REPORT OF DEPARTMENTAL VALUATION OFFICER IS BINDING ON ASSESSING OFFICER

[Mr. M. GOVINDARAJAN]

Section 50-C of the Income Tax Act, 1961 (‘Act’ for short) deals with special provision for full value of consideration in the certain cases.  The said section reads as follows:

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

      (2) Without prejudice to the provisions of sub-section (1), where—

           (a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

           (b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

     Explanation 1. — For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).

     Explanation 2.— For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.

      (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.

In ‘Commissioner of Wealth tax V. Dr. H. Rahman’ – 1991 (2) TMI 97 - ALLAHABAD HIGH COURT it was held that the Wealth Tax Officer has no option but to proceed to complete the assessment in conformity with the assessment of the Valuation Officer in so far as the valuation of the asset in question is concerned.

The Central Board of Direct Taxes vide Circular No.8/2002, dated 27.08.2002 explains the provisions of Sec. 50-C which was inserted by the Finance Act, 2002 with effect from 1.4.2003 which reads as follows:

37.1 The Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.

37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act.

37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.

37.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years.

In ‘Commissioner of Income Tax V. Dr. Indra Swaroop Bhatnagar’ – (2012) 349 ITR 210 (All) the respondent assessee entered into an agreement with M/s Nova Hospital (P) Limited for sale a plot for a consideration of Rs.51,75,000, which was registered on 27.04.2002.  The stamp duty authority levied stamp duty on a value of Rs.1,38,00,000 as the circle rate. The Assessing Officer invoked the provisions of Sec. 50C of the Act for substitution the recorded sale consideration of Rs.51,75,000 to Rs.1,38,00,000 being the valuation done by the stamp valuation authorities.  The assessee submitted the following before the Assessing Officer:

• The value adopted by the stamp duty authorities exceed the fair market value as on the date of transfer;
• The assessee’s registered valuer who valued the property at Rs.48,37,500 as on the date of transfer.

The Assessing Officer rejected the submissions of the assessee and referred the matter to the Departmental Valuation Officer.  The DVO valued the property at Rs.58,50,000/-. The same was also rejected by the Assessing Officer.  He adopted the valuation made by the stamp valuation authorities as full value of the consideration received and accordingly calculated the capital gains.

The Commissioner of Income Tax (Appeals), on the appeal filed by the assessee, directed the Assessing Officer to adopt the value of sale consideration which was estimated by the DVO. The Department filed appeal against this direction before the Tribunal. The Tribunal upheld the findings of the Commissioner (Appeals) against which the Department approached the High Court. The High Court framed the following issue to decide the present appeal:

• Whether the valuation done by the Stamp Valuation Authorities would be taken as the sale consideration as done by the Assessing Officer? Or
• Whether the valuation done by the DVO would be substituted as sale consideration?

The High Court analyzed the provisions of Section 50C and the Circular No.8/2002, dated 27.08.2002 issued by the Central Board of Direct Taxes. The High Court held that Sec. 50C is applicable to the case of the assessee. The intention of introducing Sec. 50C is to tackle unaccounted income by the practice of understatement of consideration in acquisition of property. The High Court further held that it is a crystal clear that generally, when the Assessing Officer has obtained the DVO report then the same is binding. Therefore the High Court did not find any reason to interfere with the findings of Tribunal and dismissed the appeal filed by the Department.