By TIOL News Service

MUMBAI, JULY 01, 2016: THE issue is - Whether it is open to AO to refer matter to the DVO u/s 55A, if the stamp duty value is lower than the agreement value. NO is the answer.

Facts of the case

The assessee is engaged in the business of textile manufacturing. During the A.Y 2009-10 the assessee company has sold a property comprising land and structures. An agreement for sale had been entered into with assessee and M/s Future Communications Ltd. for a total consideration of Rs. 40 crores. The assessee was the owner of the premises and structures as on the date of sale agreement. The property was situated at Mohili, Village Mohili, Safed Pool, Kurla Andheri Road, Andherti (East), Mumbai, Taluk South Saldette Sub District of Bandra, District Bombay Suburban bearing survey No. 50 and 06 and CST 832. The assessee had declared long term capital gain on the land and short term capital gain on the structures. The AO made reference to the DVO for determination of the fair market value of the property in accordance with the provisions of section 55A and the DVO submitted the fair market value at Rs. 40,60,99,000/-. The assessee was therefore show caused as to why adverse inference regarding the computation of capital gains on sale of property may not be made in the light of the valuation report of DVO. After considering assessee's submissions, the AO held that u/s 55A(a), the AO could refer the valuation of capital asset to the Valuation Officer for determination of the fair market value in case the value of asset claimed by the assessee was in accordance with the estimate made by the Registered Valuer, if the AO’s opinion that the value so claimed was less than the fair market value. Hence, assessment was completed after taking into consideration as assessed by the DVO.

Onappeal, the CIT(A) after considering the submission of the assessee noted that the assessee had declared LTCG of Rs. 30 crores on sale of land and STCG of Rs. 2 crores on structures as per the assessment order. The CIT(A) observed that the difference between DVO report and assessee’s valuation was of 1.01%. The DVO had valued the structure after demolition and hence the appeal of the was allowed by the CIT(A).

Having heard the parties, the Tribunal held that,

++ it is observed that for the purpose of computation of capital gain, the full value of consideration received has to be taken based upon the actual value of sale of property which is higher than the stamp duty value in accordance with the provisions of section 50C. In this case the full value of the property is comprised of land and building amounting to Rs. 40 crores while the stamp duty value determined at Rs. 25,14,76,226/-. In our considered opinion, the AO erred in referring the matter to the DVO u/s 55A as reference can only be made if the stamp duty value is higher than the agreement value. In our considered view, the addition made by the AO cannot be upheld.

(See 2016-TIOL-1177-ITAT-MUM)