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Facts
The assessee sold a plot of land for Rs. 2.50 Crore in Faridabad, which was below the prevailing circle rate of Rs. 30,000 per sq. yard. The Assessing Officer (AO) made additions of Rs. 55,33,300/- for the difference in stamp duty value (under Section 50C) and disallowed Rs. 4,50,000/- paid as brokerage/commission. The assessee argued that the lower sale price was justified due to encroachments and temporary structures on the property, and that the DVO's valuation and the CIT(A)'s affirmation did not properly account for these ground realities or the subsequent decline in circle rates.
Held
The Tribunal found the assessee's objections to be genuine, noting that the DVO had failed to provide adequate opportunity to the assessee to present their case and did not consider the impact of property encroachment or the decline in circle rates. Consequently, the Tribunal remanded the entire matter back to the Assessing Officer for fresh adjudication, directing them to consider all the specific grounds raised by the assessee, including the factual conditions of the property and the revised circle rates.
Key Issues
Whether additions under Section 50C, based on circle rate, were justified without considering ground realities like encroachment, temporary structures, and subsequent decline in circle rates. Whether the DVO's valuation was validly adopted when the assessee was not given proper opportunity to object and their submissions were not addressed. Whether the disallowance of brokerage/commission lacked proper justification.
Sections Cited
Section 50C, Section 131, Section 23A, Section 23A(1)(i), Section 23A(6), Section 16A, Section 24, Section 34AA, Section 35, Section 37
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. Kumar, Sh. Yogesh Kumar US
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. CIT(A)-5, New Delhi dated 28.06.2019.
Following grounds have been raised by the assessee: “1. Whether the Ld. CIT (A) was justified by upholding the additions made by the Ld. AO amounting to Rs. 55,33,300/- by adopting circle rate as sale value of property without considering the ground realities. Therefore, the same is unlawful, on surmises and unjustified because it is not based on any tangible material/Evidence.
2. Whether the Ld. CIT (A) was justified in upholding the assessment order passed by Ld. A.O. making additions of Rs. 55,33,300/- by not considering the actual sale consideration as sale value and instead adopting circle rate as sale value of property without considering the written submissions along with documentary evidences filed by the assessee.
Lords Fincap Ltd.
3. Whether the Ld. CIT (A) was justified by upholding the assessment order passed by Ld. A.O. making additions of Rs. 55,33,300/- without receipt of the valuation report of DVO.
4. Whether the Ld. CIT (A) was justified by upholding the order of Ld. A.O. without appreciating the justification filed by the appellant, along with documentary evidence, whereas, there was no occasion to draw adverse view despite the fact no dispute on the evidences filed.
5. Whether the Ld. CIT (A) was justified by in upholding the assessment order passed by Ld. A.O. making additions of Rs. 4,50,000/- by disallowing the brokerage/commission paid in connection to sale of plot to M/s N.V. Marketing Pvt. Ltd. without bringing any tangible material/evidence on record and solely based on surmises and his own assumptions and presumptions.
The assessee bought a plot of land admeasuring 1011.11 sq. yards vide sale deed dated 15.02.2005. The assessee through its director entered into MOU dated 20.06.2014 with the seller namely, Dr. Kamal Agarwal and Mrs. Sonia Agarwal for sale of a subject plot of land situated at Faridabad for a consideration of Rs. 2.50 Crore whereas the circle rate was, Rs. 30,000/- per sq. yards. The assessee through its director also entered into Agreement to sale and purchase with the buyer on 20.06.2014 for the same consideration of Rs. 2.50 Crore as mentioned above and land was sold. The case of the assessee was selected for manual scrutiny under CASS wherein the issue was raised by the Assessing Officer w.r.t. 'sale consideration for sale of property shown at less than Stamp Duty Value.’ During the course of scrutiny assessment proceeding, the Assessee submitted that there were encroachment on the land vide letter dated 06.10.2017 before the Assessing Officer. The statement of the buyer was recorded u/s 131 of the Act on 06.10.2017 by Lords Fincap Ltd. the Assessing Officer wherein the buyer affirmed the encroachment on the subject land. The encroachment was also confirmed by the broker Mr. Pradeep Bajaj who was a third party in the aforementioned transaction. After due enquiries, the Assessing Officer has taxed the amount of Rs.55,33,300/- on account of difference in the stamp duty value and also disallowed the commission of Rs.4,50,000/-.
Aggrieved, the assessee filed appeal before the ld. CIT(A).
The submissions of the assessee before the ld. CIT(A) are as under:
“a) The assessee has sold a plot no. 9 situated in interior in sector 21-B, Faridabad measuring 1011.11 square yards. This plot was also having temporary construction inhabitable residential structure for accommodating low class families like chowkidar, peon etc. This structure was not a permanent civil structure embedded in earth. b) The assessee sold this plot to Dr. Kamal Agarwal at a sale consideration of Rs. 2,50,00,000/-. The temporary construction was occupied by a low class family of chowkidar was not authorized by the seller and was not vacating the premises. This fact was also inspected by the purchaser (As per MOU dated 20.06.2014), copy enclosed agreeing to the sale consideration. In addition to this viewing to the interior location of the plot the sale deed could be struck at Rs. 2,50,00,000/- which was lower than the prevailing circle rate in the area for the purpose of stamp valuation. c) This fact was also brought to the notice of assessing officer during the assessment proceedings with respect to refer the matter to D.V.O. The assessing officer completed the assessment taking the circle rate value of Rs.30,000/- per Square yard, hereby assessing the value at Rs. 3,03,33,300/-. Thus the assessment was completed without obtaining the D.V.O report before its completion.
Lords Fincap Ltd. d) Reference to the D.V.O. report dated 03.05.2019 the assessee raised objections to the report submitted by the D.V.O. being unfair and unjust and without considering the objections raised by the assessee vide letter dated 03.05.2019 and also send through the speed post dated 04.05.2019 with documentary evidence objecting the additional valuation of civil structure taken in preliminary report as well as prevailing circle rate for the adjoining area. e) However in this valuation reports vide Page 1 Para B) the following statement is highly incorrect and not acceptable: "Whereas the assessee did not state his objections in writing/verbal in person to the proposed estimate". f) In this regard, we draw your kind attention to the letter dated 03.05.2019 addressed to the valuation officer raising our objection and is self-explanatory. It is factually correct but contrary to the Para B) of valuation report. g) Moreover with regard to the stamp act valuation we submit that the stamp act was not an act that validated, permitted or regulated sales of property. It only assessed the transactions for payment of a levy to the exchequer. This was held in the case of Pinak Bharat & Co. and Bina V. Advani vs. Anil Ramrao Naik, Comm. Execution Application No. 22/2016, order dated 27.03.2019 (Boom). There has been number of decisions where it has been held that the stamp act valuation is not binding on the assessee. We quote some of the decision as under:-
1) Jawajee Nagnathan (1994) 4 SCC 595 (SC), Mohabir Singh (1996) 1 SCC 609 (SC), Chamkaur Singh, AIR 1991 P & H 26. In view of above facts, we do not accept the valuation report drafted without considering our objection and is therefore against the natural justice to the assessee." h) The final valuation report submitted by DVO indirectly shown ex party order as the objection raised by the appellate by letter dated 3 May, 2019 have not been dealt with. This is grossly unjust and unfair denying the principal of natural justice in the income tax proceedings which is in the nature of quasi judicial proceeding. The copy of the letter is enclosed. The objection raised by the appellant assessee to the final valuation report was on the two issues as under.
Lords Fincap Ltd. i) The appellate assessee has stated that circle rate of Rs.30,000 per square yard considered by DVO do not represent the fair market value prevailing in the year when sale transaction has taken place in the year of sale. For this we draw the attention by enclosing the documentary evidence of revised circle rate of the same area for the year 2018 which are placed at Rs. 26,500 per square yard issued by the district collector Faridabad. The Estate authority have downgraded the circle rate from 30000 to 26500 per sq yard in the subsequent year reflect that the circle rate issued in 2015 and adopted by the valuation officers were not fair and correct to the prevailing market rates. j) The appellate assessee has raised the objection to the additional Valuation made on account of building structure value placed at Rs. 13,99,062/-. This valuation of structure has been given by the DVO despite the fact that the structure was temporary and not embedded to the earth and also did not exist physically on inspection carried out by the DVO. This depreciated value of structure is fully unfair and unjust under the fact and circumstances of the case, when it was not an issue in the assessment order passed by the learned ACIT.
Under the income tax Act your honor has been empowered to examine on the merits and facts of the case, the valuation report of the DVO and to pass the adjudication order. We draw your kind attention to the provisions inbuilt under section 50C sub section 2 adopting the provisions of the wealth tax section 23A, 24, 34AA, 35 and section 37 applies with necessary modification. The relevant extract of section 23A(1)(i) of the wealth tax act provides that Any person objecting to any order of the valuation officer under section 35 having the effect of enhancing the valuation of any assets or refusing to allow the claim made by the assessee under the said section may appeal to the Commissioner (Appeals) against the assessment or order as the case may be, in the prescribed form and verifies in the prescribed manner. k) In this context we rely on the ITA No. 2107/Ahd./17 dated 01.04.2019 in the case of Lovy Ranka Vs. DCIT (ITAT Ahmadabad) which has held as under: 'in effect thus, by the virtue of section 23A(1)(i) being incorporated, with necessary modifications, in section 50C, the correctness of a DVO's can indeed be challenged. It is, however, also Important to note that the provisions of section 23A(6) of the Wealth Tax Act shall, with necessary modifications, also apply in the present context- as Lords Fincap Ltd. has been provided in section 50C(2) itself. Section 23A(6) of the Wealth Tax Act provides as follows: If the valuation of any asset is objected to in an appeal under clause (a) or clause (1) of sub- section (1), the commissioner (Appeals) shall,- (a) In case where such valuation has been made by a valuation officer under section 16A, give such valuation officer an opportunity of being heard. (b) In any other case on request being made in this behalf by the assessing officer, give an opportunity of being heard to any valuation officer nominated for the purpose by the assessing officer. Thus the above provision provides that if the correctness of the DVO's report is called in to question in an Appeal before the CIT(A), the DVO is required to be given an opportunity of being heard. In view of the scheme of the law to the relevant wealth tax Act provisions stated above, specifically incorporated in section 50C(2) perhaps for assessing correctness of the DVO report, Your honor is prayed to consider accordingly to give justice and fairness to appellant assessee. We also pray to your honor that in order to arrive at the fairness to the circle value to the market value prevailing in the year of sale, may obtain the reasons of downgrading the circle rates in 2018 from 30000 per square yard to 26500 per square yard from the estate office of the collector Faridabad.”
The ld. CIT(A) affirmed the action of the Assessing Officer.
Aggrieved, the assessee filed appeal before us.
Before us, the ld. AR reiterated the arguments taken up before the authorities below and the ld. DR relied on the orders of the ld. CIT(A).
Lords Fincap Ltd. 9. Heard the arguments of both the parties and perused the material available on record.
We have also gone through the additional grounds taken up by the assessee on 30.06.2022 which are as under:
(A) “Whether the ld. CIT(A) was justified in enhancing the assessment by an amount of Rs.13,99,100/- on the basis of report of DVO without giving the appellant a reasonable opportunity of showing cause against such enhancement. (B) Whether the ld. CIT(A) was justified in not directing the DVO to consider the written submissions and documents submitted by the appellant in response to preliminary valuation report of the DVO and facts relating to building structure provided as prayed for by the appellant. (C) Whether the ld. CIT(A) was justified in not asking the District Collector the reasons for of circle rate relating to the property from Rs.30,000/- to Rs.26,500/- in the year 2018 as prayed by the appellant.”
From the above, we find that the objections of the assessee are genuine and need to be considered by the Revenue. The DVO has not given opportunity nor given benefit of encroachment which has been examined by the Assessing Officer. Hence, in view of the additional grounds taken up, the change in the circle rates owing to decline in the market demand, non-deduction of expenses and value owing to the encroached portion, we deem it fit to remand the matter to the file of the Assessing Officer to adjudicate the issue afresh.
Lords Fincap Ltd. 12. In the result, the appeal of the assessee is allowed for statistical purpose. Order Pronounced in the Open Court on 08/02/2024.