2025 (5) TMI 966 - AT - Income Tax

Rectification u/s 154 - Addition invoking provisions of section 50C - difference between ready reckoner value adopted for stamp duty and actual consideration received - HELD THAT - Order u/s 143(1)(a) addition in the hands of assessee u/s 50C of the Act has been challenged by the assessee before Ld. CIT(A) but the appeal is still pending to be disposed off. Subsequently assessee filed an application u/s 154 stating that CPC made an apparent mistake making impugned addition and the assessee succeeded but after some time AO passed another order u/s 154 of the Act reversing the previous order. CIT(A) in the impugned order has not dealt on merits but has observed that as there was no apparent mistake in the return processed u/s 143(1)(A) of the Act no order u/s 154 of the Act was required to be passed and Ld. CIT(A) thus held assessee s appeal as infructuous. The date of the order appealed against is 27.10.2023 but u/s 154 of the Act mentioned in Form 35 filed before CIT(A) is different to the date of order passed u/s 154 on 11.12.2024 and the copy of which is placed on record. We also note that Ld. AO has allowed the assessee s application u/s 154 stating that there is an apparent mistake in the assessment order framed u/s 143(1)(a) but it was subsequently reversed by AO. There is an apparent mistake as appellant mistake has been admitted by Ld. AO. Therefore CIT(A) ought to have dealt with the merits of the case relating to addition u/s 50C of the Act. Since the order for appeal against order u/s 143(1)(a) of the Act is pending before the first appellate authority we deem it appropriate to remit the issue raised on merits in the instant appeal to the file of Ld. CIT(A). Appeal of the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether an addition under section 50C of the Income Tax Act, 1961 can be made during the processing of return under section 143(1)(a) of the Act;

(b) Whether the order passed under section 154 of the Act by the Assessing Officer (AO), allowing rectification on the ground of an apparent mistake in the order under section 143(1)(a), and its subsequent reversal, was valid and in accordance with law;

(c) Whether the provisions of section 50C of the Act are applicable to the sale of leasehold land, and whether the difference between the ready reckoner value adopted for stamp duty and the actual consideration received can be added to the income of the assessee under section 50C;

(d) Whether a debatable issue can be considered as a prima facie addition for the purposes of rectification under section 154;

(e) The procedural correctness and jurisdictional limits of invoking section 154 for rectification of orders passed under section 143(1)(a) of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Legality of addition under section 50C during processing of return under section 143(1)(a)

Legal framework and precedents: Section 50C of the Income Tax Act applies to the transfer of capital assets and mandates that if the consideration declared by the assessee is less than the value adopted or assessed by the stamp valuation authority for the purpose of stamp duty, then the value so adopted shall be deemed to be the full value of consideration for computing capital gains. Section 143(1)(a) provides for processing of return of income and making adjustments as prescribed, but does not envisage making substantive additions based on disputed valuation issues.

Court's interpretation and reasoning: The Tribunal observed that the addition of Rs. 1,82,09,000/- under section 50C was made by the Central Processing Centre (CPC) during the processing of the return under section 143(1)(a). The assessee challenged this addition before the Commissioner of Income Tax (Appeals) [CIT(A)], and the appeal was pending disposal. The Tribunal noted that making such additions in the processing stage under section 143(1)(a) is not envisaged by law.

Application of law to facts: The Tribunal found that the addition made during processing was premature and not in accordance with the statutory scheme. The CPC's action to enhance income based on section 50C in the processing stage was erroneous.

Treatment of competing arguments: The Revenue supported the addition and the CIT(A)'s dismissal of the appeal as infructuous, while the assessee contended that section 50C additions cannot be made at the processing stage and that the issue is debatable and pending adjudication.

Conclusion: The Tribunal held that additions under section 50C cannot be made during processing under section 143(1)(a), and such additions require adjudication through proper assessment or appellate proceedings.

Issue (b): Validity of orders passed under section 154 regarding rectification of apparent mistake

Legal framework and precedents: Section 154 of the Income Tax Act allows rectification of mistakes apparent from the record in orders passed by the Assessing Officer. Such rectification is limited to correcting errors that are obvious and do not require elaborate inquiry.

Court's interpretation and reasoning: The AO initially allowed the assessee's rectification application under section 154, accepting that there was an apparent mistake in the addition made during processing. Subsequently, the AO reversed this order, holding that there was no apparent mistake. The CIT(A) dismissed the appeal against the latter order as infructuous without dealing with merits.

Key evidence and findings: The Tribunal noted the contradictory approach of the AO-first admitting the mistake and then reversing it. The Tribunal found that the initial admission of an apparent mistake by the AO indicates existence of such a mistake.

Application of law to facts: Given the AO's admission of an apparent mistake, the Tribunal held that the CIT(A) should have examined the merits of the addition under section 50C instead of dismissing the appeal as infructuous.

Treatment of competing arguments: The Revenue argued that no apparent mistake existed and hence rectification was not warranted. The assessee argued that the mistake was admitted and rectification was permissible.

Conclusion: The Tribunal concluded that an apparent mistake was admitted by the AO and that the CIT(A) erred in not deciding the merits. The matter was remitted for fresh adjudication.

Issue (c): Applicability of section 50C to leasehold land and correctness of addition based on ready reckoner value

Legal framework and precedents: Section 50C applies to transfer of capital assets, which includes land and buildings. However, the applicability to leasehold land requires examination of the nature of the asset transferred. The section also allows the assessee an option to claim that the actual consideration is correct and to produce evidence to that effect.

Court's interpretation and reasoning: The assessee contended that the land sold was leasehold and hence section 50C was not applicable. Further, the assessee argued that the actual consideration received was Rs. 55,00,000/- whereas the ready reckoner value was Rs. 2,37,09,000/-, and that the addition based on the difference was not justified.

Key evidence and findings: The Tribunal noted the sale of leasehold land and building for Rs. 95,00,000/- but the ready reckoner value adopted for stamp duty was Rs. 2,37,09,000/-. The addition of Rs. 1,82,09,000/- was made based on this difference.

Application of law to facts: The Tribunal did not decide on the merits of this issue but observed that since the appeal against the addition under section 50C was pending before the CIT(A), it was appropriate to remit the issue for fresh adjudication after proper opportunity to the assessee.

Treatment of competing arguments: The Revenue supported the addition under section 50C, while the assessee disputed applicability and correctness of the addition.

Conclusion: The Tribunal remitted the issue to the CIT(A) for adjudication on merits after due opportunity and proper examination of facts and law.

Issue (d): Whether debatable issues can be considered as apparent mistakes for rectification under section 154

Legal framework and precedents: Rectification under section 154 is limited to mistakes apparent from the record and does not extend to debatable issues requiring detailed inquiry or adjudication.

Court's interpretation and reasoning: The Tribunal observed that the issue of addition under section 50C is debatable and pending before the CIT(A). Therefore, it cannot be treated as an apparent mistake for the purposes of rectification under section 154.

Application of law to facts: The Tribunal found that the AO's initial acceptance of an apparent mistake was inconsistent with the nature of the issue, which is debatable and requires adjudication.

Conclusion: The Tribunal held that debatable issues cannot be considered apparent mistakes and rectification under section 154 cannot be invoked to make substantive additions or deletions on such grounds.

Issue (e): Procedural correctness and jurisdictional limits of invoking section 154 for rectification of orders passed under section 143(1)(a)

Legal framework and precedents: Section 154 allows rectification of orders to correct mistakes apparent from the record. However, the scope of section 154 is limited and cannot be used to re-open settled issues or make substantive changes that require detailed adjudication. Processing orders under section 143(1)(a) are summary in nature and rectification must comply with statutory limits.

Court's interpretation and reasoning: The Tribunal noted that the AO initially allowed rectification under section 154 for an apparent mistake in the processing order but later reversed the same. The CIT(A) did not consider the merits and dismissed the appeal as infructuous. The Tribunal found procedural irregularities and conflicting orders.

Application of law to facts: The Tribunal directed the assessee to correct the contents of the appeal form and file necessary details, and remitted the matter to the CIT(A) for adjudication on merits with proper opportunity of hearing.

Conclusion: The Tribunal emphasized adherence to procedural correctness and limited scope of section 154, and remitted the matter for proper disposal.

3. SIGNIFICANT HOLDINGS

"We find that there is an apparent mistake as appellant mistake has been admitted by Ld. AO. Therefore Ld. CIT(A) ought to have dealt with the merits of the case relating to addition u/s 50C of the Act."

"Since the order for appeal against order u/s 143(1)(a) of the Act is pending before the first appellate authority, we deem it appropriate to remit the issue raised on merits in the instant appeal to the file of Ld. CIT(A)."

"Additions under section 50C cannot be made during processing under section 143(1)(a), and such additions require adjudication through proper assessment or appellate proceedings."

"Debatable issues cannot be considered apparent mistakes and rectification