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Facts
The assessee, an NRI, sold two immovable properties. The Assessing Officer (AO) re-opened the assessment for AY 2015-16 after the assessee filed a delayed return. The AO computed Long Term Capital Gains (LTCG) based on a valuation by the Department Valuation Officer (DVO), considering the sale consideration to be Rs.1,88,28,478/- instead of the declared Rs.1,75,50,000/-.
Held
The Tribunal held that the variation between the declared sale consideration and the DVO's valuation was less than 15%. Relying on Supreme Court and Tribunal decisions, it was concluded that such a negligible variation does not warrant any addition to the income. Therefore, the additions made by the AO were directed to be deleted.
Key Issues
Whether the addition to the income is warranted when the variation between the declared sale consideration and the DVO's valuation is less than 15%?
Sections Cited
Sec. 148, Sec. 55A(b)(i), Sec. 50C, Chapter XX-C, Sec. 269UD, Sec. 52, Sec. 45
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Assessing Officer (hereinafter in short ‘the AO’), Chennai, passed on 02.01.2024 for the Assessment Year (hereinafter in short "AY”) 2015-16 pursuant to the directions of the Dispute Resolution Panel-2, Bengaluru (hereinafter in short ‘DRP’).
At the outset, we note that there is delay of thirty-one (31) days in filing this appeal. Having gone through the contents of the application for condonation of delay, we are satisfied that there was sufficient cause for condoning the delay; and we condone the delay and proceed to deal with the appeal of the assessee.
The brief facts are that the assessee is an NRI who had sold two (2)
immovable properties at Krishnarajapuram, Bengaluru, for a total consideration of Rs.1,75,50,000/-. According to the AO, despite having taxable income as a result of such transfer of immovable property, the assessee failed to file return of income for AY 2015-16; and therefore, he re-opened the assessment of the assessee and noted that pursuant to his notice u/s.148 of the Act dated 30.03.2022, the assessee filed return of income on 28.02.2023, admitting taxable income of Rs.83,44,090/- and paid tax of Rs.25,19,260/- on 07.03.2023. And since, the assessee asserted before AO that he has sold the immovable properties on Fair Market Value (FMV), which was less than the value determined by Stamp Valuation Authority, the AO referred the same viz valuation of both the properties to Department Valuation Officer (DVO) u/s.55A of the Act.
However, the AO noted that since the assessment was getting time- barred, he proceeded to complete the assessment by computing Long Term Capital Gains (LTCG) at Rs.1,40,35,583/- and after considering assessee had offered Rs 83,44,090, he finally worked out the LTCG at Rs 56,91,493/-. Assessee objected before the DRP; and the DRP directed the AO to re-compute the LTCG adopting the deemed value of consideration to be at Rs.1,88,28,478/- [as valued by DVO in place of consideration shown by assessee at Rs 1,75,50,000/-] and accordingly, the AO re-computed LTCG at Rs.1,15,64,061/-. Assailing the action of the AO, the Ld.AR drew our attention to the chart below which shows the sale consideration received by assessee, stamp value on that valuation, and the DVO valuation, which are noted as under:
Assessee As per sec.50C(1) DVO of the Act Sale consideration of 85 lakhs 75,35,369 property No.1 by the assessee Rs.70 lakhs Property Rs 1,05,20,000 1,28,00,000 1,12,93,109 Total 1,75,50,000 2,13,00,000 1,88,28,478
According to the Ld.AR, the Ld.DRP erred while directing the AO to adopt FMV as determined by the DVO, because, the DVO failed to see that the difference in value adopted by the assessee and the value adopted by the DVO is less than 15%. Consequently, according to the Ld.AR, no interference in value declared by the assessee was called for and pointed out that the difference is only Rs.12,78,478/- (Rs.1,88,28,478/- minus Rs.1,75,50,000/-) which is less than 10%. According to the Ld.AR, the assessee having disclosed the value of sold immovable properties at Rs.1,75,50,000/-; and the DVO arrived at a value of Rs.1,88,28,478/-, which difference (in value) was within the tolerance limit of less than 15% and therefore, no addition was warranted in this case; and in order to support such a contention cited and Sec.55A(b)(i) of the Act, which allows, that if the variation is less than 15%, no addition was liable to have been made and also cited the decision of this Tribunal in the case of S.D. Vimalchand Jain, HUF v. ITO in for AY 2009- 10 order dated 04.10.2018, wherein, on similar grounds, the Tribunal held as under:
5.1 We are not going into estimating the net value of land under the pretext of probable increase in land value on account of time gap between guideline value date and the transaction date as the addition made by the Id. Assessing Officer and sustained by the Ld.CIT(A), is being deleted on account of variation which is less than 10% in view of the provisions of the section 55A(b)(i) of the Act.
The Ld.AR also cited the decision of the Hon’ble Supreme Court in the case of CB Gautham v. UoI reported in [1993] 199 ITR 530 (SC), wherein, it was held as under:
The legislative history of Chapter XX-C, the stand taken by the Union of India and the Central Board of Direct Taxes as shown in the main counter affidavit and the affidavit of H.K. Sarangi, which has been filed after obtaining instructions from the Income Tax Department and the Central Board of Direct Taxes makes it clear that the powers of compulsory purchase conferred under the provisions of Chapter XX-C of the Income-Tax Act are being used and intended to be used only in cases where in an agreement to sell an immovable property in an urban area to which the provisions of the said Chapter apply, there is a significant under valuation of the property concerned, namely, of 15 per cent or more. If the appropriate authority concerned is satisfied that in an agreement to sell immovable property in such areas as set out earlier, the apparent consideration shown in the agreement for sale is less than the fair market value by 15 per cent or more it may draw a presumption that this under valuation has been done with a view to evade tax. Of course, such a presumption is rebuttable and the intended seller or purchaser can lead evidence to rebut such a presumption. Moreover, an order for compulsory purchase of immovable property under the provisions of Section 269UD requires to be supported by reasons in writing and such reasons must be germane to the object for which Chapter XX-C was introduced in the Income Tax Act, namely, to counter attempts to evade tax.
The conclusion that the provisions of Chapter XX-C are to be resorted to only where there is significant under valuation of the immovable property to be sold in the agreement of sale with a view to evading tax finds support from the decision of this Court in the case of K.P. Varghese v. Income-Tax Officer, Ernakulam and Anr.: [1981]1311TR597(SC). Section 52 in the Income-Tax Act, 1961, which has now been deleted, came up for consideration before a Bench comprising two learned Judges of this Court. Very briefly put that section provided that where a person acquired a capital asset from an assessee connected with him and the Income-Tax Officer had reason to believe that the transfer was effected with a view to avoid or reduce the liability of the assessee under Section 45 to the tax on capital gains and with that object that the transfer of the capital asset was being made at an under-value of not less than 15%, for the purposes of taxing the assessee, the full value of the consideration was taken to be its fair market value on the date of the transfer. It was pointed out by the Bench that Sub-section (1) of Section 52 did not deal with income to accrue or to be received, which in fact was never accrued and was never received. It sought to bring within the net of taxation only that income which has accrue or is received by the assessee as a result of the transfer of the capital asset and since it would not be possible for the Income-Tax Officer to determine possibly how much more consideration is received by the assessee than that declared by him, Sub-section (1) provides that the fair market value of the property as on the date of transfer shall be taken to be the full value of the consideration which has accrued or has been received by the assessee. The onus of establishing that the conditions of taxability are fulfilled is always on the revenue. In that case it was urged on behalf of the revenue that under the provisions of Section 52(2) once the Income-Tax Officer is satisfied that the condition of the consideration declared by the assessee in respect of the transfer is less by 15% or more than the fair market value, the capital gains can be computed on the footing that the fair market value was the consideration received by the assessee. This submission was rejected by this Court. It was pointed out that the submission would be justified only on a strict literal reading of Sub-section (2) of Section 52 but that such a construction could not be adopted. The Court observed that the task of interpretation of a statutory enactment is not a mechanical task. The famous words of Judge Learned Hand of the United States of America that ".... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing; be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning were quoted with approval. After considering various authorities and the historical setting in which the provisions of the said Section were enacted, it was held that the fair and reasonable construction to put on the provisions of Sub-section (2) of Section 52 would be to so construe it that it would apply only when the consideration for the transfer is under-stated or, in other words, only where the assessee has actually received a larger consideration for the transfer than that what is declared in the instrument of transfer and it could have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee (See page 606 of the Report).'
In the aforesaid decision, according to the Ld.AR, the Hon’ble Supreme Court held that since the deemed consideration taken by the lower authorities didn’t exceed the actual sale consideration by 15% (less than 15%), it was held that no addition was warranted. Therefore, the Ld.AR wants us to delete the addition being less than 15% value as shown as sale consideration by assessee in the registered documents vis- a-vis that valued by DVO.
Per contra, the Ld.DR submitted that the variation allowed by sec.50C (proviso) was only 5% and therefore, the plea of the assessee should not be accepted; and also pointed out that only 10% tolerance/variation has been allowed w.e.f.01.04.2021, which is prospective in nature and can’t be applied retrospectively.
We have heard both the parties and perused the material available on record. We note that in this case, the assessee had sold two immovable properties at Bengaluru at a total sale consideration of Rs.1,75,50,000/-, whereas, the DVO has determined the FMV at Rs.1,88,28,478/-. According to the assessee, the variation between the FMV of the assets sold didn’t exceed the value of the asset as determined by the DVO by more than 15%, which is threshold limit, which could have permitted the AO to refer at the first place the disputed-value of the capital asset for valuation u/s.55A(b)(i) of the Act to the DVO; and since, the FMV of the assets in question didn’t exceed 15%, (as evident from the report/valuation of DVO), the AO couldn’t have even referred the ibid valuation of properties to the Valuation Officer. In this regard, we note that it isn’t disputed that the variation between the DVO’s report as well as the sale consideration shown by the assessee doesn’t exceed 15%.
Therefore, relying on the ratio of the decision of the Hon’ble Supreme Court in the case of CB Gautham and the decision of the Tribunal in the case of S.D. Vimalchand Jain, HUF (supra), we are of the considered opinion that the negligible variation doesn’t warrant the addition and therefore, we direct the deletion of the additions made by the AO pursuant to the direction of the Ld DRP.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 21st day of August, 2024, in Chennai.