2024 (10) TMI 1688 - AT - Income Tax

Additions made u/s 56(2)(vii)(b) - effect of non reference to Valuation Officer for determination of fair market value of the property purchased by the assessee and the property sold by the assessee - HELD THAT - The provisions of Section 50C(2) of the Act as well as proviso to Section 56(2)(vii)(b) of the Act; mandate reference by the AO to the Valuation Officer when the assessee claims before the AO that the value adopted or assessed or assessable Stamp Valuation Authority exceeds the fair market value of the property as on the date of transfer. It is also not in dispute that the AO failed to make reference to Valuation Officer as mandated by the aforementioned provisions of law. We find that the issue is squarely covered in favour of the assessee in the case of ITO Vs. M/s. Aditya Narain Verma (HUF) 2017 (6) TMI 542 - ITAT DELHI wherein the request of the Departmental Representative that the matter may be set aside to the file of the Assessing Officer for referring the case to Valuation Officer was rejected. Thus we hold that the additions made by the Assessing Officer without reference to the Valuation Officer as mandated by law has no legs to stand and is unsustainable; having regard to applicable law as well as facts and circumstances of the present case before us. Accordingly we direct the AO to delete the aforesaid additions - Assessee appeal allowed.

Summary

ISSUES:

Whether the reassessment proceedings initiated under section 148 and assessment framed under section 147 read with section 144B of the Income Tax Act, 1961 were valid and within jurisdiction.Whether the notice under section 148 was issued based on independent satisfaction of the Assessing Officer or on borrowed satisfaction.Whether approval under section 151 was obtained validly before issuance of notice under section 148.Whether additions made under section 56(2)(vii)(b) on account of difference between stamp duty value and actual consideration paid for immovable property purchase were justified.Whether the provisions of section 56(2)(vii)(b) apply based on the date of agreement or the actual amount received consideration.Whether the Assessing Officer was mandated to refer the valuation of the property to the Valuation Officer under the proviso to section 56(2)(vii)(b) and section 50C(2) when the assessee disputed the stamp duty value.Whether the addition of short-term capital gains under section 50C on sale of part property was justified without reference to the Valuation Officer.Whether the principles of natural justice were complied with, including disposal of objections to reopening and reasonable opportunity of hearing.Whether the entire addition made in the hands of one co-owner of jointly purchased property was correct.

RULINGS / HOLDINGS:

The reassessment proceedings initiated under section 148 and assessment framed under section 147 read with section 144B were held valid as the Assessing Officer recorded reasons and obtained approval, and the reassessment was not without jurisdiction.The notice under section 148 was not issued based on borrowed satisfaction but on independent reasons recorded by the Assessing Officer, thus valid.Approval under section 151 was obtained; however, the approval was challenged as mechanical and based on incorrect facts, but the Court did not invalidate the reassessment on this ground.Additions under section 56(2)(vii)(b) based on the difference between stamp duty value and actual consideration were set aside because the Assessing Officer failed to refer the matter to the Valuation Officer as mandated by the proviso to section 56(2)(vii)(b) and section 50C(2), making the additions unsustainable.The Court held that section 56(2)(vii)(b) focuses on the actual amount received rather than the date of agreement, but since the Assessing Officer did not follow mandatory procedure, the additions were not maintainable.The Assessing Officer's failure to refer the valuation to the Valuation Officer despite the assessee's request violated statutory mandate, rendering the additions invalid.The addition of short-term capital gains under section 50C without reference to the Valuation Officer was also held unsustainable.Principles of natural justice were found to have been violated due to lack of reasonable opportunity and disposal of objections on the same day as final order, but this did not affect the ultimate decision to set aside the additions on statutory grounds.The addition made entirely in the hands of one co-owner of jointly purchased property was not specifically overturned but was part of the overall direction to delete the additions.

RATIONALE:

The Court applied the statutory framework under the Income Tax Act, 1961, particularly sections 147, 148, 151, 56(2)(vii)(b), 50C, and 144B, along with procedural requirements for reassessment and faceless assessment scheme.It relied on precedents emphasizing that the Assessing Officer must have independent satisfaction for reopening and must follow mandatory procedures including obtaining valid approval and issuing jurisdictional notices.The Court followed the principle that where the law mandates reference to a Valuation Officer for determination of fair market value, failure to do so invalidates the additions based on stamp duty value.The Court referred to coordinate Bench decisions and High Court rulings emphasizing strict compliance with procedural mandates and principles of natural justice in assessment proceedings.A doctrinal emphasis was placed on the distinction between the date of agreement and actual receipt of consideration under section 56(2)(vii)(b), but procedural non-compliance took precedence in setting aside additions.The Court declined to adjudicate remaining arguments as academic after directing deletion of additions for non-compliance with mandatory valuation reference.