RAVI KANT v. INCOME TAX OFFICER
[Citation -2007-LL-0713-11]

Citation 2007-LL-0713-11
Appellant Name RAVI KANT
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 13/07/2007
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags full value of consideration • commercial consideration • valuation of property • stamp duty valuation • sale consideration • cross-examination • fair market value • valuation officer • state government • valuation report • speaking order • house property • capital asset • onus to prove • capital gain • actual sale • sale deed
Bot Summary: The grievance of the assessee is two fold first, that the CIT(A) erred in law on facts in adopting the sale consideration of property at Rs. 15,50,000, being value taken by the stamp valuation authority, as against the actual sale consideration of Rs. 6,50,000, by applying provisions of s. 50C of the Act; and, second, that without prejudice to the aforesaid grievance, the CIT(A) ought to have adopted the sale consideration of property at Rs. 11,42,000 as per the valuation done by the Departmental Valuation Officer. In the course of scrutiny assessment proceedings, the AO invoked s. 50C(1) to adopt the value, as per valuation for stamp duty purposes, as the sales consideration. The assessee s objection was stamp duty valuation was highly excessive as the circle rates were fixed by the stamp duty authorities by apparently taking into account the rates of commercial properties in the area, whereas the area where the property was located was a mix of commercial and residential properties and the property in question was a residential property. The exception is that in case the assessee can demonstrate that the fair market valuation is less than the stamp duty valuation, the fair market value is to be adopted. The safeguard is that assessee s challenge to the stamp duty valuation before the tax authorities cannot put the assessee to any disadvantage. On a perusal of valuation report we find that even the valuation by the DVO has placed too much of emphasis on the assessment or valuation by t h e stamp valuation authority. For the reasons set out above, and with these observations, we remit the matter to the file of the AO. The DVO will value the property de novo, in the light of our above observations, and in case the valuation so arrived at by the DVO is less than Rs. 11,42,100, the AO shall adopt the fresh valuation so done by the DVO for the purpose of computing capital gains under s. 48 of the Act.


This is appeal filed by assessee and is directed against order dt. 4th Aug., 2006 passed by CIT(A) in matter of assessment under s. 143(3) of IT Act, 1961, for asst. yr. 2003-04. grievance of assessee is two fold first, that CIT(A) erred in law on facts in adopting sale consideration of property at Rs. 15,50,000, being value taken by stamp valuation authority, as against actual sale consideration of Rs. 6,50,000, by applying provisions of s. 50C of Act; and, second, that without prejudice to aforesaid grievance, CIT(A) ought to have adopted sale consideration of property at Rs. 11,42,000 as per valuation done by Departmental Valuation Officer (DVO). factual matrix in which these grievances arise is like this. In relevant previous year, assessee had sold house property for consideration of Rs. 6,50,000. It was in respect of this transaction that assessee, in his IT return, had disclosed capital gain, and capital gains so disclosed by assessee were computed by taking into account Rs 6,50,000 as sales consideration, even though admittedly valuation of house property, for stamp duty purposes, was Rs. 15,50,000. In course of scrutiny assessment proceedings, AO invoked s. 50C(1) to adopt value, as per valuation for stamp duty purposes, as sales consideration. assessee s objection was stamp duty valuation was highly excessive as circle rates were fixed by stamp duty authorities by apparently taking into account rates of commercial properties in area, whereas area where property was located was mix of commercial and residential properties and property in question was residential property. It was also submitted that he had no objection to cross-examination of buyer, and buyer and seller of two comparable cases quoted by assessee. None of these submissions impressed AO. However, at assessee s instance, matter was referred to DVO who valued property at Rs. 11,42,100. In computation of capital gains, even this valuation was not adopted. No reasons for assigned for same. Accordingly, capital gains were recomputed by adopting Rs. 15,50,000 as sales consideration. Aggrieved, assessee carried matter in appeal before CIT(A) but without any success. CIT(A) observed that "the circle rates of any area are fixed on basis of empirical criteria, which are taken into account by state authorities" which, "includes rates of several registries in adjacent area, commercial consideration, market value etc". CIT(A) further observed that even though assessee has stated that some of sale deed registrations in area have been made at similar or even lower rates, but all this is not relevant in view of specific provisions of s. 50C of Act which requires stamp duty valuation to be adopted for purpose of computing capital gains. addition made by AO was thus confirmed. assessee is not satisfied by order of CIT(A) and is in further appeal before us. We have heard rival contentions, perused material on record and duly considered factual matrix of case as also applicable legal position. Let us look at scheme of Act first. Sec. 50C of IT Act, which w s introduced by Finance Act 2002 w.e.f. 1st April, 2003, contains for special provisions for valuation of consideration in certain cases. Sec. 50C(1) provides that where consideration received or accruing as result of transfer by assessee of capital asset, consisting of land or building or both, is less than value adopted or assessed by any authority of State Government (referred to as stamp valuation authority) for purpose of payment of stamp duty for such transfer, value so adopted or assessed shall, for purposes of s. 48, be deemed to be full value of consideration received or accruing as result of such transfer. In other words, when stated sales consideration of land or house property is less than stamp duty valuation for said property, it is stamp duty valuation which shall prevail for purposes of computation of capital gains under s. 48. This provision is, however, subject to important exception scheme of which is set out in sub-ss. (2) and (3) of s. 50C. Sec. 50C(2) provides that where assessee claims before AO that value adopted by stamp valuation authority, under s. 50C(1), exceeds fair market value of property as on date of transfer, and unless such valuation is subject-matter of litigation before any authority or Court, AO may refer matter of determination of fair market value of property in question to DVO and same shall be taken into account for computation of capital gains. Sec. 50C(3), however, provides that when fair market valuation so determined by DVO is higher than valuation or assessment as per stamp valuation authority, computation of capital gains is to be done with reference to valuation or assessment as per stamp valuation authority. In other words, valuation of property by DVO cannot act to detriment to assessee; assessee cannot be put to any disadvantage in case matter is referred to DVO. scheme of s. 50C can be summarised as follows. normal rule thus i s that where stamp duty valuation is higher than stated consideration on transfer, same is to be adopted for purposes of computing capital gains. exception is that in case assessee can demonstrate that fair market valuation is less than stamp duty valuation, fair market value is to be adopted. safeguard is that assessee s challenge to stamp duty valuation before tax authorities cannot put assessee to any disadvantage. In effect thus, when stamp duty valuation of property is higher than stated value of sale consideration, only onus to prove fair market value has shifted to assessee. As long as assessee can reasonably discharge this onus, even under scheme of s. 50C, consideration stated by assessee cannot be disturbed. In case before us, it is undisputed position that even as per D V O , fair market value of property is Rs. 11,42,100. In these circumstances, full value of consideration, for purposes of s. 48, cannot be taken at figure higher than Rs. 11,42,100. scheme of s. 50C(2) clearly mandates so. action of authorities below in ignoring DVO s report cannot be justified at all. We are, therefore, of considered view that in no case, full value of consideration on transfer of property, for purposes of computing capital gains under s. 48, can be taken at figure higher than Rs. 11,42,100. On perusal of valuation report, however, we find that even valuation by DVO has placed too much of emphasis on assessment or valuation by t h e stamp valuation authority. This is neither desirable nor permissible. reason is this. valuation by stamp valuation authority is based on circle rates. These circle rates adopt uniform rate of land for entire locality, which inherently disregards peculiar features of particular property. Even in particular area, on account of location factors and possibilities of commercial use, there can be wide variations in prices of land. However, circle rates disregard all these factors and adopt uniform rate for all properties in that particular area. If circle rate fixed by stamp valuation authorities was to be adopted in all situations, there was no need of reference to DVO under s. 50C(2). sweeping generalizations inherent in circle rates cannot hold good in all situations. It is, therefore, not uncommon that while fixing circle rates, authorities do err on side of excessive caution by adopting higher rates of land in particular area as circle rate. In such circumstances, DVO s blind reliance on circle rates is unjustified. DVO has simply adopted average circle rate of residential and commercial area, on ground that interior area of locality, where assessee s property is situated, is mixed developed area i.e. shops and offices on ground floor and residence on upper floors. When DVO s valuation required to compare same with valuation by stamp valuation authority, it is futile to base such report on circle report itself. Such approach will render exercise under s. 50C(2) meaningless ritual and empty formality. In our considered view, in such case, DVO s report should be based on consideration stated in registration documents for comparable transactions, as also factors such as inputs from other sources about market rates. For reasons set out above, and with these observations, we remit matter to file of AO. DVO will value property de novo, in light of our above observations, and in case valuation so arrived at by DVO is less than Rs. 11,42,100, AO shall adopt fresh valuation so done by DVO for purpose of computing capital gains under s. 48 of Act. We direct so. For reasons set out above, and with observations as above, we remit matter to file of AO for recomputation of taxable capital gains. AO shall decide matter afresh in accordance with law, by way of speaking order and after giving due and fair opportunity of hearing to assessee. AO shall also require DVO to submit fresh valuation report in terms of our observations as above. *** RAVI KANT v. INCOME TAX OFFICER
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