Tribunal partially allows appeal, removes addition under Income Tax Act based on ITAT ruling

The Tribunal partly allowed the appeal, deleting the addition of Rs. 8,40,000 made under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, based on the precedent set by the ITAT, Pune-B Bench. The Tribunal concluded that the addition confirmed by the CIT(A) was not sustainable due to the difference being less than 10 percent between the value given by the assessee and the fair market value determined by the DVO.

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Issues Involved:

1. Validity of assessment without jurisdiction.
2. Confirmation of addition made under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, amounting to Rs. 8,40,000.

Issue-Wise Detailed Analysis:

1. Validity of Assessment Without Jurisdiction:

The first ground of appeal concerning the validity of the assessment without jurisdiction was not pressed by the counsel for the assessee. Consequently, this ground was dismissed.

2. Confirmation of Addition Under Section 56(2)(vii)(b)(ii):

The second ground of appeal pertained to the confirmation of an addition of Rs. 8,40,000 under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961. The assessee's counsel argued that this issue was covered by a precedent set by the ITAT, Pune-B Bench, in the case of Rahul Constructions vs. DCIT (ITA No. 1543/Pn/2007, AY 2004-05). In that case, it was held that if the margin between the value given by the assessee and the Departmental Valuer was less than 10 percent, the difference should be ignored, and the addition made by the lower authorities could not be sustained.

The assessee contended that the purchase consideration paid was as per the prevailing market rate at the time. However, the Assessing Officer (AO) did not refer the matter to the Departmental Valuation Officer (DVO) for determining the fair market value (FMV) of the flat purchased. During appellate proceedings, the AO was directed to make such a reference to the DVO to ensure natural justice. The DVO determined the FMV at Rs. 98,40,000 after considering the assessee's objections and other evidence.

The assessee raised further objections during the appellate proceedings, arguing that the DVO did not properly consider comparable sale deeds and the location of the flat. However, these additional objections were not sent back to the DVO and were instead considered by the CIT(A). The CIT(A) found no justification to alter the FMV determined by the DVO and confirmed the addition made by the AO to the extent of Rs. 8,40,000, deleting the balance addition.

The Tribunal reviewed the decision in Rahul Constructions vs. DCIT, where it was held that a difference of less than 10 percent between the value given by the assessee and the DVO should be ignored. In the present case, the difference between the sale consideration shown by the assessee (Rs. 90,00,000) and the FMV determined by the DVO (Rs. 98,40,000) was less than 10 percent. Therefore, the Tribunal concluded that the addition confirmed by the CIT(A) was not tenable and needed to be deleted.

Conclusion:

The appeal was partly allowed, with the Tribunal deleting the addition of Rs. 8,40,000 made under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, based on the precedent set by the ITAT, Pune-B Bench.

Order Pronounced:

The order was pronounced on 02/12/2019.

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