Addition u/s 50C of Income Tax Act based on SVA's Overvaluation of Capital Gain Sale Consideration : ITAT directs Readjudication [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) recently directed a readjudication due to an addition under Section 50C of the Income Tax Act, 1961. This addition was based on the overvaluation of capital gain sale consideration by the stamp valuation authority.

The assessee Nirmal Santra  filed an appeal against the order of Assessing Officer on an addition of Rs. 36,81,810/- invoking the deeming  provisions of Section 50C of the Income Tax Act.

Counsel for the assessee  Somnath Ghosh submitted that the case of the assessee is squarely covered by the decision of Calcutta  High Court in the case of Sunil Kumar Agarwal vs. CIT which held that  the price offered by the buyer was the highest prevailing price in the market. It concluded that the assessee did not accept the price fixed by the District Sub Registrar as the fair market value, as it was for the purchaser to dispute or accept the stamp duty.

Therefore, the assessing officer should have given the assessee the option to have the valuation conducted by the departmental valuation officer as mandated by Section 50C of the Income Tax Act. In that case the tribunal emphasized that the legislative machinery provided a fair treatment to taxpayers, and it should be utilized to avoid miscarriage of justice. Counsel for the revenue Ranu Biswas argued supporting the orders of both the lower authorities.

The bench, consisting of two members, Judicial Member Sanjay Garg  and Accountant Member Manish Borad, observed that the assessee  filed his  Income Tax Return using Form No. 3. They disclosed a long-term capital gain in the computation of capital gains section. The long-term capital gain was calculated to be Rs. 2,27,852/- based on a sale consideration of Rs. 15 lakh and index cost of acquisition and improvement of Rs. 12,72,148/-. The value of the property as per the Stamp Valuation Authority was Rs. 51,81,810/-, but for the purpose of capital gains, the assessee mentioned only Rs. 15 lakh as the full value of consideration as per Section 50C of the Income Tax Act.

However, when the case was processed under section 143(1)(a) of the Income Tax Act, the computer system automatically took the value of the property as per the Stamp Valuation Authority and computed the long-term capital gain accordingly. This resulted in an addition of Rs. 36,81,810/-. The assessee argued that the fair market value of the property was only Rs. 15 lakh, and d for this purpose a letter was also filed to the District Collector, Hooghly requesting to initiate the proceeding for determination of the market value of the land in question sold by the assessee.

The assessee had  claimed that the sale consideration received, Rs. 15 lakh, is equivalent to the fair market value of the land and not the value adopted by the Stamp Valuation Authority, which was Rs. 51,81,810/-

Therefore, the lower authorities ought to have referred the matter to the Departmental Valuation Officer for valuing the fair market value of the said property and the matter was restored to the jurisdictional Assessing Officer for carrying out necessary exercise of referring the matter to the Departmental Valuation Officer .

The addition made by the Centralized Processing Center (CPC) under Section 143(1) of the Income Tax Act was out of the scope and ambit of provisions of Section 143(1) of the Income Tax  Act, the Bench could not find any merit in the said ground since the CPC is equipped with computer software system and it picks up the data available in the income tax return.

Since in the respective column appearing in the head ‘capital gain’ the assessee has mentioned the value of consideration adopted as per Section 50C of the Income Tax Act for the purpose of capital gain as stated by the assessee in ITR Form No. 3 i.e. value of property as per Stamp Valuation Authority and processed the return accordingly.

Since the assessee had all rights to challenge such intimation under Section 143(1)(a) of the Income Tax Act, the ground raised by the assessee was dismissed.

In result, the appeal filed by the assessee was  partly allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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