2019 (1) TMI 844 - AT - Income Tax

Addition in the sale of property for the purpose of computing the capital gain - FMV determination - Held that - Once FMV was to be determined by the DVO under section 50C(2) then he has to follow procedure contemplated under the Wealth-tax Act. His opinion was not final, but subject to appeal. His opinion is an estimated guess work determining the value of a property at a particular point of time. If variation between FMV claimed by the assessee vis- -vis determined by the DVO is less than 10%, then there is no need to accept FMV determined by the DVO. Value disclosed by the assessee could also be stated to be true value representing FMV. In such situation no addition ought to be made. In the present case, variation is only 2.55% which is less than 10%. FMV adopted by the assessee in the sale deed itself does not require to be replaced, with the help of deeming fiction under section 50C(2). This ground of appeal and delete addition from the full sale consideration for the purpose of computing capital gain in the hands of the assessee. - Appeal of the assessee is allowed.

Summary

Issues:
1. Addition of ?2,55,000 in the sale of property for computing capital gain.

Analysis:
The appellant contested the addition of ?2,55,000 in the sale of a property for computing capital gain, arguing that the fair market value (FMV) determined by the Departmental Valuation Officer (DVO) was only an estimate and involved guesswork. The appellant maintained that since the variance between the actual sale consideration and the DVO's valuation was just 2.55%, falling below the 10% threshold, the addition should be disregarded. The appellant relied on a precedent from the ITAT Pune Bench to support their position, emphasizing that if the difference is less than 10%, the FMV declared by the assessee should be accepted. The appellant urged that the FMV disclosed in the sale deed, i.e., ?1 crore, should be considered the true value for computing capital gains.

The Revenue, however, argued that the DVO's valuation must be accepted as per the provisions of section 50C(2) of the Act, which mandates adopting the higher value determined by the stamp valuation authority or the DVO. The Revenue contended that the AO had no discretion once the DVO had determined a value lower than the stamp valuation authority's value.

The Tribunal analyzed the contentions and referred to a previous judgment from the ITAT Pune Bench, highlighting that the DVO's valuation is not final and subject to appeal. The Tribunal emphasized that the DVO's determination is an estimate and not conclusive, especially when the variance between the declared FMV and the DVO's valuation is less than 10%. In such cases, a liberal approach favoring the assessee is warranted. Given that the variance in this case was only 2.55%, falling below the 10% threshold, the Tribunal ruled in favor of the appellant. The Tribunal concluded that the FMV disclosed by the assessee in the sale deed should be accepted as the true value, and the addition of ?2,55,000 for computing capital gains was unwarranted. Consequently, the Tribunal allowed the appellant's appeal and deleted the said addition.

In conclusion, the Tribunal held that when the variance between the declared FMV and the DVO's valuation is less than 10%, the FMV disclosed by the assessee should be considered the true value for computing capital gains, and no addition should be made based on the deeming fiction under section 50C(2) of the Act. The Tribunal allowed the appellant's appeal, ruling in favor of the assessee and deleting the addition of ?2,55,000 for computing capital gains.