2024 (10) TMI 929 - AT - Income Tax

Addition under Section 56(2)(viia) deleted due to improper DVO valuation and invalid reopening by JAO

ITAT Mumbai held that addition under section 56(2)(viia) based on higher stamp duty value than consideration was invalid. When assessee objected to ... Addition u/s 56(2)(viia) - property purchased by the assessee is having higher stamp duty value than consideration and therefore the provisions of section 56 (2) are attracted - assessee objected to the valuation report prepared by the district valuation officer as well as the stamp duty rate and requested the learned AO to refer the matter to the district valuation officer, but the district valuation officer reiterated the valuation made in case of seller of the property stating that there is no point in making once again the reference of the same property which was subject matter of transaction. HELD THAT:- According to the provisions of section 50C, if the assessee objects to the adoption of deemed sale consideration or deemed purchase consideration of any immovable property wherein the agreed consideration is compared with the stamp duty rate, the learned assessing officer is duty-bound to refer to the district valuation officer to make the valuation of the property. In this case though the learned assessing officer referred the matter to the district valuation officer for making a fresh valuation report, which was not adhered to by the DVO and reiterated the valuation made by him in case of a seller. If the AO does not obtain the valuation report, then the addition deserves to be deleted if the difference between the actual consideration and the stamp duty value is made in the hands of the assessee based on Asstt. CIT v. Tarun Agarwal [2018 (8) TMI 1989 - ITAT AGRA] and Ramesh Chandra Kulshresth & Brothers HUF [2018 (10) TMI 1849 - ITAT AGRA] It cannot be said that the valuation made in the case of the seller would also be applicable in case of a buyer, this is so because if the seller does not represent anything before the learned district valuation officer, it will go against the buyer which is not permitted. Therefore, if the two parties to the same transaction, objects to the valuation, there perspective and reasons may be different than the others. Even otherwise if a perspective of either bur or seller is not considered it hampers the rights of that assessee. Section 50 C/ 56 (2) (viia) and Section 43CA does not provide that valuation made by the DVIO is qua the property , in fact it is qua the assessee. Thus, on this ground itself, when the ld. AO fails to obtain the Report of DVO of the impugned property after giving assessee opportunity of representing before DVO, addition so made is to be deleted. It cannot be said that the valuation made in the case of the seller would also be applicable in case of a buyer, this is so because if the seller does not represent anything before the learned district valuation officer, it will go against the buyer which is not permitted. Therefore, if the two parties to the same transaction, objects to the valuation, there perspective and reasons may be different than the others. Even otherwise if a perspective of either bur or seller is not considered it hampers the rights of that assessee. Section 50C/ 56 (2) (viia) and Section 43 CA does not provide that valuation made by the DVIO is qua the property , in fact it is qua the assessee. Thus, on this ground itself, when the ld. AO fails to obtain the Report of DVO of the impugned property after giving assessee opportunity of representing before DVO, addition so made is to be deleted. Valuation made by the district valuation officer did not give any deduction with respect to the above sum despite agreeing to the fact of improvement in the property - This fact also proves that the valuation report of obtaining the case of a seller cannot be always relevant also in case of the buyer. For this reason, also the addition cannot be made on the basis of the valuation report in case of a seller. It results into a failure of the learned assessing officer to obtain the valuation report in case of a buyer. As in the case of the seller the valuation adopted by the district valuation officer was automatically made applicable in the case of buyer. This report was also given by the assessing officer to the assessee prior to making a reference where the assessee raised an objection, when the valuation officer refuse to consider those objections, does not make the fresh valuation, naturally the report of the district valuation officer, cannot be used for making an addition in the hands of the assessee. This is in clear violation of provisions of section 142A (4) of the act. If we adjust the discount of the obstruction due to Lokhandwala Minerva construction where the property website and economic on the basis of reports shows 30% down fall in the price, if we consider only 7.5% downfall in the average sale price considered by the learned District valuation officer in its report of Rs. 352,440/- per square meter, the average square meter rates would be Rs. 325,000 per square meter. If the assessee is granted benefit of the 10% of the tolerance limit of the sale consideration which will come to Rs. 332,280 per square meter, no addition could be made in the hands of the assessee despite many infirmities in the procedure as well as on factual aspects. Decided in favour of assessee. Validity of reopening of assessment - formation relied upon by the learned assessing officer does not have any linkage with the appellant and without any tangible material and therefore the reopening of the assessment is invalid - HELD THAT:- We find that in view of the decision of the honourable Supreme Court in case of Union of India versus Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the above issue does not remain for contention. Further there is a tangible material which shows that the report indicates that there is a difference between the consideration of the property and the stamp duty value of the property. Accordingly ground number 11 and 13 are dismissed. Notice u/s 148 of the Act has been issued by JAO instead of FAO - This issues is covered in favour of the assessee by the decision of Pravina Jagdish Patel [2024 (10) TMI 93 - BOMBAY HIGH COURT] and Hexaware [2024 (5) TMI 302 - BOMBAY HIGH COURT] where it is held that for a notice to be validly issued for reassessment under section 148, the revenue would need to be compliant with section 151A, which has been interpreted and analyzed in detail by in the case of Hexaware Technologies Ltd.[supra]. Thus, on this issue reopening of assessment is quashed. No approval by prescribed authority - This issue is squarely covered in favour of the assessee by the decision of the honourable Bombay High Court in case of Siemens financial services private limited [2023 (9) TMI 552 - BOMBAY HIGH COURT] wherein it has been held that when the approval is required to be taken by a prescribed authority, it has to be done in the same manner. However, in view of the decision of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the above decision of the honourable Bombay High Court has been reversed; therefore, ground number 12 of appeal is dismissed. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act.2. Validity of the notice issued under Section 148.3. Merits of the addition under Section 56(2)(viia) of the Act.4. Levy of interest under Section 234B.5. Procedural lapses and adherence to natural justice.Detailed Analysis:1. Reopening of Assessment under Section 147:The appellant challenged the reopening of the assessment on the grounds of lack of tangible material and mere change of opinion. The tribunal examined whether the Assessing Officer had new tangible material that justified reopening the case. The tribunal noted that the reopening was based on the difference between the purchase consideration and the stamp duty value, which was considered as tangible material. However, the tribunal found procedural lapses, including the issuance of the notice by the jurisdictional assessing officer instead of the faceless assessing officer, rendering the reopening invalid.2. Validity of the Notice Issued under Section 148:The notice under Section 148 was issued manually, contravening Circular No. 19/2019, which mandates electronic issuance. The tribunal acknowledged this procedural lapse but noted that the issue is pending before the Supreme Court. Furthermore, the notice was issued without proper sanction from the prescribed authority, as required by Section 151. The tribunal referred to the Bombay High Court's decision in Hexaware Technologies Ltd., which invalidated such notices for non-compliance with Section 151A.3. Merits of the Addition under Section 56(2)(viia):The tribunal addressed the addition made due to the difference between the stamp duty value and the purchase consideration. It was argued that the valuation by the District Valuation Officer (DVO) was based on the seller's perspective and did not consider the buyer's improvements. The tribunal found that the DVO's valuation did not account for the buyer's improvements and the market conditions affecting the property's value. The tribunal directed the deletion of the addition, emphasizing that the valuation should consider the buyer's perspective and improvements.4. Levy of Interest under Section 234B:The tribunal noted that the issue of interest under Section 234B was consequential and dismissed it due to lack of arguments. The tribunal did not delve into the merits of this issue, as it was dependent on the outcome of the primary issues.5. Procedural Lapses and Adherence to Natural Justice:The appellant contended that there was a failure to provide an opportunity for a video conference hearing, violating the principles of natural justice. The tribunal noted that the appellant was granted an opportunity to be heard, and no separate arguments were advanced on this point, leading to its dismissal.Conclusion:The tribunal partially allowed the appeal, quashing the reopening of the assessment due to procedural lapses in the issuance of the notice and the lack of a fresh valuation considering the buyer's perspective. The addition under Section 56(2)(viia) was deleted, emphasizing the need for a valuation that accurately reflects the property's market value and improvements made by the buyer. The tribunal's decision underscores the importance of procedural compliance and fair consideration of all relevant factors in tax assessments.