2021 (4) TMI 1160 - AT - Income Tax

Capital gain computation - valuation of property u/s 50C by adopting the value as assessed by the DVO before the Ld.CIT(A) - HELD THAT - We find that there is no dispute with regard to fact that fair market value determined by the DVO at ₹ 8,89,63,168/- against the actual sale consideration of ₹ 8,78,00,000/- as disclosed in Sale Deed. The resulting difference is ₹ 11,63,168/- which is 1.02%. As relying on MARIA FERNANDES CHERYL VERSUS INCOME TAX OFFICER INTERNATIONAL TAXATION 2 (3) (1) , MUMBAI 2021 (1) TMI 620 - ITAT MUMBAI we direct the Assessing Officer to delete the addition. Thus, Grounds of appeal raised by the assessee in this appeal are allowed.

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961.
2. Justification for invoking Section 50C and referring the matter to the Departmental Valuation Officer (DVO).
3. Validity of the enhancement notice issued by CIT(A) and the resulting addition to the capital gains.
4. Consideration of the assessee’s objections regarding the valuation report by the DVO.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act, 1961:
The primary issue revolves around whether the provisions of Section 50C were applicable in the assessee's case. The assessee contended that the circle rate in force during the initial payments in July 2011 should not attract Section 50C. However, the CIT(A) adopted the fair market value determined by the DVO, which resulted in a higher valuation than the actual sales consideration.

2. Justification for Invoking Section 50C and Referring the Matter to the DVO:
The assessee argued that the CIT(A) was not justified in referring the matter to the DVO. The assessee emphasized that the DVO and CIT(A) failed to appreciate the property's location and encumbrances, which could influence its fair market value. The assessee also argued that if the difference between the DVO's valuation and the declared value is less than 5%, Section 50C should not apply, referencing the case of Maria Fernandes Cheryl vs ITO.

3. Validity of the Enhancement Notice Issued by CIT(A) and the Resulting Addition to the Capital Gains:
The CIT(A) issued an enhancement notice by invoking Section 50C and directed the AO to rework the capital gains based on the DVO's valuation of ?8,89,63,168 against the actual sales consideration of ?8,78,00,000. This resulted in an addition of ?11,63,168 to the taxable capital gain. The Tribunal examined whether this addition was warranted given the minimal difference of 1.02% between the DVO's valuation and the declared sale consideration.

4. Consideration of the Assessee’s Objections Regarding the Valuation Report by the DVO:
The assessee submitted objections to the DVO's valuation report, comparing it with the valuation report from a government-approved valuer. The CIT(A) dismissed these objections as general in nature. The Tribunal had to consider whether the CIT(A) properly appreciated these objections and whether the DVO's valuation was justified.

Tribunal's Decision:
The Tribunal found no dispute regarding the fact that the fair market value determined by the DVO was ?8,89,63,168, while the actual sale consideration was ?8,78,00,000, resulting in a difference of ?11,63,168 (1.02%). Referring to the case of Maria Fernandes Cheryl vs ITO, the Tribunal noted that small variations between the sale consideration and stamp duty valuation could occur due to various bona fide factors. The Tribunal emphasized that the third proviso to Section 50C(1) provides a tolerance band for such variations, and this curative amendment should be treated as retrospective.

Conclusion:
The Tribunal directed the Assessing Officer to delete the addition of ?11,63,168, thereby allowing the assessee's appeal. The decision was pronounced on 28th April 2021, concluding that the provisions of the third proviso to Section 50C(1) should be applied retrospectively, and the small variation in this case did not justify invoking the anti-avoidance provisions of Section 50C.

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