2022 (11) TMI 1368 - AT - Income Tax

Tribunal overturns tax addition, upholds assessee's rights. Section 50C decision reversed.

The Tribunal ruled in favor of the assessee in an appeal against the Commissioner of Income Tax's decision to add capital gain under section 50C of the ... Adjustment under section 143(1)(a) while processing return - incorrect claim apparent from any information in the return (Explanation to section 143(1)(a)) - deeming provision and referral to Departmental Valuation Officer under section 50C - right to object and valuation reference under section 50C(2)-(3) - prohibition on making substantive adjustments at processing stage without statutory opportunity of objection - consequential grant of set off and carry forward of losses upon deletion of additionAdjustment under section 143(1)(a) while processing return - incorrect claim apparent from any information in the return (Explanation to section 143(1)(a)) - deeming provision and referral to Departmental Valuation Officer under section 50C - right to object and valuation reference under section 50C(2)-(3) - Addition under section 50C(1) made by CPC as an adjustment under section 143(1)(a)(ii) is sustainable - HELD THAT: - The Tribunal found that an addition by application of section 50C(1) during processing under section 143(1)(a)(ii) cannot be characterised as an 'incorrect claim apparent from any information in the return' as defined in the Explanation to section 143(1)(a). Section 50C is a deeming provision which must be read as a whole: while sub section (1) substitutes stamp duty value as deemed sale consideration, sub sections (2) and (3) afford the assessee a statutory right to object and to have the value referred to the Departmental Valuation Officer (DVO), with the DVO's lower value to be adopted if so found. Making the adjustment at the processing stage by CPC precludes the assessee from exercising the objection and reference mechanism under section 50C(2), and thus circumvents the statutory protection. Further, the conditions of the provisos to section 143(1)(a) which govern adjustments at processing stage were not complied with. For these reasons the Tribunal held the adjustment by CPC under section 143(1)(a)(ii) invoking section 50C(1) to be unsustainable and deleted the addition. [Paras 5, 6]Addition made by CPC under section 50C(1) through adjustment at the processing stage is deleted.Consequential grant of set off and carry forward of losses upon deletion of addition - Disallowance of brought forward losses sustained by the Commissioner (Appeals) is justified by the addition and requires reconsideration once the addition is deleted - HELD THAT: - The Commissioner (Appeals) had rejected the assessee's claim of set off and carry forward of losses because he found no merit in the challenge to the section 50C addition. Having deleted that addition, the reason for rejecting the loss claim is rendered otiose. The Tribunal directed that the Assessing Officer shall allow the assessee's claim of loss in accordance with law, thereby restoring the assessee's entitlement subject to statutory provisions governing set off and carry forward. [Paras 7]Assessing Officer directed to allow the assessee's claim of set off and carry forward of losses in accordance with law.Final Conclusion: The appeal is allowed: the addition made by CPC under section 50C(1) through adjustment at the processing stage is deleted for being unsustainable, and consequentially the Assessing Officer is directed to allow the assessee's claim of set off and carry forward of losses in accordance with law. Issues:1. Challenge to addition made under section 50C of the Income Tax Act 1961.2. Disallowance of benefit of brought forward losses of earlier years.Analysis:Issue 1: Challenge to addition made under section 50C of the Income Tax Act 1961The appeal was against an order dated 25.11.2021 of the Commissioner of Income Tax (Appeals) for the assessment year 2019-20. The assessee contested the addition made on account of enhancement of capital gain under section 50C of the Income Tax Act 1961. The Centralised Processing Centre (CPC) adjusted Rs. 5,07,000 to the income of the assessee based on the stamp valuation authority's determination of the property value exceeding the declared sale consideration. The assessee argued that the addition under section 50C(1) cannot fall within the adjustment provided under section 143(1)(a) of the Act. The Tribunal analyzed the provisions of section 143(1)(a)(ii) along with the Explanation and concluded that the addition under section 50C(1) does not qualify as an incorrect claim apparent from the information in the return. The Tribunal emphasized that section 50C should be read as a whole, including sub-sections (1), (2), and (3), and highlighted the statutory right of the assessee to object to the stamp duty value. The Tribunal held that such an adjustment cannot be made under section 143(1)(a) as it deprives the assessee of the opportunity to object, especially when the conditions of the provisos to section 143(1)(a) are not met. Consequently, the Tribunal deleted the addition made under section 50C(1) by CPC.Issue 2: Disallowance of benefit of brought forward losses of earlier yearsThe third ground of the appeal related to the disallowance of the benefit of brought forward losses of earlier years. The Commissioner (Appeals) had rejected the claim of set off and carry forward of loss, citing the lack of merit in the assessee's ground contesting the addition made under section 50C(1) of the Act. However, since the Tribunal deleted the addition made under section 50C(1) in grounds No. 1 and 2, the reasoning for disallowing the claim of loss became redundant. The Tribunal directed the Assessing Officer to allow the assessee's claim of loss in accordance with the law. Consequently, the appeal was allowed, and the order was pronounced in the open court on 16th November 2022.