Section 50C Inapplicable if Actual Sale Price Exceeds Stamp Duty Value

I. Section 50C Inapplicable if Actual Sale Price Exceeds Stamp Duty Value.

Issue:

Whether Section 50C of the Income-tax Act, 1961, applies to make an addition based on a Valuation Officer’s determination, when the actual sale consideration declared by the assessee for a residential flat already exceeds the stamp duty value.

Facts:

For Assessment Year 2020-21, the assessee sold a residential flat for Rs. 2.10 crores, as per a registered sale deed dated January 21, 2020.
The Assessing Officer (AO) made an addition of Rs. 4,26,562/- under Section 50C by adopting a “fair market value” of Rs. 2,14,26,562/- as determined by the Valuation Officer.
Crucially, the actual sale consideration received by the assessee was Rs. 2.10 crores, while the applicable stamp duty value was only Rs. 92,96,400/-.
Thus, the sale consideration declared by the assessee (Rs. 2.10 crores) significantly exceeded the stamp duty value (Rs. 92,96,400/-).

Decision:

The court held in favor of the assessee. It ruled that once the assessee had already declared his long-term capital gains with a much higher (than stamp duty) value, Section 50C itself did not apply. Section 50C gets attracted only when the actual sale price comes to be less than the stamp/circle rates. Therefore, the impugned Section 50C addition of Rs. 4,26,562/- was to be deleted.

Key Takeaways:

Core Applicability of Section 50C: Section 50C is a deeming provision specifically designed to address situations where the actual sale consideration for land or building (a capital asset) is less than the value adopted or assessed by the stamp valuation authority for stamp duty purposes. Its objective is to prevent undervaluation of property for tax evasion.
Sale Consideration > Stamp Duty Value: If the actual sale consideration received or accruing as a result of the transfer is equal to or greater than the stamp duty value, then Section 50C has no application whatsoever. The actual sale consideration declared by the assessee should be taken as the full value of consideration for computing capital gains.
Valuation Officer’s Role under Section 50C(2): A reference to the Valuation Officer under Section 50C(2) is typically made when the assessee disputes the stamp duty value (claiming it is higher than the fair market value) and the AO is of the opinion that such a reference is warranted. This mechanism is to provide relief to the assessee, not to further enhance income when the stamp duty value is already lower than the declared sale price.
No Deeming if Condition Not Met: The deeming fiction of Section 50C cannot be invoked unless the primary condition (actual consideration being less than stamp duty value) is met.
Deletion of Addition: The addition made by the AO under Section 50C was correctly deleted because the foundational condition for its applicability was absent.

II. Computation of Capital Gains: Lump Sum Cost of Acquisition Fixed Due to Discrepant Valuation Reports.

Issue:

When an assessee, for computing capital gains on the sale of a residential flat, adopts a fair market value (FMV) as of April 1, 2001, based on a registered valuer’s report, but the Departmental Valuation Officer (DVO) determines a significantly different FMV, whether the court can fix a lump sum cost of acquisition in the interest of justice due to irregularities in both reports.

Facts:

For Assessment Year 2020-21, the assessee sold a residential flat for Rs. 2.10 crores.
For the purpose of claiming indexation benefit (as it was a long-term capital asset), the assessee adopted Rs. 20.15 lakhs as the fair market value of the property as of April 1, 2001, based on a report from a registered valuer.
However, the Departmental Valuation Officer (DVO) determined the fair market value as of April 1, 2001, to be Rs. 12,45,498/-. This showed a significant discrepancy between the two valuations.
The court observed that “some irregularity in both of them [valuation reports] on such a purely subjective issue, could not be per se ruled out.” This suggests the court found neither valuation entirely reliable.

Decision:

The court held that in the larger interest of justice, a lump sum cost of acquisition amounting to Rs. 18 lakhs only would be “just and proper” given the facts. This decision was made with a rider that it should not be treated as a precedent, and necessary computation should follow as per law. The matter was effectively remanded for computation based on this fixed cost of acquisition.

Key Takeaways:

Fair Market Value (FMV) as on April 1, 2001 (Section 48, Proviso): For capital assets acquired before April 1, 2001, taxpayers have the option to take the actual cost of acquisition or the Fair Market Value (FMV) as of April 1, 2001, whichever is higher, as their cost of acquisition for capital gains computation, subject to indexation.
Valuation Discrepancies: It is common for registered valuers and departmental valuation officers to arrive at different FMVs due to subjective elements in valuation methods, data interpretation, and market conditions.
Judicial Discretion in Factual Findings: When faced with conflicting and potentially flawed expert reports on a subjective matter like valuation, courts may, in the interest of justice, arrive at a reasonable figure based on the available facts and circumstances, rather than strictly accepting one or the other report.
“Purely Subjective Issue”: The court acknowledged that FMV determination is inherently subjective, allowing for some flexibility in reaching a fair conclusion.
“Lump Sum” and “Not a Precedent”: By fixing a lump sum and explicitly stating it should not be treated as a precedent, the court aimed to provide a practical solution for the specific case while avoiding setting a rigid rule for future valuations. This indicates a compromise approach to resolve a factual dispute where neither party’s expert evidence was entirely convincing.
Remand for Computation: The matter is remanded not for fresh valuation, but for the computation of capital gains based on the fixed cost of acquisition of Rs. 18 lakhs.

IN THE ITAT DELHI BENCH ‘D’

Sh. Vijay Rai Marwaha

ACIT

SATBEER SINGH GODARA, Judicial member
and S. Rifaur Rahman, Accountant member

IT Appeal No. 2375 (Del) of 2023
[Assessment Year 2020-21]

MARCH 19, 2025

Ajay Sabarwal, CA for the Assessee. Vijay B. Basanta, CIT(DR) for the Revenue.

ORDER

Satbeer Singh Godara, Judicial Member. – This assessee’s appeal for assessment year 2020-21 is directed against the Assessing Officer’s final assessment order dated 23.06.2023 passed in DIN & Order No. ITBA/AST/S/143(3)/2023-24/1053932276(1) involving proceedings under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. Heard both the parties. Case file perused.

3. The assessee pleads the following substantive grounds in the instant appeal: “1. That the appellant denies its liability to be assessed at income of Rs. 37,30,983/

2. That having regard to the facts and circumstances of the case. Honourable Dispute Resolution Panel-II (DRP-2), Delhi has erred in law and on facts of the case to confirm addition made by Learned Assessing Officer, ACIT, Circle Int. Tax 2(2)(1) of Rs. 4,26,562 (computation as per grounds no 3) by totally ignoring the facts as under:

Section 48 of the Act prescribes the mode of computation of Capital Gains as under:-

“The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-

(1) Expenditure incurred wholly and exclusively in connection with such transfer,

(ii) The cost of acquisition of the asset and the cost of any improvement thereto;

(iii) In case of value of any money or capital asset received by a specified person from a specified entity referred to in sub section (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner 39:……………………

The term fully value of consideration is not defined under the Act. However, it has been interpretated by the Hon’ble Apex Court in the case of CIT v/s Gillanders Arbuthnot & Co [1973] 87 ITR 407 (SC). “The expression “Full Value Consideration cannot be construed as the market value but as the price bargained for by the parties to the sale.

The same view was given by Honourable Delhi High Court (Jurisdictional High Court) in the case of CIT v. Smt. Nilefer I. Singh reported at [2009] 309 ITR 233 (Delhi), in high court held that The expression “full value of consideration” cannot be construed as having reference to the market value of the asset transferred but only means the full value of consideration received by the transferor in exchange of the capital asset transferred by him

Similar view was given Honourable ITAT Delhi Bench-B in the case T Appeal NO. 3677 (DELHI) OF 2011 Eldeco Infrastructure & Properties Ltd v/s Commissioner of Income-tax, Delhi-IV

3. That having regard to the facts and circumstances of the case, Honourable Dispute Resolution Panel-II (DRP-2), Delhi has erred in law and on facts of the case to confirm addition made by Learned Assessing Officer, ACIT, Circle Int. Tax 2(2)(1) of Rs. 4.26,562/ on account of difference value of Total Sale Consideration as under:-

Fair Market Value as on 23.01.2020 as per valuation report dated 14-09-2022 issued by Valuation Officer-Ill, Delhi	2,14,26,652
Less:- Actual Sale Consideration Received by the Appellant on account of Sale of Residential Property Flat No 119 FF, Category-Ill, Pocket-A. East of Kailash, Mount Kailash, New Delhi-110055 vide Registered Sale Deed Dated 21-012020	2,10,00,000
Difference	4,26,652

Whereas, stamp duty value/circle rate in reference to section 50C was Rs.92,96,400/-only.

4. That having regard to the facts and circumstances of the case, Honourable Dispute Resolution Panel-II (DRP-2), Delhi has erred in law and on facts of the case to confirm act of the Learned Assessing Officer in making a reference to the Valuation Officer to ascertain the fair market value of the property sold as on 01/04/2001 u/s 142A of the Act instead of u/s 55A of the Act and rejecting a well-reasoned valuation report of a Registered Valuer

5. That having regard to the facts and circumstances of the case, Honourable Dispute Resolution Panel-II (DRP-2), Delhi has erred in law and on facts of the case to confirm act of the Learned Assessing Officer in adopting the Fair Market Value of the property sold as on 01/04/2001, as estimated by the Valuation Officer, who wrongly applied the plinth area rate indices as notified by CPWD to the Circle Rate Value determined as on 01/10/2007 to pare it down to the market value as on 01/04/2001, as against the Cost Inflation index, which was rightly applied by the Registered Valuer appointed by the assessee.

6. That having regard to the facts and circumstances of the case, Honourable Dispute Resolution Panel-II (DRP-2), Delhi has erred in law and on facts of the case to confirm confirm addition made by Learned Assessing Officer, ACIT, Circle Int. Tax 2(2)(1) of Rs. 22,23,861on account of difference of Fair Market Value as on 01.04.2001 of the Residential Property Flat No 119 FF, Category-III, Pocket-A, East of Kailash, Mount Kailash, New Delhi-110055 as under:-

Fair Market Value as on 01.04.2001 as per valuation report dated 27-11 -2019 issued by registered valuer Mr. Amod Sood, Reg No CAT-1/001 of 2002 u/s 34 AB of WTAct, 1957	20,15,000
Less:- Fair Market Value as on 01.04.2001 as per valuation report dated 14-09-2022 issued by Valuation Officer-Ill, Delhi	12,45,498
Difference	2,69,502
Indexed Value of Rs. 7,69,502 X 289/100	22,23,861

7. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

4. We come to the first and foremost issue of section 50C addition made by both the learned lower authorities to the tune of Rs.4,26,562/-; in the course of assessment framed on 23.06.2023 as upheld in the lower appellate discussion. Suffice to say, it has already come on record that the stamp/circular value of the assessee’s relevant capital asset was Rs.92,96,400/- as against the actual price of property at Rs.2.10 crores, disclosed in his capital gain computation and that determined by the Valuation Officer of Rs.2,14,26,562/-; respectively.

5. That being the case, we are of the considered view that once the assessee has already declared his long-term capital gains with much more the stamp/circle value, section 50C itself does not apply since the same gets attracted only an instance of the actual sale price coming to be less than the stamp/circle rates. We thus delete the impugned section 50C addition of Rs. 4,26,562/- in very terms.

6. Next comes the cost of acquisition issue for the purpose of granting indexation benefit to the assessee. There is no dispute that he had filed his registered valuer report dated 27.11.2019 stating the same to be Rs.20.15 lakhs as on 01.04.2001 as against that ascertained by Valuation Officer-III, Delhi in his report dated 14.09.2023 amounting to Rs.12,45,498/-; respectively.

7. Faced with this situation and in light of the fact that the above different valuation reports have arrived at different cost(s) of acquisition; we are of the considered view that some irregularity in both of them on such a purely subjective issue, could not be per se ruled out. We accordingly are of the considered view in the larger interest of just that a lump sum cost of acquisition amounting to Rs.18 lakhs only in given facts would be just and proper with a rider that the same shall not be treated as a precedent. Necessary computation shall follow as per law.

8. No other ground or arguments has been pressed before us.

9. This assessee’s appeal is partly allowed in above terms.