2025 (7) TMI 1368 - AT - Income Tax

Capital gain - addition made due to difference between the market value of the property and the value actually received by the assessee as sale consideration - assessee had contended before the A.O that the matter should have been referred to the DVO as per Section 50C(2) of the Act. HELD THAT - The value determined for the purpose of stamp duty was Rs. 60, 75, 000/- whereas the property was actually sold by the assessee at a consideration price of Rs. 42, 00, 000/- which resulted in addition of Rs. 18, 75, 000/- as difference between the aforesaid two amounts. Thus it is ample clear that the fair market value as claimed by the assessee is lessor than the value of the property shown for the purpose of stamp duty and that the said value of property as per stamp duty was more than the actual sale consideration received by the assessee in this case. Therefore as per the mandate of Section 50C and Section 55A of the Act it was mandatory for the A.O to refer the matter to the DVO for determination of fair market value of the property. That even otherwise also in the case of registration of property there are several factors which causes difference between stamp duty value and the fair market value of the property. Therefore in the interest of natural justice that these provisions have been enumerated in the Act to facilitate the grievance of the assessee in respect of any dispute that may arise with regard to the difference of such value i.e. difference between fair market value which actually is the sale consideration value received by the assessee and the value adopted by the registrar of the assurance i.e. SDV. Therefore CIT(Appeals)/NFAC made apparent mistake in arriving at the findings as recorded in its order since he himself writes the condition mandatory for making reference to the DVO as per the Act and the facts are also before him in the case of assessee which are in conformity with the condition laid down therein therefore to say that the A.O was correct in not referring the matter to the DVO is absolutely wrong findings of facts which renders the order of the Ld. CIT(Appeals)/NFAC arbitrary and bad in law. CIT(Appeals)/NFAC could have conducted enquiry regarding the said facts as per the mandate of Section 250(4) (6) of the Act. The Ld. CIT(Appeals)/NFAC had also failed in this regard as well. Appeal of the assessee is allowed.

Summary

ISSUES:

Whether the Assessing Officer (A.O.) is obligated under Section 50C(2) read with Section 55A of the Income Tax Act to refer the valuation of the capital asset to a Valuation Officer (DVO) when the stamp valuation authority's value exceeds the sale consideration and the assessee disputes the stamp duty value as exceeding the fair market value.Whether the difference between the stamp duty value and the actual sale consideration can be added as income without reference to the DVO for determination of fair market value.Whether the failure of the A.O. and the Commissioner of Income Tax (Appeals) to refer the matter to the DVO renders the assessment and appellate orders void or liable to be set aside.

RULINGS / HOLDINGS:

It is mandatory for the Assessing Officer to refer the matter to the Valuation Officer for determination of fair market value under Section 50C(2) read with Section 55A of the Act when the value adopted by the stamp valuation authority exceeds the sale consideration and the assessee claims that the stamp duty value exceeds the fair market value.The addition made solely on account of the difference between the stamp duty value and the sale consideration without making a reference to the DVO is not in accordance with the statutory mandate and is therefore unsustainable.The failure to refer the matter to the DVO as prescribed by the Act renders the assessment and appellate orders arbitrary and bad in law, justifying setting aside the impugned orders.

RATIONALE:

The Court applied the statutory framework of Section 50C and Section 50C(2) read with Section 55A of the Income Tax Act, 1961, which mandates a reference to the Valuation Officer where the stamp valuation authority's value exceeds the sale consideration and the assessee disputes such valuation.The Court relied on the conditions enumerated in Section 50C(2), namely (i) the valuation done by the Stamp Valuation Authority (SVA) is more than the apparent sale consideration, and (ii) the assessee makes a claim before the A.O. that the fair market value is less than the valuation done by the SVA, as mandatory preconditions for the reference to the DVO.The Court noted that the appellate authority failed to conduct the necessary enquiry as per Section 250(4) & (6) of the Act and incorrectly upheld the non-referral to the DVO, which was contrary to the facts and statutory provisions.The decision reflects the principle that the circle rate or stamp duty value is not conclusive of the fair market value and that the statutory provisions exist to protect the assessee's grievance regarding any dispute arising from the difference between these values.