Section 50C – In the course of assessment proceedings if the assessee objects to adoption of stamp duty value as deemed sale consideration, for whatever reason, it is the duty of the AO to make a reference to the DVO for determining the value of the property sold

Section 50C –
In the course of assessment proceedings if the assessee objects to adoption of
stamp duty value as deemed sale consideration, for whatever reason, it is the
duty of the AO to make a reference to the DVO for determining the value of the
property sold

FACTS

During the previous year relevant to the assessment year under
consideration, the assessee sold a residential flat for Rs. 1,75,00,000. The AO
in the course of assessment proceedings called for stamp duty value of the flat
sold by the assessee from the office of the Registrar. The stamp duty value of
the flat was Rs. 2,51,45,500. The AO called upon the assessee to explain why
short-term capital gains should not be computed by adopting the stamp duty
valuation.

The assessee
vide his letters dated 7^th March, 2014 and 25^th March,
2014 objected to adoption of stamp duty valuation. The assessee had
specifically stated the reasons for which the sale consideration received by
the assessee is reasonable and said that since the property was encumbered it
could not have fetched the value as determined by the stamp valuation
authority.

The AO,
rejecting the arguments of the assessee, proceeded to compute the capital gains
by adopting the stamp duty value to be the full value of consideration.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

The assessee
then preferred an appeal to the Tribunal where it was contended that on the
face of the objection raised by the assessee, the AO should have made a
reference to the DVO for determining the value of the property and the stamp
duty valuation could not be adopted as the deemed sale consideration
considering the fact that the property was encumbered.

HELD

The Tribunal
noted that the issue before it is whether as per section 50C(2) of the Act, it
is mandatory on the part of the AO to make a reference to the DVO to determine
the value of the property. The Tribunal held that since in the course of
assessment proceedings the assessee objected to adoption of stamp duty value as
the deemed sale consideration, for whatever reason, it was the duty of the AO
to make a reference to the DVO for determining the value of the property sold.

The Tribunal
found the contention of the Department, viz., that the reference to DVO was not
made because the assessee raised the objection before the AO purposely at the
fag end to see to it that the proceeding gets barred by limitation, to be
unacceptable. It observed that even the CIT(A) could have directed the AO to
get the valuation of the property done by the DVO and thereafter proceeded in
accordance with law.

The Tribunal noted the ratio of the decisions of the Madras High Court
in the case of S. Muthuraja vs. CIT [(2014) 369 ITR 483 (Mad.)]
and also observed that the Calcutta High Court in Sunil Kumar Agarwal vs.
CIT [(2015) 372 ITR 83 (Cal.)] has gone a step further to observe that
valuation by DVO is contemplated u/s 50C to avoid miscarriage of justice. The
Calcutta High Court has held that when the legislature has taken care to
provide adequate machinery to give a fair treatment to the taxpayer, there is
no reason why the machinery provided by the legislature should not be used and
the benefit thereof should be refused. The Court observed that even in a case
where no request is made by the assessee to make a reference to the DVO, the AO
while discharging a quasi judicial function is duty-bound to act fairly
by giving the assessee an option to follow the course provided by law to have
the valuation made by the DVO.

The Tribunal held that the AO should have followed the mandate of
section 50C(2) of the Act by making a reference to the DVO to determine the
value of the property sold. The AO having not done so and the CIT(A) also
failing to rectify the error committed by the AO, the Tribunal restored the
issue to the AO with a direction to make a reference to the DVO to determine
the value of the property sold in terms of section 50C(2) of the Act and
thereafter proceed to compute capital gain in accordance with law.

The Tribunal
did not delve into the issue relating to actual value of the property on
account of certain prevailing conditions like encumbrance, etc., as these
issues are available to the assessee for agitating in the course of proceedings
before the DVO.

The Tribunal
set aside the impugned order of the CIT(A) and restored the issue to the AO for
fresh adjudication in terms of its direction.