Whether expression 'full value of consideration' used in marginal notes

Whether expression 'full value of consideration' used in marginal notes of Sec 50C means that value adopted by stamp duty authority is sacrosanct, and if AO wants to substitute it with FMV of property, positive material is sine qua non - Yes, rules ITAT

NEW DELHI, SEPT 20, 2011: THE questions before the Bench are - Whehter expression "full value of consideration" used in marginal notes to section 50C, means that value adopted by stamp valuation authority is sacrosanct, and if the AO wants to replace that value with "fair market" value of the property then positive material is sine qua non; Whether without any positive material AO has power to refer the matter to the DVO under section 142A for ascertaining the actual capital gain and whether in case of investment AO has discretion to refer the matter under section 142A to DVO for determination of fair market value of property. And the verdict goes in favour of the assessee.

Facts of the case

Assessee purchased certain property in 1996 and sold the same in 2003 at the same price at which it was purchased. In order to ascertain the real value of the property inspector of the revenue conducted enquiries and found that value of sale reflected by the assessee is not correct, accordingly the AO made reference to the DVO for ascertaining two things number one the market value of properties sold and two the correct value of investments made in properties- DVO enhanced the figure of both the transactions- AO made addition - CIT(A) deleted the addition on the ground that without any positive material AO can not made any addition on the basis of DVO `s report - Matter reached to the ITAT wherein the ITAT inclined to accept the order of CIT(A) in respect of capital gains however could not agree with the view of CIT(A) in respect of the FMV of investments- ITAT observed that as far as investment in those properties, which are fetching higher rent is concerned the view of the AO is correct as the same was based on human probabilities.

After hearing the parties the ITAT observed that,

++ on combined reading of sub section (1) and (2) of section 50C it is clear that in the absence of any material to the effect that the assessee had received amount over and above the value on which stamp duty is payable, the full value of consideration will be the value adopted for the purpose of stamp valuation in respect of transfer of the asset;

++ under section 142A of the Act the AO is empowered to refer to the valuation cell for the purpose of making an assessment or reassessment where an estimate of the value of any investment referred to in section 69 or 69B or the value of any bullion, jewellery or other valuable article, referred to in section 69A or section 69B. Thus provisions of section 142A are applicable where the value of investment is to be determined. Provisions of section 142A are not applicable for the purpose of determination of full value of consideration. Therefore, in our considered opinion, in the absence of any contrary evidence, full value of consideration cannot be estimated under section 142A;

++ from the sale deed or from the assessment order or appellate order of the ld. CIT (A) it is not clear as to whether the flat at Plot No. B-28, Lajpat Nagar, was transferred at circle rate prescribed for the purpose of stamp valuation. We, therefore, feel it proper to set aside the matter to the file of the AO with the directions to examine whether the value of the property sold is at Rs.14, 40,000/- or the value was higher as per circle rates applicable as on the date of transfer, than this amount for the purpose of stamp valuation;

++ from plain reading of the Memorandum explaining the provisions in Finance Bill, 2010 the Legislative intention is clear. The amendment to section 142A (1) has been made with a view to value the immovable property which is received by the assessee being an individual or a HUF from person other than relatives without any consideration. The assessing officer can make reference to the valuation officer under section 142A for determination of fair market value of the property for the purpose of assessment in respect of properties received without consideration referred to in section 56(2) of the Act and that too when assessee when assessee claims that the value adopted or assessed or assessable by stamp valuation authority exceeds the fair market value of the property as on the date of transfer. Therefore, it is incorrect on the part of the ld. counsel for the assessee to say that with effect from 1st July, 2010 reference to valuation cell can only be made in respect of immovable properties. Accordingly we reject this contention of the assessee;

++ here we would like to mention that in case of capital gains the Legislature has enacted section 50C, according to which, full value of consideration would mean the stamp value for the purpose of stamp duty for transfer of such asset. However, for the purpose of determination of investment made by the assessee the Legislature in its wisdom has made provision under section 142A for reference to valuation cell for the purpose of determination of market value of the investment. The Legislature is aware of the fact that in the hands of seller for the purpose of capital gains the full value of the consideration will be as per circle rates fixed for the purpose of stamp duty. However in the case of purchaser the sale consideration mentioned in sale deeds cannot be treated as full value of investment;

++ the assessee had made investment in purchase of shops located in one of the costliest area of Delhi. The assessee had received gross annual rent in respect of shop No. 11 and 12 at the rate of Rs.65,000/- per month totaling to Rs.7,80,000/-. The rent for shop No. 12-A was received at the rate of Rs.32,500/- per month and the annual rent will be at Rs.3,90,000. The total gross annual rent from these properties was determined at Rs.11,70,000/-. Thus minimum annual return from these properties was 11,70,000/- which cannot be fetched from properties valuing at Rs 24,00,000/-. The receipt of extra ordinary high returns from these properties suggests that value of the impugned properties should be much higher than the value shown by the assessee in sale deeds;

++ it is also a settled law that the Revenue cannot be asked to prove the impossible particularly in the circumstance where actual information is in possession of the assessee. The difference in valuation as per registered valuer's report or sale deed vis a vis DVO's report is not small. It almost is almost six times. Therefore, the decision of ITAT Delhi Bench in the case of ITO Vs. Five Star Healthcare P. Ltd. (supra) will be applicable;

++ ITAT, Delhi in the case of ITO Vs. Five Star Healthcare P. Ltd. (supra) for AY 2006-07 has held that the AO was right in invoking provisions of section 69 read with section 142A of the Act. In this case the assessee company had purchased land for consideration of Rs.7 lakhs. The AO observing that the land was under-valued, referred the valuation of the land to the DVO, who valued the property at Rs.22 lakhs. The AO made addition of Rs.15 lakhs towards undisclosed investment under section 69B of the Act. There was huge difference in the amount shown to have expended by the assessee on purchase of land and the amount representing the average rate of similar property in the area and the difference was almost three-fold. The assessee did not disclose proper value of investment made by it in the books of accounts. It was held that where there was under-statement of investment by the assessee, the difference being more than three-fold, section 69B was clearly attracted and there was no infirmity in the action of the AO when he made reference to the DVO under section 142A of the Act. The burden will be on the assessee to prove that it had actually paid the amount, which is stated in the title deed;

++ in view of above and following the decision of the ITAT, Delhi Bench in the case of Income-tax Officer Vs. Five Star Healthcare Ltd. (supra) it is held that reference to the valuation cell under section 142-A of the Act is justified;

++ net maintainable rent for the purposes of Rule 3 in relation to an immovable property shall be the amount of gross maintainable rent, as reduced by amount of taxes levied by any local authority in respect of the property and a sum equal to 15 per cent of gross maintainable rent;

++ it is not known whether the soaps purchased by the assessee are free-hold or lease-hold. If it is a case of lease hold property, proviso to Rule 3 will come into operation, according to which where the unexpired period of lease of such land is 50 years or more, the figure 10 should be taken in place of 12.5 and in a case un-expired of lease of such land is less than 50 years, the figure 8 has to be substituted in place of figure 12.5 In view of above, we feel it proper to set aside the matter to the file of the assessing officer with the directions to compute the value of the property as per Rule 3 of Schedule III of the Wealth-tax Act, 1957.