceable. The intention behind Section 50C is to prevent tax evasion through underreporting of sale consideration.

8. Discretion of the AO in Adopting Valuation:
The assessee argued that the AO should have discretion in adopting the valuation. The Tribunal clarified that Section 50C does not provide such discretion; the AO must adopt the higher value determined by the stamp valuation authority or the DVO. The only discretion allowed is if the DVO's valuation is lower than the stamp valuation authority's, which was not the case here.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order and confirming the addition of Rs. 16,01,480 to the capital gains. The Tribunal found no merit in the assessee's objections and emphasized the mandatory nature of Section 50C in determining the sale consideration for capital gains computation.

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