2024 (6) TMI 1346 - AT - Income Tax

Addition of long-term capital gain u/s 50C - reference to the DVO - FMV determination by DVO - DVO valued the same below the Jantri rates - HELD THAT - We note that DVO in determining the FMV of the property has considered only two special observations/qualifications i.e. the agriculture land being deep from the village main road and about 1 to 2 kilometers on kachcha village road and it is adjacent to Sugar factory giving fall smell and affecting crop production. According to assessee, there is water logging on the land during monsoon, due to dyeing and printing units in the close proximity results in chemical contamination of the land making it useless for agriculture or residence has not been considered by DVO. We note that above factors were considered by the DVO only partly and most of the above factors were ignored by the DVO. Assessee has submitted that the DVO has not considered all the objections filed by the assessee, hence the fair market value (FMV) determined by the DVO is an estimate which is not based on full facts of the case. As fairly well known that the valuation of property involves some kind of guess work and estimation and this fact is very much evident from the valuation report of DVO. It is also a fact that the rate of property even in the same locality differs depending upon locational advantages and other factors. In the instant case, the DVO has not accepted the entire factors of the assessee s case, as noted by us in above para. We note that determination of fair market value, after all, is an estimate only and therefore, considering the facts and circumstances of the assessee s case, as noted above, we are of the view that ends of justice would be meet if an addition of Rs. 50,00,000/- is sustained in the hands of the assessee, as the same would take care of the inconsistencies between DVO report and price of property adopted by the assessee. Therefore, we direct the assessing officer to make/sustain the addition in the hands of the assessee - Appeal filed by the assessee is allowed partly

Summary

Issues:
1. Addition of long-term capital gain under section 50C of the Income Tax Act, 1961.

Analysis:

Issue 1: Addition of long-term capital gain under section 50C of the Income Tax Act, 1961

The appeal pertains to the Assessment Year 2013-14 and challenges the addition of Rs. 1,53,57,708/- as long-term capital gain under section 50C of the Income Tax Act, 1961. The case involves a search action under section 132 of the IT Act in the Diamond Group of Surat, specifically the Union Sub Group. The assessee, an individual, declared total income of Rs. 1,57,38,670/- for the AY 2013-14. The assessing officer issued notices under sections 143(2) and 142(1) of the Act, and during assessment proceedings, it was found that the assessee had sold a property for Rs. 7,14,31,200/-, while the stamp value was Rs. 11,90,52,000/-, resulting in a difference of Rs. 4,76,20,800/-. The assessing officer required the assessee to explain this difference under section 50C.

The assessee requested a valuation by the District Valuation Officer (DVO), who valued the property at Rs. 8,67,88,908/-. Subsequently, the assessing officer issued a show cause notice for the addition of Rs. 1,53,57,708/- under section 50C. The assessee contended that the property's value was affected by various factors like proximity to a sugar factory, waterlogging, and pollution from nearby factories, which were not adequately considered by the DVO. The assessing officer, however, upheld the addition based on the DVO's valuation, stating that the value estimated by the DVO is binding as per section 50C(2) of the Act.

On appeal, the ld. CIT(A) affirmed the assessing officer's decision, noting that the DVO's valuation considered all drawbacks of the property, making it reasonable. The assessee then appealed to the ITAT, arguing that the DVO did not adequately consider the adverse factors affecting the property's value. The ITAT observed that the DVO's valuation did not fully account for the factors raised by the assessee and concluded that an addition of Rs. 50,00,000/- would address the inconsistencies between the DVO's report and the property's actual price. Consequently, the ITAT partially allowed the appeal, directing the assessing officer to sustain the addition of Rs. 50,00,000/- in the assessee's hands.

In conclusion, the ITAT's decision highlights the importance of considering all relevant factors affecting property valuation under section 50C and emphasizes the discretionary nature of fair market value estimation in such cases.