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Radhika Sales Corporation v. Additional Commissioner Of Income Tax, Range - 8, Pune .
Tribunal Summary — ITA No. 1474/PUN/2016 (A.Y. 2011-12) — Order dated 16 November 2018
Factual and Procedural Background
This appeal by the assessee (a partnership firm) challenges the order of the Commissioner of Income Tax (Appeals)-9, Pune dated 20-05-2016 in respect of assessment year 2011-12. The assessee sold a land parcel (S. No. 259, Chinchwad, Pune) and offered a Long Term Capital Gain of Rs.1,02,85,427/-. The sale consideration declared in the sale deed was Rs.1,10,00,000/-. During scrutiny assessment proceedings, the Assessing Officer (AO) noted the Government valuation for stamp duty at Rs.1,39,18,750/-. The assessee objected to enhancement and the matter was referred to the Departmental Valuation Officer (DVO) under the provisions of section 50C(2) of the Income Tax Act, 1961. The DVO reported the value as Rs.1,20,38,000/- (report dated 30-12-2013). The AO made an addition of Rs.10,38,000/- (the difference between the DVO value and the value declared by the assessee) in the assessment order dated 23-01-2014 passed under section 143(3). The assessee's appeal to the CIT(A) was dismissed in toto, and the assessee advanced the present appeal before the Tribunal. The Tribunal pronounced its order allowing the appeal on 16th November, 2018 (Accountant Member: Anil Chaturvedi; Judicial Member: Vikas Awasthy).
Legal Issues Presented
- Whether the Assessing Officer was justified in enhancing the sale consideration for the purpose of computing Long Term Capital Gain by adopting the DVO-determined fair market value (Rs.1,20,38,000/-) in place of the sale consideration declared in the sale deed (Rs.1,10,00,000/-), resulting in an addition of Rs.10,38,000/- under section 50C?
- Whether, given that the difference between the DVO valuation and the declared sale consideration is under 10% (approximately 9.43%), the AO can substitute the declared sale consideration for determining capital gains?
Arguments of the Parties
Appellant's Arguments (as presented)
- The assessee sold the land for Rs.1,10,00,000/- and declared the same in the sale deed.
- The DVO assessed the value at Rs.1,20,38,000/-, making the difference between declared consideration and DVO value approximately 9.43% (i.e., less than 10%).
- Reliance was placed on coordinate Bench and High Court decisions — specifically: Rahul Constructions v. DCIT (38 DTR 19), Dattatraya Kerba Lonkar v. DCIT (ITA No.1818/PUN/2014, decided 30-01-2017), and Bimla Singh v. CIT (308 ITR 71) — for the proposition that where the difference between the DVO-determined fair market value and the sale consideration declared by the assessee is less than 10% (or in some authorities 15%), no addition ought to be made.
- The appellant also pointed to authorities holding that a DVO report, standing alone and without other evidence, cannot justify additions.
Respondent's Arguments (as presented)
- The representative for the Department (Shri Sudhendu Das) defended the impugned order and urged that the appeal be dismissed. The text does not set out detailed legal or factual arguments advanced by the Department beyond this stance.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court in this Matter |
|---|---|---|
| Rahul Constructions v. Deputy Commissioner of Income Tax (reported as 38 DTR 19) | Held that where the difference between sale consideration declared by the assessee and the fair market value determined by the DVO under section 50C is less than 10%, the Assessing Officer is not justified in substituting the DVO-determined value for the sale consideration disclosed by the assessee. | The Tribunal relied on this principle and treated a sub-10% difference as insufficient to displace the declared sale consideration; it applied the holding to find the AO unjustified in making the addition. |
| Dattatraya Kerba Lonkar v. Deputy Commissioner of Income Tax (ITA No.1818/PUN/2014 — decided 30-01-2017) | Coordinate Bench decision endorsing the approach that where the difference between DVO FMV and declared sale consideration is less than 10%, the difference should be ignored. | The Tribunal followed this coordinate Bench decision as directly analogous and used it to support allowing the assessee's appeal. |
| Bimla Singh v. Commissioner of Income Tax (reported as 308 ITR 71) | Held by the Patna High Court that where the difference between a figure shown by the assessee and that determined by the Assessing Officer is less than 15%, the difference may be ignored for the purpose of making additions (context: cost of construction). | The Tribunal relied on this authority to support the proposition that small percentage differences arising from valuation estimates should not automatically invite additions. |
| Asstt. CIT v. Harpreet Hotels (P) Ltd. — ITA Nos.1156-1160/pn/2000 (Pune Bench) | Pune Bench dismissal of Revenue appeal where the difference between the assessee's figure and DVO figure was "hardly 10 per cent". | Referred to as an example of the Tribunal taking a liberal approach for differences around the 10% margin; supports the assessee's contention. |
| ITO v. Kaaddu Jayghosh Appasaheb — ITA No.441/PN/2004 (Pune Bench) | Held that when the margin between the value given by the assessee and the Departmental valuer was less than 10%, the difference is liable to be ignored and an addition cannot be sustained. | Followed by the Tribunal as a precedent endorsing the "ignore if <10%" approach to minor valuation differences. |
| Honest Group of Hotels (P) Ltd. v. CIT (2002) 177 CTR (J&K) 232 | Authority relied upon by Tribunal decisions (as noted in the order) that support ignoring small deviations between departmental valuation and assessee-declared value. | The Tribunal noted decisions that followed this authority to build the jurisprudential backdrop favoring the assessee where differences are marginal. |
| CIT v. Sadna Gupta (reported as 352 ITA 595 in the text) | Held by the Delhi High Court that, unless there is other evidence indicating extra consideration, the report of the DVO alone cannot form the basis for any addition by the Revenue. | The Tribunal invoked this authority to emphasize that a DVO report without corroborative evidence is an insufficient basis for making additions to income. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded in a series of fact-driven and precedent-linked steps, as follows:
- Identification of the singular issue: whether the AO was justified in treating the DVO-determined value (Rs.1,20,38,000/-) as the sale consideration for computing Long Term Capital Gain in place of the declared sale consideration (Rs.1,10,00,000/-), thereby making an addition of Rs.10,38,000/-.
- Recitation of undisputed facts: the declared sale consideration (Rs.1,10,00,000/-), the DVO valuation (Rs.1,20,38,000/-), and the numerical difference (approx. Rs.10,38,000/-), which is roughly 9.43% of the declared sale consideration.
- Comparison with existing Tribunal and High Court authorities: the Tribunal reviewed and relied on coordinate Bench decisions (notably Rahul Constructions and Dattatraya Kerba Lonkar), the Patna High Court decision in Bimla Singh, and other Tribunal/High Court authorities which had adopted a liberal approach where the differential between DVO valuation and declared consideration is less than 10% (or in some authorities up to 15% in related contexts).
- Evaluation of the nature of valuation: the Tribunal observed that valuation is an estimation exercise and that some degree of variation is to be expected between departmental valuation and the value declared by the parties.
- Application of the cited principle to the facts: given that the difference here is under 10% (approximately 9.43%), the Tribunal found, following those precedents, that the AO was not justified in substituting the declared sale consideration with the DVO valuation for the purpose of computing Long Term Capital Gain.
- Consideration of the sufficiency of DVO report: the Tribunal noted authorities (including the Delhi High Court in Sadna Gupta) that a DVO report alone, without corroborative evidence of additional consideration, cannot form a reliable basis for additions.
- Conclusion on relief: applying the authorities and factual computation, the Tribunal allowed the appeal, set aside the CIT(A)'s dismissal, and directed the AO to adopt the actual sale consideration as reflected in the sale deed for computing Long Term Capital Gain.
Holding and Implications
Core Holding: APPEAL ALLOWED. The Tribunal allowed the assessee's appeal, set aside the order of the Commissioner of Income Tax (Appeals), and directed the Assessing Officer to adopt the actual sale consideration as mentioned in the sale deed (Rs.1,10,00,000/-) as the fair market value for the purpose of computing Long Term Capital Gain.
Direct Consequences for the Parties:
- The addition of Rs.10,38,000/- made by the AO (being the difference between the DVO valuation and the declared sale consideration) is to be deleted for the purpose of computing Long Term Capital Gain.
- The Assessing Officer is directed to compute the capital gains using the sale consideration of Rs.1,10,00,000/- as declared in the sale deed.
Broader Implications:
The Tribunal applied and followed existing coordinate Bench and High Court authorities that adopt a liberal approach where the difference between a DVO valuation and the sale consideration declared by the assessee is marginal (notably, sub-10% in the cited decisions). The order implements these established authorities rather than announcing a new legal principle; accordingly, no new precedent was expressly set by this order beyond applying the cited jurisprudence to the facts.
Order pronounced on Friday, the 16th day of November, 2018. Copies forwarded to the parties and relevant authorities as noted in the order.
PER VIKAS AWASTHY, JM : This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-9, Pune dated 20-05-2016 for the assessment year 2011-12. ITA No. 1474/PUN/2016, A.Y. 2011-12
2. The brief facts of the case as emanating from records are : The assessee is a partnership firm. The assessee sold its land comprising in S. No. 259, Chinchwad, Pune and offered gain arising from sale of land Rs.1,02,85,427/- as Long Term Capital Gain. The sale consideration as disclosed by the assessee in respect of aforesaid land was Rs.1,10,00,000/- . In scrutiny assessment proceedings the Assessing Officer took the value of land at Rs.1,39,18,750/- as per Government Valuation for stamp purpose. The assessee took objection to the proposed enhancement, consequently the valuation of property was referred to the Department Valuation Officer (DVO) under the provisions of section 50C(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act). The DVO vide his report dated 30-12-2013 assessed the value of property at Rs.1,20,38,000/-. The Assessing Officer made addition of Rs.10,38,000/-
i.e. the difference between the value assessed by DVO minus the value declared by assessee. Aggrieved against the additions made by the Assessing Officer vide assessment order dated 23-01-2014 passed u/s. 143(3), the assessee filed appeal before the Commissioner of Income Tax (Appeals). The First Appellate Authority dismissed the appeal of assessee in toto. Now, the assessee is in second appeal before the Tribunal and has assailed the findings of Commissioner of Income Tax (Appeals) by raising following grounds :
1. The learned CIT(A) erred in law and on facts in confirming addition of Rs.10,38,000/- on account of capital gains towards difference between the actual consideration and valuation for Stamp purposes u/s. 50C.
2. The learned CIT erred in law and on facts in not appreciating that the market value of the impugned land sold was less than valuation adopted for stamp duty purpose which DVO failed to consider. The learned CIT(A) erred ought to have considered the various factors affecting the price of the land while deciding the fair market value. ITA No. 1474/PUN/2016, A.Y. 2011-12
3. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing.
3. Ms. Deepa Khare appearing on behalf of the assessee submitted that the assessee has sold the land for Rs.1,10,00,000/-. During scrutiny assessment proceedings the DVO assessed the value of land in question at Rs.1,20,38,000/-. The difference between the value declared by the assessee and the value assessed by the DVO is approximately 9.43% i.e. less than 10%. The Pune Bench of the Tribunal in the case of Rahul Constructions Vs. Deputy Commissioner of Income Tax reported as 38 DTR 19 and in the case of Dattatraya Kerba Lonkar Vs. Deputy Commissioner of Income Tax in ITA No. 1818/PUN/2014 for assessment year 2010-11 decided on 30-01-2017 has held that where the difference between fair market value as determined by the DVO and the actual sale consideration as disclosed by the assessee is less than 10%, no addition is to be made. The ld. AR to further strengthen her submissions placed reliance on the decision of Honble Patna High Court in the case of Bimla Singh Vs. Commissioner of Income Tax reported as 308 ITR 71.
4. On the other hand Shri Sudhendu Das representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee.
5. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The solitary issue raised in the appeal by the assessee is against the addition of Rs.10,38,000/- on account of difference in Long Term Capital Gain ITA No. 1474/PUN/2016, A.Y. 2011-12 declared by the assessee and computed by the Assessing Officer after considering the DVOs valuation report. It is an undisputed fact that the assessee has disclosed sale consideration of the land as Rs.1,10,00,000/-. During the scrutiny assessment proceedings reference was made to DVO for the valuation of property. The DVO vide report dated 30-12-2013 determined the fair market value of the property as Rs.1,20,38,000/-. The difference between actual sale consideration declared by the assessee and the fair market value determined by the DVO is approximately 9.43%. We find that the Co-ordinate Bench of the Tribunal in the case of Dattatraya Kerba Lonkar Vs. Deputy Commissioner of Income Tax (supra) after considering various decisions including the decision rendered in the case of Rahul Constructions Vs. Deputy Commissioner of Income Tax (supra) and the judgment of Honble Patna High Court in the case of Bimla Singh Vs. Commissioner of Income Tax (supra) has held as under :
8. We find merit in the submission of Ld. A.R. The difference between the fair market value determined by the DVO and actual sale consideration is Rs.7,14,530/-i.e slightly more than 2 per cent of the sale consideration. The co-ordinate Bench of the Tribunal in the case of Rahul Construction V/s. DCIT (supra) has held that where difference between the sale consideration declared by the assessee and fair market value as determined by the DVO u/s 50C is less than 10 percent, the Assessing Officer was not justified in substituting the value determined for sale consideration disclosed by the assessee. The Co-ordinate Bench after considering the provisions of Section 50C of the Act and the provision of section 23A and 24(5) of the Wealth Tax Act held as under :-
13. A combined reading of the above provisions shows that the valuation adopted by the DVO is subject to appeal and the same is not final. In the instant case we find that as Aagainst the value of Rs. 28,73,000/- adopted by the stamp valuation authorities, the DVO has determined the FMV on the date of transfer at Rs. 20,55,000/- . This itself shows that there is wide variation between the two values. Further, the value adopted by the DVO is also based on some estimate. We find that the difference between sale consideration shown by the assessee at Rs.19,00,000/- and the FMV determined by the DVO at Rs.20,55,000/- is only Rs. 1,55,000 which is less than
10 per cent. The Courts and Tribunals are consistently taking a liberal approach in favour of the assessee where the difference between the value adopted by the assessee and the value adopted by the DVO is less than 10 per cent. ITA No. 1474/PUN/2016, A.Y. 2011-12
14. We find that the Pune Bench of the Tribunal in the case of Asstt. CIT V/s. Harpreet Hotels (p) Ltd. vide ITA Nos. 1156-1160/pn/2000 and relied on by the learned counsel for the assessee had dismissed the appeal filed by the Revenue where the CIT(A) had deleted the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10 percent.
15. Similarly, we find that the Pune Bench of the Tribunal in the case of ITO V/s. Kaaddu Jayghosh Appasaheb, vide ITA No.441/PN/2004 for the asst. yr 1992-1993 and relied on by the learned counsel for the assessee following the decision of the J&K High Court in the case of Honest Group of Hotels (P) Ltd. V/s CIT (2002) 177 CTR (J&K) 232 had held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent , the different is liable to be ignored and the addition made by the A.O cannot be sustained.
16. Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference bound to occur, we are of the considered opinion that the A.O. in the instant case is not justified in substituting the sale consideration at Rs.20,55,000 as Against the actual sale consideration of Rs.19,00,000/- disclosed by the assessee. We, therefore, set aside the order of the CIT(A) and direct the A.O. to take Rs.19,00,000/- only as the sale consideration of the property. The grounds raised by the assessee are accordingly allowed.
9. The ld. A.R of the assessee has further placed reliance on the decision of Honble Patna High Court in the case of Bimla Singh V/s. CIT (supra) wherein Honble High Court has held that difference between the cost of construction shown by the assessee and as determined by the Assessing Officer being less than 15 per cent, the same is to be ignored for the purposes of addition. The Honble Delhi High Court in the case of CIT V/s. Sadna Gupta 352 ITA 595 held that unless and until there was some other evidence to indicate that extra consideration had flowed in transaction for purchase of property, report of DVO could not form basis of any addition on part of revenue. In absence of any evidence no reliance could be placed on the report of DVO for making addition.
10. Thus, in view of the fact that the difference between sale consideration and the market value determined by the DVO is not substantial and is approximately little over 2 per cent of the actual sale consideration, we find no reason for rejecting actual sale consideration mentioned in the Sale Deed for determining long term capital gain. Accordingly, the ground No.1 raised in appeal by the assessee is allowed. The Assessing Officer is directed to adopt actual sale consideration as mentioned in the Sale Deed as a fair market value for determining the long term capital gain. ITA No. 1474/PUN/2016, A.Y. 2011-12
6. In the light of the facts of the case and the decisions discussed above, we find merit in the submissions of assessee. In the present case, since difference between the value declared by the assessee and the value determined by the DVO is less than 10%, no addition in respect of Long Term Capital Gains is warranted. The findings of Commissioner of Income Tax (Appeals) on this issue are accordingly, set aside and the appeal of assessee is allowed.
7. In the result, the appeal of assessee is allowed. Order pronounced on Friday, the 16th day of November, 2018. Sd/- Sd/- ( / Anil Chaturvedi) ( / Vikas Awasthy) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / Pune; / Dated : 16th November, 2018 / Copy of the Order forwarded to :
1. / The Appellant.
2. / The Respondent.
3. () / The CIT(A)-9, Pune
4. / The Pr. CIT-5, Pune
5. , , , / DR, ITAT, B Bench, Pune.
6. / Guard File. // // True Copy// / BY ORDER, / Private Secretary, , / ITAT, Pune
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