Assessment invalidated due to incorrect application of tax law; assessees successful in challenging income addition.

The tribunal allowed the appeals of the assessees, holding the assessment invalid due to the incorrect invocation of section 56(2)(vii) of the Act. The tribunal agreed with the assessee's argument that the section applies only if the property is purchased below the circle rate. Consequently, the actions of the authorities below were deemed not legal, and the assessees were successful in challenging the addition of income based on valuation differences. The decision was pronounced on 11th May, 2023.

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Issues involved:
The judgment involves appeals by two assessees against orders of the Ld. CIT(A), Kanpur, both dated 22.11.2021 pertaining to the Assessment Year 2017-18. The issues are related to the addition of income based on valuation differences, invoking section 56(2)(vii) of the Act, and the legality of penalty and interest charges.

Issue 1: Valuation of Properties
The Ld. AO referred the valuation of properties purchased by the assessee to the Department Valuation Officer (DVO) and assessed the difference between the purchase price (circle rate/stamp duty value) and the DVO's value, treating it as income under section 56(2)(vii) r.w.s. 69 of the Act.

Issue 2: Invocation of Section 56(2)(vii)
The additional ground raised by the assessee argued that the properties were purchased at circle rates with no understatement, contending that section 56(2)(vii) is triggered only if the property is purchased below the circle rate. The assessee challenged the invocation of the section, emphasizing the specific conditions under which it can be applied.

Judgment:
The tribunal admitted the additional grounds raised by the assessee, stating they go to the root of the matter. After considering the provisions of section 56(2)(vii) and related statutes, the tribunal agreed with the assessee's argument that the section can only be invoked if the property is purchased below the circle rate. Consequently, the tribunal allowed the additional ground, holding the assessment invalid. As a result, the appeals of the assessees were allowed, and the actions of the authorities below were deemed not legal. The tribunal did not engage in adjudicating other grounds due to the primary issue's resolution. The decision was pronounced in open court on 11th May, 2023.

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