50C:A.O Must Refer to DVO on Objection to Stamp Valuation

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50C:A.O Must Refer to DVO on Objection to Stamp Valuation

section_50C_stamp_dutySection 50C is quite problematic provision under the Income Tax Act for any investor in land or immovable property , because at the tim eof sale , the question of capital gains relates to section 50C which in simple terms says that the value taken for stamp duty by state registration authority , shall be considered deemed sales consideration.However , there is a solace for assessee under sub-section (2) of the section 50C which provide that if the assessee objects to the valuation for stamp duty purpose , the A.O may refer the valuation to Departmental Valuer.

The use of word “may ” became subject of litigation because in many cases , the A.O did not refer the case to DVO despite strong protest from Assessee about stamp valuation. The issue which as raised before the higher appeallate authority like ITAT whether the word ” may   ” really provides discretion to A.O even when the assessee has protested the valuation  for  stamp duty purpose ?

The good news for the assessees are that various tax tribunals have considered the issue and held that the A.O must refer the matter of valuation of immovable property if the assessee protests the stamp valuation. Here are ceratins case laws in this regard

Case Laws on meaning of word “May”: under Section 50 C

Mumbai Tribunal in Mrs Nandidta Khosla  [2011] 11 taxmann.com 344 (Mum.)

Facts of the Case is that the assessee was allotted six plots by the Noida Land Development Authority. The assessee paid certain interest to the Noida authorities because instalments in respect of the plots allotted to it could not be paid in time. The Assessing Officer did not allow such interest on the ground that there was no provision in the Act for the same. On appeal, the Commissioner (Appeals) directed the Assessing Officer to recompute the long-term capital gain after capitalizing interest on delayed payment of installments. It was the case of the revenue that aforesaid interest was of penal nature and, therefore, the same should not have been allowed. In the instant appeal, the assessee contended that the interest was paid because installments could not be paid in time and same had become part of the cost of acquisition for the assesse.

The Tribunal Held as under

A plain reading of the above provision clearly shows that normally the sale consideration can be taken on the same amount which has been adopted for the stamp duty purposes. However, sub-section (2) makes it very clear that whenever assessee claims before the Assessing Officer that he has not challenged the stamp duty valuation and sale consideration is different because of valid reason, then the Assessing Officer is required to refer the matter to Valuation Officer. Without going into the interpretation of the word “may” whether it should be taken only as mandatory or not the plain logic seems to be that Assessing Officer is not expert on valuation and that is why the Legislature has mandated that if there is strong objection from the assessee’s side without challenging the stamp duty valuation, then valuation should be referred to Valuation Officer, who is an expert and who can do the correct valuation. Since in respect of Noida properties, objections were raised even before Assessing Officer showing that Noida Authorities itself has sold the plots in Phase II at Rs. 1,250 per square metre whereas the assessee has sold the plots at Rs. 1,425 per sq. mtr. There may be some logic in the argument of the learned departmental representative that other plots may not be in the developed area but this can be determined only by the Valuation Officer. In case of flat at Mira Road also the assessee had raised objection vide letter dated 8-12-2005, copy of which was filed before us. It was claimed in paragraph 1(b) that the flat was located on the outskirts of Mira Road and on the border of Bhayander and civic amenities like provision of water, etc. was very poor. We are of the view that once the assessee is raising objection no harm would be caused to the revenue if the matter is referred to the Valuation Officer for the proper valuation of the property. Therefore, we set aside the order of the CIT(A) and direct the Assessing Officer to refer the valuation to the Valuation Officer and then adopt the value accordingly.

 Jodhpur Tribunal in case of Meghraj Baid v. ITO [2008] 23 SOT 25 (Jodh.)

Facts of the Case in this case was that during the relevant assessment year, the assessee sold a property for a consideration of Rs. 11.31 lakhs but as per the sale deed the sub-registrar had valued the cost of this property for the purpose of registration charges at Rs. 14.96 lakhs. The Assessing Officer, taking view that the provisions of section 50C were applicable to the instant case, issued a show-cause notice to the assessee. In response to the show-cause notice, the assessee submitted that since a legal suit was going on with regard to this land and there was a nala adjacent to it, that was the reason that the land was sold below the DLC rate. However, the Assessing Officer considering the provisions of section 50C(1) concluded that the value of sale consideration had to be taken at Rs. 14.96 lakhs and, accordingly, made the additions. Certain other additions relating to claim of brokerage in the computation of capital gain on the sale of the above property and on account of disallowance of improvement cost were also made.

The Tribunal Held under under :

4. After examining the provision extracted hereinabove in its letters and spirit, we are of the opinion that in case the Assessing Officer does not agree with the explanation of the assessee with regard to lower consideration disclosed by him then he should refer the matter to DVO for getting its market rate established as on date of the sale to arrive at the correct sale consideration. If this provision is read in the sense that if the Assessing Officer is not satisfied with the explanation of the assessee then he ‘may’ or ‘may not’ send the matter for valuation to the DVO then in that case this provision would be rendered redundant. The word ‘may’ used in this sub-section signifies that in case learned Assessing Officer is not satisfied with the explanation of the assessee, he ‘should’ refer the matter to the DVO for the mentioned purpose. Learned Authorised Representative has relied on the decision of the Hon’ble Supreme Court rendered in the case of Ashok Leyland Ltd. v. Union of India [1997] 105 STC 152, wherein it has been held that the deeming provisions are rebuttable one. “

taxworry.com number three Delhi Tribunal in case of ITO v. Smt. Manju Rani Jain [2008] 24 SOT 24 (Delhi) (para 9).

Tribunal Held

10. In the instant case, undisputedly the assessee contended before the Assessing Officer that the actual consideration received by the assessee should be taken as the market value of the properties sold and not the amount paid as stamp duty for the purposes of transfer of the properties because the same was on a higher side in view of the existing details and descriptions given by the assessee before the Assessing Officer. Further, the assessee in accordance with provisions of section 50C(2) of the Act requested the Assessing Officer to refer the properties for valuation to the Valuation Cell of the Income -tax Department and adopt the same as full market value of the properties for working out the capital gains. The Assessing Officer has not done so, hence, in our opinion, the CIT(A) on considering the provisions of section 50C(2) of the Act has rightly directed the Assessing Officer to refer the properties to the Valuation Cell of Income-tax Department for the purpose of valuation of the property and, thereafter, adopt the valuation for working out the capital gains. Since, the direction issued by the CIT(A) is in accordance with the provisions of section 50C of the Act, we find no illegality or infirmity in the well reasoned order of the CIT(A) and, accordingly, the same is upheld and ground of appeal taken by the Revenue is rejected.

number four taxworryITAT , Mumbai in Ajmal Fragrances & Fashions (P.) Ltd. vs ACIT Circle 13(1) [2009] 34 SOT 57 (MUM.)

The facts of the case was that the assessee was allotted six plots by Noida Land Development Authority. It sold said property. During the assessment proceedings, the Assessing Officer noticed that there was difference between the valuation declared by the assessee and the valuation under section 50C. The assessee submitted before the Assessing Officer that Noida authorities themselves had sold the plots at similar rates. However, the Assessing Officer did not accept the same and adopted the value for the purpose of stamp duty as sale consideration. On appeal, same was confirmed by the Commissioner (Appeals). In the instant appeal, the assessee submitted that once it objected to the valuation to be adopted by the Assessing Officer, he was then duty bound to refer the matter to the valuation officer. The revenue, however, contended that the Assessing Officer was not required to make reference to the valuation officer unless he was satisfied that there was really a valid reason for the assessee to raise a dispute regarding the valuation of the property.

The Tribunal Held as under :

A plain reading of the above provision clearly shows that normally the sale consideration can be taken on the same amount which has been adopted for the stamp duty purposes. However, sub-section (2) makes it very clear that whenever assessee claims before the Assessing Officer that he has not challenged the stamp duty valuation and sale consideration is different because of valid reason, then the Assessing Officer is required to refer the matter to Valuation Officer. Without going into the interpretation of the word “may” whether it should be taken only as mandatory or not the plain logic seems to be that Assessing Officer is not expert on valuation and that is why the Legislature has mandated that if there is strong objection from the assessee’s side without challenging the stamp duty valuation, then valuation should be referred to Valuation Officer, who is an expert and who can do the correct valuation. Since in respect of Noida properties, objections were raised even before Assessing Officer showing that Noida Authorities itself has sold the plots in Phase II at Rs. 1,250 per square metre whereas the assessee has sold the plots at Rs. 1,425 per sq. mtr. There may be some logic in the argument of the learned departmental representative that other plots may not be in the developed area but this can be determined only by the Valuation Officer. In case of flat at Mira Road also the assessee had raised objection vide letter dated 8-12-2005, copy of which was filed before us. It was claimed in paragraph 1(b) that the flat was located on the outskirts of Mira Road and on the border of Bhayander and civic amenities like provision of water, etc. was very poor. We are of the view that once the assessee is raising objection no harm would be caused to the revenue if the matter is referred to the Valuation Officer for the proper valuation of the property. Therefore, we set aside the order of the CIT(A) and direct the Assessing Officer to refer the valuation to the Valuation Officer and then adopt the value accordingly

From the aforesaid , four rulings by different tax tribunal ,it is now settled law that the word “may ” used in section 50C , does not leave any chance for teh A.O not to refer the valaution aspect of property if the assessee challeneges the valuation for stamp duty purpose by registering authority.

 

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