2025 (5) TMI 2090 - AT - Income Tax

Addition u/s 56(2)(x) - difference between the purchase value declared by the assessee and the stamp duty valuation - Report of valuation officer / DVO - Whether the DVO while estimating the fair market value of subject property has considered its value with comparable instances of similarly situated property or that those comparable instances are good comparable and DVO considered all relevant factors affecting the potential value of the subject property? - HELD THAT - On careful perusal of report of DVO as find that DVO has duly recorded that subject property was constructed in 1961 and its repair in 1992. The subject property is part three storied building that is ground floor plus two upper floors. There is no lift facility having common load bearing structure. The subject property is very old and developed in phases. Also perused the comparable instances by DVO in Annexure II attached with his report. Annexure II contained the reference of flats of group housing society. In my view group housing society all minimum common facility are available like parking lift security boundary wall etc. There is no such amenities/facilities are attached with the subject property. We are conscious of the fact that DVO has substantially reduced the value of subject property compared to the value determined by stamp valuation authority. Still in view if 2.00% of further reduction is allowed in the value determined by DVO that would be sufficient to make the end of justice. Thus AO is directed to consider the value of subject property less by 2.00% of the value determined by DVO and recompute the addition u/s 56(2)(x). Grounds of appeal raised by assessee is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the appeal are:

• Whether the addition of Rs. 9,48,000/- made under section 56(2)(x) of the Income Tax Act, representing the differential between the purchase value declared by the assessee and the stamp duty valuation, is justified.
• Whether the assessment order was passed without providing sufficient opportunity of being heard to the assessee.
• Whether the levy of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961, was correctly imposed.
• Whether penalties under sections 270A and 272A(1)(d) were rightly initiated.
• Whether the delay in filing the appeal before the Tribunal should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal

Legal framework and precedents: The Income Tax Act permits condonation of delay in filing appeals before the Tribunal if sufficient cause is shown. Courts have held that litigants should not be penalized for the negligence or inaction of their legal representatives.

Court's interpretation and reasoning: The Tribunal observed that the assessee's delay of 177 days in filing the appeal was neither intentional nor deliberate but due to the failure of the previous tax consultant to file the appeal timely. The assessee promptly engaged a new authorized representative upon discovering the lapse and filed the appeal thereafter.

Application of law to facts: The Tribunal took a lenient view, holding that the assessee should not suffer for the consultant's negligence. The delay was condoned accordingly.

Conclusion: The delay in filing the appeal was condoned.

Addition under Section 56(2)(x) regarding Differential Value of Property

Relevant legal framework and precedents: Section 56(2)(x) of the Income Tax Act provides for addition to income where an individual receives property for inadequate consideration. The valuation of immovable property for stamp duty purposes is often taken as a benchmark to determine the fair market value. However, the courts have recognized that stamp duty valuation may not always reflect the true market value, and the report of a registered valuer or District Valuation Officer (DVO) can be relied upon for a more accurate assessment. The principle of allowing a tolerance limit (commonly 10%) between declared value and valuation report has been recognized, as reflected in the decision relied upon by the assessee.

Court's interpretation and reasoning: The assessing officer initially made an addition of Rs. 39,95,000/- based on the difference between the declared sale consideration (Rs. 81,00,000/-) and the stamp valuation authority's value (Rs. 1.20 crore). Subsequently, the matter was referred to the DVO, who valued the property at Rs. 90,48,000/-, resulting in a reduced difference of Rs. 9,48,000/- compared to the declared value.

The assessee objected to the DVO's valuation, arguing that the DVO used comparables from premium group housing societies with superior amenities and better construction quality, whereas the subject property was old, with no modern facilities, and in poor condition. The assessee submitted photographs and a registered valuer's report valuing the property at Rs. 86,00,000/-, close to the declared sale consideration, thus within a 5.81% difference, which falls within the accepted tolerance limit of 10%.

The DVO's report acknowledged the old age and poor condition of the subject property but did not adjust the valuation accordingly. The Tribunal noted that the DVO compared the subject property with flats in group housing societies that had amenities such as lifts, parking, security, and boundary walls, which the subject property lacked.

Key evidence and findings: The DVO's valuation report, the registered valuer's report submitted by the assessee, photographs of the property, and the stamp valuation authority's value.

Application of law to facts: The Tribunal held that the DVO's comparables were not truly comparable due to differences in amenities, age, and quality of construction. The Tribunal further noted that the DVO had already substantially reduced the stamp valuation authority's value, but to do complete justice, a further 2% reduction in the DVO's valuation was warranted.

Treatment of competing arguments: The Revenue contended that the DVO's valuation was reliable, having considered various factors and comparable properties in the same locality, and that the registered valuer's report lacked detailed analysis. The Tribunal disagreed, finding the assessee's objections valid and the comparables used by the DVO inappropriate.

Conclusion: The Tribunal directed the Assessing Officer to recompute the addition under section 56(2)(x) by reducing the DVO's valuation by 2%, thereby reducing the addition amount accordingly.

Other Grounds (Opportunity of Hearing, Interest, and Penalties)

The assessee raised grounds challenging the passing of the assessment order without sufficient opportunity of hearing, levy of interest under sections 234A, 234B, and 234C, and initiation of penalties under sections 270A and 272A(1)(d). However, the Tribunal's order does not contain detailed discussion or findings on these issues, indicating that these grounds were either not pressed or found not to require interference.

3. SIGNIFICANT HOLDINGS

"The litigant should not be suffered for the negligence of his consultant/advisor, therefore, taking a lenient view, delay in filing appeal is condoned."

"The DVO has duly recorded that subject property was constructed in 1961 and repaired in 1992, with no modern facilities, and is very old. The DVO's comparables are from group housing societies with amenities not available in the subject property, thus not truly comparable."

"If 2.00% of further reduction is allowed in the value determined by DVO, that would be sufficient to make the end of justice."

"The AO is directed to consider the value of subject property less by 2.00% of the value determined by DVO and recompute the addition under section 56(2)(x)."

Core principles established include the recognition that valuation for tax purposes must consider the actual condition and amenities of the property, and that comparables must be truly comparable in all relevant aspects. The Tribunal also underscored the principle of fairness in condoning delay caused by the negligence of legal representatives.

Final determinations:

• Delay in filing appeal condoned.
• Addition under section 56(2)(x) to be recomputed allowing a 2% reduction on the DVO's valuation.
• Other grounds of appeal not specifically addressed and thus deemed not to warrant interference.