2025 (6) TMI 714 - AT - Income Tax

Addition u/s. 43CA by adopting stamp duty value in place of actual sales consideration for its consideration - Assessee had sold a property wherein actual consideration was less than the stamp duty value - In the course of assessment proceedings itself assessee had submitted to refer the valuation of the property to the Departmental Valuation Authority by raising an objection on the stamp duty value which was not entertained HELD THAT - Considering the facts on record and the provisions of section 50C as well as 43CA we restore the matter back to the file of ld. AO to make a reference to the valuation officer and obtain a valuation report on the objection raised by the assessee for adopting stamp duty value. AO is directed to provide reasonable opportunity to the assessee for making necessary submissions in this respect and consider the valuation report so obtained in accordance with the provisions of law. Further assessee has evidently demonstrated that the impugned transaction in the property is that of its own premises forming part of fixed assets duly reported in its audited financial statements and does not form part of inventory. Accordingly provisions of section 50C becomes applicable rather than section 43CA applied by AO. Accordingly grounds raised by the assessee in this respect are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the Assessing Officer (AO) was justified in invoking the provisions of section 43CA of the Income-tax Act, 1961, to adopt the stamp duty value instead of the actual sale consideration for computing capital gains on sale of property.
• Whether the property sold by the assessee constituted stock-in-trade or was part of fixed assets, thereby determining the applicability of section 43CA or section 50C.
• Whether the AO and Commissioner of Income Tax (Appeals) (CIT(A)) erred in not providing a reasonable opportunity of hearing to the assessee, thereby violating principles of natural justice.
• Whether the AO and CIT(A) erred in not making a reference to the Valuation Officer upon the assessee's objection to the stamp duty value, as mandated under section 50C(2) and its applicability to section 43CA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 43CA versus Section 50C in valuation of property sale consideration

Relevant legal framework and precedents: Section 43CA applies to cases where the transfer of capital assets is made by an assessee who is engaged in the business of trading such assets (stock-in-trade). It mandates that if the consideration received or accruing as a result of transfer is less than the value adopted or assessed or assessable by any authority for stamp duty purposes, then the stamp duty value shall be deemed to be the full value of consideration for computing income. Section 50C applies to transfer of capital assets other than stock-in-trade and similarly provides that if the consideration is less than the stamp duty value, the latter shall be deemed to be the full value of consideration for capital gains computation. Sub-section (2) of section 50C requires the Assessing Officer to refer the matter to the Valuation Officer if the assessee objects to the stamp duty value.

Court's interpretation and reasoning: The Tribunal noted that the assessee had demonstrated that the property sold was part of its fixed assets, as reported in its audited financial statements, and not stock-in-trade. This fact was crucial because section 43CA applies only to stock-in-trade, whereas section 50C applies to fixed assets. Therefore, the AO erred in applying section 43CA instead of section 50C. The Tribunal further emphasized that section 50C(2) mandates a reference to the Valuation Officer upon objection by the assessee to the stamp duty value.

Key evidence and findings: The assessee's audited financial statements showing the property as fixed asset and the sale transaction at Rs. 60,50,000/- compared to the stamp duty value of Rs. 76,36,708/- were key facts. The AO's own order acknowledged the request for reference to the Valuation Officer but did not act on it. The CIT(A) also noted the request but rejected it on the ground of lack of documentary evidence, which the Tribunal found unjustified given the AO's earlier acknowledgment.

Application of law to facts: Since the property was part of fixed assets, section 50C applied. The assessee had objected to the stamp duty value, triggering the requirement under section 50C(2) to refer the matter to the Valuation Officer. The failure of both AO and CIT(A) to obtain a valuation report was a procedural lapse affecting the correctness of the addition.

Treatment of competing arguments: The Revenue argued for the application of section 43CA, treating the property as stock-in-trade, and relied on the stamp duty value without reference to the Valuation Officer. The assessee contended the property was a fixed asset and requested valuation reference. The Tribunal sided with the assessee, finding the Revenue's approach incorrect both factually and legally.

Conclusions: The Tribunal held that the AO's invocation of section 43CA was erroneous and that section 50C applied. It directed the AO to make a reference to the Valuation Officer and consider the valuation report after providing the assessee a reasonable opportunity to be heard.

Issue 2: Violation of principles of natural justice due to lack of reasonable opportunity to the assessee

Relevant legal framework and precedents: Principles of natural justice require that a party affected by an order must be given a reasonable opportunity to present its case and respond to adverse material before a final order is passed.

Court's interpretation and reasoning: The Tribunal noted the assessee's grievance that neither the AO nor the CIT(A) provided a sufficient and reasonable opportunity to be heard, especially regarding the objection to the stamp duty value and the request for reference to the Valuation Officer. The failure to obtain a valuation report and consider the assessee's submissions was a procedural infirmity.

Key evidence and findings: The assessee's submissions and requests during assessment proceedings were recorded but not acted upon. The CIT(A)'s dismissal of the request for lack of documentary evidence was contradicted by the AO's own acknowledgment, indicating a procedural lapse.

Application of law to facts: The procedural failure to refer the matter to the Valuation Officer and to consider the assessee's objection amounted to denial of a reasonable opportunity to be heard.

Treatment of competing arguments: The Revenue did not adequately justify the failure to follow the procedure under section 50C(2). The Tribunal found the Revenue's approach inconsistent with statutory requirements and principles of natural justice.

Conclusions: The Tribunal concluded that the principles of natural justice were violated and directed the AO to provide a reasonable opportunity to the assessee during the remand proceedings.

Issue 3: Legality and jurisdiction of the assessment order and additions made

Relevant legal framework and precedents: The assessment order passed under section 143(3) must be legal, valid, and passed within jurisdiction. Additions under section 43CA or 50C must comply with statutory provisions.

Court's interpretation and reasoning: The Tribunal found that the AO's addition under section 43CA was illegal and without jurisdiction since the property was not stock-in-trade and section 50C applied instead. The failure to follow the procedure under section 50C(2) further vitiated the assessment.

Key evidence and findings: The facts regarding the nature of the property, the sale consideration, and the stamp duty value were undisputed. The procedural lapses in not referring to the Valuation Officer were established.

Application of law to facts: The AO acted beyond jurisdiction by applying the wrong provision and not following mandatory procedure, rendering the additions illegal.

Treatment of competing arguments: The Revenue's reliance on the stamp duty value without valuation reference was rejected. The assessee's grounds challenging the order on jurisdictional and procedural grounds were upheld.

Conclusions: The Tribunal held the assessment order and additions illegal and without jurisdiction and allowed the appeal for statistical purposes, remanding the matter for fresh consideration in accordance with law.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"Considering the facts on record and the provisions of section 50C as well as 43CA, we restore the matter back to the file of ld. Assessing Officer, to make a reference to the valuation officer and obtain a valuation report on the objection raised by the assessee for adopting stamp duty value."

"Further, assessee has evidently demonstrated that the impugned transaction in the property is that of its own premises forming part of fixed assets duly reported in its audited financial statements and does not form part of inventory. Accordingly, provisions of section 50C becomes applicable rather than section 43CA applied by ld. Assessing Officer."

"Ld. Assessing Officer is directed to provide reasonable opportunity to the assessee for making necessary submissions in this respect and consider the valuation report so obtained in accordance with the provisions of law."

These holdings establish the core principles that:

• Section 43CA applies only to stock-in-trade, while section 50C applies to fixed assets.
• Upon objection to the stamp duty value, the Assessing Officer must refer the matter to the Valuation Officer under section 50C(2), and this procedure is also applicable in the context of section 43CA.
• Failure to follow this mandatory procedure and denial of reasonable opportunity violates principles of natural justice and renders the additions illegal.
• The assessment order based on incorrect application of law and procedural lapses must be set aside and remanded for fresh adjudication.

Accordingly, the Tribunal allowed the appeal for statistical purposes and remanded the matter to the Assessing Officer for fresh consideration in accordance with the law and after obtaining valuation report and providing opportunity to the assessee.