SAI BHARGAVNATH INFRA ,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 6,, PUNE

This appeal by the assessee against the order dated 20-07-2017 passed by the Commissioner of Income Tax (Appeals)-4, Pune [„CIT(A)‟] for assessment year 2014-15.

Ground Nos. 1 to 4 raised by the assessee challenging the action of CIT(A) in restricting the addition to an extent of Rs.20,89,083/- (Rs.78,16,448/- - Rs.57,27,365/-) being the difference in excess of 10% between sale value and stamp duty value in the facts and circumstances of the case.

The brief facts as emanating from the records are that the assessee is a firm engaged in the business of construction and development of residential as well as commercial projects and reported turnover of Rs.7,01,53,106/- and shown net profit @ 10.65%. During the course of assessment proceedings, the AO show caused as to why the difference in stamp duty value and sale value should not be added to the total income in terms of section 43CA of the Act. We note that the assessee neither attended nor filed any reply to the said show cause. The AO observed that there is no option left to him except to complete the assessment on the basis of material available on record. We note that in para 4.3 of assessment order, the AO tabulated the details of flats sold and the difference between the sale value and stamp duty value computed therein as under : Name of the Party Stamp Duty Sale Value Difference to be Value added u/s. 43CA Amogh Pandurang Dhumal 3920000 3874500 45500 Amol Sahebrao Gogawale 3841500 3808630 32870 Annie Thomas 5948000 5110650 837350 Sneha Arpit 4034000 3899386 134614 Ashok Bhagwan 5401500 4914800 486700 Bhagwan Arjun Khumawat 4033117 3751226 281891 Chandrasen Jaywantrao Jadhav 6081500 5864000 217500 Gopal Hari Rathod 3920000 3640000 280000 Hemand Raknikath Shah 4177500 3309122 868378 Jyoti Babam Kadam 4116500 3827250 289250 Kalyani Jaydeep Patil 3978500 3846549 131951 Kunal Prakash 4115864 3167500 948364 Navnath Shivaji Dhumal 3978500 3883950 94550

On perusal of the above table, we find that there was difference between stamp duty value and sale value as received by the assessee to an extent of Rs.78,16,448/-. As we discussed above having no assistance from the assessee, the AO proceeded to add the said amount within the meaning of section 43CA of the Act and determined the total income of Rs.1,08,91,444/- (Return of income Rs.30,74,996/- + Rs.78,16,448/-) vide this order dated 31-10-2016 u/s. 143(3) of the Act.

In first appeal before the CIT(A) we note that the assessee contended that the valuation by the Stamp Authority is based on the circle rates which adopt uniform rate of property for the entire locality which inherently disregard the peculiar features of a particular property. There can be wide variations in the price of the property on account of location factors and possibilities of its use. The circle rates adopted for stamp duty purpose disregards all the above factors and stamp duty valuation is for specific purpose for levy of stamp duty and it cannot be formed the foundation to determine the fair market value of the property transferred.

In addition to the above contention the assessee also raised an alternative plea before the CIT(A). It was contended where the difference between the value adopted by the assessee and the value adopted by the DVO is less than 10% liberal approach may be taken in favour of the assessee. Supporting the same the assessee placed reliance on the orders of Pune, ITAT in the cases of Harpreet Hotels (P.) Ltd., Kaaddu Jayghosh Appasaheb and Rahul Constructions and prayed to consider the case in terms of such orders. We note that the CIT(A) observed that the Courts and Tribunal are consistently taking liberal approach in favour of the assessee where the difference between value reported by the assessee and the value adopted by the DVO is less than 10% applying the same in all fairness and justice, the CIT(A) restricted addition to an extent of Rs.20,89,083/- which is as under : Name of the buyers Stamp Sales Value Difference in Difference in Duty Value excess of 10% of excess of 10% Sales value. considered for 43CA addition Hemant Raknikath 41,77,500 33,09,122 8,68,378 5,37,466 Shah Kunal Prakash 41,15,864 31,67,500 19,48,364 16,31,614 Baramati Ishwar 41,15,864 35,00,000 6,15,864 2,65,864 Devashi Vardhaman 41,76,858 36,15,460 5,61,398 1,99,852 Uddhavrao Khutale Amar Manohar 39,78,002 35,00,000 4,78,002 1,28,002 Bhusnar Annie Thomas 59,48,000 51,10,650 8,37,350 3,26,285 TOTAL 2,22,02,732 53,09,356 30,89,083 Note : The CIT(A) mentioned addition to an extent of Rs.30,89,083/- by inadvertent mistake and the same may be read as Rs.20,89,083/-.

Before us, the ld. AR, Shri Suhas Bora submits that the stamp duty value is not conclusive for determination of fair market value of properties. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value. The object of the valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value on which it may be purchased by purchaser.

Further, he submits that the AO was failed to make a reference to DVO if there is any difference between sale value and stamp value instead of applying the provisions of section 43CA of the Act. He argued that the provisions u/s. 43CA of the Act provides that the provisions u/s. 50C(2) and 50C(3) shall apply in relation to determination of fair market value. He argued that it is mandatory on the AO to refer to the DVO before applying the provisions of section 43CA if the stamp value exceeds the fair market value of the asset as on date of transfer. The ld. AR further above proposition placed reliance on the many decisions reflected in its written submissions in paras 6 to 8.

The ld. DR, Shri Asif A. Karmali deferred with the submissions of ld. AR. He submits that the assessee did not respond to the first notice issued by the AO and no response as such to the second notice as well. In spite of having many opportunities the assessee could not appear before the AO in support of its claim. He placed reliance on the orders of AO.

Having heard both the parties, we note that in para 4.3 of the assessment that the stamp value is Rs.11,04,02,722/- and the sale value is Rs.10,25,86,274/- giving rise to the difference at Rs.78,16,448/-. Admittedly, there was no response to first notice issued by the AO on 24- 09-2015 to the assessee in assessment proceedings. There was response to the second notice by the assessee wherein it appears filed certain details including GPA. Thereafter, we note that the assessee neither filed any application seeking adjournment nor assisted the AO in the assessment proceedings in support of its claim. Thereby, the AO added the difference between the above said difference to the gross income of assessee. The assessee made appearance before the CIT(A) and the contentions of which raised in the first appeal we already discussed in the aforementioned paragraphs. We note that the assessee made an alternative plea by placing reliance on case laws and was contended there should not be any addition if the difference between the same value of stamp duty is less than 10%. Considering the alternative plea raised by the assessee and also taking support from decisions, the ld. CIT(A) restricted the addition to an extent of Rs.20,89,083/-(see “Note” below para 6).

Admittedly, it is on record that the assessee itself proposed that they should not be any addition if the difference between the sale value and stamp duty is less than 10%. In spite of which the assessee before us agitating the order of CIT(A). Now, the issue would arise whether the assessee is entitled to challenge the action of CIT(A) before us to adopt the procedure contemplated in section 50C(2) and 50C(3) of the Act. The assessee filed written submissions before us wherein we note that the stamp duty value is not conclusive for determination of fair market value of property and it is mandatory on the AO to refer the issue to the DVO for determination of fair market value in terms of section 50C(2) and 50C(3) of the Act. We note that admittedly the AO find the difference between sale value and stamp duty value but, did not refer to DVO for determination of fair market value u/s. 50C(2) and 50C(3) of the Act but however he adopted the procedure contemplated u/s. 43CA of the Act wherein it explains the consideration received or accruing as a result of the transfer of an asset is less than the value adopted or assessed or assessable by any authority of a State Government, the value adopted by such authority shall be deemed to be the full value of consideration for the purpose of profits and gains from transfer but however in our opinion is subject to the satisfaction the provisions contemplated in sub-section (2) of section 43CA of the Act. Admittedly, there was no occasion left to AO in assessment proceedings to refer the issue to the DVO for determination of fair market value. As discussed above, the assessee placed reliance on the orders of this Tribunal and they are on record by way of legal compilation. This Tribunal in the case of K.K. Nag Ltd. Vs. Addl. CIT in & 1305/PUN/2010 for A.Ys. 2005-06 and 2006-07, order dated 25-05-2012 held that the AO ought to have referred the matter to the Valuation Officer instead of straightaway deeming the value adopted by the Stamp valuation authority as the full value of consideration. In a such situation where the assessee claims before the AO that the value adopted or assessed by the Stamp valuation authority exceeds fair market value, the AO shall adopt the course mentioned in section 50C(2)(a) of the Act. In the present case, the assessee contended before the CIT(A) about the AO not referring the matter to the file of Valuation Officer but however on the alternative plea the CIT(A) restricted the addition to the extent indicated above. Since, the contention made before us that it is mandatory for AO referring to DVO for determination of fair market value in our considered opinion, we deem it proper to remand the issue to the file of AO to follow the procedure contemplated under the Act. The assessee is liberty to file all evidences in support of its claim. Thus, the order of CIT(A) is set aside.

In the result, the appeal of assessee is allowed for statistical purpose.