DVO Reference u/s 55A condition u/s 50C applies only when stamp duty value is higher than the sales consideration as per agreement-ITAT

DVO Reference u/s 55A condition u/s 50C applies only when stamp duty value is higher than the sales consideration as per agreement. This was held by ITAT Mumbai in its recent judgment as under:

Case Law Details:
ITA No. 5133/Mum/2014  Assessment Year : 2009-10
Dy. Commissioner of Income Tax vs. M/s Shree Aditya Finwealth Pvt. Ltd
Date of Order/Judgment: 06/05/2016

Important Case Laws Referred:
ITO v. Chandrakant R Patil and Others (2011) 56 DTR (Ahd) (Trib) 449
Jayshankar S. Vaid v. DCIT (2010) 35 SOT 46 (Ahd)

Brief Facts of the Case:
The assessee company was engaged in the business of textile manufacturing. During the financial year 2008-09, the company has sold a property comprising land and structures. An agreement for sale has been entered into with assessee and M/s Future Communications Ltd. on 24.12.2008 for a total consideration of Rs. 40 crores. The sale agreement was registered on 24.12.2008 and the market value declared by the stamp duty authorities were Rs. 25,14,76,226/- against the Agreement value Rs. 40 crores. The A.O. made reference to the Departmental Valuation Officer (DVO) for determination of the fair market value of the property in accordance with the provisions of section 55A of the Act. The DVO submitted the fair market value at Rs. 40,60,99,000/-.

The assessee protested against the reference made to the DVO and submitted that the value derived by the Valuation Officer u/s 55A could not be substituted full value of consideration received on sale of the property which is not applicable in the instant case as the stamp duty authority value of the property at Rs. 25,14,76,226 was much lower than the market value of Rs. 40 crores. The compensation received was much more than the stamp duty valuation. The assessee requested to consider the agreement value for completion of assessment. The AO rejected the contention of the assessee. He held that under section 55A(a), the AO can refer the valuation of capital asset to the Valuation Officer for determination of the fair market value even in case the value of asset claimed by the assessee is in accordance with the estimate made by the Registered Valuer, if in the AO’s opinion the value claimed is less than the fair market value. The AO referred to the the provisions of section 16A(1) to(6) of the Wealth Tax applies and held that AO is empowered to complete the assessment in conformity with the estimate of the DVO. Hence, assessment was completed after taking into consideration as assessed by the DVO and making addition u/s 50C.

Aggrieved, the assessee filed its first appeal before CIT(A) who allowed the appeal.

Aggrieved by the order of the CIT(A), the Revenue went in appeal before the Tribunal.

Important Excerpts from ITAT Judgment:

We have considered the rival contentions and also perused the material available on record. We have observed that for the purpose of computation of capital gain, the full value of consideration received has to be taken based upon the actual value of sale of property which is higher than the stamp duty value in accordance with the provisions of section 50C of the Act . In this case the full value of the property is comprised of land and building amounting to Rs. 40 crores while the stamp duty value determined at Rs. 25,14,76,226/-. In our considered opinion, the A.O. erred in referring the matter to the DVO u/s 55A as reference can only be made if the stamp duty value is higher than the agreement value. We do not find any infirmity in the order of the ld. CIT(A) and we confirm the same. In our considered view, the4 addition made by the A.O. cannot be upheld.