Suresh C. Mehta v. Income Tax Officer

ORDER

Amit Shukla, Judicial Member - The present appeal is preferred by the assessee challenging the impugned order dated 30th September 2010, passed by the learned Commissioner (Appeals)-XXIV, Mumbai, for the quantum of assessment passed under section 143(3) r/w 254 of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2003-04.

2. The only issue involved in this appeal is that the learned Commissioner (Appeals) has erred in adopting the fair market value of the property at Rs. 13,79,913, instead of Rs. 12,00,000, shown by the assessee, as valued by the Departmental Valuation Officer and thereby confirming the long term capital gain of Rs. 11,38,020.

Facts in brief

3. In the present case, the original assessment was completed under section 143(3) vide order dated 21st March 2006, determining the total income of Rs. 15,28,250, as against returned income of Rs. 6,03,286, which also included capital gain on sale of property of Rs. 10,05,783, after adjusting brought forward losses and current year's loss. The assessee has sold his office situated at Narasai Natha Street, Koha Bazar, Mumbai, for a total consideration of Rs. 12,00,000 on 27th March 2003. However, for the purpose of stamp duty, the stamp valuation authority has determined the fair market value at Rs. 20,57,500. Accordingly, the Assessing Officer, during the first round of proceedings, has adopted the sale value of Rs. 20,57,500, while computing the capital gains in terms of provisions of section 50C. The assessee had objected to such a valuation and had made a request to the Assessing Officer to refer the valuation of the property to the Valuation Officer (for short "the V.O.") of the Department on the ground that fair market value was much less. However, the assessee's request was not acceded to. Even the learned Commissioner (Appeals) had confirmed the action of the Assessing Officer. The Tribunal set aside the order of the learned Commissioner (Appeals) and restored the matter to the file of the Assessing Officer for referring the valuation of the property to the V.O. Accordingly, in the set aside proceedings, the Assessing Officer referred the valuation to the V.O. on 9th July 2009. In pursuance thereof, the V.O. submitted his report dated 30th October 2009 before the Assessing Officer, Wherein he has taken the sale value of the property at Rs. 13,79,913 instead of Rs. 12,00,000 for which the assessee had sold the property. Before the Assessing Officer, the assessee objected to the value adopted by the V.O. and raised various objections. The Assessing Officer rejected the said contentions of the assessee without assigning any reason and took the sale value at Rs. 13,79,913 and worked out the long term capital gains at Rs. 11,38,020 instead of Rs. 10,05,783 shown by the assessee.

4. Before the learned Commissioner (Appeals), besides other objections, the main contentions of the assessee was that the valuation done by the V.O. is very close to the value of sale consideration received by the assessee. Reliance was placed on various decisions, the list of which has been incorporated by the learned Commissioner (Appeals) at Pages-2 and 3. It was submitted by the assessee that even though the difference between the fair market value determined by the V.O. at Rs. 13,79,913 and actual sale consideration of Rs. 12,00,000, received by the assessee is not more than 15%, however, such a difference can be ignored in view of various objections. The main reason given by the learned Commissioner (Appeals) for rejecting the assessee's contention was that in view of sub-section (3) of section 50C, only when the value determined by the V.O. exceeds the stamp valuation, then the value assessed by the stamp valuation authority should be taken as a sale value. It cannot be vice-versa that is, when the valuation done by the V.O. is less than the stamp valuation authority. In that case, the valuation of the V.O. itself will become the fair market value. Accordingly, he rejected the assessee's contention.

5. Before us, the learned Counsel submitted that, in the present case, the difference between the fair market value of the property determined by the V.O. and the actual sale consideration received by the assessee is less than 15% and such difference amount is Rs. 1,79,913. He also submitted that provisions of section 55A also provides that where the fair market value exceeds the value of asset, as claimed by the assessee by more than 15%, then the Assessing Officer may refer such valuation to the DVO. This can be interpreted in a manner that difference for less than 15% can be ignored. He also relied upon the decision of Bimla Singh v. CIT [2009] 308 ITR 71 (Pat.) and Prem Narayan & Co. v. CIT [2006] 287 ITR 56/[2007] 163 Taxman 579 (Punj & Har.) , in support of the contentions that if the difference between the value assessed by the V.O. and the value shown by the assessee is less than 15%, the same should be ignored because generally while valuing the property, it is a matter of estimate only and some guess work is done for estimating the property. Thus, a difference of 15% cannot be ruled out and benefit should be given to the assessee.

6. On the other hand, the learned Departmental Representative, strongly relied upon the findings of the learned Commissioner (Appeals) and submitted that there is no provision under section 50C to ignore the V.O's report when reference has been made under section 50C(2), just because the difference between the value shown by the assessee is less than 15%. There cannot be any yard stick of such percentage.

7. We have carefully considered the rival submissions, perused the relevant findings of the learned Commissioner (Appeals) as well as the Assessing Officer. The assessee has sold the property for a sum of Rs. 12,00,000, and has computed the long term capital gain at Rs. 10,05,783, whereas the V.O. to whom reference was made under section 50C, has estimated the fair market value at Rs. 13,79,913. For the purpose of section 50C, the Assessing Officer has adopted the value determined by the V.O. and has computed the long term capital gain at Rs. 11,38,020. Section 50C is a deeming provision wherein the fair market value for sale consideration received on an asset is deemed to be taken as per the value assessed or adopted by the stamp valuation authority for the purpose of stamp duty. Sub-section (2) of section 50C further provides that if the assessee claims before the Assessing Officer that valuation adopted or assessed by the stamp valuation authority has exceeded the fair market value of the property on the date of transfer, the Assessing Officer may referred the valuation of the capital asset to the V.O. and on such a reference, provisions of section 16A of Wealth Act, 1957, will apply. Sub-section (2) further provides that if such a reference is made then certain provisions of section 16A, 23A, 24, 34AA, 35 and 37 of the Wealth Tax Act, 1957, shall apply with necessary modification. Section 16A of the Wealth Tax Act, 1957, provides power to make reference to the V.O. for determining the fair market value and the functions of the V.O. Sub-section (6) of section 16A, makes it obligatory to the Assessing Officer to adopt the value as reported by the V.O. Provisions of section 23A gives scope of first appeal and the subject matter which can be appealed before the learned Commissioner (Appeals) including that of any order of the V.O. and the powers of the learned Commissioner (Appeals) in relation to such valuation. Section 24 deals with the appeal to the appellate Tribunal and section 34AA deals with the appearance of the assessee through registered valuers before the learned Commissioner (Appeals) and the Tribunal and section 35 deals with rectification of mistakes. A combined reading of these sections provide that insofar as the Assessing Officer is concerned, he is bound by the valuation adopted by the V.O. whereas the learned Commissioner (Appeals) and the Tribunal can entertain objections relating to such valuation and V.O's valuation is not binding upon them. Sub-section (3) of section 50C provides that if the value ascertained by the V.O. exceeds the value adopted or assessed by the stamp valuation authority then such valuation adopted or assessed by the stamp valuation authority shall be taken, that is, if the V.O's value exceeds the value adopted by the stamp valuation authority, the same should be ignored by the Assessing Officer. From the conjoined reading of sub-section (1), (2) and (3) of section 50C along with the relevant provisions of Wealth Tax Act as have been referred to in sub-section (2), it is evident that though the Assessing Officer is bound by the V.O's report in case it is lower than the value assessed by the stamp valuation authority, however, the same is not binding upon the learned Commissioner (Appeals) or the Tribunal wherein the assessee can further raise objection to such valuation. If that is so, then the learned Commissioner (Appeals) and the Tribunal can also examine into the fact whether the difference of less than 15% between the actual sale consideration and the value adopted by the V.O. can be ignored on the facts and circumstances of the case. In the present case, the assessee has objected to the fair market value adopted by the V.O. vide letter dated 13th November 2009. Neither the Assessing Officer nor the learned Commissioner (Appeals) entertained any such objection or has given any cogent reasons. If the assessee has made various objections to the V.O's report, the learned Commissioner (Appeals) was bound to look into these objections so as to arrive at proper fair market value. He was also bound to consider the contentions of the assessee that in case of difference of less than 15% between the value shown by the assessee and the value estimated by the V.O., the benefit should be given to the assessee and such a difference can be ignored. We, therefore, set aside the impugned order passed by the learned Commissioner (Appeals) and remit the matter back to him to decide the same afresh after considering the objections of the assessee to V.O's estimate as well as his claim for benefit when the difference is less than 15%. Consequently, the appeal of the assessee is treated as allowed for statistical purposes.

8. In the result, assessee's appeal is treated as allowed for statistical purposes.

SKJ