2019 (5) TMI 1834 - AT - Income Tax

Tribunal overturns tax assessment due to procedural errors, emphasizes fair practices

The Tribunal set aside the CIT(A)'s decision to confirm the addition of Rs. 25,65,000 by the Assessing Officer under section 56(2)(vii)(b)(ii) of the ... Addition adopting value of property at circle rates, by applying the provisions of section 56(2)(vii)(b)(ii) - assessee had purchased a property for the consideration of ₹ 10,00,000/- as against the value of ₹ 35,65, 000/- determined for stamps duty purpose as per sale deed dated 31.07.2013 - HELD THAT:- Neither, the AO nor the ld. CIT(A) has made any efforts to crystalize the actual value of investment by the assessee in the purchase of the property by way of bringing material documentary evidence on record to establish the unexplained investment in the property by the assessee. Merely, rejection of the reply of assessee without giving valid reasons can not justify the action of the subordinate authorities. In the case of “Sunil Kumar Agarwal [2014 (6) TMI 13 - CALCUTTA HIGH COURT] has clearly held that the AO, discharging quasi-judicial function, has the bounden duty to act fairly and to follow the course provided by law, which in that case, was the reference to the valuation officer. In the present case, in view of the assessee’s specific dispute and claim before the AO that stamp valuation of the property sold was not its “fair market value”, it was the bounden duty of the AO to have made reference to the Valuation Officer which, for the reasons not borne on records, was not made. AO not only passed a cryptic order without disputing any of the grounds of dispute raised by the assessee but also failed to follow the procedure prescribed in law i.e. making of a reference to the DVO as mandated by section 50C (2) of the Act. Therefore, the addition made by the AO cannot be approved. In the present case, it is noted that neither the Assessing Officer nor the Ld. CIT(A) appreciated the contentions raised by the assessee while adopting the the stamp duty value as fair market value of the property purchased nor referred the matter to the DVO as was required U/s 50C(2) of the Act. The AO has also not found or alleged with any corroborative material evidence that the assessee has paid any excess amount over the sale consideration mentioned in the sale deed. Considering the factual Matrix and binding legal decisions, the findings of ld. the CIT(A) in confirming the addition made by the AO can not be approved. In our considered onion, the department cannot be allowed a second inning, by sending the matter back to AO, enabling it to fill the lacunae and shortcomings and putting the assessee virtually to face a re-trial for no fault of him and to again prove before the AO that the sale consideration was the “fair market value” of the property purchased by him. This would amount to giving a lease of life to an order which on the basis of facts on records is unsustainable in law. - Decided in favour of assessee. Issues Involved:1. Confirmation of addition of Rs. 25,65,000 by the Assessing Officer (AO) under section 56(2)(vii)(b)(ii) of the Income Tax Act.2. Ignoring the proviso after sub clause (c) of sub section (2)(vii) of section 56 of the Income Tax Act.3. Non-referral of property valuation to the Valuation Officer by the AO.Issue-wise Detailed Analysis:1. Confirmation of Addition of Rs. 25,65,000 by the AO:The assessee challenged the addition of Rs. 25,65,000 made by the AO under section 56(2)(vii)(b)(ii) of the Income Tax Act. The AO had adopted the circle rate value of the property at Rs. 35,65,000 for stamp duty purposes, against the actual purchase consideration of Rs. 10,00,000, and added the difference to the assessee's total income. The CIT(A) confirmed this addition, interpreting that section 56(2)(vii)(b)(ii) applies when any immovable property is received for consideration, which includes purchases. The CIT(A) dismissed the appellant's argument that the provision applies only to gifts and upheld the AO's addition.2. Ignoring the Proviso to Section 56(2)(vii)(b)(ii):The assessee contended that the AO and CIT(A) ignored the proviso to sub clause (c) of section 56(2)(vii)(b), which mandates referring the valuation to the Valuation Officer if the stamp duty value is disputed. The proviso states: 'Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer.' The assessee argued that the AO failed to follow this mandatory procedure, citing multiple judicial precedents supporting the necessity of such referral.3. Non-referral of Property Valuation to the Valuation Officer:The Tribunal noted that the AO did not refer the property valuation to the Valuation Officer despite the assessee disputing the stamp duty value. The Tribunal emphasized that section 50C(2) mandates such referral when the fair market value is contested. The AO's failure to do so, coupled with the lack of corroborative evidence to support the higher valuation, rendered the addition unsustainable. The Tribunal referenced various judicial pronouncements underscoring the mandatory nature of the referral process, including decisions from the Hon'ble Calcutta High Court and the Hon'ble Allahabad High Court, which highlighted the necessity of following prescribed legal procedures.Conclusion:The Tribunal concluded that the AO and CIT(A) did not adhere to the mandatory legal procedures under section 50C(2) and section 56(2)(vii)(b). The AO's addition was based on a mere adoption of circle rates without substantiating the fair market value or referring the matter to the Valuation Officer. Consequently, the Tribunal set aside the CIT(A)'s order, deleted the addition of Rs. 25,65,000, and allowed the assessee's appeal, emphasizing the need for procedural compliance and fair assessment practices.