VINOD KUMAR MEHTA,GURGAON vs. ITO, GURGAON

O R D E R PER S.V. MEHROTRA, A.M :

This is an appeal filed by the assessee against the order dated 18.08.2016 passed by the Commissioner of Income Tax (Appeals)-1, Gurgaon, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) relating to assessment year 2013-14.

“2. A perusal of records shows that the assessee has sold a property bearing No. K-I0/40, DLF Phase-II, Gurgaon measuring 1657 square feet for a consideration of Rs. 28 lac. The assessee submitted that he executed a sale of first floor (which was stated to be sold on 10.04.2006 through GPA and agreement) of shop No.K-10/40, DLF Phase-II, Gurgaon and the basement was sold on 10.01.2013. As per sale deed, the total sale consideration was received at Rs.28 lac and after excluding the cost of first floor of Rs. 15,00,000/-, the assessee has declared the value of ground floor at Rs.13,00,000/-. The assessee submitted that after indexing the cost, long term capital gain has been declared at Rs. 13,223/. On perusal of sale deed it is noticed that the Stamp Valuation Authority has taken the value of said property at Rs. 54,68,100/-. The assessee was required vide order sheet entry dated 26.10.2015 to show cause as to why provisions of section 50 C be not invoked for calculation of long term capital gains and also required to explain as to why addition be not made on the basis of adopting the cost of property as determined by the Stamp Valuation Authority. In response to query raised, the assessee submitted the written reply. In the written reply the assessee has submitted that the long term capital gain proposed at Rs.41,81,523/- is absolutely wrong as the assessee had deducted amount of consideration of Rs. 15 lac for the first floor out of Rs. 28 lacs total consideration shown in the sale deed to arrive at the consideration of Rs. 13 lac for the basement.

Indexed cost Rs. 12,86,677/- Long Term Capital Gains Rs.26,81,423/-”

3. He, accordingly, made an addition of Rs.26,68,200/- under the head ‘Long Term Capital Gains’. Before ld. CIT(A), it was submitted that the Assessing Officer had a choice under sub-section 50C(1) to refer the matter before the Valuation Officer and, therefore, he should have done that since the circle rate fixed was not final. Ld. CIT(A) pointed out that for the purposes of reference to the Valuation Officer, the conditions prescribed u/s 50C(2)(a)(b) have to be fulfilled. He pointed out that ld. counsel for the assessee did not make any claim in writing before the Assessing Officer.

He, therefore, upheld the assessment order. Being aggrieved, the assessee is in appeal before the Tribunal and has taken following grounds of appeal :-

“1. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-1, Gurgaon {CIT(A)} erred in confirming the action of the Income Tax Officer in holding that the provisions of section 50C of the Income Tax Act, 1961 (Act) applied in respect of sale of basement of K-10/40, DLF Phase-II, Gurgaon {Basement}.

2. That on the facts and in the circumstances of the case, and without prejudice to ground of appeal no.1 above, CIT(A) erred in holding that the provisions of section 50C(2) of the Act were not applicable in the case of the appellant as the appellant allegedly made no claim before the ITO that the value of the Basement assessed by the stamp valuation officer exceeded its fair market value. 3.1 That on the facts and in the circumstances of the case, and without prejudice to the generality of grounds of appeal no.1 & 2 above, CI!T(A) erred in confirming the long term capital gain of Rs.26,86,423/- arising out of the sale of Basement as against Rs. 13,223/- shown by the appellant.

3.2 That on the facts and in the circumstances of the case, the aforesaid computation of Long Term Capital Gain is arbitrary & highly excessive. 4. The Appellant craves liberty to add, vary or amend any grounds of appeal.”

4. At the time of hearing, ld. counsel for the assessee pressed only ground no.2 and pointed out that the provisions of section 50C(2) permits the assessee to contend before assessing authority that the registration value fixed under Stamp Act is excessive and does not correspond with the fair market value of the property as on the date of the transfer subject to condition that the assessee had not challenged the levy of stamp duty under the Stamp Act before any forum. He submitted that Assessing Officer being quasi-judicial authority should have referred the matter to DVO because of vast difference in valuation. He pleaded that the matter may be referred to the Assessing Officer for being referred to DVO for valuation of property.

5. I have considered both the parties and have perused the record of the case. The assessee had raised specific plea before the ld. CIT(A) in regard to reference to be made to DVO as there was wide difference between valuation arrived at by Stamp Valuation Authorities and as per sale deed.

From the observations of Assessing Officer, reproduced earlier, it is evident that the assessee had disputed the capital gains proposed at Rs.41,81,523/- on the ground that the assessee had deducted a consideration of Rs.15 lacs for the first floor. However, when this claim was rejected then the Assessing Officer being quasi-judicial authority should have referred the matter to the DVO for arriving at proper valuation of the property. The Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal vs. CIT (2015) 372 ITR 83 (Cal) has observed as under :-

“We have considered the rival submissions advanced by the learned advocates appearing for the parties. The submission of Ms. Ghutghutia that the requirement of clauses a) and (b) of sub-Section 2 of Section 50C has not been met by the assessee, can hardly be accepted. The requirement of clause (b) of sub-Section 2 of Section 50C was evidently met. The only question is whether the requirement of clause (a) of sub-Section 2 of Section 50C was met by the assessee. We have already set out hereinabove the recital appearing in the Deeds of Conveyance upon which the assessee was relying. Presumably, the case of the assessee was that price offered by the buyer was the highest prevailing price in the market. If this is his case then it is difficult to accept the proposition that the assessee had accepted that the price fixed by the District Sub Registrar was the fair market value of the property. No such inference can be made as against the assessee because he had nothing to do in the matter. Stamp duty was payable by the purchaser. It was for the purchaser to either accept it or dispute it. The assessee could not, on the basis of the price fixed by the Sub-Registrar, have claimed anything more than the agreed consideration of a sum of Rs.10 lakhs which, according to the assessee, was the highest prevailing market price. It would follow automatically that his case was that the fair market value of the property could not be Rs.35 lakhs as assessed by the District Sub Registrar. In a case of this nature the assessing officer should, in fairness, have given an option to the assessee to have the valuation made by the departmental valuation officer contemplated under Section 50C. As a matter of course, in all such cases the assessing officer should give an option to the assessee to have the valuation made by the departmental valuation officer. For the aforesaid reasons, we are of the opinion that the valuation by the departmental valuation officer, contemplated under Section 50C, is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub Registrar for the purpose of stamp duty. The legislature has taken care to provide adequate machinery to give a fair treatment to the citizen/taxpayer. There is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. Even in a case where no such prayer is made by the learned advocate representing the assessee, who may not have been properly instructed in law, the assessing officer, discharging a quasi judicial function, has the bounden duty to act fairly and to give a fair treatment by giving him an option to follow the course provided by law.”